The Role Of Banks In Creating A Competitive Economy

Banks play a pivotal role in shaping and sustaining a competitive economy, serving as the backbone of financial systems worldwide.

They function far beyond the traditional roles of lending and deposit services and, instead, are catalysts for economic growth and stability.

Banks are synonymous with entrepreneurship, innovation and technological advancement, all while playing an important role in national and global economies.

The banking landscape in Namibia – much like everywhere else in the world – is highly regulated to ensure the integrity and stability of the country’s financial system.

All banks must obtain a licence prior to operating and this process is regulated by the Bank of Namibia (BoN).

Licenced banks currently operating in Namibia include Bank Windhoek, First National Bank of Namibia, Nedbank Namibia, Letshego Bank Namibia, Trustco Bank, Bank BIC, Atlántico Bank, Absa Bank and Standard Bank Namibia.

While some banks are licenced to conduct full banking business, others are only authorised as representative offices or branches of foreign banks.

The fundamental importance of banks to the growth of a country’s economy lies in the fact that economic growth is always underpinned by financial intermediation, which is the taking of deposits from depositors and lending these deposits to borrowers.

This is the role banks play in any given society.

Banks as depositors

Banks provide consumers and businesses with the convenience of safeguarding their cash; accessing cash as and when they call for it (including online platforms); providing them with investment products that offer attractive returns; and providing many value-added services (depending on the bank).

A banking client’s deposits with the bank will always be payable on demand, unless they have invested in a long-term product, in which case the deposit, plus interest, will be payable on the date of maturity of said investment term.

Banks as borrowers

Given that for most people, accumulating enough money to buy a house, start a business or pursue education, is challenging, financial institutions become crucial facilitators of personal and economic aspirations.

They also play a pivotal role in the facilitation of many individual investment decisions, which then helps grow the country’s economic sectors.

Businesses borrow from banks to expand their operations or invest in new ventures, which creates new jobs and assists the country’s industrialisation efforts and international competitiveness.

As the economy grows, so does the prosperity of the citizens of that country.

Money creates money

By holding reserves as mandated by the law, banks keep a certain amount of money aside and lend out the rest, generating more money through loans.

This newly created money is then used to purchase additional goods and services.

The additional funds generated are deposited back into the banking system and a portion of it is then on-lent again, which creates new money, thus having a compounding effect.

Banks play an important role in the facilitation of the monetary policy as set by BoN, to achieve economic growth by monitoring inflation.

While the monetary policy is set by the central bank, banks facilitate the flow or distribution of money in the markets.

Banks and job creation

It is estimated that over 6 000 Namibians are formally employed by banks in various roles and, as a result, many families directly and indirectly depend on those formally employed by banks.

Banks also contract various service providers to provide various services, such as cleaning, IT, security services, catering, legal and medical services, among others.

This means that the impact of the banking sector extends beyond just the individuals directly employed by banks.

The employment opportunities and service contracts create a favourable ripple effect, positively influencing the livelihoods of a broader segment of the population.

• Brian Katjaerua brings a wealth of expertise to the table as a non-executive Director. His career in the industry spans more than 25 years. Brian’s expertise lies in the areas of banking, dispute resolution, risk management, strategic planning and legal advice. With a degree in business development from the University of Stellenbosch, he has proven himself as a formidable business development professional. Currently, Brian is the chief executive of the Bankers Association of Namibia (BAN) where he oversees the execution of Bankers Association’s mission of promoting a stable and efficient banking system and providing a forum for its members to discuss issues of mutual interest. Brian plays a key role in providing members with the information and resources they need to excel in their respective roles and navigate the complexities of the banking landscape effectively. Brian recognises the importance of maintaining a healthy work-life balance amidst his professional endeavours.