The Minister of Finance and Public Enterprises, Hon Iipumbu Shiimi introduced the Banking Institutions Bill in parliament on Monday to revoke the Banking Institutions Act, 1998, as amended.
The new version of the act will address various shortcomings to ensure that banking institutions are effectively regulated.
Shiimi stressed that the banking regulatory framework must be responsive to people’s needs and pointed out that due to this, they drafted the Banking Institutions Bill as required by international standard-setting bodies like Basel Core Principles for Banking Supervision, the Financial Sector Assessment Program of the International Monetary Fund and the Financial Action Task Force (FATF).
He noted that the World Bank’s 2018 Financial System Stability Assessment for Namibia highlighted severe flaws in the Banking Institutions Act such as a lack of adequate stabilization powers for the Bank of Namibia to deal with failing financial institutions.
Meanwhile, according to a five-year-old International Monetary Fund analysis, Namibia’s level of financial inclusion compares positively with peer nations, although a sizable portion of the population remains excluded from the official banking sector.
According to the minister, the assessment also found that the fit and proper assessment undertaken by the central bank on directors and shareholders of banking institutions has to be improved. Shiimi said this in the National Assembly this week during his tabling of the Bill.
Another significant flaw in the Act is the lack of a definition of beneficial owner in the context of banking institutions, as recognized by the latest FATF/ESAAMLG Mutual Evaluation in 2021, he added.
“The Ministry of Finance, in collaboration with the Bank of Namibia, drafted the Banking Institutions Bill to address these deficiencies and, amongst others, introduce the regulatory framework for microfinance banking institutions to enhance access to financial services; enhance the Bank of Namibia’s powers to resolve failing banking institutions; introduce the optimal level of local and foreign shareholding in banking institutions; introduce the requirements relating to recovery plans of banking institutions; and clarify the provisions relating to illegal financial schemes,” he said.
Highlighting the main provisions of the Bill, the minister remarked that Section 1 of the Bill deals with definitions to clarify the concepts, one of which is the definition of a ‘beneficial owner.’
“The current Act does not have provisions relating to the beneficial owner. A definition of the beneficial owner is necessary to ensure that the natural persons who are beneficial owners of banking institutions are subject to fit and proper assessment to determine their fitness to hold shares in a banking institution,” he noted.
Said Shiimi: “The current Act does not have any restrictions on foreign shareholding concerning banking institutions. It is a stark reality that all but two of the eight banking institutions have majority shareholders of foreign origin. In line with our national aspiration of local empowerment, a desirable blend of local and foreign-owned banking institutions is required to ensure the socio-economic development of Namibia.”
“One of the lessons learned from the global financial crisis is that there should be regulatory standards in place to make banking institutions more robust and reduce the risk of failure in the future. One such standard is the requirement for banking institutions to have recovery plans (i.e., “living wills”) demonstrating how the institution would be resolved in a rapid and orderly manner in the event such an institution experiences material financial distress or failure. In line with international best standards, the Bill, introduces a requirement for banking institutions to maintain recovery plans.”
The minister added that it is noted with concern that these foreign parent companies interfere in the governance and management of local banking institutions, which negatively affects institutional independence and national economic development because commercial decisions are made in favour of foreign interests rather than national interests.
It is proposed that the powers of banking institutions’ Boards of Directors be strengthened to ensure their independence in executing their fiduciary duties, according to Shiimi.
Moreover, he indicated that the Bank of Namibia received numerous complaints from members of the public regarding the exorbitant fees charged by banking institutions.
“As the regulator of banking institutions, the Bank must ensure that the fees payable by customers for services rendered by banking institutions are determined in the public interest and are commensurate with the cost incurred in providing those services to the customers. Therefore, it is proposed that the Minister be empowered to make regulations relating to charges imposed by banking institutions on their customers.”
“The Bank does not have adequate powers to deal with banking institutions that are conducting their businesses in contravention of the Act, or a manner detrimental to their customers. These weaknesses were revealed during the crisis simulation exercises and the SME Bank case in 2017.
“Therefore, it is proposed that the powers of the (Central) Bank regarding banking institutions be enhanced to, among others, empower the Bank to suspend or remove directors or executive officers of banking institutions through an order, particularly in circumstances where such directors or executive officers are suspected of conducting illegal activities which are detrimental to the banking institutions,” Shiimi said.
“The effective date for the commencement of this Bill will be upon publication in the Government Gazette.”
Leave a Reply