Hamata’s Parliamentary discussion on over-profiteering by commercial banks
By Hidipo Hamata (MP) /
[This was a parliamentary contribution by Hon. Hidipo Hamata, MP (PDM), to the Motion to discuss the possibility to investigate the unethical multiple charges resulting in over-profiteering by Commercial Banks in Namibia’s perpetual colonial legacy of class and race discrimination against their clients.]
Hon. Speaker, Hon. Members, Namibia has a well-established banking system, which is controlled by legislation Bank of Namibia Act of 1997 (Act No. 15 of 1997) and the Banking Institutions Act of 1998 (Act No. 2 of 1998) and by state agencies working through the Bank of Namibia (BoN).
But let’s face it, in Namibia systemic racism and classism still bolster the racial wealth gap. It seems clear that there are systems of policies and practices that are set up in the financial and lending sector to benefit the upper class at the expense of the lower class.
According to data from the BoN, Namibian households on average spend at least 17,8% of their income on servicing loans from banking institutions.
Commercial banks have repossessed unsold residential properties valued at N$251 million in the past five years until the end of June last year.
Just recently, the director of the Legal Assistance Centre (LAC), Ms. Toni Hancox has called on the courts to consider whether homes being put up for sale are individuals’ primary residences. I must stress that this is a very important plea.
The practice of putting up for sale people’s primary residences is inconsistent with Article 8 (respect for human dignity) of our Constitution. Commercial banks will keep repossessing our people’s homes, for we know that it is not easy mounting a legal challenge against these banks.
It was further reported recently in one of the local dailies that 10 houses are listed for attachment on a weekly basis.
But we must equally not be oblivious to the fact that banks are important institutions in any market economy. Their role to act as financial intermediaries in the economy must be recognized. They transfer savings from those individuals and businesses which have incomes in excess of what they wish to consume or invest to those other individuals and businesses whose incomes are insufficient to finance what they wish to consume or invest.
By performing this role, banks promote consumption, saving, investment and growth.
Namibian commercial banks charge a wide array of fees, penalties, interest, duties and other tariffs for their services. According to a 2003 report by the Institute of Public Policy Research (IPPR), “Namibian banks are becoming steadily more dependent on this complex range of charges as a source of revenue.”
Notwithstanding it being outdated, the report still speaks to our reality today.
In 2006, Namibian consumers requested the Parliamentary Standing Committee on Economics, Natural Resources and Public Administration to investigate alleged high bank charges. They further wanted parliament to investigate how these charges have acted as a catalyst in the mushrooming of cash loan businesses.
The issue of bank charges being high was also acknowledged by then Governor of Bank of Namibia, Hon. Tom Alweendo when he stated that bank charges in Namibia are among the highest in Africa.
A report that looked into anti-competitive practices in the motor industry in neighboring South Africa revealed at the time that banks normally decided among themselves what they charged. Bank charges in South Africa were said to be amongst the highest in the world and as you know, most banks in Namibia are of South African origin.
Obviously, the issue of high bank charges is not new.
There is clear evidence that the profitability of Namibia’s banking sector is high. As lawmakers, we are therefore faced with the dilemma of whether to assist the consumer by increasing competition in the sector, or regulating prices. Both these alternatives could have their own drawbacks.
But we certainly need to assist the consumer by regulating prices.
While it remains true that banks are private businesses whose main objective is to maximise profits for their shareholders, they still need to be regulated in order to make sure they are not “stealing” from the public and as such, it is important for them to ensure a sound, stable and efficient payment system, and at the same time find ways to keep fees affordable to consumers.
To maximise profits, banks will attempt to set their spreads and fees as high as possible to more than compensate for the cost of running their operations.
Why is it easy to access car financing, personal loans, but not housing and business funding?
One would reason that the existence of other banks means that each bank is limited in what it can charge by competition and that if the prices of any individual bank are too high, customers will leave for other banks that charge less.
But this is not the case in our country as far as commercial banks are concerned.
Also, economists would argue that the best situation is generally one where competition is greatest. In such a situation, the combined economic welfare of the banks’ shareholders and the consumers of banking services is greatest.
In a more dynamic sense, competition can generally be expected to spur innovation, thereby reducing prices and increasing access.
In a country with a population of 2,672,918, the current number of commercial banks is ideal in ensuring competition prevails in the banking sector. In the situation of a developing country such as Namibia, widening access to the banking sector becomes a particularly important way of encouraging people into the modern cash economy.
Do we need any more commercial banks?
The benefits of greater competition are generally accepted. However, competition will be reduced if the banks get together to fix prices rather than to compete. In this case, the banks will benefit at the expense of the consumer of banking services and economic welfare as a whole will fall.
This is why many countries, including Namibia, have competition policies to ensure price-fixing does not take place.
Competition will also be reduced if the banks decide to target particular segments of the market for banking services or if the market is simply too small to allow more than one bank to prosper.
These factors may be particularly important in Namibia where incomes are highly unequal and where relatively few consumers are spread out over large areas.
– Mr. Hidipo Hamata is a Popular Democratic Movement (PDM) Member of Namibia’s Parliament. The rest of his contribution will be published in the next edition of Omutumwa.
