Probing banking fees could deter investment

The proposed regulation of banking fees and charges could deter investment, analysts at Simonis Storm say.

Member of Parliament (MP) Veiko Nekundi submitted a motion to discuss the possibility of investigating overcharges and unethical multiple charges by local commercial banks resulting in over profiting.

According to Simonis Storm, the motion can be seen as a positive step towards promoting fairness and transparency in the banking industry. However, it may also create uncertainty and hesitation among investors who may view the investigation as a negative development for the industry.

Commenting on whether commercial banks should do more in investing in corporate social responsibility initiatives, Simonis Storm notes that banks have a responsibility to act ethically and responsibly, not only to their customers but also to society. “Corporate social responsibility is an important aspect of modern banking. We all can always do more, but giving should always be a voluntary action.”

Whether allowing more competitors in the market will help reduce banking charges, Simonis Storm said more competitors can lead to increased competition and potentially better services and pricing for consumers. However, it is important to balance this with maintaining a stable and secure banking industry. Regulation and oversight can play a key role in ensuring that new entrants are adequately capitalized and able to meet regulatory requirements, Simonis Storm said.

Stability

Meanwhile, according to the Financial Stability Report launched last week, profitability in the banking sector in 2022, which is regulated by the Bank of Namibia, improved to beyond pre-pandemic levels.

The banking sector’s profitability as measured by returns on assets and on equity ratios improved significantly, from 1.8% to 2.4% and from 14.3% to 19.8%, respectively, during the period under review .The pre-pandemic averages were 2.0% for return on assets and 17.6% for return on equity. These positive developments were ascribed to net income increasing by 14.3% year-on-year.

Although both interest income and non-interest income contributed to overall banking sector profitability, interest income was more prominent. This is to be expected given the extent to which the prime lending and other lending rates increased during the review period; deposit interest rates, on the other hand, take more time to catch up since fixed and notice deposits do not reprice immediately. The banks remained profitable in 2022 despite sluggish demand for credit, signalling a healthy and resilient banking sector with scope for more risk-taking, the report reads. Last year, the Bank of Namibia increased the repo rate by 300 basis points.

Year to date, the Bank of Namibia increased the repo rate by 50 basis points from 6.75% to 7.25%. The prime lending rate currently stands at 11%. Local analysts expect another 25 basis points hike at the next monetary policy announcement in June.

Non-banking

Moreover, the non-banking financial institutions (NBFI) sector remained resilient in 2022.

However, NBFI assets contracted by 1.2% to N$366.1 billion, coinciding with negative financial market performances over the first three quarters of 2022, the report reads.

The sector is expected to remain solvent in the short- to medium-term, with its net assets expected to robustly absorb adverse asset side shocks. Risks inherent in NBFIs include inflation and its impact on the affordability of NBFI services, particularly medical aid funds, long- and short-term insurance, and market risk and its impact on the asset side.

Overall, the Namibian financial system, which is made up of the banking and non-banking sectors as well as the payment system and infrastructure, continued to be sound and resilient throughout [email protected]