THE Bank of Namibia spent much of 2013 providing cautionary notices and warnings to the public against pyramid schemes and other lottery scams, all aimed at syphoning money from unsuspecting members of the public. Yet this has apparently not deterred the introduction of new schemes that keep propping up as the old ones are exposed. The trend seemed to be continuing this year with fresh warnings about new schemes already. The public, it appears, does make for an easy prey as many people search for additional income or are in pursuit of quick wealth. New Era spoke to Ndangi Katoma, the Director for Strategic Communications and Financial Sector Development at the Bank of Namibia on how the bank intends tackling the problem this year, including the topical issue regarding the Namibianisation of the local banking sector, as well as on regulatory matters.
New Era (NE): What plans does the Bank of Namibia have to effectively combat the formation of new pyramid schemes and money making or lottery scams that keep cropping up and to educate the public against such schemes?
Ndangi Katoma (NK): As per the provisions of the Banking Institutions Amendment Act, 2010 (Act No. 14 of 2010) (the Act), the bank has been combatting and taking action against illegal schemes in Namibia. The bank further has embarked on a process of amending the Banking Institutions Act No. 2 of 1998 as amended, part of this process being to enhance and strengthen the legal provisions relating to illegal schemes in the Act. The Banking Institutions Amendment Bill is expected to be tabled in parliament in 2014. In line with the proposed amendment, the Bank of Namibia is in the process of crafting a multi-faceted strategy on detecting and combating illegal schemes. A key component of this strategy is public education.
NE: Is the bank finally prepared to undertake practical actions, such as prosecution and/or fining the culprits, the founders of such schemes, as it has previously threatened?
NK: Since the enactment of the Banking Institutions Amendment Act, 2010 (Act No. 14 of 2010), the bank has in fact been in a position to take tangible actions against illegal schemes in Namibia. This is demonstrated by our previous and recent applications to the High Court, in terms of section 7 (2) of the Act, for the winding-up of the following entities previously pronounced to be pyramid schemes: Penta Stream Investments CC, Gold Prime Investments Namibia CC and U-Care Marketing Namibia CC. The bank’s decision to pursue legal action was prompted by the failure of the aforementioned entities to fully comply with its directive, in terms of section 7 (1) of the Act, to repay all monies illegally obtained from the public. Consequently, the High Court issued a provisional liquidation order against the aforementioned entities.
NE: With respect to the Namibianisation of the banking sector, is 2014 the final deadline for the complete Namibianisation of the banking sector, i.e. localised banking systems, part-ownership of banks, skills development for staffing, or is Bank of Namibia going to allow banks another year to get their ducks in a row?
NK: In line with the national aspirations articulated in the Namibia Financial Sector Strategy, the Banking Institutions Amendment Bill addresses ownership issues in the Namibian banking industry through a number of proposed restrictions on foreign shareholding in banking institutions. Once the Bill, which is expected to be tabled in parliament in 2014, is enacted into law, foreign ownership in Namibian banking institutions will be limited to a specified maximum. With regard to the localisation of banking systems, the Bank of Namibia has issued the Determination on the Localisation of Core Banking Systems (BID-19) under section 71 (3) of the Banking Institutions Act No. 2 of 1998, as amended, which became effective on 11 August 2008. Banking institutions were since requested to formulate and submit project plans to the central bank for ensuring compliance with the determination. All four banking institutions in existence at the time have now localised their key IT systems. When it comes to skills development for staffing and succession planning, the bank is in the final stages of developing a regulation relating to the citizenship and Namibian residence statuses of directors and executive officers of banking institutions. This regulation is expected to become effective in 2014.
NK: Is the Bank of Namibia satisfied with the pace of Namibianisation of the banking sector?
EH: The central bank is working together with the banking sector and in line with the objectives of the Namibia Financial Sector Strategy on this issue to ensure that there are concerted efforts to increase local ownership and employment of Namibian nationals in executive management positions in Namibian banking institutions. This is furthermore some of the issues included in the Banking Institutions Amendment Bill to be tabled in 2014.
NE: Let us talk about the capital outflow and local banks borrowing from head offices in South Africa as opposed to borrowing from the central bank. What programmes does the Bank of Namibia have in place to encourage capital re-investment or to manage capital outflows from the local banking sector, and about local banks borrowing more from the central bank and not from their parent companies in South Africa?
NK: With regard to capital outflows, these are mainly in the form of investments of institutional investors such as pension funds, long-term insurers and unit trusts. These investors invest outside looking for better returns and diversification of their asset bases. The government is however in the process of amending the applicable regulations with a view to reducing the outflow of capital. As pertains to borrowing by commercial banks from their parent companies and the Bank of Namibia, the bank has facilities in place to accommodate the liquidity needs of the banking industry, however the institutions are often structurally cash flushed, or highly liquid and rarely need to utilise these facilities. Banks are also free to borrow from any other parties, including their parent companies, as long as they remain within the Single Party Exposure limits mandated by the Bank of Namibia. The Namibian Financial Sector Strategy is one of several programmes the bank is involved in to deepen and develop the local financial market. This will aid in retaining more investment flows in the country over the longer term.
NE: The Bank of Namibia has expressed slight concern on numerous occasions last year, over high private credit levels among consumers and the inherent risks that come with it. How is the central bank planning to address this specific concern or mitigate the threat in the coming months?
NK: The central bank has noted with concern the continued growth in instalment credit, particularly to individuals, since such credit extensions tends to be non-productive and only increases the debt burden and debt servicing costs of households. The bigger portion of instalment credit extended is mainly for instalment financing, specifically for purchases of vehicles. As earlier stated, this calls for a targeted intervention in order to limit the growth in credit extension. This entails reviewing the regulatory framework in the consumer credit market through the updating and enforcement of the Credit Agreement Act, No 75 of 1980. The Ministry of Trade and Industry as the administrator of the Act has already started to look into enforcing compliance with the Act by credit providers as recently published in the media. This, we strongly believe will help curb the observed growth in credit extension and prevent further household indebtedness.