Namibian authorities’ move to licence two banking institutions to operate in the country over the past few months signal an opening up of the financial sector and rousing of Namibia’s seemingly sleepy financial sector into competition, better product and service delivery, analysts have said.
Namibia’s banking sector has been traditionally driven by four commercial banks, most of them with their roots in South Africa, which all appear to have concentrated their efforts in tapping the urban markets.
In fact, calls by Namibia’s central bank and government for the South African headquartered banks to localise their operations seem to have fallen on deaf ears, with the commercial banks arguing that the move is too costly.
Namibia has a vibrant banking sector all characterized by varying degrees of foreign ownership. The country has four commercial banks, Standard Bank Namibia, FNB Bank Namibia, NedBank Namibia and Bank Windhoek, which is largely owned by local investors.
The Bank of Namibia last year issued a provisional banking licence to Absa Bank of South Africa, which is however yet to roll out its operations in the country. Absa early this year said it had set up a local representative office but appear to be hesitant to roll out operations because of the global economic slump.
A week ago, BoN said that another operator, PlatinumHabib Bank Namibia (Bank PHB Namibia), had been granted a provisional license which is valid for six months. Bank PHB Namibia is a wholly-owned operation of Bank PHB Plc, one of Nigeria’s fastest growing financial institutions.
“Bank PHB Namibia will operate as a full fledged retail bank and is owned by various shareholders, including PlatinumHabib Bank Plc Nigeria and Namibian shareholders. They envisage establishing multiple distribution channels across Namibia,” BoN said. Bank PHB plc Nigeria has an asset base of around US$4 billion.
Analysts said Friday that Namibia’s banking sector is not equally developed across the country. Scarce access to credit and banking services prevents people in rural areas from reaching their full economic potential.
The four commercial banks in Namibia have largely shunned the rural areas. Financial mediation is very uneven across the country, and scarce access to credit and banking services is discouraging robust entrepreneurial activity.
Two government-owned banks, the Agricultural Bank of Namibia (Agribank) and the Development Bank of Namibia (DBN), offer subsidised credit to emerging farmers and budding business enterprises but their scope is very limited, analysts said.
“The BoN is now trying to open the market to limit the power and market dominance that these four banks currently enjoy,” said a local economist who declined to be named.
The analyst noted that local banks operate like a ‘cartel’, judging by their pricing mechanisms and product availability. The analyst added that there is no competition among local commercial banks, which have largely been using a uniform interest rates.
The move which might have necessitated the central bank to open up the market to more players could include haggling over localisation of operations and the interest rate spread.
The central bank has reduced rates by about 350 basis points since the beginning of the year, and has been urging seemingly reluctant commercial banks to filter down the rate cuts to consumers.
The BoN’s benchmark rate is currently at 7 percent but consumers are forking out four times more on interest rates to commercial banks. The spread between the repo rate and the bank is about 475 basis points.
“Looking at ultimate product pricing and availability, it has long been observed commercial banks are colluding, everything is the same. They are not actively competing and they (banks) are not helping in availing products to consumers,” the analyst said.
He added that Bank PHB Namibia might be seeking to close the gap which is being left by the traditional banks, but warned that it was not going to be rollercoaster ride.
“Its not going to be easy. Absa might have realised that they might have problems fighting for retail space and for Bank PHB, they have to come in with cheaper products,” the analyst said.
But given that the parent bank in Nigeria is one of the biggest players in the market, the new operator might revolutionise the Namibian market.
“One of the options available to them is to enter through Windhoek but concentrate on the northern parts of the country. Namibian banks have been ignoring the greater part of the country. If they (Bank PHB Namibia) can reach out to the masses and really bank the unbankable, they might be able to kick up a storm,” the analyst said.