Banking Staff Will Still Smile

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By Mbatjiua Ngavirue WINDHOEK Local bank employees will not be affected by new accounting rules that require banks to charge their employees the normal commercial interest rate on housing loans, according to several local banks. Bank employees have traditionally enjoyed housing loans from their employer at subsidised rates – often as low as 4-5%. The commercial banks have now moved towards introducing a system where their employees will have to pay the normal commercial interest rate paid by other customers, of around 12.75%. Many bank employees have been paying off mortgages for 10-15 years at the subsidised rates, and there was some concern about how this new development would affect them. Responding to an inquiry, Bank Windhoek said the changes came about because banks need to comply with the Companies Act and the Banking Institutions Act. Both acts require the banks to present their financial results in terms of International Financial Reporting Standards. Bank Windhoek explained that in terms of these reporting standards, all non-market related rates needed to be re-valued in order to be presented as market related rates. The staff housing loans that were previously given at low interest needed to be re-valued as well. According to Bank Windhoek, the banks felt a need to provide competitive benefit packages in order to attract staff. They therefore treated the difference between the actual interest rate charged and the market rate as a non-cash interest subsidy that formed part of the employee’s overall package. The Receiver of Revenue levied income tax on this fringe benefit, calculated as the difference between the actual rates charged and the rate of 12% as determined by the Receiver. The bank says that in order to bring the presentation of staff loans in line with International Financial Reporting Standards, it amended its human resources policy. The non-cash interest subsidy was replaced with a cash interest subsidy. Where an employee previously paid a bond instalment based on 4% interest, the employee now receives a cash subsidy and pays a higher instalment based on a rate of 12%. Bank Windhoek emphasises that despite these changes, their staff still enjoy the same take-home pay, because the cash subsidy covers the additional amount needed to pay the higher instalment. Staff members are not adversely affected as far as income tax is concerned, as the effect on the amount of tax they pay remains the same. Similarly, First National Bank said their staff would not be worse off as a result of the move towards a system of cash remuneration packages. “All the benefits that would normally be in the form of a subsidy will now be converted to cash, which will be visible on the payslips of staff members,” FNB said.