Regional Cooperation on Banking Regulation – Why is it needed?

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Commercial banks play a vital role in the economy, since they facilitate the flow of savings from an economic actor to another economic actor in need of additional financial resources.  The need for financial resources can arise from investment opportunities for businesses, but also for private households for instance for acquiring an asset such as a house.  Households and businesses often also need short-term bridging funds to improve their cash flow or to cater for unforeseen events.  Since banks work with the funds of their depositors, depositors want to be assured that they will receive their deposits back when needed.  Therefore, effective regulatory and supervisory systems need to be in place in order to ensure the trust and confidence of the public into the banking system.  The central bank is the supervisor of commercial banks and responsible for the necessary regulatory framework.  However, commercial banks also play additional roles, namely to convey the monetary policy decisions of the central bank to the economy at large for instance by adjusting the interest rate levels in line with the central bank’s setting of the interest rate.

While it is important that citizens have trust and confidence in the domestic financial system, this is even more important at the regional and international level concerning financial systems in other jurisdictions.  Without this level of trust, intra-regional and international trade in goods and services will be hampered, since there is always flow of funds associated with trade transactions.  In order to increase cross-border trade and its impacts, it is not only trust in the financial system in another country is required, but also effectiveness and efficiency of financial systems.

The SADC Member States have therefore agreed in Annex 8 of the SADC Protocol on Finance and Investment on the cooperation and co-ordination in the area of banking regulatory and supervisory matters.  The Annex stipulates that Member States should harmonise the supervisory and regulatory systems across the region based on internationally accepted principles, such as the so-called Basel principles of the Bank for International Settlement.  The SADC Committee of Central Bank Governors has established a sub-committee on banking supervision that is tasked with the implementation of and with monitoring and evaluating the progress of implementation, amongst others.

The Monitoring and Evaluation system for the implementation of the SADC Protocol on Finance and Investment contains four areas concerning the cooperation in Banking and Regulatory Supervision.  Namibia through the Bank of Namibia has fully achieved three of these areas and one partially.  The Bank of Namibia is compliant with the 25 Core Principles of Basel II, but is currently implementing another four core principles.  Furthermore, the central bank planned to implement the Capital Adequacy Framework of Basel III – the latest international regulatory framework with more stringent conditions – by 2017, which will become effective by 2021.

Namibia is also a member to ESAAMLG, the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) and all banks are compliant with international accounting and disclosure standards as laid out in the International Financial Reporting Standards (IFRS).  These two commitments were initially included in Annex 8 of the FIP, but anti-money laundering has been added as Annex 12 to the protocol in August 2011, and it is expected that the cooperation in accounting standards will soon be added as Annex 13 to the protocol.

The Bank of Namibia has in the past year partially achieved the commitment on the annual self-assessments.  These self-assessments are conducted in order to evaluate the compliance of the central bank with international standards.  Previously, the self-assessments were carried out every second year and the latest end of 2014.  However, the central bank is currently undertaking an update of the self-assessment with a particular focus on the four additional core principles.

*Festus Nghifenwa is the SADC FIP Implementation Coordinator at the Ministry of Finance.  He can be contacted for comments and further information by email: info.sadc-fip@gov.mof.na.  This article is the eighth in a series of 12 articles on the SADC Finance and Investment Protocol.

 

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