Windhoek — The reserve bank has found itself under attack from commercial banks who question the wisdom of Governor Tom Alweendo to deviate from the usual line-toeing decision on the bank rate, as well as insistence on the localisation of the banking system in Namibia.

Though in a subtle and diplomatic manner, commercial banks are not at ease with Bank of Namibia's decision to keep the bank rate at 10,5 percent, against South Africa's 12 percent, saying it is below the inflation bracket and is most likely to lead to capital outflow in search of higher yields elsewhere.

They further say the localisation of the banking system is not in harmony with the Southern African Development Community (SADC)'s stance on regional integration and will increase costs that will have to be passed on to consumers.

However, Alweendo and team are standing their ground, insisting that the decision to keep the Namibian bank rate unchanged is in line with their belief that the economic upswing is near, and there are indications that global demand has started to taper off hopefully leading to a decline in certain commodity prices.

Moreover, says the Assistant Governor at the Bank of Namibia Ipumbu Shiimi, the localisation of the banking system will enable the reserve bank to properly manage operational risk.

This week the Chief Executive Officer of First National Bank (FNB) Namibia Holdings, Vekuii Rukoro, said they are "watching with keen interest [the current monetary stance], closely monitoring the interest rates to determine our appetite in this regard."

First National Bank is the second bank to publicly air its concerns on bank rates after Capricorn Investment Holdings, the holding company of Bank Windhoek, who question Bank of Namibia's decision in one of its newsletters.

"We would see how long this [monetary stance] would be tenable especially for the bank's financial sustainability going forward," said Rukoro.

Approached for comment, Bank Windhoek's Senior Manager for Marketing and Corporate Communication Services, Marleze Horn, said: "In South Africa, a practice exists that the banks should set the prime rate at a level of 3,5 percent above the central bank repo rate."

Such a practice does not currently exist in Namibia.

"The technical methodology applied by the Bank of Namibia in setting a 2 percent penalty rate above the repo rate on banks makes a comparison between the local and South African practices very difficult," said Horn.

One of the main reasons banks are uncomfortable, it seems, is that the Namibian bank rate is below the inflation rate now hovering at 12 percent as of July.

FNB's group economist, Daniel Motinga, in the newly released FNB Annual Report 2008, says this hints that the Bank of Namibia is more concerned about growth than inflation at present.

"With oil prices hovering around the US$140 [around July 2008] and the exchange rate sliding towards N$8 per US dollar, there will be an increased pressure for more contractionary monetary policy and higher interest rates to deal with inflationary expectations," said Motinga.

FNB Namibia Holdings further said the localisation of the banking system will have material cost implications and must be managed to cautiously avoid risk.

Rukoro asked whether such a requirement is in line with SADC protocol on regional integration, "creating our own little kingdoms".

In his response, Shiimi said the Bank of Namibia would like banks to localise their core banking systems, because as part of its oversight function, it needs to regularly examine the operational reliability of the operational infrastructure of banks, checking the management of operational risk.

"We will not be in a position to do this properly if the systems are in a different jurisdiction. Because some banks are keeping data and systems outside the country, it has been at times difficult to get data/information needed for effective supervision. We do not expect it to lead to an increase in charges. Two of the commercial banks have already localised their systems successfully and their bank charges are not necessarily higher," said Shiimi.