Africa-Press – Namibia. Commercial banks have decided to lower interest rates on loans by 0.25%.
In an announcement made yesterday, the Bank of Namibia said it will be reducing the lending rate spread, which was 3.75%.
Currently the repo rate is 6.75% while the prime rate is 10.50%. With the new rate adjustment, the prime rate will be 10.25%.
Earlier this year, the central bank announced it would be having a discussion with the banks to lower the spread.
The adjustment will be implemented in two phases, with the first cut of 0.125% already in effect from 30 September.
A further reduction of the same percentage is expected to take place by 31 December, bringing the total reduction to 0.25%.
“This measure narrows Namibia’s historically wide interest rate margins, making credit more affordable and easing financial pressures on consumers,” the BoN says.
Additionally, the reduction is set to stimulate economic activity and support investment.The repo rate is the interest rate at which the central bank lends money to commercial banks, while the prime rate is the base rate commercial banks charge their customers on loans.
The difference between the two is known as ‘the spread’, which has been higher in Namibia than in its regional peers within the Common Monetary Area (CMA).
The CMA includes South Africa, Lesotho, and Eswatini. Since 2010, Namibia’s spread has been at 3.75%, compared to 3.50% in the other CMA countries.
Economist Omu Kakujaha-Matundu says the adjustment is long overdue.
“By maintaining this large spread, larger than the CMA peers, the commercial banks, for the longest time perpetuated a great commercial/economic injustice.
“Three of those commercial banks from South Africa diverted from their mother companies on the spread, and it defeats any logic,” he says.
Kakujaha-Matundu says the large spread has compromised the BoN’s monetary policy.
“Both had a detrimental impact on economic growth and employment creation. Despite that, it’s better late than never. That we have arrived at this point is an action that is to be welcomed,” he says.
Economist Josef Sheehama says the narrowing of the interest rate spread makes borrowing more affordable for businesses and consumers, but does not benefit those trying to save.
He says the adjustment will most likely be more beneficial to banks, because consumers may be encouraged to apply for more loans.
“Lower interest rates make it more affordable for individuals and companies.
Banks will gain from increased loan demand, especially from growing enterprises, despite unforeseen challenges such as lower returns on bank products,” Sheehama says.
He says reduced interest rates generally benefit the economy and make it easier for people and businesses to manage their debts.
“This reduces the risk of loan defaults and bad debt by allowing the parties to restructure or consolidate their debts to improve their ability to repay.”
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