SA Banks need reigning in or the poor will continue to suffer
A few weeks after the credit rating downgrade, we have seen the Rand been picked up. Despite criticism of this phrase, government and hopefully the private sector has been working hard to ensure that the Rand recovers against the dollar; and it has done so.
Ashburton Investments, for example, suggests that the strengthening of the Rand and South African bonds yielding close to 8% indicates the positive outlook that domestic and foreign investors have had to our country’s economy despite the downgrade. The Rand has “recovered significantly”, says Ashburton Investments; confirming that the Rand is being ‘picked-up’ after all. For this is how currency markets work, they appreciate and depreciate all the time.
Ashburton goes further to suggest that foreign investors in particular, given the cheapest valuations in comparison to other emerging economies in the last 6 years, have been purchasing South African banking stocks.
It is therefore incorrect to suggest that it is solely the responsibility of government to get us out of the junk status but even more so it is foolish to suggest that it is only government, and the cabinet reshuffle, that got us the credit rating downgrade in the first place.
The significant role that banks play in the recovery of investor confidence and specifically the currency is paramount. Yet our experience as South Africans with our banks has not necessarily inspired confidence with ordinary South Africans; never mind foreign investors. For example, South African banks are known to be among those who charge the most for bank charges and interest on loans; despite the interest rate set by the Reserve Bank.
BusinessTech, an online source for business news, recently indicated that for a 100 thousand Rand loan at Capitec, a bank used by poorSouth Africans because the bank is known for its low bank charges, the client would need to pay at least an extra R92 000 in addition to the loan repayments. This over a 5-year period. In other words, people, often the poor, are paying back nearly 100 percent of what they loan through interest and service charges.
If our banks aim to win global investor confidence they must start with winning the investor confidence of locals.
But this gross repayment on a loan, which holds the potential of limiting experimenting in small businesses and economic opportunities, makes sense after the release of the top banks integrated reports made public recently.
Overall, despite the doom and gloom portrayed by some quarters, the reports indicate that South Africa’s major retail banking sector remains upbeat and able to be resilient despite the political vicissitudes.
Unfortunately, despite their resilience the banks seem to contribute to the vast inequality in the country yet being at the very coldface of economic opportunities to clients. In other words, Capitec’s payment of its CEO, Gerrie Fourie, a whopping R35 million in 2016, up from R20 million in 2015 makes immoral sense while charging a client 21% for a mere loan of R100 000.
BusinessTech continues to report that the big 5 spent a total of R783 million, that is more than three-quarters of a billion Rands, paying only 30 people in the sector. On average that means, each executive was paid R23million for 2016 which would include 6 CEOs.
However, the salaries of CEO’s total a third of this figure with CEO’s being paid, among the 6 of them, R253 million averaging at R42 million per CEO; an increase of R9 million within the year from 2015. An increase average of 23%, one finds this hard to believe when workers are fighting simply to get increases in line with inflation.
Sim Tshabalala and Ben Kruger, CEO’s of South Africa’s largest bank Standard Bank with approximately 12 million accounts, had the largest salary increase at 45% going from R30 million in 2015 to nearly R45 million. An estimated 16 times the size of salary of the President of the Republic. In other words, Standard Bank paid two CEO’s a total of R90 million in 2016.
FirstRand’s, Size Nxasana, earned the highest salary at over R62 million for 2016 while Maria Ramos, from ABSA, earned the least among the 6 at a measly figure of just over R29 million. Nedbank’s, Mike Brown, the sixth, earned over R36 million.
Given then that it is the responsibility of both government and the private sector to get us out of our current credit rating status, it isimportant that we understand the opinion given by Standard and Poor’s when they announced the downgrade. While they were explicit that they could not provide a rating to the banks better than that of the national sovereign rating, theywent on to suggest that in 2016 the average return on assets improved by 0.2 percent and total capacity adequacy increased by 1.5 percent. Anticipated credit losses were pitched at 0.8-1 percent by 2017.
Therefore, given the current trajectory of a strengthening Rand and the acquisition of bonds, the question becomes whether the banks will be able to harness this investor confidence, especially local investor confidence, so as to encourage radical economic transformation or whether it will maintain exuberant interest rates, put pressure on small to medium enterprises and thus choke disposable income in order to service debt.
The reality is that our local banks do not inspire confidence in the local market. Never mind, the hefty charges, high interest rates, exorbitant salaries to top management, we have had to witness the collusion of the national currency and those responsible getting away with delayed justice.
An unbelievable amount of 18 banking entities were being dealt with by the Competition Tribunal while the tribunal insisted it had strong evidence against them. In recent weeks, more evidence is said to have been ‘piling up’ against while we have yet to hear from the National Prosecuting Authority on whether they will act against these financial institutions.
It was Henry Ford who articulated: “it is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolt before tomorrow morning.” If people thought that the public sector was secretive, they have not seen how secretive and collusive the private sector, especially in our country, can be.
The question is what and how will government address these issues?
Bernard Joseph is the Chairperson of the EFF in the Western Cape