Unless banks transform, black South Africans will remain on the margins of our economy
Parliament’s standing committee on Finance and the Portfolio Committee on Trade and Industry recently completed its very first report on the transformation of the financial sector.
This followed extensive public hearing on the transformation of the sector. The Committees received 62 submissions from a wide range of stakeholders including government departments, regulatory and other statutory agencies, industry bodies, business, labour, civil society, political organisations and individuals. 53 of these stakeholders made oral submissions to the joint sittings.
While the committee noted that gains had been made since 1994, “the sense they have is that there is still significant space for further transformation.”
These committees work within certain regulatory frameworks and their recommendations are used in formulating legislation. Their findings follow various public hearings and, among others, the constituency work of Members of Parliament.
The committee recognized the fact that the main banks in South Africa – Absa, Standard Bank, FNB and Nedbank – operate in a global environment. The committee, however, and rightly so, points out that the government and Treasury was doing far too little to change this imperative and that because of this South Africa’s goals of transforming the economy has been retarded.
The government should and must redress this imbalance and this first report needs to be built on. It is encouraging to note that the committee has committed to table annual reports on transformation in this key sector.
But they need to impress on the industry and the government that South Africa’s developmental goals are a non-negotiable and that whatever is needed to take the country’s economy forward is a non-negotiable.
Aside from the government, these financial institutions have for too long put profit before people and in many cases begrudgingly pay lip service to their moral obligation to assist government in providing a more meaningful contribution to this country’s growth.
Some of them did extremely well under apartheid and even better after the advent of democracy 23 years ago.
The time has come for them to literally put their money where their mouths are. This doesn’t mean just having a few black faces or black women on their boards. Perhaps, as is suggested by the report, what South Africa needs are more black owned banks, run by black financiers who understand what the country needs holistically, rather than just making sure shareholders are happy.
The committee noted: “Co-operative banks and financial institutions controlled assets of R279 million. This was very low compared to elsewhere in Africa and globally.
There has to be a deliberate policy position on co-operative banking which will entail government taking a firm stand on co–operative banking as a tool for financial sector transformation. A National Co-operative Banking Strategy needs to be developed. A National Co-operative Bank, as well as a Co-operative Bank for government employees and public representatives, is necessary.”
In essence, what the committee is saying that the established banks and their hold on an established customer base needs to be shaken up, but more importantly that alternative sources of finance need to be introduced into a market where access to finance or capital can be extremely difficult if not impossible.
Taking from its 30 November 2016 Report on the Bill, the committee noted: “The committee recognises that the main banks in South Africa function in a globalised financial system and that there are imperatives for the country to meet the requirements of global standards on the financial sector set by multilateral institutions in which South Africa participates.
“However, the committee believes that National Treasury and government in general shape policies and Bills too much on the basis of these standards and too little on the specific requirements of the country. Some of these standards could serve to undermine the goals of economic and social transformation in the country and exacerbate the race, class, gender and other inequalities.”
Despite the economy not being in the greatest shape currently, it is worth nothing that South Africa’s financial sector is highly regarded globally as well-developed and sophisticated. In the 2016 World Economic Forum’s Global Competitiveness Report, South Africa is ranked in the top 10 countries on efficiency, trustworthiness and confidence, availability of financial services, and the regulation of security exchanges, the report noted. This is based purely on how it has been doing business for many a decade and while plaudits are nice, how has their effectiveness at that level impacted real change in this country’s socio-economic landscape.
“Credit providers should provide a new range of products for building materials in order to promote access to affordable housing for low-income earners. This should be targeted at new customer segments which were previously excluded such as low-income families and micro businesses operating in villages,” said the committee.
The report also pointed out that overall, less than 10 percent of credit of any type is granted to rural areas, less than 40 percent to women, and less than 50 percent to historically disadvantaged persons. 89 percent of mortgage loans were granted to individuals with an income of R15 000 per month or more, with only 11 percent going to those who earn less than R15 000 per month. 57 percent of unsecured credit was granted to people with an income of R15 000 per month and above, while 43 percent was granted to those with an income of less than R15 000 per month.
“Banks and other credit providers should undertake Corporate Social Responsibility (CSR) initiatives that are targeted at promoting women-owned businesses. Their CSR should also develop home loan products for rural areas and seek to improve the livelihoods of communities they operate in, such as funding for schools and clinics in rural villages, as is done by the Commercial International Bank in Egypt,” said the report.
The committee was left somewhat bemused that the statutory bodies that appeared before the committees were more focused on making excuses rather than explain what they were doing or going to do to transform the financial sector.
“While recognising the resource and capacity constraints of some of them, the Committees believe that in general the statutory bodies are not as effective as they should be. The National Treasury and Department of Trade and Industry need to support them more and exercise more effective oversight over them, as must the parliamentary committees.”
It is clear from this that more government oversight is needed as these institutions clearly go through the motions and for them it is pretty much business as usual. To completely paraphrase a popular struggle slogan, no normal economy can thrive in an abnormal situation, especially where so few hold so many cards.
Kashief Wicomb is the National Deputy President of the Progressive Professionals Forum