SA Banking Association says transformation should not mean loosening regulation
Transformation of the banking sector should not mean any loosening of the tight regulatory framework which has placed South African banks among the most highly ranked in the world, the Banking Association South Africa (Basa) will argue in Parliament today.
Basa’s comments, in a submission during public hearings on transformation of the financial services sector (organised by Parliament’s finance and trade and industry committees), will be made in the context of a discourse, in particular by the Black Business Council, that tight banking regulations are standing in the way of transformation.
This argument was used in the council’s opposition to the Financial Intelligence Centre Amendment Bill, which aims to tighten the scrutiny of banks over the financial transactions of prominent influential individuals in order to combat money laundering and the financing of terrorism.
“Banks are accountable for what they do with depositors’ money. To ensure that they remain true to their responsibilities and protect depositors’ money, banks are subject to a significant number of regulations. There are approximately 244 pieces of legislation banks actively monitor and comply with. This in itself makes it difficult for new entrants to enter and be successful in this industry; but it is important to recognise that, onerous as the regulation of the banking industry may seem, it is designed to protect the money entrusted to banks by workers, households, ordinary persons and owners of capital,” Basa points out in its submission. “There must not be a trade-off between transformation and the soundness of the banking sector.”
The association argues that instead of an exclusive focus on ownership, the debate about transformation should move to how a more diversified and appropriately regulated financial sector can service specific markets. An example is the funding for black industrialists, provision for which is made in the revised financial sector charter. A target of R100bn to be loaned over five years has been mooted in discussions between banks.
Basa would like this lending to be undertaken by individual banks and set against their scorecards, rather than a separate fund being created.
Basa CEO Cas Coovadia noted in an interview this week that it was “virtually impossible” for an individual or a group to acquire a large stake in a bank. Currently, the largest share (49%) of the top six South African banks is owned by foreigners, followed by mandated investment schemes, such as the Public Investment Corporation (34%). The remaining 17% is owned by all other categories of investors, including individuals.
If banks were to lend money to black economic empowerment consortiums to buy shares in a bank, this would be at the expense of more broad-based initiatives as it would mean that capital would have to be tied up. “What this actually means is that for every R10 of capital a bank uses to finance a new black shareholder, approximately R80 is removed from financing a black business. This is because banks have to reserve capital for certain types of activity,” Coovadia explained.
Coovadia said transformation had to mean the broader participation of the population in the banking sector rather than the enrichment of the few. The share of direct black ownership of banks was 26.4% in 2015.
Basa admits that progress with employment equity has been slow but points out that many other economic sectors are struggling with this. Most managers are at junior and middle level, but black representation at board and executive levels is low.
In its submission, Basa rejects the accusation that the banking sector resists transformation, pointing to the voluntary signature of a transformation charter in 2003. Most of the targets to be achieved by 2008 were exceeded.