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Uncertainty reigns over banks’ transformation targets

Fin24 / Sep 19 2017 13:54 / Natalie Greve

Minister of economic development Ebrahim Patel has moved to calm rattled bankers who fear that the Financial Sector Charter (FSC) could go the way of the Mining Charter and further oblige banks and financial services institutions to radically accelerate the pace of transformation in the R4.8tr industry.

Addressing the Banking Association of South Africa’s (Basa’s) Banking Summit in Johannesburg on 15 September, Patel said that government’s transformation policy demands would not necessarily sound the death knell for growth in the financial sector.

Cas Coovadia, MD of the Banking Association of South Africa (File, Supplied)

“[Transformation] policies are not cast in stone, but they also can’t keep chopping and changing. "People must be able to determine the direction of the change and there needs to be evidence-led policy changes. We need to address the issue of ownership and inclusion [in the financial sector], but this can be done in a growth-friendly way,” he commented. According to the Financial Sector Charter Council, at the end of 2015, black economic interest in the financial services sector amounted to just under 24%, down by about one percentage point on the previous year. The department of trade and industry said it didn't have “appropriate” data to measure transformation within the industry. Earlier this year, the standing committee on finance & portfolio committee on trade and industry heard several public submissions as to the efficacy of the FSC, many of which stated that there was little compliance with sections of the charter that stipulate BEE good practice. The committee’s resultant draft report recommends strong penalties against institutions not adhering to the charter’s BEE provisions. Yunus Carrim, joint chair of the hearings into the transformation of the finance sector in Parliament, appealed to the members of the banking fraternity to enhance their level of voluntary observance to BEE objectives. “Banks must engage on their own, without the prodding of government. While transformation is more on the agendas of banking CEOs than ever before, time is running out,” he remarked at the summit. But Argon Asset Management economist Thabi Leoka argued during a spirited panel discussion that this would be challenging, as there had yet to be a consensus reached on the actual definition of “transformation”, with some considering it the rebalancing of racial representation at executive, decision-making level, while others called for a broader change that created finance institutions that accurately represented the demographics of the wider population. She referenced the recent appointment of Sim Tshabalala as sole Standard Bank CEO as an example of transformation at the apex level, but one that has little industry or institution-wide transformative impact. “We don’t have the same definition of transformation, so we can’t agree on anything. Is having a black CEO enough? Or should the demographics of the company represent the demographics of the country? Not enough responsibility is taken by companies and there is no consensus about what transformation actually means,” she argued. Duma Gqubule, founder of the Centre for Economic Development and Transformation, accused some banks of going as far as using deceptive means of measuring black ownership to up their empowerment credentials. “We need a common definition of what we’re measuring. For example, some banks are providing black people with car loans, and then counting these clients as having ownership in the bank,” he stated. Basa’s Cas Coovadia, however, was quick to question Gqubule’s claims, stating that he “couldn’t imagine” any bank engaging in such “crazy” practice. Coovadia had earlier conceded that the banking sector had not done enough to meaningfully include black South Africans in the economy. Business Leadership South Africa CEO Bonang Mohale said a lack of conceptual understanding of transformation could not explain away non-compliance, as several pieces of policy and legislation existed that clearly articulated the definition of transformation, not least of all the Constitution, the BBBEE Act as well as the National Development Plan. “We also don’t believe that black-owned monopolies will be all that different to white-owned monopolies, so transformation is about more than just deracialisation,” he noted. Leoka also called government to account for an apparently poor record of using state institutions – which are unencumbered by the restrictions of private commercial banks – such as the Industrial Development Bank, the Public Investment Corporation and the Land Bank, as levers in the transformation agenda. “For example, the Land Bank has lending criteria that blacks can’t meet, and so 90% of their loans are awarded to whites,” she said. During its March presentation to the standing committee on finance & portfolio committee on trade and industry, National Treasury stated that meaningful transformation of the financial sector went beyond the question of the ownership of financial firms, and extended to how the sector supports real economic activity.

LINK - http://www.fin24.com/Finweek/Business-and-economy/uncertainty-reigns-over-banks-transformation-targets-20170919

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