Em­pow­er­ment you can bank on

Banks are do­ing more for trans­for­ma­tion than you may think, write Khulekani Mathe and Ya­coob Abba Omar

CityPress - - Business -

Highly an­tic­i­pated par­lia­men­tary hear­ings on trans­for­ma­tion in the fi­nan­cial ser­vices sec­tor took place on March 14 and 22. This her­alded the re­turn of eco­nomic trans­for­ma­tion to the na­tional agenda. This is to be ap­plauded, given that it has been 13 years since the com­ing into law of the Black Eco­nomic Em­pow­er­ment (BEE) Act of 2003. Tak­ing stock of what we have achieved since putting in place the leg­isla­tive frame­work to gov­ern eco­nomic trans­for­ma­tion will en­able us as a na­tion to make in­formed de­ci­sions about what has worked and what needs to change.

The CEOs of all four ma­jor banks and lead­ers of the in­sur­ance in­dus­try were among the plethora of stake­hold­ers who made oral rep­re­sen­ta­tions. The ev­i­dence pre­sented by banks demon­strated that, on the whole, banks per­formed well on the agreed trans­for­ma­tion mea­sures as set out in the Fi­nan­cial Sec­tor Char­ter.

The pre­sen­ta­tions fur­ther paint a dif­fer­ent pic­ture to the gen­er­ally held view about trans­for­ma­tion in the bank­ing in­dus­try. Stan­dard Bank re­ported that it had in­vested R89 bil­lion in em­pow­er­ment fi­nanc­ing and R23 bil­lion in af­ford­able home loans since 2010. Absa re­ported that it had pro­vided fund­ing to small and medium en­ter­prises (SMEs) to the value of R71 bil­lion and trained 10 521 school gov­ern­ing body mem­bers in 2 725 schools. First Rand told mem­bers of Par­lia­ment that its broad-based black eco­nomic em­pow­er­ment (BBBEE) trans­ac­tion had de­liv­ered R23.5 bil­lion in value trans­ferred to ben­e­fi­cia­ries, pro­vided R53 bil­lion in trans­for­ma­tional in­fras­truc­ture and R36 bil­lion in BBBEE fi­nanc­ing. Ned­bank re­ported that it paid out R26 bil­lion in loans to SMEs and black busi­ness clients, R3.6 bil­lion for af­ford­able hous­ing and un­locked R8.2 bil­lion in value for more than 500 000 BBBEE share­hold­ers.

Banks have in­vested bil­lions in skills de­vel­op­ment, in­fras­truc­ture, SME fund­ing, hous­ing, re­new­able en­ergy, ed­u­ca­tion and health pro­grammes, among other things, and they make a sig­nif­i­cant con­tri­bu­tion to GDP and taxes.

De­tails of the bank­ing in­dus­try’s progress on trans­for­ma­tion are con­tained in the Bank­ing As­so­ci­a­tion SA’s sub­mis­sion to Par­lia­ment. On each of the trans­for­ma­tion pil­lars of the Fi­nan­cial Sec­tor Char­ter, the banks have per­formed sat­is­fac­to­rily. The pre­sen­ta­tions by the fi­nan­cial sec­tor lead­ers put paid to the ac­cu­sa­tion that the in­dus­try is re­sist­ing trans­for­ma­tion. On the strength of the num­bers pre­sented, it would be pos­si­ble to close the de­bate on whether or not the in­dus­try is trans­form­ing. How­ever, do­ing so would amount to bury­ing our heads in the sand like os­triches. The re­al­ity on the ground is that banks are seen as un­trans­formed in­sti­tu­tions judged by the race of those at the helm.

An area in which banks’ per­for­mance is less than sat­is­fac­tory is em­ploy­ment eq­uity, es­pe­cially the man­age­ment and con­trol of banks as mea­sured by black and women rep­re­sen­ta­tion on boards and in top man­age­ment po­si­tions. Although the ma­jor­ity of peo­ple em­ployed in the in­dus­try are now black, white peo­ple con­tinue to dom­i­nate ex­ec­u­tive po­si­tions.

The fail­ure of the ed­u­ca­tion sys­tem in the demo­cratic era to equip our young peo­ple with skills re­quired in in­dus­tries such as bank­ing is one of the ma­jor con­trib­u­tors to the em­ploy­ment eq­uity chal­lenges, not only in bank­ing, but var­i­ous sec­tors, as the 2013 An­nual BEE Sur­vey con­ducted by KPMG shows.

Tar­gets for own­er­ship of banks by black peo­ple were reached, although there has been a slight de­te­ri­o­ra­tion ow­ing to the ma­tur­ing of some BEE deals and in­vestors sell­ing off their stakes. The cur­rent tar­get is 10% di­rect black own­er­ship and 15% in­di­rect own­er­ship through group schemes and other ve­hi­cles. An im­por­tant fea­ture of the South African bank­ing in­dus­try is that as much as 49% of South African banks are owned by for­eign­ers, although with the Bar­clays plc di­vest­ment from Absa, the pic­ture is likely to change in the near fu­ture. For­eign own­er­ship on its own is not a bad thing. On the con­trary, it is tes­ta­ment to the strength of our bank­ing in­dus­try, which is ranked num­ber two in the cat­e­gory of sound­ness of banks and meet­ing the needs of busi­ness, num­ber 12 for ease of ac­cess to loans and num­ber 27 for af­ford­abil­ity, ac­cord­ing to the World Eco­nomic Fo­rum Global Sus­tain­abil­ity Re­port. Black peo­ple are in­creas­ingly feel­ing that they have not man­aged to catch up with the stan­dard of liv­ing of their white coun­ter­parts 23 years since the dawn of the demo­cratic dis­pen­sa­tion. The em­ploy­ment statis­tics, em­ploy­ment eq­uity and poverty num­bers all sup­port the view that white peo­ple have ben­e­fited dis­pro­por­tion­ately more from the demo­cratic dis­pen­sa­tion. At the heart of the calls for rad­i­cal eco­nomic trans­for­ma­tion is a sense of frus­tra­tion with the pace of trans­for­ma­tion to date. Rad­i­cal eco­nomic trans­for­ma­tion dom­i­nated the state of the na­tion ad­dress (Sona) with the pres­i­dent list­ing a num­ber of sec­tors that would be the first to have a dose of rad­i­cal eco­nomic trans­for­ma­tion ad­min­is­tered to them. They in­clude the prop­erty, in­for­ma­tion and com­mu­ni­ca­tions tech­nol­ogy, and min­ing sec­tors, while land re­form and higher ed­u­ca­tion fund­ing will also re­ceive ur­gent at­ten­tion. Some of the levers to be used will in­clude strength­en­ing the arm of com­pe­ti­tion au­thor­i­ties to deal with con­cen­tra­tion by amend­ing the leg­is­la­tion. The fi­nan­cial sec­tor was not specif­i­cally men­tioned in the Sona, but in the pres­i­dent’s post-Sona break­fast brief­ing, it was sin­gled-out as a sec­tor that needed to be trans­formed. The calls from the gen­eral pop­u­la­tion for a faster pace of trans­for­ma­tion de­serve to be taken se­ri­ously. The role of lead­ers is to un­der­stand the cries of the peo­ple they lead and de­vise ef­fec­tive ways of ad­dress­ing their con­cerns. In our case, the ex­pe­ri­ence of the past 23 years should help us un­der­stand what has worked or not worked and why. A quick re­view of out­comes of some of our trans­for­ma­tion ini­tia­tives is in­struc­tive. Many of the farms trans­ferred to black ben­e­fi­cia­ries have fallen into dis­use, which means that merely trans­fer­ring land to the peo­ple is not enough. A large per­cent­age of the land resti­tu­tion ben­e­fi­cia­ries opted for mone­tary com­pen­sa­tion rather than re­ceiv­ing land, which means that they made a ra­tio­nal choice about what they be­lieve will im­prove their lives im­me­di­ately. Many ben­e­fi­cia­ries of RDP houses rent them out to oth­ers in or­der to earn rental in­come, which they can use to meet their daily ex­penses. Also, many ben­e­fi­cia­ries of BBBEE deals opt to sell their shares as soon as the deals ma­ture, and use the cash to meet their ur­gent needs as well as di­ver­sify their in­vest­ment port­fo­lios. With the ex­cep­tion of pro­duc­tive farms that have be­come un­pro­duc­tive af­ter be­ing given to black ben­e­fi­cia­ries, all the other ex­am­ples tell us that South Africans are more con­cerned about meet­ing their im­me­di­ate needs. In pur­su­ing eco­nomic trans­for­ma­tion, in par­tic­u­lar BBBEE, we should pay greater at­ten­tion to in­clu­sive eco­nomic growth and em­ploy­ment-en­hanc­ing poli­cies. With­out in­clu­sive eco­nomic growth, even if black own­er­ship tar­gets were to be in­creased to 50% or more, it is un­likely that ev­ery poor black per­son would own a stake sig­nif­i­cant enough to en­able them to live off div­i­dends. The bank­ing in­dus­try is com­mit­ted to play­ing its part in creat­ing an in­clu­sive econ­omy that works for all peo­ple of South Africa. Mathe is se­nior gen­eral man­ager for fi­nan­cial in­clu­sion and Omar is se­nior gen­eral man­ager for strat­egy and com­mu­ni­ca­tion at the Bank­ing As­so­ci­a­tion SA

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