The bank­ing in­dus­try must change, but with­out risk­ing the as­sets of its clients or un­der­min­ing con­fi­dence in the fi­nan­cial sec­tor, writes Cas Coova­dia

CityPress - - Business - Coova­dia is man­ag­ing di­rec­tor of the Bank­ing As­so­ci­a­tion SA

South Africa’s fi­nan­cial sec­tor is at a com­plex crossroads. En­cour­ag­ingly, our in­sti­tu­tions are recog­nised as among the most sound and well run in the world. We of­fer re­li­a­bil­ity to our clients and our mar­ket con­duct guar­an­tees a sta­ble fi­nan­cial sys­tem. How­ever, we are in the midst of a fun­da­men­tal re­view of the trans­for­ma­tion of our sec­tor by Par­lia­ment’s stand­ing com­mit­tee on fi­nance and the port­fo­lio com­mit­tee on trade and in­dus­try. The hear­ings be­fore these com­mit­tees found high lev­els of dis­trust be­tween stake­hold­ers in the in­dus­try. They rec­om­mended greater en­gage­ment to ad­dress this and to speed up trans­for­ma­tion.

Against this back­ground, poor peo­ple in South Africa are cry­ing out for jobs, ser­vices, op­por­tu­ni­ties and an end to in­equal­ity. As the com­mit­tee noted in its in­terim re­port, their frus­tra­tions point to a loom­ing so­cial ex­plo­sion that could con­sume ev­ery­one in­volved in the fi­nan­cial sec­tor.

This places the fi­nance sec­tor in an in­vid­i­ous po­si­tion. We are trans­form­ing, but we must do far more. At the same time, we must achieve this with­out risk­ing the as­sets of our clients and un­der­min­ing faith in the fi­nan­cial sys­tem, which would also be cat­a­strophic – for the poor es­pe­cially.

The key to achiev­ing in­clu­sive growth is for all par­ties – gov­ern­ment, busi­ness and civil so­ci­ety – to en­gage con­stantly and mean­ing­fully. Only then can we be­gin to align our ap­proaches, make gains, make com­pro­mises and build a shared vi­sion.

This en­gage­ment process is well un­der­way. The par­lia­men­tary hear­ings them­selves brought many in­ter­ested par­ties to­gether. The re­cent bank­ing sum­mit of the Bank­ing As­so­ci­a­tion SA (Basa) al­lowed gov­ern­ment and busi­ness to share views. Sev­eral civil so­ci­ety or­gan­i­sa­tions have come on board with Busi­ness Lead­er­ship SA’s con­tract with South Africa.

Basa will meet stake­hold­ers to en­sure a re­vised ap­proach to trans­for­ma­tion. The out­come of this process will be tabled at the pro­posed fi­nan­cial sec­tor sum­mit, sched­uled for 2018.

The in­terim re­port of the trans­for­ma­tion hear­ings found that the Fi­nan­cial Sec­tor Char­ter (FSC) coun­cil’s trans­for­ma­tion tar­gets may not go far enough. As the bank­ing sec­tor, we have reached sim­i­lar con­clu­sions, as we stated in our re­sponse to the in­terim re­port. We agree with many of the in­terim re­port’s rec­om­men­da­tions.

We sup­port the pro­posal for a “name and shame” ap­proach for those who do not com­ply with FSC re­port­ing re­quire­ments. Only when we have cred­i­ble data can we track our trans­for­ma­tion progress.

We ac­knowl­edge that our sec­tor can bet­ter com­mu­ni­cate our trans­for­ma­tion progress. We wel­come the un­der­tak­ing by Trea­sury to pro­duce an “own­er­ship mon­i­tor” to im­prove data qual­ity.

Basa sup­ports the cau­tion con­tained in the re­port against trans­for­ma­tion tar­gets, par­tic­u­larly for own­er­ship, be­ing coded in law. We fur­ther cau­tion against trans­for­ma­tion tar­gets for li­cens­ing re­quire­ments. Pru­den­tial rules dic­tate that bank share­hold­ers should have debt-free cap­i­tal, which makes in­di­vid­ual own­er­ship of a bank al­most im­pos­si­ble. For this rea­son, most banks are pri­mar­ily owned by in­sti­tu­tional funds.

Mak­ing di­rect black own­er­ship a li­cens­ing re­quire­ment would limit new en­trants into bank­ing, as few en­trants would meet these cap­i­tal re­quire­ments. Push­ing through what seems to be a pro­gres­sive pro­posal could have the un­in­tended con­se­quence of sti­fling com­pe­ti­tion.

Basa notes the re­port’s view that cor­po­rates must be pe­nalised if they fail to achieve FSC trans­for­ma­tion tar­gets. Mech­a­nisms must be found to en­sure com­pli­ance. How­ever, one of the strengths of the FSC has been its vol­un­tary na­ture and we need to pre­serve this.

The re­port im­plies that bank­ing start-ups find it harder to ac­cess fi­nance com­pared to other sec­tors. This may sim­ply be a func­tion of higher reg­u­la­tory re­quire­ments for bank­ing com­pared to other in­dus­tries, rather than a de­lib­er­ate bias against start-ups in the fi­nan­cial sec­tor.

Re­gard­ing claims of a mo­nop­oly in the fi­nan­cial sec­tor that leads to higher charges, in re­al­ity, com­pe­ti­tion has in­creased in the bank­ing in­dus­try. With the en­try of Capitec, charges and fees dropped sig­nif­i­cantly. Sev­eral in­sti­tu­tions have been granted pro­vi­sional li­cences, and there will soon be even more banks.

While Basa and its mem­bers are ab­so­lutely com­mit­ted to trans­for­ma­tion, our sec­tor is un­der­go­ing ma­jor re­struc­tur­ing, with amend­ments to the Fi­nan­cial In­tel­li­gence Cen­tre Act, Fi­nan­cial Sec­tor Reg­u­la­tion Act, Con­duct of Fi­nan­cial In­sti­tu­tions Bill and Levies Bill. There is also the pro­posed Debt Re­lief Com­mit­tee Bill.

Care should be taken in in­tro­duc­ing fur­ther re­forms to avoid over­whelm­ing the fi­nan­cial sec­tor. Al­ready, in­sti­tu­tions spend bil­lions on reg­u­la­tory com­pli­ance and the new re­forms will add to that.

Leg­is­lat­ing trans­for­ma­tion can be coun­ter­pro­duc­tive, but our in­ten­tion to change re­mains un­com­pro­mis­ing. To demon­strate this com­mit­ment, the Basa board has re­solved to move be­yond FSC com­mit­ments and to ac­cel­er­ate trans­for­ma­tion in spe­cific ar­eas:

. We want to strengthen the role of banks as a trans­for­ma­tive force by iden­ti­fy­ing where we can use our ex­per­tise to solve crit­i­cal prob­lems in so­ci­ety, in­clud­ing so­cial grant pay­ments, re­vi­tal­is­ing township economies, in­fra­struc­ture fi­nanc­ing and man­age­ment of state-owned com­pa­nies;

. We will pri­ori­tise rep­re­sen­ta­tion of black peo­ple, par­tic­u­larly black women, at ex­ec­u­tive and se­nior man­age­ment lev­els;

. We com­mit to in­creas­ing black own­er­ship in a di­ver­si­fied fi­nan­cial sec­tor, open­ing op­por­tu­ni­ties to black-owned and black-women-owned en­ter­prises through our pro­cure­ment poli­cies and to en­hanc­ing en­ter­prise de­vel­op­ment. We com­mit to work­ing with reg­u­la­tors to un­der­stand why so few co­op­er­a­tive banks have been launched and work to pro­mote these; and

. We must deepen fi­nan­cial in­clu­sion, with spe­cific fo­cus on in­creas­ing ac­cess to fi­nance by small and medium-sized en­ter­prises and en­able in­creased us­age of ac­counts opened by in­di­vid­u­als who were not in the bank­ing sys­tem pre­vi­ously.

All of this trans­for­ma­tion must drive in­clu­sive growth, the ul­ti­mate engine of pros­per­ity and so­cial uplift­ment. This will boost the con­fi­dence that can un­lock in­vest­ment as well as pro­mote a na­tional spirit and en­able the quan­tum leap in growth that con­sti­tutes real eco­nomic trans­for­ma­tion.

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