Proposals ‘too vague for panic’
Current proposals on land reform are too vague for the Reserve Bank to panic about them, although a policy shift that leads to “more fundamental changes to property rights” could pose a risk to the financial system, the bank’s deputy governor Kuben Naidoo said.
The banking system has a gross exposure of R125bn to the agricultural sector, with R41bn of this is held by the stateowned Land Bank, he told journalists in Johannesburg at the weekend.
He was speaking on the same day President Cyril Ramaphosa announced the appointment of a panel to advise the government on policy matters associated with land reform.
Land reform has emerged as one of the most controversial issues of Ramaphosa’s presidency, after he announced late on July 31 that the ANC would seek to change the constitution to make explicit the conditions under which expropriation of land without compensation can take place.
The announcement spooked markets, fuelling a decline in the rand amid concern that property rights might more broadly be compromised, which would discourage investment.
The concern for commercial banks is that the policy, if mishandled, could lead to the value of properties against which they have lent money, collapsing, causing defaults that would then threaten their ability to fund themselves.
While the rand, which has gained almost 4% since September 15, is set for its biggest weekly gain since December, it’s still down about 10% since Ramaphosa’s announcement.
It was also battered as emerging markets came under pressure and the currencies of Turkey and Argentina collapsed.
“The proposals are too vague for us to panic,” said Naidoo, who is also chief executive of the Prudential Authority, which is responsible for regulating financial institutions.
Commercial banks have invested about R1.6-trillion of South Africans’ savings, salaries and investments into property loans, which they rely on as security, Banking Association of SA (Basa) managing director Cas Coovadia said in August.
The economy will not be able to withstand the shock of a marked decrease in the value of properties due to “legislative changes or loss of investor confidence”, he said.
Ramaphosa’s advisory panel will be chaired by social entrepreneur and public policy and development planning specialist Vuyokazi Mahlati and includes Wandile Sihlobo, head of research at the Agricultural Business Chamber of SA and a columnist for Business Day.