PHAKAMISA NDZAMELA

Credit committees must change

TRANSFORMATION at SA’s major banks should not be narrowed to celebrating the appointment of black CEOs and financial directors. There are bigger issues which we overlook, especially the credit committee matter. But before I address that issue, the Reuel Khoza-led board at Nedbank must be commended for the work it is doing to develop a pipeline of leaders as part of the transformation agenda.

At the beginning of this month, Nedbank Group announced the appointment of Mfundo Nkuhlu as chief operations officer from next year. It’s a big appointment! But what intrigued me was the move on the retail and business banking front — the replacement of Ingrid Johnson by Philip Wessels. This was really smart. Wessels, who has been at Nedbank for 16 years, is chasing his mid-50s, meaning that the retail and business banking job will be open again in the medium term.

So what does this mean? It gives Sandile Shabalala and Ciko Thomas an opportunity to ascend to the top of retail and business banking at Nedbank, if they are interested.

Essentially, what the Nedbank board has done is to develop a pipeline of leadership and to say that the two men should work on sharpening their skills over the next three to five years. This is transformation at work and not the microwaving of black executives to the top, where they are set up for failure.

However, as smart as the bank’s board might be, it will have to look after its heirs apparent. There is much poaching in SA’s banking industry and some guys don’t play games. They sign big cheques for talent and that is the risk of developing a solid leadership pipeline. There is pressure to demonstrate that there is real transformation at the top.

Nkuhlu will reach the level of Raisibe Morathi, the only female chief financial officer of a JSE-listed bank. Morathi is arguably the second-most powerful female banking executive director after Maria Ramos.

Nkuhlu’s appointment shows that transformation is progressing in SA’s banking sector. As an executive director, he will join the likes of FirstRand CEO Sizwe Nxasana, Standard Bank joint CEO Sim Tshabalala and FirstRand chief financial officer Harry Kellan. The word in the market is that Nkuhlu is now closer to the group CEO job at Nedbank, should he do well as chief operations officer.

All I shall say is it is still early days. Mike Brown is fairly new as Nedbank group CEO and is so far doing a good job in creating value.

As much as Nkuhlu’s appointment must be commended, the focus on the transformation of SA’s banking system should not be narrowed to simply having black CEOs. If we are serious about real transformation, people need to be thinking of how to transform the credit committees. Rather than black directors opting to sit on undemanding board committees, more effort should be put into transforming credit committees. That is where the real action happens, because these are the guys who decide how the bank lends.

Although some banks are trying to build more capital-light businesses by growing noninterest revenue, the core of a bank is lending and net interest income is a key feature on the income statement. People must take time to see who sits on the credit committees at SA’s banks. When I did so I was very surprised. It’s largely a men’s club and women such as Gloria Serobe must be commended for invading that space.

There is no point in South Africans whingeing that banks are not lending in the right areas if we do not understand how the credit process works. Black directors must take the time to understand how it works if we are serious about transformation. I am convinced that it is not a simple matter of race that makes certain projects unbankable.

I think many people on credit committees do not understand the borrowing needs of previously disadvantaged South Africans, especially those in rural areas. You need people who understand rural wealth on those credit committees. There is a lot of wealth in rural areas, such as livestock, that many banks fail to recognise as collateral for a cheaper secured loan. Instead, people in rural areas are supplied with expensive unsecured credit since their assets are not recognised. The bottom line is the credit committee is arguably the boss committee when it comes to lending and it needs to be understood well.