Moody’s applauds Reserve Bank fines
Reserve Bank hits five banks
MOODY’S said yesterday that the move by the Reserve Bank to fine five banks R35million for not complying with the law was credit-positive for South Africa’s rating status.
South Africa is currently rated two notches above junk by Moody’s and one notch above non-investment grade by S&P Global Ratings and Fitch. S&P and Fitch have indicated that they would review South Africa’s rating in December after the country narrowly avoided being downgraded to junk a few months ago.
Moody’s said yesterday that the Reserve Bank’s actions were credit-positive for South Africa “because implementing measures to prevent money laundering will improve transparency and accountability in the financial sector”.
The central bank last Monday fined five South African banks a total of R34.5m, because they had weaknesses in control measures. By far the heftiest fine was levelled against Investec, at R20m, with the Johannesburg branch of Standard Chartered next at R10m.
The weaknesses are related to controls required by the Financial Intelligence Centre Act that seeks to clamp down on money laundering and cash being used for illicit purposes, such as terrorism, and requires certain transactions to be reported.
The five banks that were fined are GBS Mutual Bank, Habib Overseas Bank, Investec Bank, The South African Bank of Athens, and Standard Chartered Bank’s Johannesburg branch.
The Reserve Bank said these fines emanated after inspections were conducted to see whether banks had appropriate measures in place as required by legislation. “The administrative sanctions were not imposed because these banks were found to have facilitated transactions involving money laundering or the financing of terrorism, but because of weaknesses in each of the banks’ control measures.”
Moody’s said bank’s adherement to reliably reporting to the Financial Intelligence Centre certain cash transactions of R25 000 or more and of suspicious and unusual transactions would help keep state institutions strong and inhibit money-laundering and related illicit financial flows. “If illicit financial flows were eliminated or significantly reduced, South Africa would broaden its tax base, thereby reducing its need for public borrowing and support debt sustainability.
“The country would also have more funds available for private and public investment, thereby supporting infrastructure construction and economic growth or programmes aiming to reduce poverty.”
Resource
Moody’s explained that although illicit financial flows currently sap South Africa’s resources, they were a potential domestic resource.
It cited a December 2015 report by Global Financial Integrity (GFI) which said that South Africa lost more than $209 billion between 2004 and 2013, about R2.8 trillion, which Moody’s said amounted to 6.5 percent of gross domestic product (GDP).
It adds, even in 2013, when GFI estimated the illicit outflows were 4.5 percent of GDP, the amount exceeded foreign direct investment and portfolio inflows combined for that year.
The Reserve Bank imposed its first sanctions, amounting to R125m, on four large banks.
Moody’s said the fact that current fines were lower, and levied against smaller financial institutions than in 2014, points to South Africa’s financial sector’s progress in adhering to requirements of the law.