Banks stash their cash for good reason

On average, South African banks have contributed most to the cash reserves that the country’s top companies have accumulated in recent years. Between 2005 and 2016, this amounted to R25-billion, according to research by the Centre for Competition Regulation and Economic Development.

Although this could be explained by increases in liquidity requirements determined by regulations, this did not explain the growth of the reserves, the research noted.

Examining data from the South African Reserve Bank, it noted that loans for investments have remained stagnant relative to household loans and advances to different industries.

The findings point to broader concerns about banks’ slow lending to emerging firms, particularly black entrepreneurs.

The managing director of the Banking Association South Africa (Basa), Cas Coovadia, acknowledged that there were challenges, but that banks had lent more than R41-billion to black-owned small and medium enterprises between 2012 and 2015.

The sector faces increased regulation and emerging market challenges, including the reality that many South Africans have been interacting with the banking system in only the past two decades.

Coovadia said, these challenges aside, the new revised financial sector charter code identifies a “significant amount of money targeted towards black industrialists”.

South Africa needed to grow other areas such as its venture capital market to support black emerging businesses, he said. Venture capital, unlike the debt financing provided by banks, was longer term and venture capitalists could get directly involved in businesses.

Better co-ordination and cooperation was needed between government schemes meant to support black businesses and the private financial sector, Coovadia said, including identifying areas in the market that are not working.