Sim Tshabalala: Dispelling some of the myths about SA’s banks
Date: 24 September 2017 | Author: Sim Tshabalala / Business Live | Category: Opinion
Our parliamentary democracy should be a source of pride for all South Africans. Our MPs do their jobs on the portfolio committees with impressive professionalism. This was certainly Standard Bank's experience when we participated in the parliamentary hearings on transformation in the financial sector this past March.
The committees' draft interim report is equally thoughtful.
On this evidence, our democracy really is getting stronger and so, in that democratic spirit of mutual learning, I'd like to enter the public debate on the role of banks by responding to some of the "Frequently Asked Questions" about our industry.
What are banks really for?
Banks enable all of us to buy and sell safely and reliably. They often provide the insurance that makes it possible for us to take risks.
They attract and reward savings, and they lend savings on - safely - to help firms to invest and create jobs and enable people to afford homes and other assets.
South Africa's banks are highly innovative. We're at the forefront of South Africa's economic expansion into the rest of Africa, growing rapidly in Africa ourselves and helping our clients to do so, bringing home income and jobs.
South Africa's banks are world leaders in digital innovation, annually investing many billions in the most up-to-date technology, and training staff to make the most of it. Standard Bank, for instance, spends close to R15-billion every year on IT.
About 150000 South Africans work for banks, and they in turn sustain about 450000 more jobs.
In total, therefore, banks are responsible for about 7% of formal employment.
Are the banks part of 'monopoly capital'? Is a state bank the answer?
Getting a banking licence is a demanding process, requiring that applicants prove they have both the capital and the skills needed to run a bank sustainably. Thanks to these rules, the South African banking system is very high quality and extremely resilient.
According to the 2017 Lafferty Bank Quality ratings, we are home to the world's highest-rated bank, Capitec. The 2017 Global Competitiveness Report ranks South Africa second-best in the world for the soundness of our banks, and 11th in the world for overall financial sector development. The rules create safety and excellence - not a monopoly. There are 19 banks offering retail banking in South Africa, including six large full-service banks.
It would be possible to lower the requirements to open banks. But, as local and international experience shows, many of these new banks would collapse - particularly those that cut corners and make the most "generous" offers.
US banking regulations encourage small banks and new entrants. As a result, there are 5856 banks in the US - and 553 have failed since 2000. So far this year, there have been one or two failures every month.
In South Africa we opened up the market in the 1990s, and 22 small banks stopped operating between 1999 and 2002.
Do banks collude to cheat customers?
The Competition Commission alleges that some banks have tried to rig the rand-dollar market.
Standard Bank has looked in great detail at the conduct of our employees in the relevant areas and we have found no evidence of wrongdoing.
We need to be very clear: if it does turn out that any individual who works for the Standard Bank Group - or anywhere in the industry - has broken the law or behaved unethically, they must be held to account, and their employer must accept an appropriate share of the accountability.
But Standard Bank is against automatic collective guilt. We employ 54000 honest and hard-working people. We don't deserve to be labelled "banksters".
Why does South Africa need an independent Reserve Bank?
The Reserve Bank has a constitutional mandate to be independent - and that means independent from political and private sector interference. If people think the Reserve Bank will bow to political or private influence, they won't believe that it will impose the painful rate hikes sometimes necessary to control inflation. So, when Reserve Bank independence is lost, inflation tends to spiral out of control.
Policy independence is what matters - whether or not the Reserve Bank has a few private shareholders is unimportant.
Who gets hurt if inflation does get out of control? Not rich people.
They can protect themselves against inflation by buying dollars or shares or property. Highly skilled and unionised workers can make sure that their employers keep raising their wages. But the poor will see the little money they have melt into nothing. If a loaf of bread costs more than R100, that R100 in your pocket isn't worth much.
That's why the pain of a rate hike is nothing compared to the pain that would be caused if populist thinking took over the Reserve Bank.
Do banks oppose credit amnesties because they want to squeeze every cent out of the poor?
Standard Bank opposes credit and credit information amnesties because they end up making life harder for the vast majority of working and vulnerable South Africans.
In 2016, Standard Bank's South African retail customers paid back 98.7% of what they owed.
If the government decides to wipe out certain categories of debt owed to banks, this will provide temporary relief for the small minority of customers who default. However, all customers - those who pay and those who don't - will find banks making it much tougher to borrow at all.
Much more effort should go into enforcing the National Credit Act against loan sharks. Their "loans" are illegal and should not be paid back.
Do banks try to sabotage black business people by closing their accounts?
Standard Bank closes accounts that have been dormant for five years. Account closures for any other reason are extremely rare and are caused mainly by our need to comply with South African laws and international regulatory standards on the prevention of money laundering and other crime.
Standard Bank also occasionally ends banking relationships when it no longer makes commercial sense to maintain a relationship - we are a business after all, and profit is important to us - or when our employees have been abused by customers.
Over the past five years, Standard Bank has terminated an average of 21 retail banking relationships per year out of 12million customers. We have terminated one or two corporate banking relationships per year out of 11 000 corporate relationships.
Why do banks make us pay off home loans over 20 or 30 years, as opposed to shorter terms for car loans? Isn't this just to make customers pay more interest?
Houses are almost always far more expensive than cars. The average house in South Africa cost R 1.2-million last year. The average car cost R291000.
To be able to afford the house they need, people usually have to spread out their repayments over many years. Having a rule that the maximum length of a bond was, say, 10 years, would not free people to afford better houses or pay less interest. The opposite is true. If bond terms had to be shorter, the monthly payments would have to rise.
Do banks take away people's homes as soon as they can't pay?
Standard Bank finances around 600000 homes. Unfortunately, last year, we conducted 1791 sales in execution and, very sadly, 73 evictions. This was 0.01% of the homes we finance.
Repossession is an absolute last resort and we always try hard to prevent this from happening.
Is it true that the banks' BEE deals didn't work?
The industry's existing BEE deals have generated R57-billion in value for black shareholders in banks, but still only about a quarter of bank shares are held by or for black South Africans.
So why can't we do more 'vendor-funded' BEE deals?
We could, but they would come at a very high cost to the economy. Regulations that protect everyone who banks with us dictate that the shares in a vendor-funded BEE deal cannot support lending until the deal is completed.
So for every R10 of their capital that banks apply to funding a vendor-funded BEE deal, R80 is removed from the resources we have available to finance new black businesses. In setting up new vendor-funded BEE deals, banks would be choosing between, for example, immediately funding 80 new factories for black industrialists at R100-million each or creating 10 new black shareholders who each own R100-million in bank shares - which they can't do anything with until the deal is paid off.
The fact remains that 25% black ownership of the banks is too low. While there are no instant cures for this, more transformation and faster growth will help.
Are the banks against radical economic transformation?
Standard Bank knows very well that this economy needs to transform radically. Banks are central to supporting and accelerating this change.
The banks' non-managerial employee demographics accurately reflect the population of South Africa. At junior and middle-management levels, 74% of bank employees are black. However, only around one-third of banks' board members are black. And only about 15% of top executives across the industry are black. This is far too low. Banks need to work harder - and be put under more pressure - to transform.
I am a product of affirmative action and I am proud to be able to play a part in transforming Standard Bank and the economy as a whole.
Under the Financial Sector Code of the BBBEE Act, banks are required to track and report on "empowerment financing" - that is, money that banks lend to black people or in historically black areas. Banks lent R211-billion in empowerment financing between 2011 and 2015. Over the same period, banks spent R210-billion with BBBEE-rated suppliers, including R50-billion with black-owned and black woman-owned suppliers.
Published in Business Live (24 September 2017)