EFF wants a state-owned bank to counter the predatory practices of the Big 4
The EFF has shown itself a force for progressive change in SA, recently tabling a bill which would allow for the creation of a state-owned bank. In this article on Daily Maverick, deputy head of the EFF, Floyd Shivambu, explains how the existing Big 4 banks - Absa, Standard, Nedbank and FNB - continue their predatory practices against South Africans. This article shows a deep understanding of the extent to which banks are retarding the economic development of the country. Banking services and bank institutions are at the core of the financial services sector, and account for most of its growth. There is a total number of 19 registered banks, three mutual banks, three co-operative banks, 15 local branches of foreign banks and 31 foreign banks with approved local representative offices. Banks total assets increased from R4.9-trillion in 2017 to R5.1-trillion, a strong 5.1% year on year growth in a sluggish economy that grew only at 1.3% in 2017. Banking in South Africa is dominated by the big six largest banks i.e. Absa, FirstRand (FNB and Wesbank), Nedbank, Standard Bank, Investec and Capitec which constitute more than 90% of the total banking market share.
Banks in South Africa own and control the houses, cars and properties of so many people. Banks influence people’s access to food, clothing, education and other essential services. And they do so in a predatory manner where they exploit workers and poor people with loan sharks’ practices. People’s houses are sold for a penny after owners have paid hundreds of thousands of rand in repayments. This is made possible because South Africa’s financial sector, in particular banks, have placed almost all black people in severe debt and have designed a cartel-like system that makes it impossible for black people to escape indebtedness. Banks own vast sections of land and huge commercial properties, such as malls and industrial parks. Despite the fact that banks control and run the lives of so many people in South Africa, with little or no proper supervision by government, the sector has done all it could possibly do to refuse transformation. Banks do not even comply with the less courageous targets set by government together with the sector.
In the past we have demonstrated that the level and extent of black ownership in the banking industry continues to collapse, now estimated at around 1% from 10% in the last four years. This is due to sell-off of black economic empowerment stakes in major banks by black investors if we put aside institutional investors such as the Public Investment Corporation (PIC). In the absence of any credible and detailed research in the patterns of sell-off of black economic empowerment stakes, fronting and poor reporting in major banks, as it is the case across the financial sector and the whole of the economy, it is possible that the 1% black ownership is at best artificial and non-existent.
Even the position of mutual banks, whose assets value and significance in the overall banking sector is inconsequential, has now come under fire. Even though mutual banks such as Venda Building Society (VBS) and some of the mutual banks owned by the Government Employees Pension Fund (GEPF) are not systematically important financial institutions, and their discontinuation will not affect South Africa’s economy. Mutual banks in their current form and position based on assets and client base are possibly the best launchpad for transformation at a small experimental scale. However, after the VBS liquidity challenges over the last 18 months, unwarranted attacks by the Reserve Bank and lack of support by government for the bank to manage its growth, the position of mutual banks is even more threatened.
Towards the creation of South Africa’s first State bank
The South African government owns and controls financial development institutions such as the National Empowerment Fund (NEF), Land Bank, Industrial Development Corporation (IDC), National Housing Finance Corporation (NHFC), Khula Enterprise Finance (KEF) and others. Unlike in other countries, these are not fully licensed banking institutions and are sector specific with a narrow mandate, client base and assets base. However, the South African Post Office Bank (Postbank) is the closest that the South African government has come to owning a fully-fledged bank.
The Postbank is not yet a registered bank in terms of the Banks Act No. 94 of 1990 (“Banks Act” as amended) but it is already operating as a bank. It is a full member of the Payment Association of South Africa and participates in the National Payments Systems (NPS) directly in the clearing of transactions. However, the Postbank cannot perform settlement directly in the NPS because it is not registered as a bank. The Postbank could not be appointed as a social grant paying bank without the support of Standard Bank. And the Postbank does not offer lending products, yet it has always been profitable.
The main reason why the Postbank is now a fully-fledged commercial bank with a licence is because the Banks Act, among other things, imposes a certain requirement which an institution must comply with before it may operate as a bank and offer people banking products such as credit, deposits, investments, etc. In terms of the Banks Act, no person may conduct the business of a bank unless such person is a public company and is registered as a bank in terms of the Banks Act. A public company is defined in the Companies Act, 2008 (Act No. 71 of 2008) (“Companies Act”), as a profit company that is not a state-owned company, a private company or a personal liability company. Further, in the Companies Act a state-owned company is defined as an enterprise that is registered in terms of that Act as a company, and either is listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (“PFMA”), or is owned by a municipality, as contemplated in the Local Government: Municipal Systems Act, 2000 (Act No 32 of 2000), and is otherwise similar to an enterprise listed in the PFMA.
As a result, the legislative requirements imposed by the Banks Act before a person may conduct the business of a bank, and register as such, makes it impossible for a state-owned company registered in terms of the Companies Act to conduct the business of a bank and for government to own a bank. The EFF intend to introduce a private members’ bill in the name of the Deputy President Nyiko Floyd Shivambu to amend the Banks Act. The Bill seeks to amend the Banks Act to make it possible for state-owned companies to register in terms of that Act and to conduct the business of a bank. The bill will provide for a state-owned company to be able to register and conduct the business of a bank in terms of the Banks Act, register with the commissioner, appointed in terms of section 189 of the Companies Act, a memorandum of incorporation of a state-owned company formed for the purpose of conducting the business of a bank and all other requirements.
A notice of intention to introduce a private member’s bill and invitation for comment on the draft Banks Amendment Bill of 2018 in accordance with section 73(2) of the Constitution of the Republic of South Africa was submitted to the Speaker of Parliament. An explanatory summary of the Bill in accordance with Rule 276(1)(c) of the Rules of the National Assembly will be published in due course as it has already been submitted to the Government Gazette. The bill once adopted by the Parliament and enacted by the President will create the necessary legislative environment for the Postbank to become a full bank with a commercial licence like Absa, Standard Bank and etc.
However, the implications of such legislative changes, while they serve the immediate need to allow for the Postbank to be granted a banking licence now, provide a much needed legislative environment for diversification of South Africa’s banking system. The Postbank must provide efficient and affordable banking for the State i.e. all three spheres of government, legislatures and judiciary, including banking services for other state-owned entities. The Postbank must also facilitate all state transactions, a cost-efficient move that will ultimately reduce the cost of banking and ensure banking services to the poor and workers at a minimum bank charges. Postbank must also make available loans to allow people who do not qualify for loans to build homes and start businesses within reasonable terms and cost of borrowing.
In addition to the Postbank, the State must own other banks to support infant industries with developmental finance and support to play an active role in various economic spheres of our society. The Land Bank must become a commercial bank that focuses on agriculture, fisheries and forestry businesses since all land will be under the custody of the state and no one will need to pay for land. Furthermore, the Banks Amendment Act we are tabling will lead to creation of many other State-owned banks in the same way China’s national and sub-national state owns and controls some of the world’s largest banks. IThala Development Finance Corporation Limited must also become a full bank mandated to lead regional economic development in the Kwazulu-Natal, Mpumalanga and Eastern Cape regions.
All state-owned banks must be democratically administered and governed, fight illicit financial flows and corruption, and its employees must be paid decent salaries. To ensure proper governance, state banks must not account to one minister as is the case with state-owned entities such as Eskom, Denel, Prasa, and South African Airways (SAA). Instead, the state must own and control majority shares, and minority shareholders must be invited to diversify governance. We make this contribution to legislative amendments towards nationalisation of all private banks through taking a minimum of 60% ownership and control of all existing private banks. 4
The legislative intervention is an illustration that the EFF does not just scream meaningless rhetoric but engages in thorough legislative processes which will culminate in progressive Laws. It is our intention within the fifth democratic Parliament to introduce other legislation which will nationalise the South African Reserve Bank, ensure that all clinics open 24 hours, guarantee economic inclusion of historically disadvantaged individuals, and insource all State employees.
The full article can be viewed here.