Banks may ditch financial charter

Johannesburg - South African banks are considering pulling out of the Financial Sector Charter, City Press can reveal.

Discussions to this effect are taking place through the Banking Association of South Africa.

City Press has reliably learned from an industry source, privy to the discussions but not directly involved, that the intention to leave the charter was communicated to Finance Minister Pravin Gordhan at or around the time of the banking summit, held in August in Rosebank, Johannesburg.

The banks are said to be drafting an alternative blueprint for transformation that they are due to present to the minister.

For any alternative to be acceptable the banks will have to commit to doing more in areas such as skills development, employment equity and preferential procurement than they are committed to doing under the current charter.

The threatened walkout by the banks appears to be over a disagreement with social partners, most notably labour and NGOs, over ownership targets.

This disagreement has effectively rendered the charter paralysed, with no yearly report filed to the Financial Sector Charter Council since 2008.

Civil society wants the black ownership targets of financial services raised from the current level of 10% to 15% by 2014. But the industry frequently argues that international banking regulations mitigate against this.

This is because in banking ownership shareholding above 10% confers a status known as shareholder of reference.

This means that in the event that a bank needs to be recapitalised, as happened to some American and European banks during the financial crisis, a shareholder of reference has to contribute according to their shareholding.

Thus if, say, Standard Bank Group [JSE:SBK] were to go to the wall and required a R1bn bailout, the Industrial Commercial Bank of China, as a 20% shareholder, would have to stump up R200m.

A 15% shareholder would need R150m, the kind of sum that empowerment partners - who often have to borrow to finance their deals in the first place – would struggle to raise. Smaller shareholders do not face such obligations.

But labour has refused to budge on the matter, first staging its own walkout from the charter in 2008.

It argues that the financial crisis showed that government bears the ultimate cost of a bailout. It further argues that the probability of a bailout being needed is low.

Banks have publicly committed to helping drive the charter to be gazetted as an empowerment code, in line with legislation that came into effect after the charter was adopted.

Cas Coovadia, managing director of the Banking Association, declined to respond to the claim that the banks are contemplating a pull-out, noting instead that “the Banking Association has been critically involved in negotiations at the Financial Sector Charter Council for numerous years.

This demonstrates our commitment to transformation in the industry and its role in broader socioeconomic transformation.”

Coovadia added that “all constituencies represented on the Council are engaging with each other to resolve outstanding issues in our commitment to getting a sector code gazetted”.

He said it would be inappropriate to comment publicly on continuing discussions, before adding, “we have not withdrawn from the negotiations”.

Standard Bank Group chief executive Sim Tshabalala, speaking on behalf of the bank and not the association, said: “It is not accurate that we are pulling out of the charter.”

He said negotiating parties “may inevitably find themselves in circumstances where they agree to disagree on matters of principle”, but pointed out he had no knowledge of such disagreements.

Banking Association chairperson and Investec [JSE:INL] chief executive Stephen Koseff did not respond to queries as he was said to be in Australia.

FirstRand [JSE:FSR] spokesperson Sam Moss declined to comment and referred all queries to the association. Absa Group [JSE:ASA] and Nedbank Group [JSE:NED] had not responded to queries by late Thursday.

The Financial Sector Charter was adopted in 2004 as the financial service industry’s contribution to social transformation.

It commits the industry to meeting a range of transformation targets, some of which, like broadening access to financial services, are uniquely applicable to the financial services.

One of the charter’s earliest outcomes was the Mzansi account, offered by all major banks and the Post Office to low-income earners. Banks frequently point out, as Coovadia did during the summit, that when the charter was in force they met most of their targeted spending requirements.

These include R42bn in affordable housing, R5bn for SMME funding and R15bn for empowerment funding.

But the last charter report showed banks were struggling in areas such as employment equity.

The bank industry argues that some targets have been rendered irrelevant by technology.

These include the need to have a financial services access point within a 20km radius.

This so people can check balances on their cellphones and walk to a local retailer to withdraw from the till, thus eliminating the need for banks to build bricks-and-mortar branches.