Fin24

Banking system security trumps BEE

2012-09-02 18:11

Johannesburg - The standoff between bankers’ associations and parties calling for increased empowerment is nowhere near being resolved.

At the heart of the three-year standoff is whether the stability of the banking system is worth risking in the name of black economic empowerment (BEE), and whether the “once empowered, always empowered” rule should apply.

In August, black investors in retail lender Absa, represented by Batho Bonke Capital, discussed a special resolution to cash in their 3.9% stake, worth R2.2bn after tax.

If they did and the once-empowered rule were to change, Absa would need to enter into a new BEE deal.

If the rule stayed the same, Absa would be regarded as complying with BEE regulations even if it no longer had a BEE partner.

“We are not going to agree with a code that is going to mess up the industry,” said Cas Coovadia, the managing director of the Banking Association of South Africa, the banking sector’s mouthpiece.

Coovadia said the industry will report according to the generic codes it had been following for the past two years.

One of the latest attempts by Trade and Industry Minister Rob Davies to align the industry charter with generic codes, the so-called codes of good practice, was made in March this year when he gazetted the second phase of the draft code.

All of South Africa’s big four banks have BEE partners and there is an indication that some of the black investors are interested in selling to realise returns on their investments.

Spotlight on 'once-empowered, always empowered' clause

City Press understands Davies wants the “once-empowered, always empowered” clause excluded from the final code.

Banks want it included to ensure that they don’t go back to concluding BEE transactions should their current black partners desert them.

The provisional financial-sector code contains nine elements that determine broad-based empowerment as opposed to generic codes, which contain seven elements.

The generic elements of the BEE code are: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

But the financial-sector code takes things a step further and includes two more elements in the form of empowerment financing and access to financial services.

On ownership, the draft code calls for 15% direct black ownership in banks, insurers and other savings companies, as opposed to 25% ownership in the generic codes.

In terms of market capitalisation, the country’s four major lenders – Standard Bank [JSE:SBK], Firstrand Bank [JSE:FSR], Nedbank [JSE:NED] and Absa [JSE:ASA] – are currently worth R522bn collectively.

To comply with the draft code, banks will have to transfer R78.3bn of equity into black hands.

The standoff is further complicated by the banking industry’s requirement that it complies with a raft of Basel III banking regulations.

These regulations stipulate how much equity capital (money that is not borrowed) banks need to put aside to guard against bankruptcy.

In the wake of the 2008 global credit crisis, which led to the failure and in some cases bailout of many banks, lenders are now required to put aside capital of their own to reduce the risk.

Ismail Momoniat, head of tax and financial sector policy at the national treasury, said the Basel III regulations will take precedence when it comes to dealing with BEE to safeguard South Africa’s financial stability.

“BEE measures can’t trump financial stability,” he said.

BEE investors must have cash

He added that investors who own 15% of a bank are classified as shareholders of reference and Basel III will require them to hold more cash reserves to ensure that if the bank is in trouble they are able to tap into the reserves to bail out the bank.

“If you are going to buy 15%, you must have cash and it must not be cash that is borrowed, it must be your own cash,” Momoniat said.

Thabo Masombuka, the founder of BEE advisory firm Florytouch, warned that it will be very difficult for blacks to hold substantial stakes in local banks as this would require huge amounts, which they don’t have.

“Broad-based black communities should not be exposed to the huge risk of big stakes in banks. In the event of a global economic meltdown, they will be wiped out,” he warned.

He also warned that if banks resort to reporting according to the generic codes, poor black South Africans may lose out as the banks will have no obligation to provide services to them.

- City Press


Comments
  • djmain1 - 2012-09-02 18:43

    Bankers are criminals - time to send them to jail.

      nico.esterhuizen.5 - 2012-09-02 20:32

      You have no idea what you are talking about....

      ro.jhb.1 - 2012-09-03 06:56

      So are idiots - however you clearly still out!

  • maxil.travianus - 2012-09-02 18:46

    There is no "once empowered, always empowered" rule. PLEASE list the place in the BEE Codes of Good Practice where this is.

      rupesh.hari.7 - 2012-09-02 21:08

      yes, you are right. There is a semi-"once empowered, always empowered" clause, i.e., par 3.5 of code 100, statement 100. They require a fully once empowered, always empowered clause without the downside of such a clause (i.e., sell part of the company to a begger and buy it back the next day). Anyway, the whole idea of BEE does not work. They need to come up with a smarter empowering strategy like investing in education, etc.

  • paul.john.790256 - 2012-09-02 18:47

    Banks in the US and London are being exposed for their dodgy practices. Yet, the SA banks are allowed to continue with these very practices. Why does a cheque need 10 working days to clear in today's modern digital age? Why do I pay bank charges when depositing money? Afterall, banks are in the business of collecting deposits, why should I pay for it. I think SA banks should have a BEE component always. Why? Well, banks are more likely to loan money to people similar to the make up of their board/management. Investec loans to more Jews, ABSA to more Afrikaaners, etc. I don't think you can have successful small businesses, especially black businesses, unless the banks start to loan money and take a risk in them. As for Basil III, the SA reserve bank has already made facilities available to local banks in order to secure compliance. Please don't use Basil III as an excuse

      rupesh.hari.7 - 2012-09-02 20:58

      capitec bru, capitec.

      themba.nteyi - 2012-09-04 21:07

      you are so right, why do I pay clearance when the cheque is from the same bank and branch ? Smart crooks these guys

  • john.cryink - 2012-09-02 18:55

    DO AWAY WITH BBE!!!!!

      bob.small.7547 - 2012-09-02 20:53

      As long as they continue BEE after nearly 2 decades, The more they are admitting their inabilities and the need for legislation such as this to assist their sorry asses..!

  • claudia.meads - 2012-09-02 18:55

    Ha, ha, ha... You have to love these "cases" - it formalises the verity that Black Economic Empowerment (the South African moniker for Affirmative Action) has only one de facto consequence - viz a collapse of functional standards and as such, it is against the constitution of the country in every manner conceivable. I am amazed companies do not simply ignore the entire BEE matter en masse.

      Nathan - 2012-09-03 19:48

      Claudia, we do ignore it.. there are so many ways to get around hiring incompetents who free ride into your offices because of their tan.. I hire on merit.. full stop.. why don't I care about "BEE".. because I dont and will never , do business with government.. EVER!

  • Gerda Malherbe - 2012-09-02 19:45

    What a sick, twisted political system we live in.

  • julio.sanfona - 2012-09-02 20:36

    I don't get it. The recepients of BEE deals want to share in the profits of the banks but don't want the risks of investing their communities assets, in case there is a banking melt down. Business is about taking calculated risks, there are no guarantees that there will always be profits. Until this is clear and understood, one cannot be considered an entrepreneur, therefore don't go into business, rather remain a wage earner.

  • jim.dickson2 - 2012-09-03 07:32

    Put in a rule that BEE shareholders can only sell to qualifying BEE shareholders. Problem solved!

  • eyesears.handsfeet - 2012-09-03 08:37

    If the banks don’t play ball, then they are going fall prey to what happened to Saambou Bank. Call for The minute something goes wrong, they "freeze" the accounts, so in actual fact, banking institutions means nothing. They should not even exist. The BEE system is just another way to "nationalise" everything. How investors cannot see that, is beyond me. Investors' greed for money is so great, and they will realise that you cannot win all the time, nor are they going to get all their money back. Somewhere something is going to collapse and what you think you have "saved" will no longer belong to you, even if it does lay in a swiss bank account. As the banks are the holders of many houses, land, businesses and various others. Nothing that you have worked for all your life will belong to you anymore, even though you have signed for it. That is why the ancyl and some others are shouting for certain things to happen, because it will be their way of taking everything "away" only to realise that it won’t even belong to them as they will sit with the debt of the current government.

  • eyesears.handsfeet - 2012-09-03 08:37

    Some of the bankers see all of this and are really trying to protect people for falling prey to the ungovernable that want to govern but don't want to take the risk (not realising that they themselves ancyl and others)are going to be the ones that get hurt in the end. Some people really do not know what they are asking for (before it is too late.) The only thing holding them back is the laws and that’s why they are trying to sneak laws through in parliament, as they can’t get it right in the legal way. They really are busy setting themselves up to fail, one system after the other, running after, overseas technology and advise, while every single system around the globe are busy failing.

  • cosmic.tone.3 - 2012-09-03 11:02

    The BEE bastards collected and left. ABSA must be set free from further BEE money lounderers. Now maybe ABSA can be returned to the hard working employees and newly disadvantage citizens that made it a brilliant bank that it once was before BEE and Barclays.

  • CDerrenberg - 2012-09-03 13:22

    TALKS, SPECULATION, HOPE... HOPE... HOPE!!! That's all it is... Nonsense talks to ease investors fears for another world economic collapse. Keep on buying shares into banks and secure their future while you watch all your hard earned savings go down the drain when the financial sectors have a meltdown soon... Sooner than all of us think!

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