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Johannesburg - New allegations by President Jacob Zuma’s supporters that South Africa’s biggest banks are frustrating efforts to address racial inequality signal an escalation of a battle for control of the nation’s financial system, including the Treasury.
Protestors from the ruling African National Congress’s youth wing invaded a Barclays Africa branch on January 26. Then on Monday, the ANC’s top leaders said the four biggest lenders can’t be allowed to continue dominating the industry. These banks have refused to do business with companies linked to the Gupta family, who are in business with Zuma’s son.
The same day, Finance Minister Pravin Gordhan accused the Guptas of trying to undermine his ministry. He commented in court papers filed to rebut the family’s call for him to force banks to re-open accounts of businesses they control that the lenders closed last year because of allegedly suspicious transactions. The Guptas say there’s no evidence to justify the closure.
“Partly this is related to various factions within the ANC trying to pressure the banks politically in retaliation to the banks’ actions against the Guptas and their related entities last year,” said Rowan Williams, director of Nitrogen Fund Managers in Johannesburg with R1.4bn under management.
On Thursday, Business Day reported that Zuma is preparing the way to remove Gordhan or his deputy Mcebisi Jonas.
The story refers to the ANC's lekgotla last week, where Zuma criticised Treasury "for frustrating the party’s economic transformation agenda", according to an unnamed source.
"The sources said Zuma had criticised the Treasury for not availing funds for certain projects, saying his ministers constantly complained about being inadequately resourced by the Treasury to carry out their mandates."
Eroding confidence
The criticisms of the banks and Gordhan risk eroding confidence in the financial-services industry, which is the largest in the R4.3trn economy, if real estate companies are included in the same category. Concern the banks may face increased political scrutiny are weighing on stocks. The nation’s six-member banks index is down 4.5% this year, the most among the local bourse’s major indices.
The fight over the financial system is intensifying as Zuma prepares to step down as ANC leader in December.
“The truth that stands revealed as the real plot is the systematic and highly organised campaign by the Gupta family and its associates against the National Treasury, myself and other targets,” Gordhan said in the court papers.
‘Reverse victim’
That charge was refuted by Oakbay Investments, a company controlled by the Guptas
“The affidavit is a case of reverse victim syndrome. The applicant proactively came after us and smeared our name,” the company said by email. “We look forward to clearing our name in court.”
Zuma’s relationship with the Guptas, who he’s described as his friends, has sparked a series of controversies over how much clout they wield in the government. Former public protector Thuli Madonsela implied in a report last year that Zuma allowed the Gupta family to influence Cabinet appointments and the awarding of state contracts. Zuma and the Guptas deny any wrongdoing.
Collusion charge
The Guptas have alleged that the lenders, including Standard Bank, Barclays Africa, FirstRand and Nedbank, colluded when they decided to close their accounts. The banks deny the accusation.
The racial makeup of the banks’ leaders has made the industry a target for politicians. Of the five biggest lenders, which together control about 90% of the local banking market, only Standard Bank has a black co-chief executive officer, and he has a white counterpart, while the rest are all headed by whites.
The ANC Youth League, in a statement on January 18, accused the central bank of protecting lenders that they say use credit-risk assessments to prejudice young blacks by saddling them with high interest rates.
Uncertainty over the financial system heightened in December 2015 when Zuma unexpectedly fired Nhlanhla Nene as finance minister and replaced him with a little known lawmaker. That sent bank stocks into a tail spin when they lost about R155bn in value over two days, the most on record, and weakened the rand. Four days later, under pressure from ANC and business leaders, including bank CEOs, Zuma named Gordhan to the post.
Since then Zuma and Gordhan have feuded over the management of state-owned companies and the affordability of a proposed nuclear power expansion.
Credit rating
Gordhan has spearheaded South Africa’s efforts to keep its investment-grade rating and is seen by international investors as a steady hand to guide the economy. The Treasury’s pledge to keep spending under control and limit debt was cited as crucial for S&P Global Ratings and Fitch Ratings to avoid a cut to junk.
Drawing the banks into the political arena could be risky for the country, according to Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town.
“Bank bashing has become a popular sport and yet a sound financial system is key to ensure the economy remains on a firm footing,” he said.
