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Banking industry withstanding economic shocks - Coovadia

Jul 18 2017 18:27
Lameez Omarjee

Johannesburg – The banking industry remains profitable and South Africa’s financial system is still sound, but matters could be better, said Banking Association of South Africa managing director Cas Coovadia.

Coovadia was speaking at a briefing on the impact of the Financial Intelligence Amendment (FICA) Bill, hosted by South African National Editors Forum (SANEF) on Monday. Coovadia commented on the state of the sector.

“Despite the issues we have in the economy, the banking industry is looking reasonably well, it could look much better,” said Coovadia. There are 34 banks operating in South Africa. In the past year assets have gone up 2.9% to R4.9tr. Total equity is up 11.5% to R408bn.

The low economic growth environment has been impacting businesses and subsequently banks which provide services to them, explained Coovadia. The credit downgrade of banks, following that of the sovereign has also had a significant impact on the industry, said Coovadia. “It has a significant impact on the ability to raise money, and impacts the reputation of the industry.”

In turn, policy uncertainty also weighs heavily on business conditions. Coovadia said that although the FIC Bill had been signed, there are still guidelines that need to be clarified. President Jacob Zuma signed the bill into law in April, after it was passed by Parliament in May 2016, Fin24 previously reported. This came after the Financial Action Task Force (FATF) issued a warning to enact the legislation by June 2017.

READ: Relief as Zuma signs FICA bill into law

Finance Minister Malusi Gigaba later signed the bill and gazetted  provisions to be enacted on different dates, Fin24 reported.

Twin Peaks is ready to be signed by President Jacob Zuma. Coovadia said he hopes this does not go down the “FICA route” and is signed expeditiously.

Coovadia noted that the Mining Charter also impacted the industry in that banks provide significant funding to mines. 

Political uncertainty

Coovadia said that the impact of the Cabinet reshuffle is still being felt. The recall of the International roadshow which preceded it was not in national interest, he said. Coovadia, who was part of the roadshow in 2016 said that he witnessed how it was important to secure investment in the country, if done properly.

He added that the run-up to the ANC elective conference in December will exacerbate political uncertainty.

The lack of accountability erodes trust and confidence, he said. This results in a loss of significant opportunities for business, and a chance to bring about social cohesion, he said.

WATCH: Coovadia on how to rebuild trust between government and business

The banking sector remains sound and profitable, but volumes of business could be more significant if corporates started investing in the real economy, he explained. Policy and political conditions should be such, that it motivates investment, he explained.

To rebuild trust, after the President’s actions undone 18 months’ worth of work by the CEO Initiative to stave off a downgrade, Coovadia said business should continue to take an active role in promoting  “good governance” and a “clean State”.

Business should partner with civil society in this effort to fight corruption. “It’s an extremely difficult environment, let’s not run away from it.”

Radical economic transformation

Coovadia acknowledged the lack of transformation in the economy, and that the majority of people did not earn the “economic dividend” of democracy.

“We need to look at the restructuring of the economy to enable entry,” he said. The economy should represent all those in society and have access to finance, business, entrepreneurship and social development.

Part of achieving this is for business to bring its part in conducting business legitimately. Transformation should not just be a tick-box effort, but business should operate in a way to enable many people to have access to the economy, he said.

“We must get back to basics and make sure we are conducting business in the right ways.”

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