/ 30 September 2008

A ‘patchy’ report card

The Financial Sector Charter (FSC) — currently in regulatory limbo — has been plagued by acrimony over BEE targets, particularly on issues of ownership.

But, although the FSC council’s debate on ownership attract the public spotlight, what has happened to other elements of transformation in the sector and how are local institutions performing?

The 2007 report is not available, despite a nine-month wait after the deadline for financial institutions to submit their records.

If the 2006 FSC council report is anything to go by, however, there remains a good deal of work for the industry to do.

Improvement in areas such as access to financial services, empowerment financing and skills development goes to the heart of BEE in the financial sector.

Labour and community organisation representatives in the FSC believe that progress has been ”patchy” at best and they are sharply critical of the fact that the 2007 report has yet to be released.

Nevertheless, Cas Coovadia, managing director of the Banking Association of South Africa, says that the sector feels it progressed ”reasonably well” in 2007.

He says that given the performance of the sector on the broader issues of the charter, the ”ownership debate is silly” because the sector feels the charter is ”working well”.

Coovadia says the banking industry recorded the highest increase in BEE procurement spending between 2005 and 2006.

It also achieved investments in transformational infrastructure of R1,8-billion in 2005 and R2,9-billion in 2006, while the total financial industry spend in 2006 was R9,1-billion.

The amount spent on infrastructure is way off its 2008 target of R25-billion. But Coovadia says infrastructural spend is aimed at designated ”areas of national need” and projects have to be identified by government to go ahead.

”We have had few projects put on the table by government,” he says.

Access to finance
Up to R13,1-billion was spent on low-income housing loans in 2005, which increased to R25,2-billion in 2006.

By the second quarter of this year R44-billion was spent on low-income housing and this is expected to increase to R52-billion by the end of the year. This is against a target of R40-billion for 2008.

Those qualifying for low-income housing loans needed to earn between R1 600 and R7 900, while the housing unit value cannot exceed R180 000.

The 2006 report states that the ”information suggested that funding was typically pitched at those individuals and households earning at the upper end of the housing band, with lower-income households representing a disproportionately small number of borrowers”.

The report also points out that lending and borrowing activity was concentrated in urban areas.

The industry spent R604-million on agricultural development in 2006. Coovadia believes that the industry seems well on its way to reaching its R1,5-billion target by the end of this year.

The sector spent R9,8-billion on African SME loans in 2006, which was already above the target of R5-billion.

Coovadia says the value of Mzansi accounts opened by the banking sector amounted to R2,9-million at the end of June 30 this year.

Although these figures seem promising, Collette Caine, representing community interests on the FSC council, says that community and labour organisations feel the performance on access to finances is ”disappointing”.

The example of Mzansi accounts, instituted by the banks as part of their transformation agenda and intended to provide affordable services to the unbanked is a case in point.

Caine says the Mzansi accounts provide a minimum service to poor customers.

In a survey last year run by the FinMark Trust — an organisation that aims to increase access for the unbanked — found that although uptake of the accounts had increased, only 40% of the total target market had been reached, far below the 80% required.

With regard to housing, Caine argues that many loans given to low-income applicants carry interest rates at least 3% higher than the prime rate offered to white, affluent homebuyers.

Caine says there is an ongoing dispute in the FSC over the banks’ refusal to set ”affordability standards” for low-income housing, which has yet to be resolved.

”If [the banks] have spent R52-billion on housing, they have done so entirely on their own terms,” she says.

Where banks have performed particularly well on empowerment financing, it is simply because the processes translated into substantial profits. But Caine says banks’ market activities remain ”business as usual”.

Skills development
The 2006 report pointed to alarmingly slow progress on skills development. In 2006 institutions underperformed against the target spending of 1,5% of payroll on black staff. Less than R349-million was spent on training black staff in 2006 than was spent in 2005.

When it came to employment equity the 2006 report recorded a ”mixed bag” of results.

Although African managers — both senior and junior — were under-represented, all other targets were met.

African women senior managers stood at 5,17%, against a target of 4%, while African middle managers just exceeded the target 30,1%, said the report.

African women middle managers exceeded the 10% target with 12,4% and African women junior managers did ”very well” at 24,1% against a target of 15%.

What real progress has been made will only be clear, however, when the 2007 results are released.