The banking landscape is changing as costs to market entry fall. A relatively new entrant, Capitec, has grown from nothing into a significant player, the first state-owned bank, Postbank, is about to be licensed and unsecured lender African Bank has been resurrected.
But the country’s only black-owned bank, VBS Mutual Bank, was recently put into curatorship and the big five banks — Absa, Standard Bank, First National Bank (FNB), Capitec and Nedbank — have a combined 90% market share.
Relentless efforts by government to transform the financial services industry through the financial sector charter and the Broad-Based Black Economic Empowerment Act have not seen black-owned entities gain entry.
The Economic Freedom Fighters (EFF) is offering a solution to the dominance of the big five banks. Its chief whip, Floyd Shivambu, earlier this month submitted a private members Bill to Parliament to amend the Banks Act to allow for state-owned entities to function in a similar capacity to commercial banks.
The EFF said the financial sector contributes 22.2% to gross domestic productand controls assets worth about R4.8-trillion.
The party is is adamant that having state-owned banks will work.
“If South Africa is going to industrialise, such industrialisation must be centered around banks and banking to make money available for productive transformative sectors such as manufacturing, agriculture and finance,” said Shivambu.
The Banking Association of South Africa (Basa) said it is still consulting its members on the Bill. “In principle we have no objection to the establishment of new banks and increased competition to better serve consumers, as long as they are properly regulated to protect the savings and investments of depositors”, said Basa’s head of client services, Kajsa Claude.
Section 15 of the Banks Act prohibits state-owned companies from functioning as a bank unless authorised to do so by the South African Reserve Bank (SARB). Postbank has applied to the Reserve Bank for a licence to operate as a commercial bank. Postbank will get its licence before the end of the year, according to Reserve Bank deputy governor Kuben Naidoo.
Naidoo told the Mail & Guardian that the Reserve Bank was not against state-owned entities having their own banks but they have to meet the required standards. He said Postbank being a licensed bank “will be good for the sector and good for the country”.
The EFF cites the Industrial and Commercial Bank of China as one of the biggest in the world by market capitalisation. The Chinese government is the largest shareholder in the bank, with direct ownership of 34.6%. Other countries with state-owned banks include Germany and Brazil.
But Lumkile Mondi, an economics professor at University of Witwatersrand, warned that the EFF Bill “is a sinister move to try to get politicians’ hands into the till and loot as much as possible under the name of radical economic transformation”.
The Association of Securities and Black Professionals (Absip) says there are 17 registered banks, two mutual banks, 14 local branches of foreign banks, two co-operative banks and 43 foreign banks operating in South Africa.
Between 2011 and 2016 the Reserve Bank issued banking licences to 12 institutions.
Last year, the Reserve Bank granted a depository licence to FNB former chief executive Michael Jordaan’s Bank Zero, Discovery’s chief executive Adrian Gore and TymeDigital, in which magnate Patrice Motsepe has a 10% stake.
But Absip president Sibongiseni Mbatha, speaking at the association’s roundtable on black banks in Johannesburg earlier this month, wanted to know “where [the] black banks?”
Mbatha said that establishing black-owned banks will not only increase diversity but it will also serve as an example for black enterprises and educate low-income communities in banking procedures.
Limited access to suitable banking products and services, savings and investment schemes and productive credit such as funding to black small and medium enterprises are some of many barriers of entry pointed out by a study by the National Empowerment Fund (NEF) on market failures in the banking industry.
“Why is it that despite the fact that South Africa has the largest and most sophisticated banking industry, almost a quarter of its population, mostly black, has no access to banking services of any kind?” Mbatha asked.
After Venda Building Society (VBS) was placed under curatorship in March this year over concerns of its liquidity, the Reserve Bank was criticised for not ensuring that wholly black-owned banks succeed.
Naidoo refuted claims that it offered white-owned banks preferential treatment. He said the Reserve Bank has worked hard to increase and eliminate barriers of entry for new players in the market.
“We do not have what is called a no-failure policy. Our job is to make sure that systemically significant banks do not fail, but there will be new entrants into the banking sector and some will fail,” said Naidoo.
Mondi said it is unfortunate that most South Africans are still unbanked and attributes this to the requirements that many financial institutions impose before people can use banking facilities.
“What is needed is a different perspective on how the black, marginalised and financially excluded can be catered for. They want to walk into a bank and feel at home,” Basani Maluleke, the newly appointed African Bank chief executive, told the M&G.
Maluleke said the use of jargon and terms were also a barrier for. “I keep hearing people prefer going to a mashonisa [loan shark] even if the mashonisa is going to charge them more [because] they know what they are getting themselves into, whereas a bank will tell you about a compound interest.”
“If a mashonisa says I am going to give you R10 000 today … pay me back in a month or I will break your kneecaps, that is simple, right?”
Mondi said South Africans will not use a bank simply because it is black-owned: “What they want is to know that when they put their money in there, it is guaranteed it will not disappear.”
But Isaac Mhlanga, an economist at Investec, said there is a compelling need for black-owned banks. “Anyone who owns capital, decides who to deploy it to, how to deploy it, and when to deploy it.”
Mhlanga said a black-owned bank will ensure that black small and medium enterprises, as well as lower-end consumers, are included in the financial system but: “If we are saying that this black bank should only lend to the neglected part of the market, that might imply that the likelihood of failure is high, and we are setting it up for failure.”
NEF chief executive Philisiwe Mthethwa has said: “If government is seriously considering the idea of a black bank, the Portuguese-owned Mercantile Bank is for sale. That will be a good hanging fruit to test the appetite for such a bank.”