/ 29 April 2021

Empowerment financing slumps, but is still above target — banking sector report

Fedfd354 00 Has Bee Been A Dismal Failure 696x445
Empowerment financing dropped 19.5% in 2019, according to a new report on transformation in the banking sector.

Empowerment financing dropped 19.5% in 2019, according to a new report on transformation in the banking sector.

The report, commissioned by the Banking Association South Africa (Basa), shows that empowerment financing — the provision of finance for, or investment in, broad-based black economic empowerment (B-BBEE) transactions and companies — is the lowest it has been since 2016.

According to the report, empowerment financing dropped by R50-billion between 2018 and 2019 to R203.7-billion.

There were declines in the financing of all categories, except black agricultural financing, the report notes. The bulk of agricultural financing goes to large companies, it said, but the allocations to smaller companies jumped significantly in both 2018 and 2019

The biggest decline was in exposure to B-BBEE deals, which at R107-billion is 35% lower than it was in 2018.

The exposure of banks to black-owned small and medium enterprises dropped sharply in 2019, moving from R29.3- million in 2018 to R21.2-million. This could be due to the dire economic conditions, according to the report. 

Though there has been a fall in empowerment financing by the main commercial banks, it remains well above the Financial Sector Code (FSC) target, the Basa report notes. 

The report also notes that the big drop from 2018 was inevitable, because new empowerment financing targets introduced in 2019 meant that only new transactions concluded on or after 1 January 2018 qualified for recognition. 

The banking industry’s expenditure on socioeconomic development, which includes spending on organisations that predominantly benefit black people, also fell in 2019. According to the report, this decline (from R673-million in 2018 to R621-million in 2019) was largely due to allocation changes by a large bank and several small banks, which brought the expenditure amount below the 2017 level.

“Economic distress limits banks’ profit growth, which curbs the amount allocated to socio- economic development support, which is based on net profit after tax. The financial services industry paid 36% of all corporate tax (R122-billion) in 2019.”

The Basa report also said that black ownership measures declined in the last four years. This is as black shareholders realised value by selling shares and diversifying their investments away from banks. But these measures also remained above FSC targets.

According to the report, although black voting rights remained static at 28% in 2019, there were gains on this front for black women. Black women voting rights increased to 12.6% from 11.4% — the highest level since 2016.