Members of Parliament want to hear from representatives from across the financial sector before they finalise a report that is likely to include recommendations on accelerating transformation within the sector itself and the sector’s role in transforming the economy.
This month, representatives from the South African Reserve Bank (SARB), Financial Sector Conduct Authority, Banking Association South Africa (BASA), Absa, Capitec, First National Bank, Investec, Nedbank, and Standard Bank appeared before a joint meeting of the National Assembly’s Standing Committee on Finance (SCOF) and Portfolio Committee on Trade, Industry and Competition.
The meeting with the banking sector was the first of series of engagements with the financial sector on transformation.
BASA and the individual banks presented data on the progress they have made with respect to black ownership, economic participation, and lending practices aimed at supporting historically disadvantaged groups.
The comments and questions posed by MPs from the ANC, EFF, and MK indicate they regard the banks’ transformation efforts as being designed to check the regulatory boxes rather than create substantive change. They said the banks have not demonstrated a meaningful commitment to addressing the economic disparities between black and white South Africans.
MPs also questioned the regulators’ commitment to transformation, alleging they are prone to acting against black-owned financial institutions. Changing the SARB’s mandate to include socio-economic development was also raised.
At the end of the day-long meeting, SCOF chairperson Joseph Maswanganyi (ANC) said the committees want to meet all the sub-sectors within the financial sector: insurers, retirement fund administrators, and asset managers.
He said the committees should also meet with state financial institutions, such as the Public Investment Corporation, the Development Bank of Southern Africa, the Land Bank, and the Industrial Development Corporation.
What the committees want
Maswanganyi and Mzwandile Masina (ANC), the chairperson of the trade, industry and competition committee, spelled out the intended outcomes of the engagements with the financial sector.
Opening the meeting, Maswanganyi said “deeply entrenched structural inequalities continue to pervade the financial sector, despite the progress that has been made in including previously disadvantaged South Africans”.
He said the indicators related to black ownership, enterprise and supplier development, and access to finance for historically marginalised communities continue to fall short of established benchmarks.
National Treasury and the Department of Trade, Industry and Competition must provide comprehensive updates regarding measures implemented to enhance transformation and financial inclusion. The SARB and the FSCA must evaluate how their regulatory and prudential policies align with the nation’s transformation objectives.
He said BASA and the individual banks “must be held accountable” for their shortcomings in meeting transformation targets, particularly regarding ownership, procurement, and financial support for black-owned enterprises.
Parliament will “not hesitate” to consider legislative interventions to assure compliance with transformation.
“The persistent failure of financial institution to submit requisite compliance reports under the B-BBEE Act signifies a critical regulatory gap that necessitates urgent attention from Parliament,” Maswanganyi said.
‘Accelerating inclusive growth’
Masina said the country “presided” over at least R49 trillion in assets, which includes those held by the SARB, the National Revenue Fund, commercial banks, retirement funds, shadow banks, stokvels, and households. With such assets, he said “it can’t be” that the majority of the population is not working, and inequality and poverty persist.
An estimated R4 trillion is required “to ramp up” infrastructure. “I believe that between the heads seated around here, it shouldn’t be a no-brainer that we can have such an amount of money made available responsibly, as we’ve been emphasising, within the credit lines to make sure that we can build South Africa,” Masina said.
“We must take measures which accelerate the transformation of the financial sector and address matters which support the real economy, as well as support for small businesses, as a matter of urgency,” he said.
“The structural constraints, such as the high concentration levels, the high liquidity levels in sectors require bold and decisive actions towards accelerated inclusive growth. It is apparent that the current regulatory framework has not really worked in favour of the previously disadvantaged, who are excluded from the mainstream economy.
“In this regard, both the committees will consider and deliberate on the submissions that are going to be made, whether a comprehensive review of the legislation is required where it serves as a barrier to broader transformation […], whether it be through access to finance, licensing of black-owned banks, legislating accountability, and ensuring consequence management for anti-transformative and anti-competitive conduct by banks with deep assets […] We need to find a way to have these assets reinvested in the productive sectors of the economy, with particular support for previously disadvantaged individuals. If we need to legislate, we will have to do so. We will, however, be guided by the balance of evidence.”
Parliament will establish mechanisms to ensure that the broader financial sector is engaged “so that we can have a solution that is going to assist South Africa moving forward”, Masina said.
He said “the financial sector is just the same player” – the retirement funds and the insurance companies own the banks. Therefore, Parliament has to engage these sectors on how to open “the space” to more players, to ensure there is transformation.
Ways must be devised – which include legislation – “to compel” the banks to allocate a certain portion of their loan books to sectors that will deepen the country’s industrial base and accelerate inclusive growth, Masina said.
He said the SARB should consider expanding its mandate beyond ensuring price stability, to address socio-economic challenges, particularly the high level of unemployment.
Banks report on their progress
During the meeting, the banking sector highlighted its role in promoting economic development and transformation.
BASA’s managing director, Bongiwe Kunene, said nine of the biggest banks in South Africa, which control 83% of the industry’s assets, have already attained Level 1 B-BBEE status.
On key metrics such as black ownership, economic interest and some management targets, the banks were ahead of targets in the Financial Sector Code.
According to the 2024 transformation in banking report, there has been a consistent improvement in key transformation metrics year-on-year except for the period of the Covid pandemic. For example, in 2023, data showed that blacks held 38% of voting rights, 29% of economic interest, and significant percentages in managerial roles.
The banks reported substantial spending on skills development (R5.6 billion in 2023, including R3.2bn for black women) and supplier development. They also invested heavily in various sectors: R366bn in manufacturing, R215bn in infrastructure, R209bn in agriculture, R325bn in sustainable development, and R261bn for small businesses.
Each of the six banks shared a range of data as evidence of their efforts to support individuals, businesses, and the country’s economic development.
Absa, for example, told MPs that more than 90% of its lending in South Africa is productive (non-consumption-based). The bank has more than R52bn drawn in exposures to SMMEs and corporates in the agriculture sector. It has provided more than R10bn in funding to small businesses. Absa has more than doubled its affordable housing lending since 2019, and its affordable housing loan book stood at about R18bn at the end of 2023.
Over the past five years, it has put R1.5bn into corporate and social investment projects that have impacted more than 1.2 million people. During the Covid-19 pandemic, Absa provided more than R60bn in debt payment relief for its clients.
Over the past 10 years, Absa’s loans to customers have grown by a compounded annual rate of 62%, which is higher than the average GDP growth rate of 0.8%.
MPs are not convinced
But MPs from the ANC, EFF, and MK took issue with the banks’ headline numbers about how their assets are invested across the economy by value. They wanted the banks to provide information on the number of black people who are benefiting from this finance.
Furthermore, they said the achievements highlighted by the banks did not match the on-the-ground experiences of many South Africans, and they called for systemic changes to the banking sector.
MPs from ActionSA, the DA, and the ACDP were of the view that the banks could do more to grow the economy and help South Africans.
DA MP Kingsley Wakelin queried the banks’ submissions that they are providing significant support to small businesses. He cited a 2024 report by Finscope in which about 50% of SMMEs said the inability to access finance is the main hindrance to starting a business.
Lending practices
One of the issues that came up during the meeting was the allegation that the banks engage in “racial profiling” when granting loans. ANC MP Lufefe Mkutu said the allegation is not that the banks charge a white person an interest rate of, say, 5% because he is white and a black person 24% because he is black. Rather, the “matrix” the banks use to assess risk does not take into account the country’s history that has resulted in the majority of black people not having assets. As a result, they struggle to obtain affordable finance, whether to start businesses or for student loans.
Capitec’s chief executive, Gerrie Fourie, outlined the obstacles preventing the bank from providing credit to more people at lower interest rates.
He said most people in the informal or township market are not banked and 80% of transactions are cash-based. “You’ve no information, so it’s extremely difficult if the people don’t bank and they don’t do transactions electronically to actually really understand how to service them.” Ways must be found to get people to transact electronically so the bank can help them.
Fourie said another challenge lay in the absence of title deeds for communal land. “You can’t provide credit on that; you can’t give a mortgage on it.” There is an opportunity to unlock real value if a solution could be found to this problem.
Then there is the cost of unsecured lending. The Basel IV banking regulatory framework means that institutions providing unsecured loans require double the amount of capital than those providing secured loans, “so immediately your cost of providing credit is much higher”, he said.
Furthermore, Fourie said the National Credit Act and the affordability assessment regulations are out of date. The affordability regulations require credit providers to assess a consumer’s ability to repay debt before granting credit. Fourie said the regulations have not been updated since 2015 to take account of inflation, and they are not suitable for the digital banking environment.
