The past year has seen the introduction of some legislation that – despite good intent – could threaten the sustainability of the banking industry and the wider economy, says Nedbank CEO Mike Brown.
Brown presented his report as chairman of the Banking Association South Africa (BASA) on Tuesday (30 April).
One of the key focuses of the report was the possible impact of the National Credit Amendment Bill which proposes a debt write-off for thousands of South Africans.
“BASA supports debt intervention to assist low-income consumers whose circumstance have changed for the worse, through no fault of their own, and when formal debt counselling processes are inadequate,” he said.
“However, BASA believes the National Credit Amendment Bill is not a sustainable debt intervention measure as it fails to balance the rights of consumers and credit providers, making unintended consequences likely for the financial system and the wider economy.”
The worst of these is that it will make it more difficult for banks to extend credit to those that earn R7,500 or less, the very people the Bill proposes to help, Brown said.
“Banks have a fiduciary duty to protect the deposits of their savers and investors and cannot use their funds to extend credit if they cannot be sure the loans will be repaid.”
The National Credit Amendment Bill was officially passed by the National Council of Provinces in March and has now been sent to President Cyril Ramaphosa to be signed into law.
The bill aims to provide relief to over-indebted South Africans who have no other means of extracting themselves from over-indebtedness.
Specifically, the bill will allow certain applicants to have their debt suspended in part or in full for up to 24 months.
This debt may then be extinguished altogether if the financial circumstances of the applicant do not improve.
The criteria for meeting this debt write-off include:
- Where the unsecured debt is not more than R50,000;
- Where the unsecured debt was accrued through unsecured credit agreements, unsecured short term credit transactions or unsecured credit facilities only;
- Where the person earned no more than R7,500 a month over the last six months.
Expropriation of land
Another legislation change which could be detrimental to South Africa’s economy and its banks are the expropriation of land without compensation, said Brown.
In 2018 Parliament agreed to change Section 25 of the Constitution of the Republic of South Africa to allow for the expropriation of property without the payment of compensation.
Brown said that BASA acknowledges that the current ownership of land and the production of food in South Africa is not sustainable and have their origins in colonialism and apartheid.
“However, we believe land reform should occur in an orderly manner that does not increase food insecurity, detract from property values or dilute property rights, or impact on investment and economic growth,” he said.
“This can be done without amending the Constitution and introducing the danger to banks and the economy of weakening property rights in South Africa.”
“We remain optimistic that a practical but equitable solution, which is socially and economically viable and does not pose any systemic risk to the banking system, will evolve in 2019.”
Nationalising the Reserve Bank
Brown said that the South African Reserve Bank Amendment Bill and the current debate on the ownership of the SARB is also an unnecessary distraction from the urgent challenges facing the economy.
“While monetary policy is important for job creation and economic growth, it is not the only factor,” he said.
He added that it is essential that the Reserve Bank enjoys continued independence as it strives to achieve its mandate, as set out in the constitution, ‘to protect the value of the currency of the Republic of South Africa in the interest of balanced and sustainable economic growth’.
“An internationally recognised, effective regulator is essential to protect the savings of South Africans and to ensure that our banks have cost-effective access to the international financial markets,” he said.
“We will continue to advocate for the independence of the SARB.”