Bankers bash nationalisation

2011-08-06 10:13

Banking captains of ­industry renewed their counterattack this week against calls for the nationalisation of banks, warning that such a ­misstep could hurt South Africa’s investment and economic growth prospects.

Some banking honchos have pointed out that the state was ­already a significant player in the local credit market and therefore needed to focus on improving and extending its lending to areas of the economy that were
neglected by the commercial banks, mainly start-ups and ­distressed businesses.

Others have cautioned that ­nationalisation could turn ­profitable and well-capitalised ­local banks into loss-making ­lenders riddled with bad debts.

Louis von Zeuner, deputy chief executive of banking group Absa, warned that nationalisation could harm the wellbeing of the banking sector, which is still recovering from the global recession that led to the economy shedding more than 1 million jobs.

“We are mindful of the debate that is taking place at the ­moment, but we need to focus on boosting growth and
attracting investment.

“The financial services sector weathered a severe financial crisis. It is important that we should not do anything that will change the wellbeing of the ­sector,” he said.

Nedbank chief executive Mike Brown also sounded the alarm bell on the nationalisation debate, arguing it was hurting ­investor confidence. He urged the country to focus on ­creating jobs and luring much-needed investment.

An executive from a major bank, who asked not to be named, wondered why the ANC Youth League wanted the state to seize banks, because it already owned a plethora of development finance institutions (DFIs), which are ­designed to stimulate the ­economy and address market ­failures in the banking industry.

“It is not a bad thing that the state owns these institutions ­because those entities have a risk appetite that banks do not have.

“The question for me is: how do you get these institutions to ­partner with the private sector to address market failures,” the executive said.

The government owns a number of DFIs, such as the Industrial ­Development Corporation, the ­Development Bank of Southern Africa, the National Empowerment Fund, the Land Bank, the National Housing Finance Corporation and Khula Enterprise Finance.

These DFIs finance infrastructure projects, large-scale industrial projects, black economic ­empowerment transactions, ­agriculture, low-income housing and small businesses.

Between them, these DFIs carry assets worth R176.4 billion on their balance sheets, a drop in the ocean compared with nearly R4 trillion worth of assets owned by the country’s four major ­lenders – Standard Bank, FirstRand, Absa and Nedbank.

On top of this, the state owns asset manager Public Investment Corporation, which manages R911 billion on behalf of pension savers employed by the ­government and beneficiaries of the Unemployment Insurance Fund. The state also owns ­Postbank, which is set to enter the retail banking space to ­broaden access to financial ­services for low-income earners.

The state also owns provincial DFIs, which control billions of rands meant for cash-strapped ­entrepreneurs.

But the performance of these provincial DFIs leaves a lot to be desired. They also provide a glimpse of what commercial banks could look like after being taken over by the state.

They are performing poorly due to writing bad loans. To illustrate the point, take the Eastern Cape ­Development Corporation (ECDC), KwaZulu-Natal’s Ithala Development Finance Corporation and the Limpopo Development Corporation (Limdev). They are all plagued by bad debts.

Last year, the ECDC pumped R380 million into needy ­businesses, but ended up writing off just over half of that amount.

Ithala lent R1.5 billion in 2009, but defaulters hit it to the tune of R696 million.

Last year, Limdev lent R138.1 million, but R35.8 million was impaired debt.

A chief executive of a provincial funder, who asked to remain ­anonymous for fear of being ­vilified by politicians, said ­nationalisation could destroy the local banking industry.

“The state will not gain anything by taking over the commercial banks because we may end up with a situation of reckless lending and a huge spike in bad loans.

“You could see a lot of money being channelled to political cliques and elites. We will mess up the local financial markets if we nationalise commercial banks,” he warned.

Questions have also been raised by analysts as to why the state should take over banks that did not need bailouts and were pumping credit to poor consumers.

“There are no grounds to ­nationalise local banks,” said an analyst. “If the commercial banks posed a systemic risk by lending recklessly, as was the case in the US and Europe, or were not lending to support economic activity, perhaps I would have understood. Neither of the two is happening.”

The analyst pointed out that loan advances to the South African economy grew by 12% over the past 10 years. He added that loan advances to the low-income market was growing at more than 10% a year, thanks to the inroads made by Capitec Bank and African Bank. This has resulted in the big four banks also targeting that space in search of higher profits.

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