New law set to break the banking barriers

2010-06-05 14:59

The National ?Treasury is planning to table the long-awaited

Dedicated Banks Bill for public comment before the end of the year as it seeks

to ­introduce new players into the highly concentrated South African banking


Ismail Momoniat, the treasury’s deputy director-general for tax and

financial sector policy, told City Press the department would push for the bill

to be enacted ­either late this year or early next year.

“With this ­legislation we are trying to get rid of barriers to

entry into the banking space. Over time we are hoping that new players will be

able to compete with the big guys,” Momoniat said.

If enacted, the bill will effectively pave the way to establishing

the ­second tier of banks which ­collapsed in 2002 when lenders like ­Saambou,

BoE and Unifer caved in after incurring huge bad debts due to lax lending.

The legislation has been in the pipeline since 2004 but has not

seen the light of day.

Two years ago a senior ­government official told City Press that

the global credit crisis had contributed to delaying the passing of the


At the time, the official said that market conditions were not

conducive to setting up banks ­because start-up costs would be too high as the

crisis had dried up capital in the financial markets.

The credit crisis, which was sparked by loose lending in the US and

the subsequent collapse of that country’s housing market, led to many banks in

the West imploding or being bailed out by their ­governments.

In Africa the Nigerian central bank had to recapitalise six of its

banks last year and sacked their chief executives following ­allegations of

mismanagement and poor lending practices.

But Momonait said the ­developments elsewhere should not be used as

an excuse not to have more banks in South Africa.

Momoniat was part of the ­treasury’s four-man delegation headed by

Finance Minister Pravin Gordhan and his deputy, Nhlanhla Nene, which met with 11

bank bosses to discuss measures to improve competition and cut bank fees.

Accusations of cartel-like ­behaviour and collusion by the

country’s big lenders led to the Competition Commission launching a probe in

2006 to examine bank charges, which were deemed excessively high.

Neil Grobbelaar, the joint ­managing director of micro-lender Real

People, said the legislation could boost competition in the banking sector and

broaden access to financial services for many ­low-income South Africans.

He said the micro-lender was ­interested in getting into the

­banking industry but would first study the pros and cons of the ­dedicated


Grobbelaar said: “In principle we are interested in getting into

the banking space if the bill is passed.

“It will go a long way in ­increasing access to financial ­products

for the mass market and it will be good for the consumer ­because it will

encourage ­competition and result in ­reduced costs,” he said.

Momoniat is not too optimistic that the introduction of the

­legislation will result in a plethora of banks springing up to challenge the

dominance of the likes of Absa, First National Bank, Nedbank and Standard


“The legislation is ­designed to make it easier to get in but it

does not mean you will ­definitely get in.

“To run a bank you need real, hard cash and not borrowed funds. A

lot of people are interested, but whether they have the funds to start a bank is

another matter,” Momoniat said.

André Venter, spokesperson for trade union the United Association

of SA, which this week called for ­government to break up the ­banking cartel,

said real ­competition should be introduced into the South African banking

­industry ­immediately.

“The banks are ­paying lip service when they say they will cut

costs,” said Venter.

“Government must introduce the second tier of banks ­immediately to

introduce real ­competition.”

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