Banks are on board with land reform, BASA declares

Cas Coovadia, MD of the Banking Association of South Africa. (Supplied)
Cas Coovadia, MD of the Banking Association of South Africa. (Supplied)

Managing director for the Banking Association of South Africa (BASA) Cas Coovadia has said the increase in the amount of loans from finance institutions to commercial farmers shows that the banking sector is committed to sustainable land reform in the country.

BASA reported un-audited figures which show that the quantum of loans that the four largest banks in South Africa made to farmers increased 11% from R133bn in December of 2017 to R148bn in June of 2018.

South Africa finds itself in a vulnerable position over various misconceptions regarding land reform. International observers including United States President Donald Trump's remarks on Twitter have yielded real life consequences for the performance of the rand, Bloomberg reported.

The rand appears to have reacted significantly each time a new development occurs in government’s quest to establish whether it is necessary to amend section 25 of the Constitution to all it to expropriate land without compensation. This week the rand fell more than 1.5% on continued concerns of the land reform policy. 

Coovadia said in a statement that banks continued to provide loans to commercial farmers, despite the uncertainty about land reform and possible amendments to the Constitution.

“This is hard evidence that banks are committed to sustainable land reform and are confident that South Africa can find practical solutions to the challenges of restitution, redistribution and security of tenure,” he said.

Coovadia said an effective and sustainable amendment to section 25 of the Constitution must take into account secure property rights, economic stability, as well as meaningful urban and rural development.

“Amending section 25 – the property-rights clause – has the potential to undermine all property rights. This represents a risk to every home owner, business owner and investor in the country. Insecure property rights retard investment and economic development, which South Africa needs to deal with the challenges of unemployment, inequality and poverty,” he said.

BASA would not support a change to section 25 of the Constitution, as they believed it already has a provision for expropriation without compensation, Coovadia explained. Formalising security of tenure for communal land will promote access to the formal economy, he said.

He added that in bids to support government in facilitating land reform, government must ensure that banks can recover the loans that they have already extended against properties and agricultural operations.

Banks have invested about R1.6trn of South Africans savings, salaries and investments into property loans. Banks rely on these properties as security for the loans.

Should property values decrease markedly due to legislative changes or loss of investor confidence, banks – and the economy – will not be able to absorb a shock of such magnitude,” he said.

He concluded that BASA was concerned that these proposed legislative reforms might not be informed by the legislative underpinning of a comprehensive, implementable national economic recovery plan, but by ideological and political machinations.

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