Can I trust government with my savings?

A proposal for a state-owned bank is gaining traction. And it looks like pensioners will be forced to capitalise it.

When I heard that the ANC was calling for the establishment of a deposit-taking state bank to compete with established commercial lenders, I wondered to myself who in their right mind will entrust their hard-earned savings with this bank, given high levels of corruption and mismanagement of state-owned enterprises (SOEs) at the hands of ANC cadres.

The alleged involvement of the ANC in the looting and demise of VBS Bank has eroded public confidence in the ruling party, whose leaders are now facing a public backlash for raking in millions of rand from corrupt government tenders for personal protective equipment in the fight against Covid-19.

Besides the fact that I don’t trust the ANC-led government to operate a bank ethically and competently, I have two critical questions regarding this proposed banking venture. Who will run the bank and how will it be capitalised, given that government’s finances are in disarray following years of looting and reckless mismanagement?

The answer to the first question is that nobody knows at this stage who will run the state lender. However, you can bet your last cent that it will be run by an ANC cadre, who may not have extensive banking industry experience.

I also don’t rule out the possibility of President Cyril Ramaphosa surprising us by appointing an experienced banker to run the lender during its infancy to jerk up its credibility, but in the long run it will eventually be captured by corrupt politicians, who will fleece it to a point where it will survive on government bailouts.

It could suffer the same fate that befell many SOEs – from power supplier Eskom, airline SA Airways, arms manufacturer Denel, transport and logistics parastatal Transnet and passenger rail group Prasa, to public broadcaster SABC.

The decline in tax revenue due to Covid-19 lockdown led to many parastatals having borrowed themselves to the hilt. Now the ruling party is looking for new sources of funding to recapitalise the SOEs.

The ANC’s 51-page party policy document on how to kickstart the economy after the Covid-19 pandemic provides a clue as to what this new funding source will be. The document, published in July, indicates that the ruling party has its sights set on the people’s retirement savings.

This means that pension funds are likely to be funnelled to the state-owned bank to get it off the ground.

Last year, the government amended the Banks Act to allow SOEs to apply for banking licences, paving the way for the state-owned bank to be established.

The ANC wants to follow up the legislative amendments to the Banks Act with changes to Regulation 28 of the Pension Funds Act, a move that will compel pension funds to invest in SOEs and infrastructure development.

According to Business for South Africa (B4SA), our country has an aggregated pool of R14.2tr invested funds, split between banks’ assets worth R5.8tr and regulated savings of R8.4tr. Pension funds form the bulk of the regulated savings; hence they have attracted the attention of the ANC as a funding source.

Finance minister Tito Mboweni has been championing the establishment of the state bank long before the ANC bought into the concept.

His enthusiasm about the bank has seen National Treasury spearheading efforts to get the project implemented. However, the project is overshadowed by the Covid-19 pandemic’s damage to the economy, which is expected to shrink by 7.2% this year. While tax revenue is heading south, government debt is expected to race northwards.

In June, Mboweni projected that gross public sector debt will jump to R4tr (81.8% of GDP) by the end of the current fiscal year, ending in March 2021, compared with the R3.56tr (65.6% of GDP) he projected when he delivered the main budget in February.The spike in debt will be pushed up partly by the $7bn loan the government received from the International Monetary Fund to fight Covid-19. The rapid accumulation of debt means that out of every rand paid in tax, 21 cents will go towards paying interest on existing debt.

During his ten-year stint as governor of the SA Reserve Bank from 1999 to 2009, Mboweni was an unshakable supporter of the Four Pillar policy that effectively encouraged the dominance of the banking industry by the Big Four lenders – FNB, Standard Bank, Nedbank, and Absa. The rationale for this policy was premised on an argument that having a few strong banks ensured industry stability.

Critics lamented the policy. They countered that it restricted competition and therefore protected the profits of the Big Four. This banking oligopoly was finally challenged by microlender-turned-retail bank, Capitec, which emerged as a formidable competitor in the mid-2000s.

These days Mboweni’s views about the structure of the SA banking industry have changed completely. He first spoke publicly about the need for the government to create a state bank in 2018 after he failed to secure loans for his business ventures after he left the Reserve Bank in 2009. He is now a fervent champion of direct state intervention to address this market failure.

There is widespread support for a state bank, even from business chambers like NAFCOC, which wants to see the lender taking off. It remains to be seen if it will realise given that pension savers may resist having their savings used to capitalise a bank that may be looted by cadres, as we have seen with VBS Bank.

Read more
This article originally appeared in the 10 September edition of finweek. To read the full story, you can buy and download the magazine here.
finweek, september, finsep

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