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Black bank ownership drops as empowerment deals mature

But still exceeds Financial Sector Code’s target – report.

Black ownership in banks dropped from 34.8% to 30.5% between 2016 and 2017, but still exceeded the target of 25% in terms of the Financial Sector Code (FSC). Black economic interest also fell as several empowerment deals matured and black investors exited their investments.

These are some of the findings of the 2019 Transformation in Banking report, which was commissioned by the Banking Association of South Africa (Basa) and compiled by Intellidex.

Source: 2019 Transformation in Banking Report

The research firm estimates that banking sector black empowerment deals had generated R57 billion in net value for the beneficiaries of bank empowerment schemes by the end of 2015.

“So this sort of rhetoric that goes around that there has been no value creation for black investors is quite honestly just not true,” says Cas Coovadia, managing director of Basa.

The release of the report comes amid sporadic calls in some political circles for banks to be nationalised, criticism that the sector has been slow to transform, and in light of the ongoing review of the transformation targets set out in the FSC. While the report highlights some of the sector’s successes with regards to transformation, it also notes areas of concern.

Lending up except for SMEs

According to the report lending for black economic empowerment (BEE) transactions increased by 13.6%, for affordable housing 26% and for black agriculture 20.6% between 2016 and 2017. Lending to small and medium enterprises fell 7.7%, amid economic pressure.

At the end of 2017, total industry lending stood at R3.35 trillion, implying that targeted loans were 7.3% of the total loan book.

Coovadia says the debate and rhetoric around expropriation without compensation will continue, but banks haven’t taken a view that they must cut back on their lending and are probably of the view that a pragmatic solution will be found.

While the industry reported a 26% rise in the number of black board members between 2016 and 2017 (43 to 54 on a like-for-like basis), it comes off a low base.

Source: 2019 Transformation in Banking Report

Coovadia says while the increase is far from desired, there are a couple of industry-specific issues that must be considered, for example that the South African Reserve Bank (Sarb) has to be satisfied with the directors appointed to banking boards. Due to the role banks play in society directors must understand banking-related risk and other issues.

Stakeholders have put their heads together to create a training course for non-executive directors in the banking industry that is now offered by the Gordon Institute of Business Science (Gibs). The Sarb encourages banks to send people to the course as a precursor to being appointed as non-executive directors. The industry is hoping this will help facilitate an increase in the number of black directors, he adds.

Procurement

According to the report, banks spent R71 billion on the procurement of goods from local and international suppliers in 2017. Roughly R20 billion of this was spent at black-owned companies and around R14 billion at businesses that are at least 30% controlled by black women.

“We accept that there will always be a demand to do more and we need to be fairly robust in what we say yes to and what we say no to, but we try to do what we can.”

The Black Business Council on Monday said it would meet with Basa and other stakeholders over the alleged discrimination of black clients by FNB and other banks.

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Does this mean that we can expect the government demanding from the banks an increase in their black shareholding?

Jip, as the ‘beneficiaries’ pocket ‘their’ profits the black shareholding will drop until banks are forced to ‘address the injustices of the past’…

(I would think the injustices of the present should be on the table and not those of the past.)

Once empowered always empowered… If you got handed R57bn and squandered it, thats your problem not societies…

Because this sounds far too logical I bet the ANC will not accept it.

In short BEE was a once off free lunch for a select group of well connected ANC cadres. The masses bellow for useless and worthless land as they see that as the Messiah…while a few fatcats make a quick buck by stealing from shareholders!

Invest money in a country that works like this? No thanks. Much much better value in decent emerging markets.

The next pack of hyenas are lining up at the trough. This will continue until the last impala is gone.

What would be the best model for true broad-based economic empowerment through share ownership? I feel the answer lies in fractional share ownership, the model on which EasyEquities is based. You can literally invest in individual shares or baskets of shares via a phone app for a few Rands. If the Post Office can offer such a feature as an extension of the SASSA accounts, the poor could slowly build grant monies into equity that can help sustain them. It’s surely better than some of the other deductions that are done from these accounts.

Good point. I would be great to find a more workable/sustainable model of AA/BEE to ultimately benefit the majority.

Problem is, one cannot readily find similar AA/BEE models being previously applied somewhere on the globe/other countries, that SA can successfully copy and apply. A google search delivers little…maybe other countries called such social experiments by different names(?)

There are plenty of social upliftment programs for the poor in various countries, as most Govts will have such initiatives….but it’s mostly done homogeneously….as opposed to SA which one minority ethnic group has to make right for another majority group. Maybe in the USA for minorities, but it doesn’t resemble BEE-principles. The US has an “equal opportunity for all” approach.

One arrive at the conclusion, SA is the only country to try it out…so it’s considered an “experiment”. I try to think of other countries that had near-Apartheid segregation…like in the USA in the early/mid 1900’s…not a formal law, but enforced by society. How did the USA fixed up their past segregation issues? No idea.

This is a fantastic idea Mr G, I like the idea of the broad accessibility. HOWEVER, there are three matters that need to be addressed before this can work:

1. Education, which doesn’t seem to be going anywhere anytime soon
2. A culture of entitlement – your model suggests buying these shares as opposed to just receiving them and cashing out at the first available opportunity
3. The propensity of South Africans to invest all their hard earned/captured Rands into the latest German models that destroy wealth instead of creating it.

@Oompie
1. Investor education, yes, that’s big problem to be addressed in the process. It could help to limit the investment options to well-known brands and retailers, basically offer a portfolio of companies where EVERYBODY understands what they sell.
2. Buying vs receiving: Yes, I’d propose SASSA recipients must buy shares even from limited means, bearing in mind, a SASSA grant is free money in the first place. To me it’s part of the experiential learning process, to sacrifice and save in order to secure future income, and that could prevent the mentality of cashing out at the first opportunity. Basically if funeral insurance can be deducted against the grant, other financial services like investment should be on offer too.
3. German models – I don’t think that’s an option at this end of the market.

That’s not fair. Blacks should not be forced to have ownership in banks if they don’t want to!

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