The National Treasury is turning up the heat on transformation compliance within the financial services industry and hinted that the Financial Services Charter might be reviewed to fast track Black Economic Empowerment (BEE).
At the first day of public hearings in parliament on Tuesday to assess the progress of transformation in the financial services sector, Treasury’s deputy director-general Ismail Momoniat said the objectives and transformation goals stipulated in the charter were not ambitious enough.
The public hearings were jointly held by parliament’s standing committees on finance and trade and industry, chaired by Yunus Carrim.
Momoniat suggested that the charter should be “sharpened and refined” as it has not been as successful as initially anticipated. “The current BEE regulations do not sufficiently cover things like financial inclusion and access… We need to look at whether the charter encourages sufficient wealth creation, inclusive growth and massive transformation.”
The big four banks have come under fire in recent months for perceived slow transformation as calls for radical economic transformation and the establishment of a black-owned bank to challenge “white monopoly capital” have been heightened.
The charter was implemented in 2004, serving as a voluntary commitment from the financial services sector to transform on five pillars including ownership, employment equity, procurement and enterprise development, empowerment financing and access to financial services. It has since been amended to align to several changes within the BEE codes of good practice and the Broad-Based Black Economic Empowerment (BBBEE) Act.
Momoniat said that when the charter was implemented, there was “tremendous excitement”, but it fizzled out between 2008 and 2012 with ownership patterns of SA banks coming under scrutiny. “It has been more of a box-ticking approach. Some people didn’t want to take into account the regulatory issues.”
Individual banks including Barclays Africa and FirstRand, the Department of Trade and Industry, the Association for Saving and Investment SA, Banking Association SA (Basa) and the Black Business Counsel (BBC), among others, made submissions to parliament on Tuesday.
Banks were insistent that they are still committed to achieving their racial transformation record.
Barclays Africa group CEO Maria Ramos, said the bank will launch another BEE transaction after divorce proceedings with its parent company Barclays are concluded. The BEE vehicle would represent 1.5% of its issued capital, which would increase its current BEE ownership of 17.36%.
FirstRand’s CEO Johan Burger, told the committee that the group’s black ownership amounts to 36.5% across its subsidiaries FNB, Rand Merchant Bank, Wesbank and Ashburton Investments.
Basa MD Cas Coovadia, said the country’s banking industry has transformed and the narrative of the industry being the least transformed is incorrect. “If you take access to financial services, black SME financing, financing of infrastructure projects and a range of others, I think we have made considerable progress.”
According to Basa’s figures, SA’s banking industry is made up of 37 licensed banks, with total assets of R4.8 trillion and employing 153 846 people. The direct black ownership of banks reached 26.39% in 2015, a decrease from 2014 figures (see below).
In the same year, roughly 800 more black senior managers were recorded (see below).
Coovadia said the banking sector has similar ownership patterns to the JSE, with 49% of SA’s top six banks owned by foreigners, 34% by institutions including the Public Investment Corporation, and the balance by other investor categories including individuals.
He said the industry doesn’t need further regulation from a transformation perspective, as it’s already “heavily regulated across the broad spectrum”.
“More regulation would be costly, especially for customers. We have to shift the conversation to the right issues, like focusing on why certain parts of the sector are not transformed [such as asset management].”
The second round of public hearings will resume on March 22 with the Reserve Bank, the National Empowerment Fund, Black Insurance Owners Association, Nedbank, the Black Management Forum and others, who are expected to make submissions in parliament.