Reserve Bank regulations requiring shareholders to have the capacity to bail out banks in the event of a run on their liquid assets are major hurdles barring black economic empowerment (BEE) entities from acquiring significant stakes because they are historically disadvantaged in capital markets.
While the financial services sector charter launched yesterday enables BEE firms to acquire an ownership stake of more than 10 percent, it is lessons learnt from the European financial crisis that require shareholders to have sufficient funds to help the banks in case of a run on them.
This comes as black empowerment organisations questioned the effectiveness of the new code in helping black entities to acquire significant interests in the financial sector exceeding the 10 percent target stipulated.
The charter was launched by Finance Minister Pravin Gordhan and Trade and Industry Minister Rob Davies at the Johannesburg Country Club in Auckland Park.
Talks between the labour movement and banks over ownership targets hit a snag in 2010 when agreement could not be reached on the 15 percent stake sought by labour, as the banks maintained the 10 percent target was reasonable.
Association for Black Securities and Investment Professionals deputy president Polo Radebe said that while there was money set aside for the broad empowerment of black people in various sectors, including ownership of banks, there were other regulatory hurdles not imposed by the code which probably held such acquisitions at bay.
“From a legislative point of view there is an enablement but it is a yes with a proviso that it enables [the lending institution] to tick other boxes,” she said.
Banking Association of SA chief executive Cas Coovadia said “anybody can buy a stake in the banking sector” but that owners had to “have deep pockets” as local banking regulation was wary of lending to a shareholder who would not be able to support the institution if there was a run on it.
Coovadia emphasised that the spirit of the charter, which has now been gazetted as a code, was more to empower black entities in the creation of opportunities than buying into existing businesses.
“We should be asking ourselves to what extent we are successful in empowering successful participation in housing, SMME [small, medium and micro enterprises] development, agriculture and infrastructure development. These are the things we should be concentrating on,” he said.
All four major banks and Investec have enabled black-owned entities to acquire stakes of at least 10 percent in their operations.
These include Absa, in which Mvelaphanda Group, founded by former housing minister Tokyo Sexwale, leads the Batho Bonke consortium which has a 10 percent stake. At Standard Bank, entities led by ANC deputy president Cyril Ramaphosa and businessman Saki Macozoma hold a similar stake.
Bloomberg data show Absa has a market capitalisation of R100 billion, FirstRand R160.1bn, Nedbank R88.7bn and Standard Bank R174.1bn. Capitec is worth R21.9bn.
But Duma Gqubule of KIO Advisory said the targets for BEE compliance of banks and the majority of JSE-listed firms were pitifully low by virtue of their market capitalisation, which made them redundant to empower black entities in acquiring ownership stakes in established industries. Gqubule said it was necessary for empowerment codes to be revised for inflation and industry targets.
“Compared with assets of the industry, the targets are pitiful, they are a thumb suck. Banks have achieved them in their sleep; these are just free points given to the banks, they have met them by a wide margin,” Gqubule said.
Davies said the charter was aimed in part at broadening access to banking infrastructure, housing finance, agricultural financing, as well as SMME financing.
Considering investment into black empowerment since 2003, the minister said overall BEE transaction funding would have reached a total of R148bn by 2017, while total empowerment financing would have reached R300bn by that time.