Gordhan slams 'greedy' banks

INLSA

Finance Minister Pravin Gordhan accused banks and financial institutions of being greedy monsters that sought to maximise profits at all costs to the detriment of ordinary people.

Finance Minister Pravin Gordhan accused banks and financial institutions yesterday of being “greedy monsters” that sought to maximise profits at all costs to the detriment of ordinary people.

Addressing a financial literacy conference in Pietermaritzburg, he urged South Africans to strive towards financial literacy so they could make informed choices and realise when they were being hoodwinked into accepting unsustainable financial deals and products.

Gordhan gave an example of how the 2008 recession came about, saying American banks played a role in the financial meltdown by offering mortgage loans to people who could not afford them. This resulted in SA losing a million jobs and R60 billion in lost revenue, and it was still trying to recover.

In London last week, Barclays Bank was accused of another manufactured problem in which it “cooked up” the London interbank overnight rate.

“And (allegedly) manipulated these interest rates so they could make more money for themselves and for the bank,” Gordhan said.

These incidents showed that ordinary people needed financial literacy so they could understand the world in which they were living.

“They need to learn about how financial institutions... have turned into really greedy monsters who want to chase profits at any cost.

“They do not want to get the right balance between making profits and making sure they do it with the right set of ethics, morality and the right principle; they are not taking enough care to ensure that the way they do things does not have a negative impact on society as a whole or the economy as whole... across the world,” he said.

Given this, it was important for all South Africans to understand what it was to plan and budget, how to open bank accounts and know how to manage them.

“It is also important to ensure that financial institutions take responsibility for educating the public at the same time as they sell their products,” he said.

Gordhan warned that banks in particular, specifically globally significant banks, were in a crisis morally and ethically and imbued with a bankruptcy of leadership and “undisguised greed”.

“With the Barclays saga... it illustrates brilliantly the fault lines in the banking sector. It illustrates dishonesty, manipulation of prices and information, profiteering at any cost and little regard to the ordinary people and the cost to them.”

The SA Treasury had developed a policy document to strengthen financial regulation. “This document aims to achieve a financial sector that serves SA better, which includes strengthening consumer protection, financial stability, combating financial crimes and ensuring financial services are appropriate, accessible and affordable,” he said.

Banking Services ombudsman Clive Pillay, who was at the conference, did not think Gordhan’s comments were an attack on local banks or the local financial services sector.

“The minister was alluding to the Barclays incident in the UK. He was referring to certain rogue elements in major global banks that were driven by greed, which led to the global financial crisis… In light of these unscrupulous dealings, he was reinforcing that consumers need to be protected by being more financially literate and aware of issues that affect their lives,” he said.

Pillay said the Treasury policy document, “A safer financial sector to serve South Africa better”, was aimed at getting the financial sector to treat consumers more fairly.

“There are a lot of issues that confront consumers of financial services all the time.

“It is a good idea as the policy calls for a combination of protection, financial education and financial literacy,” he said.

“South African consumers are among the best protected in the world. But these rights mean little if consumers are financially illiterate or not aware of their rights.

Gordhan’s spokesman, Jabulani Sikhakhane, said the minister’s comments were in line with what he had said before. “In the foreword of the Treasury’s policy document, the minister said that the financial sector played a central role in supporting the real economy. Yet, it also introduces risks, particularly when it recklessly chases short-term ‘artificial’ profits, as was proved during the global financial crisis,” he said.

The Banking Association SA did not comment at the time of going to print. But last year it welcomed the Treasury’s policy document.

“We look forward to being an integral part of that conversation,” said Cas Coovadia, MD of the Banking Association SA.