Daniel Mminele, the chairperson-designate at Nedbank and outgoing chair of Alexforbes, has backed the credibility of South Africa’s financial institutions, saying that it remains intact in spite of the country being greylisted.
Speaking at the PSG Konsult webinar yesterday, Mminele said the greylisting was a call to action – one that required a firm resolution by public and private sector leaders to implement fast, targeted solutions.
Earlier this year, the Financial Action Task Force (FATF) put South Africa on its greylist for not fully complying with international standards around the prevention of money laundering, terrorist financing and proliferation financing.
The greylisting raised concerns about the state of the country’s financial institutions, its policies on financial crimes and the health of its investment environment.
However, Mminele said the greylisting was not an indictment of South Africa’s financial sector.
Instead, he said it was rather a symptom of other parts of the system that have not adequately addressed and mitigated the risks surrounding financial crime.
Mminele said banks remain vigilant and should be well-positioned to overcome the hurdles which lie ahead and mitigated the risks surrounding financial crime.
“The banking sector was not where the main issues were and good progress had been made in addressing some of the findings, but the remedial actions outside the financial sector as it relates to legislative and the criminal justice system were responsible for (South Africa) getting greylisted,” Mminele said.
“But unfortunately one has to admit as well that South Africa being greylisted was somewhat self-inflicted. We were warned with ample time, we were told exactly what we needed to fix, and we did not, in all instances, act with relevant speed and urgency.”
The findings of the Zondo Commission brought into stark focus the widespread and entrenched corruption that have been compounded over time, exacerbated by the inability to turn policy into proactive action against rampant money laundering.
Mminele said some of the issues the country had to deal with were including the recommendations from the Zondo Commission to strengthen the financial systems.
He said his big concern was that greylisting, to a large extent, was already priced in by the financial markets.
“However, we have to be careful because, depending on how we are perceived to be working towards resolving the issues and implementing the agreed FATF implementation plan and how quickly, if the perception were that we are taking too long and are not prioritising appropriately, there may yet be another turn in sentiment to the worst which could lead to high funding and implementation costs,” he said.
“The policies that will enhance the country’s reputation in the global arena are mostly in place. What is needed now is implementation. How quickly we react in working together towards a solution will determine investor sentiment, which will have a positive impact on the flow of foreign investment into the country and also support domestic investor confidence.”
Mminele also said South African banks were strong enough to withstand spillover effects emanating from the banking contagion following the collapse of US and European banks.
He said South African banks had much better equity and liquidity buffers than before, partly as a result of regulatory reforms that were introduced post the 2008 global financial crisis with the so-called Basel III framework.
“Banks are even in a better position than they were before 2008,” he said.
“They introduced measures such as the Liquidity Coverage Ratio, and the Net Stable Funding Ratio which, interestingly, were aimed preceding exactly what we saw at Silicon Valley Bank, namely liquidity and interest rates mismatches, and high levels of concentration risks and large unrealised losses that we carry on a security portfolio.”
Old Mutual Wealth investment strategist Izak Odendaal was of the same view that South Africa compared relatively well with its peers on macroeconomic and financial stability.
Odendaal said South Africa has never experienced hyperinflation, for instance, where as recently as the 1990s many emerging markets struggled with three- or four-digit inflation rates.
He said this was crucial because financial stability meant the country had large and liquid capital markets and solid banks which were also well regulated, with a conservative and credible central bank overseeing the financial system and setting interest rates.
“South Africa’s recent greylisting does not contradict this picture. Rather, several of our peer countries could well end up on the Financial Action Task Force’s grey list too, as the international community takes a tougher stance on illicit cross-border financial flows.
“There is a similar concerted worldwide effort to combat tax evasion.
“A tell-tale sign of financial instability is when locals do not want to use their local currency at home, fearing that it will rapidly lose value. Instead, they prefer hard currency, particularly US dollars, even for day-to-day activities.
“While the rand is volatile in global forex markets, and inflation does erode the purchasing power of the rand over time, there is no sign of South Africans preferring to buy groceries in dollars or pounds rather than rands. Yet in a place like Argentina, an otherwise sophisticated economy, dollars are widely used because there is little trust in local financial institutions, the government and the peso as a currency.”
BUSINESS REPORT