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Cape Town - A calamity in the banking sector could rattle the country and could lead to the government bailing out banks, if uncertainty around the land issue continues. And in an economic meltdown, bondholders will still owe the banks should their land be expropriated without compensation.

Business and banking groups said this could lead to further social unrest.

Nedbank presented its submissions to the Constitutional Review Committee in Parliament looking into the amendment of Section 25 of the Constitution to allow for the expropriation of land without compensation.

Banking Association South Africa chairperson Cas Coovadia said an amendment to the Constitution has the potential to undermine all property rights. “Banks have invested more than R1.6trillion of South Africa’s savings, salaries and investments in property loans. Properties are securities for loans, if needed to recover depositors’ money. Should property values decrease markedly due to legislation or loss of investor confidence, banks and the economy cannot absorb the shock. Banks must be able to recover the loans they have already extended against properties and agricultural operations,” Coovadia said.

He said the loans for homes and agricultural operations stand at about R148billion.

Coovadia said homeowners are still liable to pay their home loans should land be expropriated without compensation, which will cause further strain on banks and its clients. “The uncertainty is not good because none of us knows what will happen in such an event. Insecure property rights retard investment and economic development needed to deal with unemployment, inequality and poverty,” Coovadia said. He said there is no need to amend the Constitution because Section 25 provides for a mandate of transformation.

“We need a review of the urban and rural development policy and legislation. Clear and crisp legislative and institutional frameworks are to be expedited and the creation of a land ombudsman for Land Reform is needed to provide access to redress. Banks are committed to public private partnerships,” he said.

Nedbank chief executive Mike Brown admitted that landownership in the country is racially skewed, unequal and still reflects a history of conflict, colonialism, segregation and apartheid. But Brown said existing legislation is there for the expropriation of land and other land reform purposes. “Government has not used its existing powers to expropriate land for land reform purposes effectively, nor has it used the provisions in the Constitution that allow compensation to be below market value in particular circumstances.”

He also said any change to the Constitution would send a negative signal to potential investors. “Government may have to step in to protect depositors’ funds in the event of a banking crisis. There would be large-scale defaults, with little or no collateral for the banks to offset losses, and borrowing costs would generally soar.

“The economy would be severely depressed and unemployment would rise even further,” he said.

Brown said a comprehensive model for land reform is needed, based on current legislation. Business Unity South Africa chief executive Tanya Cohen said the uncertainty about land reform is killing investor confidence.

“At every engagement we have with potential investors they are worried about the land issue.”

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Cape Argus