BUSINESS DAY TV: New rules of engagement needed between the private and public sector
Banking Association of SA MD Cas Coovadia explains how the Moody’s downgrade will affect the country’s banks
BUSINESS DAY TV: As expected Moody’s has downgraded the ratings of SA’s banks in line with its cut in the sovereign rating on Friday night. It says weakening growth will put pressure on earnings despite their resilience so far.
Following the most recent downgrade, the Banking Association of SA (BASA) and Association for Savings and Investments met the ANC yesterday, that’s ahead of its policy conference later this month. Joining us with more is BASA MD Cas Coovadia.
Cas, so you have been quoted as saying that the rules of engagement between business and government are going to have to change, but they are ongoing because you have been meeting with the ANC, is this still fruitful?
CAS COOVADIA: Yes, I believe so. We need to continue to talk, we need to continue to engage to see how we can address some of the issues facing our country and so it’s got to be useful, and we will continue to engage.
But we do need to understand that significant trust and confidence was broken because of what happened during March, and so on. And we need to rebuild that and the onus is significantly in government’s court to actually rebuild that.
BDTV: Having said that, you talk about frank discussions having been had, do you get a sense that there is a clear understanding, a recognition of the concerns that are out there when it comes to ongoing policy confusion and weak leadership in the country within government circles?
CC: There is a recognition, certainly in the meeting we had yesterday, there was a recognition that there’s a problem; there’s a recognition that things like corruption, policy uncertainty — the issues in the ANC at the moment, which then feed into policy uncertainty are a problem.
What we need to do is we need to sit down and see how we can work together to address those issues and see if we can convince government to actually begin to address issues related to the state-owned enterprises, issues related to, just publicly, saying that we want their commitment to rebuild the confidence and rebuild the trust. And I think that will help.
BDTV: We’ve clearly seen the implications of the Moody’s downgrade going through into the banking sector and that’s due to government policy and the policies of President Jacob Zuma: is there an understanding within government, though, that the banking sector is clearly affected and there will be a knock-on effect on South Africans?
CC: There’s got to be an understanding within government that when the sovereign is downgraded, the banking sector and a number of municipalities get downgraded because they can’t be above the sovereign’s ratings. So there must be an understanding in government about that and we’ve said on numerous occasions is what that creates is that, we have a very sound banking sector, we have a very resilient banking sector, but what it creates is that as a banking sector goes out into the market to raise funds and to raise capital, it becomes more expensive, it becomes scarcer.
And that just makes banking more expensive and that eventually gets passed onto the consumer at a time when consumers are already in difficulty. And it just sends out a message to investors that we’re not as terrific an investment destination as we should be. And we have everything going for us if we just get some of these things right.
BDTV: How much risk does this put SA’s banking system status into that, of course, recognised, as you highlighted, by the World Economic Forum’s Global Competitive Index as the second-most sound in the world?
CC: Banking hasn’t introduced and will not introduce any risks into the system. The banking sector is still very sound. We have a well-capitalised banking sector, we have a reasonably liquid banking sector, we have a very well-regulated banking sector, the Reserve Bank is an excellent regulator and we work closely with them. So it’s not going to bring any risks into the system.
What it does do is that the ratings downgrades make it difficult for us to get onto an economic growth path. If the economy isn’t growing, volume of bank business isn’t growing and that’s what Moody’s is saying — that while the sector is resilient it’s not growing because of pedestrian economic growth or virtually no economic growth and so it’s directly in the interests of the banking sector, and that’s why BASA and a number of CEOs of the banks are so seized with and involved in an initiative to try and work with the government to get the economy pumping again.
And it’s the volumes of business, it’s the pressure on our customers and on individuals who are actually borrowing from banks because of the slow economy, and essentially very little growth in people’s incomes and salaries. It’s those sorts of issues that put pressure on the system, but there’s no risks in the system. We’re still very well capitalised, good liquidity and well regulated.
BDTV: One of the regulations the banks are trying to adhere to, or want to adhere to, is the Financial Intelligence Centre Act and there was an amendment bill which the president signed into law in April: what’s the status on that, because that is key for banking relationships between us and the rest of the world?
CC: Yes we have pushed Treasury to actually draft and circulate the regulations because without the regulations we can’t implement the Act. We are told that the Minister has indicated that they are working urgently on it and that the regulations should be ready soon. We hope they are and we continue to engage Treasury on that, and as soon as the regulations are out we will make our comments as would others. Hopefully we’ll get this in place sooner rather than later so that we can actually start implementing.
The financial action task force meeting is next week in Paris and we will be able to tell them now that the bill is signed, but that we need to assure them that we will get the regulations done, and we can implement.