Reserve Bank confident banks are on top of potential property changes
'It will be interesting if you expropriate property that’s bonded,' says governor Lesetja Kganyago
The Reserve Bank is confident commercial lenders are on top of their game in analysing the potential effect of the ANC’s land expropriation policy on their financial health, and there is no immediate plan to subject them to stress tests, governor Lesetja Kganyago says.
"It’s a conversation that’s going on among South Africans," Kganyago said in an interview with Business Day on Friday.
"We haven’t engaged with that conversation. It will be interesting if you expropriate property that’s bonded. What do you do with the liabilities? Hopefully the people engaged in this conversation are thinking about it," said Kganyago.
Land reform, thrust into the limelight on July 31, is one of the most contentious issues of Cyril Ramaphosa’s presidency, since he announced the ANC would seek to change the constitution to make explicit the conditions under which expropriation of land without compensation can take place. That spooked markets, sparking a fall in the rand, amid concern property rights broadly could be compromised.
The concern for commercial banks is that the policy, if mishandled, could lead to the value of properties against which they have lent money collapsing, causing defaults that would then threaten their own ability to borrow from financial markets. Nedbank CEO Mike Brown said earlier in September wholesale expropriation without compensation would trigger a "classical banking crisis".
"I’ve got no doubt that the banks are looking at it themselves," Kganyago said. "They are consistently stress-testing their portfolios. We have no reason not to trust our banks."
The Bank hadn’t seen any sign of stress in the banking system, he said, adding that recent comments by bankers had convinced him that "CEOs have thought about these things and they are on top of their game".
Kganyago would not express a view on the policy itself. "I will not express a view … until you interfere with my mandate."
The economy won’t withstand the shock of a marked decrease in the value of properties due to "legislative changes or loss of investor confidence", Cas Coovadia, MD of the Banking Association SA (Basa) said on August 30.
Commercial banks have invested about R1.6-trillion of South Africans’ savings, salaries and investments into property loans, which they rely on as security, he said.