Finance committee chairman Yunus Carrim. Picture: FINANCIAL MAIL
Finance committee chairman Yunus Carrim. Picture: FINANCIAL MAIL

On Thursday, parliament's finance committee approved an amendment to the Banks Act, which will allow state-owned entities to establish a bank but only at national level.

Provincial and municipal entities will not be allowed to establish banks in terms of the bill adopted by the committee, though the KwaZulu-Natal provincial government's Ithala Bank will be allowed to continue operating under its exemption from the Banks Act.

The committee decided not to deal with the issue of provincial entities establishing a state bank as it believed that this required more exhaustive deliberations. That matter was referred to the finance committee of the next parliament.

The amendment to the Banks Act to allow for state-owned banks is contained in the Financial Matters Amendment Bill proposed by the Treasury. It is necessary because at present, state-owned companies are not classified as public companies under the Companies Act, and the Banks Act only allows for public companies to establish a bank.

Due to time constraints the committee decided not to proceed at this stage with amendments to the Auditing Profession Act, which would have given the Independent Regulatory Board for Auditors significant new powers, including the powers of search and seizure and subpoena in specified circumstances. These amendments will also be dealt with by the next parliament.

The ANC-dominated committee decided in favour of the provisions related to a state-owned bank in the Financial Matters Amendment Bill rather than the Banks Amendment Bill introduced by EFF deputy president Floyd Shivambu.

Shivambu was strongly critical of this decision and “instructed” the committee in a last minute letter to finance committee chair Yunus Carrim not to reject his bill but rather to roll it over to the next parliament.

Carrim described Shivambu’s letter, with its accusations that the Treasury was racist, as “offensive” and refused to allow it to be distributed to members of the committee.

He said to accuse a Treasury official of being a racist was completely unacceptable in terms of parliamentary norms , thus Shivambu's letter would be returned to him so he could write another appropriate one.

Shivambu had no right to “instruct” the committee, Carrim said, adding that there was nothing wrong with Shivambu submitting his bill to the next parliament as long as it was substantively different and raised new issues not covered by the bill adopted by the committee. There was no provision in parliamentary rules for a bill to be rolled over, Carrim explained.

The finance committee, by recommending to the National Assembly to adopt the Financial Matters Amendment Bill, will also be asking it to reject Shivambu’s bill unless he decides to formally withdraw it.

The EFF has a strong political stake in being  able to claim responsibility for a law allowing for the establishment of state-owned banks, though Carrim pointed out that this was ANC policy long before the EFF surfaced.

The committee decided that the Treasury bill was substantially better than Shivambu’s bill because it was more comprehensive and had more qualifications and checks and balances restricting the circumstances under which a state-owned entity could apply for a banking licence.

Carrim said these restrictions were important given the possible fiscal risks facing the state should the state-owned bank have to be bailed out. The restrictions include the fact that the minister of finance, in concurrence with the minister having jurisdiction over the state-owned entity wanting to establish a bank, must agree to its application. The committee rejected a DA proposal that parliamentary approval also be required for this.

Another restriction is that only qualifying state-owned companies that are financially sound may apply for authorisation to establish a bank. The assets of the company as well as those of its holding company and the holding company of its holding company must exceed its liabilities.

Treasury director-general Ismail Momoniat stressed that all banks, including state-owned banks, will have to comply with the banking legislation applicable to all banks and would have to apply for a banking licence.

The Banking Association SA (Basa) has said it has no objection to state-owned institutions offering financial services as long as they are subject to the same regulatory framework and supervisory oversight as nonstate banks.

In a letter sent by Basa MD Cas Coovadia to the committee this week, he said “the challenge with state-run institutions is that policy priorities tend to trump economic and financial rationality resulting in the failure of the institutions, which causes a drag on the economy”. 

“The experiences of many countries regarding state-owned banks is mixed due to high nonperforming loans, overstaffing and other inefficiencies, and noncompliance with set policies and procedures.”

Coovadia said the banking industry would rely on the Prudential Authority to ensure that there is adequate risk management controls to mitigate these risks.

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