African Bank needs black shareholders at its heart
Revived lender offers black people the opportunity of direct, unencumbered stakes in the banking sector
This week the SA Reserve Bank celebrated 100 years of existence. This milestone coincides with severe challenges for society and central banks across the globe.
The interaction between central banks and citizens has been in sharp focus over the past year. The role of central banks as custodians of the national currency and banking system gives them a unique set of responsibilities. Such responsibilities are best conducted in the public interest, which requires the careful balancing of multiple social and economic interests.
For the SA Reserve Bank, its mandate derived in the constitution refers to the duty to “protect the value of the currency in the interest of balanced and sustainable economic growth”. This challenge, in a time of global economic lockdowns and widening inequality, is even more important for a country such as SA, which has a fragile economy and is also burdened with high levels of inequality.
SA’s other historical challenge — market concentration and lack of transformation — requires the regulators and market participants to continuously engage on ways of addressing structural bottlenecks across the system. As the regulator of banks, which occupy pride of place at the centre of the economy, the Reserve Bank is no ordinary regulator. Its powers of licensing give it latitude to create rules aimed at ensuring the stability and integrity of the financial system at large. Its powers of oversight give it significant clout in influencing leadership practices within the banking sector. In its capacity as the lender of last resort, the bank needs to maintain a public stature underpinned by trust and public legitimacy.
When market failures happen the nation naturally looks to the Reserve Bank for answers. The recent liquidation of VBS Mutual Bank forced it to spend time explaining how regulation works and what its limitations are. The decision to call for liquidation, to protect the integrity of the remaining parts of the system, is a call that cannot be taken lightly for a couple of reasons.
First, given the frequent interactions and information exchange between the bank and regulated entities, the anecdotal expectation is that anomalies will be picked up and addressed before they escalate. However, as it turned out in the VBS Mutual Bank case regulation relies on the interaction and faith in multiple role players. The audit process, for example, plays a role in providing some element of trust that becomes the basis for the Reserve Bank’s trust in the reliability of the information it receives. When there is a breakdown in this relationship the risk to the system at large multiplies.
Seven years ago, during the failure of African Bank, the Reserve Bank’s commitment to protecting the integrity of the system saw it take the extraordinary step of participating in the rescue process as a regulator and a shareholder. The structure adopted at that time — involving the Reserve Bank, the Government Employees Pension Fund (GEPF) and other banks — was aimed at illustrating the sense of trust that exists within the system.
As the fundamental issues that led to the curatorship were ironed out, the question of the wisdom of the bank’s continued involvement as regulator and shareholder emerged. Such deliberations eventually led to the Reserve Bank resolving to exit its shareholding. The exit process provides a unique opportunity to revisit a long-standing question of transformation in the banking sector.
In its latest report on transformation in the sector, the Banking Association SA (Basa) indicates that while ownership by black people is above the 25% mandated by the Financial Sector Codes, it has been declining over the past four years, mainly as a result of the maturation of BEE deals. The question of black ownership has been a point of permanent debate since the mid-2000s. The essence of the problem is that for most BEE deals the question of economic interest and direct economic benefits did not always coincide with the shareholding rates.
For BEE shareholders who had been financed to participate in the deal, the economic returns during the lock-in period would be redirected towards repaying the debt. Inevitably, at the end of the lock-in period and the repayment of the debt the correlation between shareholding and economic returns was more direct. However, as mentioned in the Basa report, at that point shareholders may well decide to use their wealth — tied up in banking shares — to diversify their shareholdings. As a result, the question of ownership becomes a permanently moving target.
The role of the Public Investment Corporation (PIC) as the custodian of public sector pensions has been cited by some as the proxy for black ownership across multiple companies in the listed and unlisted space. However, such a position seems to miss the point in various respects. First, the benefits of direct ownership are not immediately available to pensioners and the idea that if the majority of public sector pensioners are black then the PIC should be regarded as a black shareholder is misleading.
Such an approach seeks to draw an equivalence between shareholders of unencumbered shares who have the benefit of enjoying their economic interest immediately against pensioners whose interest is indirect and delayed by the simple question of retirement age. Second, the PIC’s reach is limited to the beneficiaries of the GEPF, and in a country where so many people are out of the job net and few of the employed are within the GEPF ambit, the idea that it represents a proxy for black shareholding is limited.
Our view is that direct, unencumbered stakes in the banking sector are a crucial lever for transformation. The opportunity presented by the Reserve Bank’s sale of the African Bank stake is an important moment for black individuals and black and youth-owned groups to own a stake in a bank of crucial importance in the country. Since its founding in 1975, African Bank has survived through the various shifts underpinning the SA story.
It is important to reflect on the historical context of the establishment of African Bank. It was established at a time when many black entrepreneurs and retail clients could not access full banking services. Black entrepreneurs at the time came together and contributed various amounts of money to establish the bank. This is similar to having established a savings club, or stokvel, to raise enough capital to establish the bank in response to the challenges of the time.
Its current status, as a bank that has emerged from curatorship and is making significant strides towards being a bank of stature, is an opportunity that must be leveraged to tackle the frontiers of diversification and transformation. Diversifying its ownership base would make it a unique player that is much better placed to trace its economic interest to national demographics. While other banks have a shareholder of reference, it would be quite a welcome change if African Bank could cite black shareholders as its shareholders of reference.
With many black South Africans now in a position to again galvanise their resources into another stokvel/savings club, we have an opportunity to broaden the base of ownership of African Bank, ensuring that it goes back into the hands of black people. This was the vision of its original founders and we believe its original founders, such as Dr Sam Motsuenyane, would love to live to see its return to black people.
It is time to be creative and innovative around how we take the opportunity to own the bank again through various broad-based structures such as retail offerings. Missing an opportunity of this scale will mean the national transformation agenda will linger on in the corridors of lethargy for longer than necessary.
• Leteka Radebe is president of the Association of Association of Black Securities and Investment Professionals
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