FINANCIAL SECTOR MISSED TARGETS

THE financial sector, including less than half of South Africa’s banks, have missed key transformation targets including empowerment finance and loans to small black businesses, slowing progress towards an inclusive economy.

This is according to the Financial Sector Transformation Council’s (FSTC) amalgamated state of transformation report on the financial industry for 2018-20, released earlier this week.

FSTC chairperson Solly Mapaila was scathing in his assessment of the report: “Government has failed to ensure the transformation of this critical sector so that it can benefit the majority of the population.”

He said the ownership of every industry was increasingly falling into the hands of big financial institutions and that the government was being bullied by them and was unable to assert any authority on the sector.

Mapaila was also highly critical of the behaviour of South Africa’s banks during the Covid-19 lockdown, saying that their actions in the disbursement of the Loan Guarantee Scheme credit showed who was actually in charge.

Worryingly, the report also highlights how “unfortunately, the recent experience of the FSTC indicates that the key government institution responsible for the regulation and oversight of the financial sector at large – the

National Treasury – has exhibited a limited interest in engaging in matters related to the transformation of the sector and has largely contributed, albeit unwittingly, to the lethargic posture the sector has adopted towards necessary changes”.

South Africa continues to be one of the most unequal societies in the world with a Gini coefficient of 63, an exceptionally high unemployment rate and with a skills gap that is hampering growth. Key to redressing this is support from the financial services sector, but which the report shows “underperformed on empowerment

financing targets which have an effect on the quantum and effectiveness of necessary support towards funding black-owned enterprises in line with the FS Code’s Black Business Growth Funding provisions”.

Access to financial services products and services, as per the FS Codes, is a financial sector-specific pillar that carries the intent of ensuring financial inclusivity and applies to banks and long-term and short-term insurers.

The purpose is to create access to appropriate financial products and services for people who historically were not afforded these benefits. This includes affordable banking products as well as understandable insurance policies which, albeit marginally, improved between the 2018/19 period and the 2019/20 period, but still fell woefully short of set targets.

The report detailed how many of the measured entities did not submit B-BBEE reports, as prescribed by the B-BBEE Act and the FS Code, with only partial submissions in some instances, and a decline in the number of submissions between the reporting periods.

FSTC reporting working committee chairperson Fatima Vawda stated: “It is unfortunate that there was a decline in the number of reports submitted between the two reporting periods. Preparing B-BBEE reports is an integral part of good governance and affords companies the opportunity to meaningfully reflect on their respective transformation trajectories and adjust their social and governance strategies accordingly.”

The Association of Black Securities and Investment Professionals (ABSIP), on being asked what its general view of the performance of the financial sector in the measured period was, remarked that B-BBEE targets had been set well below the population demographics, and observed that “while there may have been some progress in transformation, it is, however, misleading to say it is enough as the targets and bar have been set too low”.

ABSIP also commented that the failure to achieve targets should have consequences, with the FSTC’S Mapaila saying that, for the sector to meet the required targets, “it would need to do certain things, including developing legally binding measures to enforce transformation, and the transformation scorecards must be measured against socio-economic challenges”.

The president of the Black Business Chamber (BBC), Sizwe Ngqame, said he fully agreed with the FSTC findings.

He said the white minority in the current system were benefiting a lot more than before. “The commanding heights of South African economy that were nationalised before are now getting to private hands like in Eskom, SAA and many others. The National Treasury is the driver of privatisation in the country’s state-owned enterprises.”

He said the current state of the economy had led to black people and the less privileged becoming poorer, with no intervention from the state.

“The Treasury is participating in the programmes that leave black people to be unemployed and is undermining the programmes of black economic empowerment and affirmative action, hence the high rate of unemployment, lack of skills and education among black people.”

The financial sector is required to make quantum leaps in transformation to drive inclusive economic growth and not be the perpetuator of deep inequality. As noted in the FSTC report, it must “hasten the pace of transformation before it is too late”.