On 25 April 2018, the South African State gazetted a notice which officially commences a process that seeks to amend the Banks Act. The Government Gazette Number 211 of 2018 aptly illustrates that, “The Banks Act, 1990 (Act No. 94 of 1990) (‘Banks Act’), among other things, imposes certain requirements which an institution must comply with before it may carry on the business of a bank or in the lawful carrying on of the business of a bank. In terms of the Banks Act, no person may conduct the business of a bank unless such person is a public company and is registered as a bank in terms of the Banks Act. A public company is defined in the Companies Act, 2008 (Act No 71 of 2008) (‘Companies Act’), as a profit company that is not a state-owned company, a private company or a personal liability company.”
What the Banks Act effectively does is exclude all state-owned companies and the state from owning banks registered as per Banks Act and regulated as such under all legislation that regulate Banks. The EFF’s Amendment Bill, which is permissibly tabled as a private members’ bill, will culminate in creating an environment where the State can own banks as per the Banks Act. In practice, this will mean that the institutions existing through a temporary permission of the Minister of Finance as Banks will be granted full banking licences. These include the Postbank owned by the South African Post Office and iThala Bank owned by the KwaZulu-Natal Provincial Government.
Furthermore, the amended legislation will create an enabling environment for the establishment of all other State banks at national, provincial and local levels. The State has to own banks, which will exist in the current regulatory framework, yet with clear developmental, financial inclusion and redress mandate. Banks in South Africa have largely been used as instruments and mechanism of financial exclusion and reproduction of apartheid economic activities. If the banking space is not fundamentally transformed through, among others, the establishment of state-owned banks with clear developmental mandates, the economic apartheid that defines South Africa will persist for a longer period.
The architecture of South Africa’s ownership and control of banks, which largely defines who gains access to finance, is responsible for the reproduction of economic apartheid. The black majority are on the margins of mainstream financial participation mainly due to the fact that existing financial institutions are driven by narrow commercial mandates, not a redress and developmental mandate. Enabling South Africa’s laws to permit the State to own banks is therefore an important milestone in South Africa’s pursuit of economic justice, redress and equality.
The EFF’s position
The Economic Freedom Fighters is one of the few political parties to call for the establishment of a State bank in South Africa. The EFF’s Founding Manifesto specifically elaborates on this cardinal pillar in this way:
“The creation of a State Bank and the nationalisation of the Reserve Bank constitute an immediate task and essential to the development of the South African economy, as it can be progressively positioned to improve the existence of state-owned development finance institutions, in order to finance new industries. The State Bank will also provide enterprise finance, housing finance and vehicle finance for all South Africans in a manner that promotes development, not the narrow pursuit of profits.
“The EFF-led government will establish a State Bank, which should be accompanied by the transformation of the financial sector as a whole, particularly banking and insurance industry practices and norms. Finance capital dominates the world economy and carries with it the potential to undermine all efforts to build a better life for all people. Vigilance and greater state participation in the financial sector is therefore a vital component of efforts to build a sustainable and better life for all the people of South Africa. India and China were firmly insulated from the global financial crisis because their state-owned and controlled financial sectors did not venture into the practices of private banks in the West that led to the collapse of the world economy.”
This enunciation is derived from the EFF’s non-negotiable cardinal pillar which calls for nationalisation of mines, banks, and other strategic sectors of the economy, without compensation. As will be lucidly explained in this perspective, the creation of an environment to create State banks is an important step towards discontinuation of total private ownership and control of the banks in South Africa.
In November 2017, the President and Commander in Chief of the EFF tabled a motion in the National Assembly to call for nationalisation of banks without compensation. The EFF made the call for nationalisation of banks without compensation fully aware that the financial services sector is currently the largest sector in the South African economy. The South Africa’s financial sector controls an estimated over R12-trillion worth of assets, which is four times the Gross Domestic Product (GDP) at market price, contributes just about 22.2% of the country’s GDP. Financial sector i.e. financing, insurance, real estate and business services contributed over R72.8-billion in the 2016/17 financial year, effectively 36% to corporate income tax. The financial services sector had grown from contributing seven per cent of the GDP in 1994 to the present 22.2%, just under the contribution of manufacturing, mining and agriculture combined at 24.5% of the GDP in 2017.
Role of banks in economic transformation and industrialisation
Political economic historians have documented and demonstrated that at the core of the first industrial revolution in the 1700s, emanating from the Atlantic Triangle economy – Britain imperialism, slave trade in Africa and the Western periphery – bankers and the banking system were at the forefront of industrialisation. It is almost impossible to imagine the largest empire building project by Western countries, which ultimately gave birth to the commercial capitalism in the 17th century, without the development of financial, banking and fiscal institutions. Monopolies that were created through the blend of banking capital with industrial capital created financial oligarchies that changed the nature of global capitalism and the emergence of a transnational capitalist class. Banks and banking systems have been and remain extremely important instruments and vehicles in driving industrial and socio-economic transformation throughout the world.
Any honest assessment and theoretical work of industrial development trends in the last 500 years will come to the conclusion that deliberate attitudes on the part of banks shaped our world and continue to do so. And South Africa is a microcosm of this global trend. South Africa’s economy is dominated by and depends largely on a mineral-energy complex with strong links to banks and this can be traced back to the origins of the backbone of the economy. It is therefore non-negotiable that any development in the world including in South Africa must be centred on banks and banking systems, which in itself will transform the financial sector and the overall economy, hence expropriation and State control of banks is a non-negotiable.
State ownership of banks internationally
State-owned banks continue to play a pivotal role in early stages of economic development in the case of infant industry development and serve the majority of poor people whom commercial banks consider unbankable. The orthodox financial measures used by champions of neoliberal policies are quick to point to poor performance of state-owned banks compared to privately-owned banks. However, what they fail to account for is that unlike private-owned banks, state-owned banks contribute positively to the overall economy and do not appropriate the GDP. Even the International Monetary Finance (IMF) has now started to recognise that privately owned banks as champions of financialising the economy is in fact a negative contribution to the economy in their current form.
The world came out of the 1970s’ financial and oil price crisis through dispossession of workers’ wage increases which led to wage stagflation. What became apparent soon after was that with low and declining wages, especially in new manufacturing zones, a problem of effective demand emerged. Workers could not afford to buy the very same goods that they were producing. This led to a problem of overproduction and is the core of the internal contradictions of capitalism. It is in this period that banks became more powerful and sought new markets. The outcome was financialising of economies all over the world without being grounded in production of tangible goods.
As a result, privately owned banks started making more profits from fictitious products, credit, stocks and through hedge funds. In doing so, there is no incentive for the financial sector and banks to invest in development of the productive sector because it is long-term, requires patience and takes long to realise a return on investment. It was a matter of why wait when you can make quick returns through financial products, fictitious products. In essence, private banks have starved the world of investment into productive economies, and while this serves developed western countries, it has resulted in catastrophic consequences for countries at infancy of development. It is state-owned bank, through a government mandate, in a sustainable and responsible manner, that can focus on the long-term development and allocate resources accordingly.
China and Asia
China has the biggest publicly-traded bank in the world by market capitalisation, the Industrial and Commercial Bank of China (ICBC), and arguably the reason why China is the second biggest economy in the world, and may soon become the biggest economy if the world development continues it its current trajectory. The government of China, through the Minister of Finance, is the most important shareholder in the bank with significant influence, in direct ownership of approximately 34.6% of the issued share capital. The Central Huijin Investment, another state-owned investment company, owns 34.7% of the issued share capital of the bank, which brings the state control of the bank to well over 65%. At the core of the bank operations, is operations in an economic environment predominated by state-owned entities, creating a conducive developmental environment for China and the region.
In 2017, ICBC recorded R50-trillion group total assets of R50.1-trillion, increased from R36.7-trillion recorded in 2013. According to ICBC 2017 annual report, the bank also achieved R287-billion in net profit for the year, the best in the global banking industry. The bank saw its market capitalisation going up by over 40% in 2017, distributing the largest amount of cash dividends including to the national revenue fund for 10 conservative years and boasting the highest brand value in the global financial industry. ICBC strategy has been closely centred on development of the real economy, improving the investment and financing integration services, and propelled China into a global economic giant. This state-owned bank has been ranked the 1st place among the top 1,000 banks by the banker and 1st place in the Global 2000 listed by Forbes, among many other accolades.
In addition to the ICBI, China owns and controls three other big state-owned banks i.e. Agricultural Bank, China Construction bank and Bank of China who continue to play a pivotal role in Asia. Japan has more than 200 banks. Banks such as Japan Post Bank, owned by the state through Japan Post Holdings, considered among the top 10 best banks in the country. Japan Post Bank recorded a total asset of $714-billion and total average income over $25-billion in the last three years. Top two banks in Singapore i.e. Development Bank of Singapore and Post Office Savings Bank, are state-owned. The Development Bank of Singapore is the largest bank in South-east Asia, with branches across the world. In India, the State Bank of India, owned by the government, is one of the oldest and largest banks in the country, with total assets of R5.6-trillion, more than South African banks’ total assets.
Germany and Europe
KFW Bank, a German state-owned bank formed 70 years ago as part of the Marsh Plan to rebuild western economies after World War II, is today considered the safest bank in the world with commercial transition across various markets. The German government takes direct and full control over running of the bank, and its bonds are backed by government. In terms of article 2 of the law that established KFW, it clearly stipulates that the bank has a function, pursuant to a state mandate, to finance small and medium-sized enterprises’ start-up, risk capital, housing, infrastructure and development co-operation. The bank is under the chairman and deputy chairmanship of the Minister of Finance and Minister of Economic and Technologies respectively.
When the bank came under fire as a developmental bank which prioritises small businesses and lending at low interests, the German Chancellor Angela Merkel who was at the forefront of pushing neoliberal policies during the Great Depression of 2008 and was the first to come to the bank’s defence, calling it a federal government economic, development and climate change policy instrument. The bank has a total value of R472.3-billion, and its growth in Europe has been seen as a rejection of the notion that banking services are something that only the private sector does.
In addition, Germany has a large network of public banks run and managed by federal government, states and districts as central banks but also offering wholesale banking. The Norwegian banking system comprises mostly of large commercial privately owned banks and savings banks. However, the country has a considerable number of state-owned banks in the real estate, education and post banking segment. The Norwegian Ministry of Trade and Industry is one of the two largest owners of the largest financial services group in the country, DNB Bank. Due to privatisation of state-owned entities post the 1970 crisis, a handful of banks were state-owned and sold when they were in a relatively good financial position. When banks face crisis, it is government through taxpayers’ money that come to their rescue and this is common in Europe and the US given that systematic risk and vitality is now a permanent feature of these economies. The United Kingdom government has recently sold the last of its shares at Lloyd’s nearly a decade after government rescued the bank with a cash injection of R348.5-billion.
Brazil and Latin America
Banco do Brazil, a state-owned Brazilian and assets management company through the National Treasury with 51.8% shares, is the oldest and second largest bank in Brazil and all of Latin America. The bank recorded a total asset of R5-trillion in 2017. When Banco Do Brazil was introduced, it ushered in a period of stability and increasing responsiveness of the banking system to the economic growth of the country. The government of Brazil effectively used the monetary policy to distribute financial services significantly, through a government-funded large expansion of money and credit through the Banco do Brazil. The government has and continues to successfully use the bank to meet its short- and long-term monetary and fiscal policy goals, despite counter-revolutionary political developments.
Banks’ ownership and transformation in South Africa
Banking services and bank institutions are at the core of the financial services sector, and account for most of its growth. There is a total number of 19 registered banks, three mutual banks, three co-operative banks, 15 local branches of foreign banks and 31 foreign banks with approved local representative offices. Banks total assets increased from R4.9-trillion in 2017 to R5.1-trillion, a strong 5.1% year on year growth in a sluggish economy that grew only at 1.3% in 2017. Banking in South Africa is dominated by the big six largest banks i.e. Absa, FirstRand (FNB and Wesbank), Nedbank, Standard Bank, Investec and Capitec which constitute more than 90% of the total banking market share.
Banks in South Africa own and control the houses, cars and properties of so many people. Banks influence people’s access to food, clothing, education and other essential services. And they do so in a predatory manner where they exploit workers and poor people with loan sharks’ practices. People’s houses are sold for a penny after owners have paid hundreds of thousands of rand in repayments. This is made possible because South Africa’s financial sector, in particular banks, have placed almost all black people in severe debt and have designed a cartel-like system that makes it impossible for black people to escape indebtedness. Banks own vast sections of land and huge commercial properties, such as malls and industrial parks. Despite the fact that banks control and run the lives of so many people in South Africa, with little or no proper supervision by government, the sector has done all it could possibly do to refuse transformation. Banks do not even comply with the less courageous targets set by government together with the sector.
In the past we have demonstrated that the level and extent of black ownership in the banking industry continues to collapse, now estimated at around 1% from 10% in the last four years. This is due to sell-off of black economic empowerment stakes in major banks by black investors if we put aside institutional investors such as the Public Investment Corporation (PIC). In the absence of any credible and detailed research in the patterns of sell-off of black economic empowerment stakes, fronting and poor reporting in major banks, as it is the case across the financial sector and the whole of the economy, it is possible that the 1% black ownership is at best artificial and non-existent.
Even the position of mutual banks, whose assets value and significance in the overall banking sector is inconsequential, has now come under fire. Even though mutual banks such as Venda Building Society (VBS) and some of the mutual banks owned by the Government Employees Pension Fund (GEPF) are not systematically important financial institutions, and their discontinuation will not affect South Africa’s economy. Mutual banks in their current form and position based on assets and client base are possibly the best launchpad for transformation at a small experimental scale. However, after the VBS liquidity challenges over the last 18 months, unwarranted attacks by the Reserve Bank and lack of support by government for the bank to manage its growth, the position of mutual banks is even more threatened.
Towards the creation of South Africa’s first State bank
The South African government owns and controls financial development institutions such as the National Empowerment Fund (NEF), Land Bank, Industrial Development Corporation (IDC), National Housing Finance Corporation (NHFC), Khula Enterprise Finance (KEF) and others. Unlike in other countries, these are not fully licensed banking institutions and are sector specific with a narrow mandate, client base and assets base. However, the South African Post Office Bank (Postbank) is the closest that the South African government has come to owning a fully-fledged bank.
The Postbank is not yet a registered bank in terms of the Banks Act No. 94 of 1990 (“Banks Act” as amended) but it is already operating as a bank. It is a full member of the Payment Association of South Africa and participates in the National Payments Systems (NPS) directly in the clearing of transactions. However, the Postbank cannot perform settlement directly in the NPS because it is not registered as a bank. The Postbank could not be appointed as a social grant paying bank without the support of Standard Bank. And the Postbank does not offer lending products, yet it has always been profitable.
The main reason why the Postbank is now a fully-fledged commercial bank with a licence is because the Banks Act, among other things, imposes a certain requirement which an institution must comply with before it may operate as a bank and offer people banking products such as credit, deposits, investments, etc. In terms of the Banks Act, no person may conduct the business of a bank unless such person is a public company and is registered as a bank in terms of the Banks Act. A public company is defined in the Companies Act, 2008 (Act No. 71 of 2008) (“Companies Act”), as a profit company that is not a state-owned company, a private company or a personal liability company. Further, in the Companies Act a state-owned company is defined as an enterprise that is registered in terms of that Act as a company, and either is listed as a public entity in Schedule 2 or 3 of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (“PFMA”), or is owned by a municipality, as contemplated in the Local Government: Municipal Systems Act, 2000 (Act No 32 of 2000), and is otherwise similar to an enterprise listed in the PFMA.
As a result, the legislative requirements imposed by the Banks Act before a person may conduct the business of a bank, and register as such, makes it impossible for a state-owned company registered in terms of the Companies Act to conduct the business of a bank and for government to own a bank. The EFF intend to introduce a private members’ bill in the name of the Deputy President Nyiko Floyd Shivambu to amend the Banks Act. The Bill seeks to amend the Banks Act to make it possible for state-owned companies to register in terms of that Act and to conduct the business of a bank. The bill will provide for a state-owned company to be able to register and conduct the business of a bank in terms of the Banks Act, register with the commissioner, appointed in terms of section 189 of the Companies Act, a memorandum of incorporation of a state-owned company formed for the purpose of conducting the business of a bank and all other requirements.
A notice of intention to introduce a private member’s bill and invitation for comment on the draft Banks Amendment Bill of 2018 in accordance with section 73(2) of the Constitution of the Republic of South Africa was submitted to the Speaker of Parliament. An explanatory summary of the Bill in accordance with Rule 276(1)(c) of the Rules of the National Assembly will be published in due course as it has already been submitted to the Government Gazette. The bill once adopted by the Parliament and enacted by the President will create the necessary legislative environment for the Postbank to become a full bank with a commercial licence like Absa, Standard Bank and etc.
However, the implications of such legislative changes, while they serve the immediate need to allow for the Postbank to be granted a banking licence now, provide a much needed legislative environment for diversification of South Africa’s banking system. The Postbank must provide efficient and affordable banking for the State i.e. all three spheres of government, legislatures and judiciary, including banking services for other state-owned entities. The Postbank must also facilitate all state transactions, a cost-efficient move that will ultimately reduce the cost of banking and ensure banking services to the poor and workers at a minimum bank charges. Postbank must also make available loans to allow people who do not qualify for loans to build homes and start businesses within reasonable terms and cost of borrowing.
In addition to the Postbank, the State must own other banks to support infant industries with developmental finance and support to play an active role in various economic spheres of our society. The Land Bank must become a commercial bank that focuses on agriculture, fisheries and forestry businesses since all land will be under the custody of the state and no one will need to pay for land. Furthermore, the Banks Amendment Act we are tabling will lead to creation of many other State-owned banks in the same way China’s national and sub-national state owns and controls some of the world’s largest banks. IThala Development Finance Corporation Limited must also become a full bank mandated to lead regional economic development in the Kwazulu-Natal, Mpumalanga and Eastern Cape regions.
All state-owned banks must be democratically administered and governed, fight illicit financial flows and corruption, and its employees must be paid decent salaries. To ensure proper governance, state banks must not account to one minister as is the case with state-owned entities such as Eskom, Denel, Prasa, and South African Airways (SAA). Instead, the state must own and control majority shares, and minority shareholders must be invited to diversify governance. We make this contribution to legislative amendments towards nationalisation of all private banks through taking a minimum of 60% ownership and control of all existing private banks.
The legislative intervention is an illustration that the EFF does not just scream meaningless rhetoric but engages in thorough legislative processes which will culminate in progressive Laws. It is our intention within the fifth democratic Parliament to introduce other legislation which will nationalise the South African Reserve Bank, ensure that all clinics open 24 hours, guarantee economic inclusion of historically disadvantaged individuals, and insource all State employees. DM
"If you try to predict the future know that you will be wrong. The trick is to be as least wrong as possible; and be ready to change when you see how wrong you are!" ~ Sir Michael Howard