The banking industry has raised the stakes in its battle to fend off the demand to raise the direct black ownership target in the financial sector charter (FSC) from 10% to 15% by calling for political intervention.
"We are convinced that a political decision is urgently needed to gazette the charter without further delay," says Cas Coovadia, CEO of the Banking Association SA (Basa).
The association has been locked in a two-year dispute with labour and community representatives in the financial sector charter council over the direct black ownership target. Basa claims that increasing the target will compromise the health of the country's banking sector.
Basa's call for political intervention brings to an end the haggling within the FSC council. The matter now rests with the political principals in the department of trade & industry (DTI) and national treasury who will have to deal with section 37 of the Banks Act, which seems to conflict with the demand to raise the direct black ownership target to 15%.
It is unlikely that the politicians will push a position that conflicts with the existing banking regulations as the strength and stability of the banking sector is key to SA's case as an investment destination.
Treasury has clearly spelt out its objections against the demands for 15% direct black ownership, but the DTI has yet to say where it stands on the matter. DTI minister Mandisi Mpahlwa has promised to push for the gazetting of the FSC during the first quarter of next year.
Section 37 of the Banks Act was designed to ensure the sustainability of SA's banks through the regulation of anchor investors in banking institutions. Any entity which seeks to acquire a minimum of 15% of an SA bank has to be vetted by the registrar of banks, a division of the SA Reserve Bank. Such investors become shareholders of reference and need healthy balance sheets to back up the banks in times of trouble.
It is this consideration which led the FSC drafting team to come up with a 10% direct black ownership target back in 2003. It is generally accepted that black economic empowerment (BEE) investors have no capital reserves to speak of. Therefore they do not make desirable anchor investors.
Basa is concerned that changing the direct black ownership target will have a negative impact on SA's image because it amounts to shifting the goal posts.
Banking institutions have put up initiatives based on the 2003 agreement, which are reflected in the latest FSC council annual report (see graphs). The report shows that up to 60% of local banks had achieved the 10% direct ownership target at the end of 2007. The figure stands at about 80% for life insurance companies and close to 60% for collective investment schemes.
There are also concerns that a straight readjustment of the charter's ownership element to match the BEE codes of good practice will set many financial institutions way behind the 2010 target. The FSC measures direct and indirect ownership only, whereas the codes attempt to determine the actual shareholder's involvement in the ownership of the entity by calculating the percentage of voting rights and entitlement to economic interest, says the council.
Just how the sector is going to align itself with this requirement has yet to be agreed.
The financial sector charter was launched in 2003 carrying a commitment to transfer 25% of the sector to black hands by 2010. The ownership target was to be achieved through 10% direct black ownership and 15% indirect ownership.
The introduction of the BEE Codes of Good Practice in 2007 complicated the situation. The codes claim a higher position of authority in the regulation of BEE and require that everything else, including charters, be adjusted. The codes also come with a 25% black ownership target but then flipped the split between direct and indirect targets to 60:40. Labour and communities are calling for a straight alignment of the charter's ownership target with that of the codes.
The Congress of SA Trade Unions (Cosatu) maintains "the codes set universal minimum standards to be met on broad-based BEE". The banking industry is attempting to use the charter to protect itself against transformation, says Cosatu. This position is backed by many in organised black business circles, including the Black Management Forum (BMF). "We need to appoint a commission to formulate a strategy for effective BEE in the banking sector," says BMF stalwart Lot Ndlovu.
"In principle I believe that 15% direct black ownership is achievable," says Ajay Lalu of Bravura Economic Empowerment Consulting. But it might be too late to make this adjustment for the 2010 deadline and the current market conditions are not conducive to such a change, he says.
Investec has done a 25% deal, says Lalu. "If one bank can do it, all the others can too," he says.
He says the objection is a bit misplaced because no single BEE entity will be able to assume 15% direct ownership. In most situations, including the Investec case, direct black ownership is drawn from a variety of independent players which takes care of the concerns that the BEE shareholders become shareholders of last resort and, as such, too much responsibility will rest on the shoulders of a single BEE player.
"We have long called for the speedy resolution of this matter," says the president of the Association of Black Securities & Investment Professionals (Absip), Nomkhita Nqweni. "Whatever decision is taken must factor in the stability of the sector," she says.
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