One of the understated changes in finance minister Trevor Manuel's budget is that it opens the way for SA's expansion-hungry banks to elbow their way into foreign markets, ratcheting up their global competitiveness.
As part of Manuel's quite radical exchange-control reforms, he said: "Banks will be permitted to undertake foreign investment within an appropriate macro-prudential limit."
Though the foundation s of this change were laid in 2005, Manuel said the authorities would "finalise measures to simplify the regulation of banks' foreign exposure, within a macro-prudential limit equal to 40% of a bank's liabilities".
This is an important change, given that it has been notoriously hard for banks to deploy money offshore for foreign deals. When Standard Bank got US$2,4bn from the Industrial & Commercial Bank of China (ICBC), for example, it asked for Reserve Bank permission to keep the cash outside SA as it would be "easier" to use. The exchange-control relaxation now means it won't be necessary to get these lengthy approvals.
As it stands, there have been extensive restrictions on banks' foreign investment, and the extent to which they can underwrite foreign investments on their own balance sheets. For example, banks weren't allowed to run too large a "net open foreign currency position" lest this expose them to sharp currency swings.
According to one treasury official, the thinking is that by removing these barriers, the likes of Standard Bank won't be reluctant to bring money back into SA, and keep it on their own balance sheet.
"So, for example, when Standard Bank underwrites their investment in Africa, they would have had to do it through their offshore balance sheet in the past. Now this will make change," he says.
Of course, this doesn't suggest a free-for-all. Banks will still be subject to the Reserve Bank's banking supervision department and the eagle eye of the risk-averse registrar, Errol Kruger.
Investec's Chris Steward doesn't believe the change will signal a huge flood of capital offshore. "Banks are fairly capital-constrained right now. They have enough on their plate trying to fund their domestic growth," he says.
Other analysts say it is "probably a good thing we had restrictions ", given the shaky investments in structured finance instruments that have caused overseas banks gigantic losses in the past year.
Peter Brooke, head of macro strategy at Old Mutual Investment Group SA, says companies "now won't have to make applications, which took a long time".
Nonetheless, banks took a pounding on the JSE after the announcement, with share prices closing down by 1,5%.
BoE Private Clients chief investment officer Darryl Owen says this appears to do with rand weakness, and the expectation that relaxing exchange controls will lead to more money leaving SA.
