Collusion of banks reveals the extent of SA’s banking apartheid

PRETORIA, SOUTH AFRICA – FEBRUARY 10: The South African Reserve Bank building in Pretoria, South Africa on February 10, 2012. The Reserve Bank is the tallest building in Pretoria and has a black glass and Rustenburg granite facade. (Photo by Gallo Images / Foto24 / Alet Pretorius)

Collusion of banks reveals the extent of SA’s banking apartheid

16 February 2017

Regular readers of this blog will remember our post from last month on the leaked report from the Public Protector into ABSA’s unlawful South African Reserve Bank (SARB) bailouts, which has served as the first in a series of wakeup calls this year on the extent of banking apartheid in South Africa.

Yesterday, news broke that sixteen local and international banks are facing fines after the Competition Commission decided to prosecute them for colluding to fix prices and allocate markets while trading foreign currency.

Among the local banks implicated are Investec, Standard Bank and ABSA.

The news is the latest in a series of disturbing signs which reveal just how our Country’s banking sector likes to operate.

We’ve seen a leaked report into apartheid-era looting by ABSA. Some commentators have pointed out this issue has already been dealt with by the Davis Panel. It should also be noted that this Panel did not dispute the illegality, but merely questioned the ability to recover the lost proceeds. Sadly, the proceeds never have been recovered.

We also learnt of a leak from SARB to Bloomberg relating to its still pending decision on Vardospan’s acquisition of Habib Bank. The leak laid claim that the SARB had blocked the acquisition.

Vardospan, the investment vehicle set up to acquire Habib Bank led by businessman Hamza Farooqui was understandably outraged that a decision so important as the establishment of South Africa’s first black-owned bank in 23 years was not communicated officially, but via a SARB leak.

The Reserve Bank is yet to deliver its final decision but we live in hope that SARB will make the right decision on Vardospan and take the first momentous step to putting an end to banking apartheid in South Africa once and for all.

South Africa’s banking sector desperately lacks competition which is why so many black South Africans are struggling to escape poverty. This sector often cites international standards as a justification for its behaviour, but is totally one-eyed when the same international community criticises it.

As recently as last year on a visit to Johannesburg, David Lipton, the no. 2 at the globally renowned International Monetary Fund and whose parent organization is the United Nations, said: “In the finance sector, there are only a few retail banks in operation, and their fees are high. Small enterprises have trouble accessing banking services. Barriers to entry favour existing institutions.”

Yet when it is criticised, the banking sector retreats into itself, refuses to comment – let alone show any humility for its transgressions – and tries to create a counter-narrative that it is the victim of domestic factional politics within the ANC.

Hamza Farooqui’s dream is that a black entrepreneur can walk into a black-owned bank, and borrow capital from a black bank manager at a normal interest rate. Sadly, this remains a dream still.

Zuma appears to share this vision. In his address to the nation last week he talked about new laws that had been enacted last year to criminalise cartels and collusion.

“In this way we seek to open up the economy to new players giving black South Africans opportunities and make it more dynamic, competitive and inclusive. This is our vision of radical economic transformation,” he said.

Zuma went further when interviewed on SABC blaming South Africa’s top four banks for controlling the economy. “If you have got four banks – major ones – and they take everything; they don’t want you to do anything,” he said. Zuma said banks often treated poor black people unfairly due to their lack of collateral.

“The time has come: we should be able to deal with the economy at a fair level,” he said.

Even this country’s biggest business newspaper (Business Day), wrote recently:

“The public is aggrieved over the tight hold the banks and other large corporations have over an economy it believes should be more transformed.” The newspaper is absolutely spot on.

Fintech entrepreneur, Nadir Khamissa, Chairman of the Hello Group – owner of South Africa’s largest SIM card distributor – says South Africa’s commercial banking framework “maintains the dominance of the large banks and excludes new entrants” and is an “oligopoly”.

Mr. Khamissa used to be Managing Director of Derivatives Trading at the investment bank, Deutsche, in London.

Is the IMF wrong? Is Business Day wrong? Is one of the IMF’s most senior personnel wrong? Is Mr. Khamissa wrong? Is Hamza Farooqui wrong? Is The New Age wrong? Is a lot of the South African public wrong?

Maybe they, and we, all are. But the more you read about the wretched behaviour of the banking sector, we know who this blog believes is right and wrong.

The existence of banking apartheid has been firmly placed into the public debate over recent weeks – and rightly so.

It is important that this debate continues and that reform of the sector follows. We will never end the economic apartheid in this country without ending banking apartheid first.

It is what our rainbow nation desperately needs.