27four Investment Managers
26th August 2015
On The Money: Racism in banking remains an issue
By Stuart Theobald.
SPEAKING at the Black Management Forum’s Gauteng annual conference on Friday, I was confronted by the anger of many black professionals at the lack of transformation in the financial services sector. Anger that their business proposals are routinely declined for bank funding while equivalent or worse proposals from white businesses succeed. Anger that only a tiny portion of the fund management industry’s assets are managed by black firms (4.4%, according to research by 27four Investment Managers). Anger that there is not a single black-owned bank in the country that could challenge the institutional racism that seems entrenched in the formal banking industry.
Transformation in the financial services industry is in a worse position than it was 10 years ago. When the financial services charter was signed in 2003, something of a Damascene conversion had occurred among the white leaders of banks, insurance companies and asset managers.
They had to face up to the racism imbedded in the way banking and other financial services products were designed and sold. While there was much resistance to change, among the leadership there was a commitment that was tangible. It did have an effect — the banks and insurers did empowerment deals; they set up departments to specifically focus on targeted financing of black businesses; and they started training programmes to build black talent.
Fast forward 13 years and that momentum seems to have dissipated. There are many reasons. The focus the Mbeki presidency brought to black empowerment has been lost. Business people no longer fear Thabo Mbeki’s public rebukes.
In financial services, one of the most serious and disappointing reasons has been the dysfunction of the financial services charter. The charter effectively collapsed in 2009 after its council missed the end-2008 deadline to bring the charter in line with the broad-based black empowerment codes. The collapse happened because of a standoff in the charter council between the South African Communist Party and everyone else. A renewed charter was signed in 2013 and an annual report was produced for the first time that year since 2008. However, that charter has since been subject to further negotiation to bring it into line with new broad-based empowerment codes.
Apart from these factors, one also senses that the pressure on financial services companies from within has lessened as black empowerment deals have matured and the more activist lobbyists have become wealthy beneficiaries. All told, the commitment to transform that was in evidence in 2005 now seems sorely absent. Anger is the inevitable result.
Even under apartheid, there were black-owned banks, albeit restricted to the homelands. In late apartheid and the early days of democracy, a number of licences were issued to black-controlled entrants to the banking market, but these didn’t survive the post-1998 emerging market crisis. Black-controlled banks such as Real Africa Durolink, FBC Fidelity and African Merchant Bank came to an end in 2001.
That may change soon, though. I am aware of some attempts to bring black control back into the banking market via some of the smaller banks such as Teba-controlled Ubank.
The regulatory architecture isn’t helping. The Treasury’s move towards a twin peaks regulatory framework will see the Reserve Bank become a prudential authority and the Financial Services Board become a sector conduct authority. The prudential authority will worry about systemic stability; the conduct authority about the way banks treat their customers. Neither has a mandate to worry about transformation.
Part of the problem is that systemic stability has taken on renewed importance since the financial crisis. Large banks with substantial capital behind them are more competitive as they are better able to assuage nervous depositors and regulators.
Regulatory reform since the crisis has made it harder than ever for small local banks to enter the market; there is little substitute for large financially strong shareholders in banking. Ultimately, the leadership of our banks and other institutions need to face up to the moral imperative to drive change.