BANKS AMENDMENT BILL Private Members Bill Presentation to
BANKS AMENDMENT BILL Private Members’ Bill Presentation to the Standing Committee on Finance
INTRODUCTION • Section 42 (3) of the Constitution says, “The National Assembly is elected to represent the people and to ensure government by the people under the Constitution. It does this by choosing the President, by providing a national forum for public consideration of issues, by passing LEGISLATION and by scrutinizing and overseeing executive action”. • SECTION 43 (1) says, “In the Republic, the legislative authority—(a) of the national sphere of government is vested in Parliament, as set out in section 44”. • Section 44 (4) says, “When exercising its legislative authority, Parliament is bound only by the Constitution, and must act in accordance with, and within the limits of, the Constitution”.
INTRODUCTION • The EFF’s correct observation is that the multi-party democratic system and dominance of one political party in the executive and legislative arms of the State has largely limited the legislative arm’s capacity to initiate, process and pass legislation. • 99% of Laws that Parliament deliberates on are submitted by the Executive and this does not fair well for a truly democratic system. • Outside of the oversight functions, Parliament should develop and internalize the practice of initiating, processing and passing legislation, even in instances where the Executive did not initiate. • The practice however, has been where the executive, which is often bloated with the dominant party senior leaders feeds parliament with ready made legislation, and only few changes are accommodated from public hearings and comments of Members of Parliament. • Members of Parliament are therefore relegated and demoted from the Constitutional title of Lawmakers to Law commentators. This should change. • Only 1 Private Members’ Bill was passed since 1994, and the rest came from the executive.
BANKS AMENDMENT BILL • The EFF hereby introduce the BANKS AMENDMENT BILL, which will effectively amend the Banks Act to allow the State to own Banks. • In its current form, the BANKS ACT only permits public companies to own BANKS and does not explicitly permit the State to own Banks. • This is despite the fact that the State currently owns, what we will term as quasi-banks since they are not regulated as per the BANKS ACT and cannot therefore perform certain functions. • These include but are not limited to the Postbank, i. Thala, etc. • These also include Development Finance Institutions (DFIs) such as IDC, NEF, SEFA, NYDA.
PROBLEM STATEMENT • WROTE LETTERS TO THE SOUTH AFRICAN POST OFFICE, SOUTH AFRICAN RESERVE BANK. • SAPO ON THE 21 ST OF MARCH 2016 SAID, “THE BANKS ACT IN ITS CURRENT FORM ONLY ALLOWS FOR BANKING LICENSES TO BE GRANTED TO “PUBLIC COMOANIES”, AS DEFINED IN THE COMPANIES ACT. POSTBANK IS DEFINED AS A “STATE OWNED COMPANY” IN THE COMPANIES ACT AND IS THUS PRECLUDED FROM GETTING A BANKING LICENCE IN TERMS OF THE BANKS ACT”. • SARB SAID ON THE 19 TH OF MARCH 2018, “IN TERMS OF THE PROVISIONS OF THE BANKS ACT, NO PERSON SHALL CONDUCT THE BUSINESS OF A BANK UNLESS SUCH A PERSON IS A PUBLIC COMPANY AND IS REGISTERED AS A BANK IN TERMS OF PROVISIONS OF THE BANKS ACT. FURTHERMORE, SECTION 42 OF THE BANKS ACT PROVIDES THAT NO PERSON OTHER THAN A BANK OR AN INSTITUTION WHICH HAS BEEN APPROVED BY THE REGISTRAR MAY EXERCISE CONTROL OVER A BANK, UNLESS SUCH A PERSON IS A PUBLIC COMPANY AND IS REGISTERED AS A CONTROLLING COMOPANY IN RESPECT OF SUCH BANK. THE REQUIREMENT FOR BANKS AND BANK CONTROLLING COMPANPIES TO BE PUBLIC COMPANIES IS A PEREMPTORY PROVISION OF THE BANKS ACT AND THE REGISTRAR DOES NOT HAVE THE DISCRETION TO EXEMPT COMPLIANCE WITH THIS PROVISION”.
PURPOSE OF THE AMENDMENTS • To amend the Banks Act, 1990, so as amend and insert certain definitions; • To enable a state-owned company to register and conduct the business of a bank in terms of the Banks Act; • To allow a state-owned company to register an appropriate memorandum of incorporation with the Commissioner appointed in terms of the Companies Act; • To enable a state-owned company to exercise control over a bank; • To allow a state-owned company to be eligible to apply for registration as a controlling company; and to provide for matters connected therewith.
SECTION 1 AMENDMENTS • Section 1 of the Banks Act, 1990 (Act No. 94 of 1990) (hereinafter referred to as the ‘‘principal Act’’), is hereby amended—(a) by the substitution for the definition of ‘‘bank’’ of the following definition: ‘‘ bank’’ means a public company or a state-owned company registered as a bank in terms of this Act; ’’; • (b) by the substitution for the definition of ‘‘branch’’ of the following definition: ‘‘ ‘‘branch’’ means an institution that is not a public company or a state-owned company as contemplated in section 11(1), but by means of which a foreign institution conducts the business of a bank in the Republic under an authorization referred to in section 18 A; ’’; • (c) by the substitution for the definition of ‘‘controlling company’’ of the following definition: ‘‘ ‘‘controlling company’’ means a public company or a state-owned company registered in terms of this Act as a controlling company in respect of a bank; ’’; and • (d) by the insertion after the definition of ‘‘securitization scheme’’ of the following definition: ‘‘ ‘‘state-owned company’’ has the meaning ascribed to that expression in section 1 of the Companies Act; ’’.
THE POLITICAL AND ECONOMIC REASONS • Lenin says, “The principal and primary function of banks is to serve as middlemen in the making of payments. In so doing they transform inactive money capital into active, that is, into capital yielding a profit; they collect all kinds of money revenues and place them at the disposal of the capitalist class. • As banking develops and becomes concentrated in a small number of establishments, the banks grow from modest middlemen into powerful monopolies having at their command almost the whole of the money capital of all the capitalists and small businessmen and also the larger part of the means of production and sources of raw materials in any one country and in a number of countries. This transformation of numerous modest middlemen into a handful of monopolists is one of the fundamental processes in the growth of capitalism into capitalist imperialism; for this reason we must first of all examine the concentration of banking” • Lenin did an assessment of banking concentration in his generation and period, 100 years ago and similar features can be found in South AFRICA today.
BANKING CONCENTRATION • South Africa’s banking sector is dominated by five large banks, which collectively held 90. 5% of the total banking sector assets as at 31 December 2017 (31 December 2016: 90. 7%). Local branches of foreign banks held 5. 9% of banking sector assets as at the end of December 2017 (December 2016: 5. 8%), while other registered banks collectively represented 3. 7% (December 2016: 3. 5%). • This is despite that South Africa has the following breakdown of BANKS. • Number of banks: 19 • Local branches of foreign banks: 15
ENVISAGED STATE BANKS IN SOUTH AFRICA • There are quasi banks that are owned by the State and should be be given full operating licences: • Postbank should be a fully fledged bank for social grants recipients. • Public servants bank should be created through the asset base of African Bank, which is owned by the SARB, PIC and other banks. Salaries paid through this and affordable mortgage provided with the assistance of the pic through this. • Instead of being a DFI, the land bank should apply for a full banking license. • A bank for all state owned companies should be licensed, and be tasked with raising capital. THIS IS IN LIGHT OF THE FACT THAT MINISTER OF DPE HAS ALREADY MANDATED BASA TO ENGAGE WITH BANKS AND INSTITUTIONAL INVESTORS WITH A VIEW OF PUTTING IN PLACE A FACILITY TO FINANCE SOES.
EXAMPLES OF STATE OWNED BANKS IN THE WORLD • China has the biggest publicly-traded bank in the world by market capitalization, the Industrial and Commercial Bank of China (ICBC). 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 well over 65%. • In 2017, ICBC recorded R 50 trillion group total assets of R 50. 1 trillion, increase form R 36. 7 trillion recorded in 2013. According to ICBC 2017 annual report, the bank also achieved R 287 billion in net profit for the year, the best in the global banking industry.
EXAMPLES IN THE WORLD • Top two banks in SINGAPORE i. e. Development Bank of Singapore and Post Office Savings Bank, are state-owned banks. The Development Bank of Singapore is the largest bank in Southeast Asia, with branches across the world. • In INDIA, the State Bank of India owned by the government, is one of the oldest and largest bank in the country, with a total asset of R 5. 6 trillion, more than South African banks total assets. • KFW Bank, German state-owned bank formed 70 years ago as part of the Marshall Plan to rebuild western economies after the World War II, is today considered safest bank in the world with commercial transition across various markets. • Banco do Brazil, 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 R 5 trillion in 2017.
PROPOSED STATE OWNED BANKS • Public Service Bank • To bank public servants across all spheres of government, including payment of salaries, issuing of credit, mortgage, car finance etc. • Post Bank • 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.
PROPOSED STATE OWNED BANKS…(Conti) • Land Bank must become a commercial bank that focuses on agriculture, fisheries and forestry businesses • Ithala Development Finance Corporation • 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.
REGULATORY MATTERS IN SA • STATE OWNED BANKS SHOULD BE UNDER THE EXISTING REGULATORY FRAMEWORK, THE FSR, THE BANKS ACT, AND ALL RELATED LEGISLATION. • THE PRA • FSCA • NCR • FIC • SARB • AND ALL REGULATIONS THAT EXIST
WHAT ABOUT THE FINANCIAL MATTERS AMENDMENT BILL? • NATIONAL TREASURY INTRODUCED ON THE 22 ND OF AUGUST 2018, WHICH IS TWO WEEKS AGO AND ONLY SCRATCHES THE SURFACE NOT ONLY OF THE BANKS ACT, BUT OF 5 LEGISLATIONS. • THE RECOMMENDED AMENDMENT OF THE NATIONAL TREASURY FOCUSES ON ONLY ONE SECTION AND EMPHASISES THE CAPITAL ADEQUANCY OF THE BANKS AND WE ARE NOT OPPOSED TO INSERSETION OF THAT IN THE BANKS AMENDMENT BILL.
CONCLUSION • LET US MOVE TOWARDS THE REDEFINATION OF BANKS OWNERSHIP AND CONTROL IN SOUTH AFRICA. • THE FREEDOM CHARTER WHICH IS THE MOST IMPORTANT REVOLUTIONARY FRAMEWORK SAYS THAT THE BANKS, MINES AND MONOPOLY INDUSTRIES SHALL BE TRANSFERRED TO THE OWNERSHIP OF THE PEOPLE AS WHOLE.
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