By Corrie Kruger
ACCORDING to an article on Financial Trends Forecaster dated March 19, 2022 titled, Will Russian Sanctions Open a Can of Worms, citing that the current financial sanctions against Russia are totally unprecedented.
“Although sanctions have been used against terrorists, they have never been used like this against a sovereign state. The US and its allies have unleashed all sorts of economic sanctions against Russia. But there is a downside to all these sanctions, not only against the nation but also against key players within the country. If the US can sanction foreign individuals, what could they do to citizens if they wanted to?”
The same concerns are valid for South Africa, as our banks are managed and adhere to the same international accepted principles through their affiliation to the Basel Accords, which refer to a set of banking supervision regulations set by the Basel Committee on Banking Supervision.
The article also proffers a sobering thought on how “in the pursuance of efforts to dislocate and disable financial transactions by Russians, Western governments and their armies of regulators intrude even further into every aspect of the payments process and financial transfers. Surveillance capitalism advances further. The ostensible justification is to ensure that clandestine operations are not taking place with banned Russian counterparts. The intensification of these intrusions works against the right to privacy and stifles competition and innovation”.
Russia forges relationships with the neutral trade zone, competition in South Africa’s banking sector is slim. A fact that the Competition Commission has highlighted to Parliament’s portfolio committee on Trade and Industry, citing how several critical sectors in the South African economy, including banking, are still being dominated by large firms, and that the regulator would need to introduce measures to address the imbalance.
The banking sector is dominated by just five key players, whose combined asset base is larger than that of the South African gross domestic product.
It will thus be fascinating to see how the unfolding case the commission, and in fact the banking sector, the government, and the corporate world are keenly watching as a guide as to where to go is that of the “Survé companies” under the banner of Sekunjalo, who have launched several legal cases to breach the banks’ dominion over the country. These include the Competition Commission and the Equality Court.
These cases are perhaps the first real test of breaking the might of South Africa’s all powerful banking oligarchy.
The SA Banking Landscape
In 2019, there were 18 registered banks, a paltry increase of two on the number noted in 2016. In 2019, just four of the big banks account for 87.6 percent of assets under management. Investec and Capitec were the next largest banks in 2019, accounting for 8.4 percent and 2.1 percent of assets under management, respectively.
TymeBank and Discovery Bank entered the segment in November 2018 and July 2019, respectively. VBS Bank went into curatorship in March 2018, and the rest on that account is history.
African Bank was placed into curatorship in 2014. The South African Reserve Bank (Sarb) then bought a 50 percent stake in the bank to save it from collapse, but didn’t want to be a long-term investor given conflicts of interest. Sarb has been unable to find a suitable buyer for African Bank and they will now attempt to list the bank on the Johannesburg Stock Exchange to offload their 50 percent stake.
Based on research into concentration among commercial banks in other countries, South Africa’s concentration ratio exceeded that of three other developing countries: Brazil, Russia, and Nigeria, between 2016 and 2019, although both Brazil and Russia would be classified as highly concentrated.
According to Statista, the value of assets of banks in South Africa increased considerably from 2002 to 2020. As of 2020, the assets of banks in South Africa amounted to $448.4 billion (R6.5 trillion) The GDP of South Africa in 2020 was $335.34bn.
The sheer size of bank assets shows the dominant position of the banks in our economy overshadowing the GDP by an astounding 133 percent. The ratio of the UK stood at 97 percent, Germany 70 percent The US after all the billions of dollars printed in its quantitative easing, can match us at 130 percent in 2020.
Bank concentration percentage in the US was reported at 35.22 percent in 2022 based on the three largest banks. This number compares to South Africa 68.8 percent and if the fourth bank (Nedbank) is included we move up to 87.6 percent. And one should keep in mind that these assets are only backed by a very small percentage of actual equity in the banks, with on average not more than a 12 percent cash holding.
In line with Basel I, Regulation 38 of the Banks Act, contains the directives and interpretations concerning capital adequacy and leverage for banks, and presently sets the applicable minimum percentage of assets and other risk exposures required to be maintained by a bank at a paltry 8 percent. (Basel III strengthens the accords and was reached considering the collapse of Lehman Brothers in 2008, but has yet to be implemented due to delays caused by Covid-19).
Human rights vs banking principles
According to the Merriam-Webster Dictionary, a company is defined as “an association of persons for carrying on a commercial or industrial enterprise”. It would, therefore, be interesting to understand if human rights should not also include companies, as ultimately there are humans behind these companies who are the stakeholders.
The guiding principles on business and human rights are relevant to the impact of business activities on human rights, including banking and financial private lenders, and other private lending actors.
According to the guiding principles, states have a duty to protect against human rights abuses within their territory and/or jurisdiction by third parties, including business enterprises. In turn, corporations must not violate human rights, while states have a duty to take steps to prevent and investigate, punish and redress abuses through legislation, regulations, policies, and adjudication.
Humans rights (HRC/43/45 4) states: “to sustainably enjoy the debtor’s human rights, abusive contractual terms and collection practices become a burden and a threat for individuals or households, potentially quickly turning into a trap for many, putting the realisation of human rights in jeopardy. In this regard, the role of the state (and of private actors) is vital to level off the inherent power imbalance between contractual parties for an effective human rights protection effort.”
Directly flouting this, a common policy response in a financial crisis has been to protect financial institutions and large corporations, which, by default shields the wealthier households who own their assets, rather than protecting middle and low-income households.
Moreover, most countries resort to austerity measures to deal with a financial crisis, and drastic cuts in social protection and public sector jobs aggravates the inequality gap. Austerity measures usually affect those in vulnerable situations – mainly the poor, and in the business world, increasingly small to medium enterprises.
The United Nations Universal Declaration on Human Rights enshrines the notion that states (and to some extent private actors) have “obligations to respect, protect and fulfil human rights, ensuring equality and combating discrimination,” ergo all human beings are equal in dignity and rights.
Only in the case of A/HRC/43/45 4 it also states: “to sustainably enjoy the debtor’s human rights, abusive contractual terms and collection practices become a burden and a threat for individuals or households, potentially quickly turning into a trap for many, putting the realisation of human rights in jeopardy. In this regard, the role of the state (and of private actors) is vital to level off the inherent power imbalance between contractual parties for an effective human rights protection effort.”
In the recently published book, “The End of Money”, the authors write: “The root cause of the erosion of trust in democratic ideals is inherently political in nature, but it expresses itself economically and is intimately linked to the erosion of trust in banking and, more broadly, in financial markets.”
It is no small wonder then that there is a growing keen interest with blockchain and crypto currencies as alternatives to traditional banking.
The Competition Commission and the Equality Court have their work cut out for them, and the next few weeks will prove decisive in our history.
Corrie Kruger is an independent analyst.
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