Political tempers are flaring about banks. You may think this is because of the alleged conspiracy by banks to manipulate the value of the rand, but you would be wrong. The facts of that case are wafer thin, and the wrongdoing by certain bankers served only to push their earnings higher, not undermine the state or even weaken the rand. Rather, what we are seeing is a cynical manipulation of the facts as politicians move into election mode.
There is a clear pattern of political blows against banks in the run up to elections. Shortly before the 2019 elections, parliament rushed through an amendment to the National Credit Act colloquially called the Debt Relief Bill, empowering the National Credit Regulator and the minister of the department of trade, industry and competition to write off unsecured debts of under R50,000 for those earning less than R7,500 almost at their discretion.
Prior to the 2014 election, there was a credit information amnesty rushed through parliament, which required credit bureaus to delete certain kinds of adverse credit information, making it easier for many to obtain new credit, but obviously harder for banks to assess creditworthiness. Both generated headlines about politicians reining in the banks.
As we head toward the 2024 election, the ANC (and other politicians) are flexing muscles over bankers. There are 10-million people in South Africa with impaired credit records, out of 27-million that are active borrowers. Every month about 70% of credit applications are rejected. Banks are responsible for 80% of the credit market, but strong political sabre rattling directed at the banks quenches a public blood lust. It is a sizeable constituency for populist parties.
It hardly needs saying that these assaults do not serve the interests of those they purport to. The Debt Relief Bill has meant that anyone earning under R7,500 finds it much harder to get a loan. Figures from the National Credit Regulator show that the amounts lent to those earning below R10,000 has plummeted. In the second quarter of 2018, R4.6bn, or 18% of credit granted, was to those with salaries less than R10,000. But in the second quarter of 2023, just R2.9bn or 13% of credit was to that category. Anecdotally I am told by lenders that the amount to those earning less than R7,500 is by far the biggest component of that drop.
Politicians are sensitive to the value of the rand, which some perceive as a judgement on the quality of their governance. It is an attractive narrative to declare that the exchange rate has fallen not because of policy choices and economic fundamentals, but because of cynical efforts to manipulate it, as minister in the presidency Khumbudzo Ntshavheni put it last week “to make sure the government collapses”. Her comments were followed in parliament on Friday by the Standing Committee on Finance, including the Economic Freedom Fighter’s Floyed Shivambu demanding banks be fined 10% of their turnover.
I have written several times that the Competition Commission’s long running case against the banks is bizarre. The headlines last week have ignored the fact that the litigation that was taking place was an application by most of the banks that would get the case thrown out. The Standard Chartered settlement of R42.7m was offered to the Commission months ago but was only accepted by the Commission on the eve of the application being heard in the Competition Appeals Court. That timing was highly effective in shifting the narrative from one that would have been embarrassing for the Commission as bank after bank made their case that the evidence offered by the Commission is vague and embarrassing.
There does not appear to be any evidence beyond that already prosecuted in the United States by the Department of Justice. There, several bankers have been shown to have manipulated the rand/dollar exchange rate at certain moments in the day in order to bank profits. These were done through two chatrooms on the Bloomberg platform. Standard Chartered bankers were active in these chatrooms and the bank has already paid $40m to the DoJ as a settlement there. But the DoJ evidence does not indicate a grand conspiracy existed to undermine the South African state.
In one recent prominent example of the DoJ’s prosecutions, Neil Phillips, a South African born trader at a UK hedge fund (not a banker, note), manipulated the rate on Christmas night in 2017 for an hour when volumes are smallest, to force the rand stronger and trigger an options payment that yielded him $20m profit. Given that between $10bn and $20bn is traded in rand every day, such trading could only have a momentary impact on the rate. He was convicted last month in New York and could face 10 years in prison. The DoJ’s cases involve a long list of individuals (and not their banks) involved in similar kinds of trades.
It is well and good that actual wrongdoing be prosecuted, but the Commission’s pursuit has all the signs of political motive rather than rational application of the rule of law. This is the season in which political motives reign. Banks’ instincts are to retreat to the strict application of the rule of law, but there needs to also be proactive defence of their reputations. After all, the suggestion that banks would undermine South Africa is ludicrous, given the biggest single driver of bank earnings is economic growth. In an ideal world, politicians would recognise that banks are custodians of savings and enablers of growth, and that policy could support them to be so more effectively. If only that could deliver short-term political wins.