Transformation within the financial sector is not merely an option but a constitutional and economic imperative, parliamentary standing committee on finance chairperson Joe Maswanganyi said on Tuesday.
“South Africa cannot afford a financial sector that excludes the majority outside the mainstream,” Maswanganyi said.
Among those in attendance are SARB governor Lesetja Kganyago, deputy governor and CEO of the Prudential Authority Nomfundo Tshazibana, Financial Sector Conduct Authority deputy commissioner Katherine Gibson, and Banking Association of South Africa managing director Bongi Kunene.
There are also representatives of major banks Absa, Capitec, FNB, Investec, Nedbank and Standard Bank.
Others are from the Department of Trade, Industry and Competition, the National Treasury, Competition Commission, National Credit Regulator, Independent Development Corporation, National Empowerment Fund, National Consumer Tribunal and the Financial Sector Transformation Council.
Maswanganyi made the comments during his opening remarks during the sitting of the joint meeting of the standing committee on finance and trade, industry and competition portfolio committee to engage the finance sector on issues of transformation, and other related matters that are raised by consumers.
Maswanganyi said engagement concerning access to development finance and the transformation of the South African financial sector was of paramount importance as it pertained directly to the foundational tenets of inclusive economic growth, equitable financial participation and the broader transformation objectives enshrined in the constitution and articulated in policy frameworks.
“We are here today to engage the banking sector. The banking sector in South Africa is the cornerstone of the country’s economy contributing significantly to growth, job creation, financial inclusion and stability.”
Maswanganyi said despite South Africa undertaking substantial policy and legislative initiatives aimed at reforming the financial sector to facilitate meaningful participation by historically disadvantaged groups, the pace of progress has been slow and often characterized by symbolic rather than substantive changes.
“Reports from oversight engagements have illuminated deeply entrenched structural inequalities that continue to pervade the financial sector.
“Indicators related to black ownership, enterprise and supplier development and access to financial services for historically marginalised communities consistently fall short of established benchmarks.”
He also said findings presented to the committee by the BBBEE Commission in 2022 revealed concerning statistics regarding on-going racial disparities within the sector, specifically black ownership in the financial sector.
The management control within the sector remained largely untransformed with black professionals occupying less than 20% of executive roles in major financial institutions.
Investment in enterprise and supplier development continued to lack significantly with financial institutions failing to attain even modest targets outlined in sector codes.
Maswanganyi also said it was noted that the Financial Sector Transformation Council has not submitted a transformation report since of 2017/18.
“These statistics underscore the urgency of addressing the pressing issues inherent in financial sector. Banks persist in employing inflexible lending models that systematically exclude the vast majority of emerging black enterprises and small enterprises.
“This disproportionate reliance on collateral based-lending mechanisms further exacerbate the challenges faced by black-owed enterprises in securing necessary capital for growth and stability.”
Maswanganyi said the finance standing committee has repeatedly expressed concerns regarding the lack of urgency in addressing financial exclusion and gradual transformation within the financial sector.
“It becomes imperative to pose some of the critical questions on why the rate of transformation has been slow in the banking sector despite the existence of legislative frameworks and sector codes.”
He said the National Treasury and the Department of Trade, Industry and Competition should provide a comprehensive update regarding measures implemented to enhance transformation and financial inclusion.
“Moreover, the SARB, tasked with ensuring financial stability together with FSCA must elucidate how their regulatory and prudential policies align with the country’s transformation policies.
Maswanganyi also said Banking Association of South Africa along with individual banks must be held accountable for shortcomings in meeting transformation targets, especially regarding ownership, procurement and financial support for black-owned enterprises.
“It is essential that banks articulate tangible commitments extending beyond mere corporate statements concerning removal of barriers faced by the clients or customers, black enterprises and historically disadvantaged individuals in their pursuit of their financing.
“The discourse must transcend rhetoric. Expectations for implementation of the measures is paramount, Parliament will not hesitate to consider legislative interventions to ensure compliance with transformation imperatives.”
He also said the persistent failure by banks to submit the requisite compliance reports under the BBBEE Act signified a critical regulatory gap that necessitated urgent attention from Parliament.
“Institutions that do not fulfil their transformation obligation have to take responsibility for their actions,” he added.