Nedbank CEO Mike Brown. (Photo: Gallo Images)
- Nebank held a webinar on Tuesday where it spoke about the banking sector’s role in helping SA deal with Covid-19 crisis.
- CEO Mike Brown said the sector has been supportive but it must balance that with its responsibility to keep the system stable and sound.
- This comes as the ANC’s Economic Transformation Committee published a discussion document last week proposing, among other things, that the banking sector must be transformed.
- Nedbank’s chief economist, Nicky Weimar, said what SA needs is a pragmatic approach that only fixes what’s broken, as government cannot spend its way out of the current crisis.
South Africa should focus on fixing what’s broken in the economy – like the unreliable electricity supply – and strengthen what works, as it is running out of runway to test policies that call for expenditure that government cannot afford, says Nedbank.
The banking group held a webinar on Tuesday discussing what a post Covid-19 economy may look like and what the role of government, the banking sector and the private sector at large should be. Nedbank chief economist, Nicky Weimar, said while the ruling party is advocating for accelerated infrastructure-led government expenditure, SA cannot spend its way out of the current crisis.
She said the view in the ANC’s Economic Transformation Committee’s discussion document, published last week, which is centred around the notion that “the state saves the day” by driving investment, can be effective if it’s done properly and if SA can finance it.
“In essence, it’s not a new idea. It is nothing other than the Latin American style state-led infrastructure and debt financing we saw in the 1970s and 1980s,” Weimar said.
Last week, the ANC’s Economic Transformation Committee published its discussion document that proposes infrastructure-led recovery and a number of regulatory changes that it deems necessary to help SA recover from the Covid-19 economic slump.
Some of the interventions it proposed included ensuring increased competition in the banking sector and accelerating the establishment of a State Bank.
Weimar said the view that Covid-19 will create an opportunity for businesses to reset and produce more output at a lower cost by automating more of their operations, on the other hand, is “capitalist dream”. But what most South Africans want is a “pragmatic approach” that focuses on fixing what is broken and strengthen what works.
Banks are supporting the economy
While the ANC’s Economic Transformation Committee’s document called for more transformation of the banking sector, Nedbank CEO, Mike Brown, said banks actually responded very quickly to support the economy by reducing the liquidity buffers they had accumulated over the years to provide much-needed relief to consumers.
He said the criticism that there is lack of competition is not what Nedbank as a banking group is experiencing on the ground.
“[There] is very, very strong domestic competition. We’ve seen the growth and emergence of Capitec, and they are now moving into the SME environment. We’ve also had numerous international competitors, particularly on the wholesale side, and more recently a number of new entrants in fintech.”
Brown also said financial regulation in South Africa “has always been incredibly strong”. Nedbank, for instance, had 224 regulatory engagements of some sort that don’t include telephone calls in the five months to May. He added that the SA banking sector is already seen internationally as an early adopter of global best practices.
But ‘there is no free lunch’
Brown said the sector realises that it has an important role to play in supporting the economy, but it has to balance that with protecting the safety and soundness of the system.
“South African banks don’t get unsecured money from the SARB, contrary to popular belief in some circles in our country. There is no free lunch,” he said.
He said banks are required by regulation to hold and pledge high liquid assets to the SARB to be able to access the cash facility from the central bank, should it be needed. He cited as an example the R200 billion loan guarantee scheme that had only disbursed less than R11 billion at the end of June.
Brown said while there has been criticism of the low uptake, all over the world “these types of schemes” had teething problems and required some amendments. He said while the Banking Association of SA, the SARB and Treasury are working on amending the scheme, they need to balance the need with the stability of the financial system.
“We do need to balance so that there is not undue risk in the banking system or indeed the fiscus, and ultimately taxpayers, as a consequence of that,” he said.