Picture: Twitter/ @MolotoMothapo
The major banks have been called to parliament to answer questions about their credit lending practices as part of a fact-finding mission that will include determining why banks are keen to extend credit for consumption but not so much for production.
According to a statement issued by parliament last week, the portfolio committee on trade, industry, and competition as well as the standing committee on finance will meet with the major banks in February to understand their credit lending practices for production and consumption purposes as well as their progress in contributing towards transformation of the economy.
Mzwandile Masina, chairperson of the portfolio committee on trade, industry and competition, says the meeting will be a fact-finding mission based on two committees’ observations after they met with the National Credit Regulator (NCR), National Treasury and the Competition Commission late last year.
According to Masina, this engagement forms part of enhanced oversight over the financial sector and the developmental role it should fulfil in South Africa. “It has been observed that it is easier to secure credit for consumption purposes than for production,” he says.
Masina says this lending approach is disempowering, particularly for previously disadvantaged people.
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“As parliament, we have a constitutional duty to conduct oversight over the implementation of legislation in the interest of consumer protection and facilitating transformation. Banks, as regulated entities, should be open and fair about their lending practices and in particular how they calculate interest, confidentiality clauses and the fine print on credit agreements.
“We invited the banks to engage them on issues that negatively affect ordinary and vulnerable members of society. It would be ideal if the banks worked to advance and support economic development across all segments of society.”
Masina says the meeting will ensure that the banking sector in South Africa is open, transparent and of service to poor people to facilitate inclusion in the productive sectors of the economy. “We have a responsibility as members of parliament to oversee the sector to ensure inclusive economic growth and protect vulnerable consumers.”
The committees will also invite the Financial Sector Conduct Authority (FSCA) to discuss the state of banking in South Africa, the credit profile within the sector, ratios of consumption credit versus productive credit per bank, bank charges, state savings and the Protection of Personal Information Act (POPI Act) as it relates to confidentiality of clients.
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In addition, committees will discuss the expected impact of the Conduct of Financial Institutions (COFI) Bill on lending practices, as well as the progress in implementing the Financial Sector Charter.
The COFI Bill aims to:
Before last year’s election, when Mmamoloko Kubayi was still human settlements minister, had credit providers up in arms when she alleged that there are “discriminatory practices” in the banking sector’s home loan application process.
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Renier Kriek, managing director of Sentinel Homes, then said the minister’s plan to change the law to force banks to explain why they reject loans to any previously disadvantaged person sidesteps the real issues in housing supply and demand, as well as any meaningful solution.
“Credit providers are profit-driven, not racially motivated. Banks are profit-seeking enterprises that make money from awarding credit, not from denying it. It is not only implausible but also downright ridiculous to believe that there is some racially motivated cabal operating from back rooms at banks and credit providers for ends that are inimical to the profit-seeking motive of those businesses.
“Apartheid placed ideology before profit, but in our democratic economy, any enterprise that turns down good money over prejudice will soon go out of business or be exposed by whistleblowers from inside.”
Kriek also pointed out that the National Credit Act compels banks to reject risky applications and clearly prohibits awarding credit to an applicant who does not have the financial means to repay it, is already over-indebted, or would become over-indebted due to the loan.
In addition, banks that recklessly award credit put themselves at risk because the loan contract could easily be overturned by a court, he said.
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