BUSINESS DAY TV: ‘Banking industry remains well-run but conservative’

Cas Coovadia is the MD of the Banking Association of SA.

BUSINESS DAY TV: The markets have welcomed the choice of director-general for the National Treasury. Dondo Mogajane has been acting in the post since Lungisa Fuzile left in the middle of last month. He takes that job permanently from today.

The Banking Association says his appointment is a clear sign of the institutional stability of National Treasury and it bodes well for confidence in the economy. MD Cas Coovadia joins us on the line this evening.

Cas … it seems like more old regime than new regime association is what is winning favour with the markets right now, given Dondo Mogajane’s track record at Treasury. If that is the case do you think he has the stamina to withstand what could prove to be a pressurising new regime with a new agenda?

CAS COOVADIA: We’ve had the experience of working with Dondo for quite some time, both as the Banking Association of SA and as the CEO Initiative.

He has shown himself to have a number of qualities. One being that he is highly skilled. He has been at Treasury for a long time. He worked very closely with the previous minister of finance and he understood and was committed to the policy trajectory and the way in which the previous minister believed Treasury should be institutionalised and should drive the economic growth agenda as well as the transformation agenda in the country. And so we believe that he will do an excellent job.

He is also somebody who understands that his role is as director-general of National Treasury now. He stands for an efficient organisation in Treasury, to ensure an organisation that actually conducts itself in a way that is in the national interest and ensures that money raised from taxpayers is efficiently spent and properly spent.

I’ve also seen him in action when I was on the roadshow with the previous minister last year and he has engendered quite a lot of respect amongst international investors and ratings agencies. So I believe he has all the qualities of a good DG and he will also maintain the institutional integrity of National Treasury and his appointment will give those who are in National Treasury and who have been there for quite some time, the confidence to remain.

So I believe the finance minister and the Cabinet need to be complimented on this appointment.

BDTV: So, you’re saying that this ensures policy continuity in National Treasury but as we’ve mentioned do you think there will be pressure to toe the line, particularly when it comes to radical economic transformation?

CC: I believe we will find what the minister is doing with Dondo’s appointment, is he believes that there needs to be continuity and that method is fine. The minister has said that he doesn’t have a mandate to either change policy or change direction, and Dondo’s appointment goes some way to assure … and it certainly does assure us that we are sticking to the path.

BDTV: In your statement released today on the back of this appointment, you said it "works at boosting local and international confidence in the country". What are you anticipating as far as Moody’s is concerned tomorrow, and should ratings agencies be giving SA the benefit of the doubt? Of course, where the risk that comes with that is SA adopting a level of complacency about where we’re actually at economically?

CC: Yes, one obviously would but it will [unclear] S&P does not downgrade. The hope is that they will not downgrade us two notches and that they will only downgrade us one notch to just above investment grade. I’m not convinced that we are in a position where we can be complacent with any good news or any reason of reasonable news. We already are in a pretty bad position economically. The Fitch and S&P downgrades have been pretty bad. The recent Stats SA figures on the reduction in the economy and putting us into a technical recession is pretty bad.

So I don’t think we can be complacent about anything. What we now need to do is to rebuild confidence, rebuild trust and [they] also need to demonstrate that they will work in close collaboration with business, labour and other stakeholders and that we will not shoot ourselves in the foot like we did in March and … and that’s the sort of commitment that we need from government. Business stands ready to continue working with government to try and get us out of wherever we are and put us onto a growth path. But it’s going to need serious commitment, in my view, from government and some serious things that we do that government needs to rebuild some trust and confidence.

BDTV: Those first-quarter growth figures released this week, one of the surprises was how bad the financial sector did in the first quarter of the year. So it looks like banks are in for a pretty tough time this year, the sort of measures they’re taking to reinvigorate growth within the sector?

CC: The banks remain sound with strong and reasonable … ROEs [returns on equity] but we’re working in a tough environment. Bank business is pretty limited because of the lacklustre and, in fact, now recessionary environment and so the results of banks and their growth would be limited to a certain extent. Having said that, banks are taking now deferred — that group at a Treasurer’s Conference today some residual from possibly Fitch and they said that banks still remain well capitalised and they are reasonably liquid and while in the current context impairments do go up, we’re still managing those very well.

So we are still a very well-run industry, we’re a relatively conservatively minded industry and we will continue to be that. But one of the reasons why so many banking CEOs as well as the Banking Association are involved in the CEO Initiative is that we’ve got to be in the interests of the banking sector to get growth going to get further demands for bank services and productivity goes up.

And so we are intricately linked to the economy, but we don’t put bank money into the economy. We actually distribute money into the economy on behalf of the deposits put into bank accounts by corporates. Corporates do not have the confidence at this point in time to invest, and so we can’t provide the services we usually provide.