Banks have received a mixed transformation report card in an industry-sponsored survey, with local lenders making good progress in areas such as preferential procurement and black ownership but falling short on management control.
The 2022 Transformation in Banking Report, compiled by Intellidex on behalf of the Banking Association SA (Basa) for the period 2017-2020, showed lenders met many of the targets set by the Financial Sector Code, though work is still required in some areas. That was despite a 6.4% pandemic-induced economic contraction in 2020 that reduced opportunities for job creation and inclusive growth in the sector.
“We see the direction where everything is going is positive, but there’s still work to be done in driving transformation forward,” said Khulekani Mathe, head of financial inclusion at Basa. “That is an encouraging message as opposed to seeing a reversal in the gains that have been made over the years.
“What the report is telling us is that transformation is taking place in the industry, perhaps not at the pace we would all like to see, but the trend is in the right direction and is borne out by the numbers. Relative to other industries, the banking sector is doing its best to meet the set empowerment targets.”
Black ownership of the 19 banks that participated in the report was slightly above target, with black people holding more than 28% of voting rights from 2017-2020 against a target of 25%. However, black economic interest fell short of the 25% target for each of the years from 2017 to 2020, with the Basa-Intellidex report saying black ownership of banks is likely to continue to drift downwards as BEE deals have now vested, leaving investors in such structures free to sell their shares to partake in profits.
While the proportion of black managers in the banking sector increased across all levels from 2017 to 2020, the overall levels of black management control still fell short of targets across junior, middle, senior and top-senior levels. While 86.8% of junior managers were black in 2020, this was shy of the 88% target, while the 67% representation achieved in middle management was well short of the 75% target.
Though 45.2% of senior managers were black in 2020, it fell short of the 60% target, as did the 42.6% black representation achieved at the top-senior level. Black board members as a percentage of all directors also fell short of the 50% target from 2017 to 2020. While black women as a percentage of all directors climbed from 19% to 21% between 2017 and 2020, their representation at the executive director level was less than half the 25% target in 2020.
Nevertheless, banks have made notable transformation strides in the realm of procurement, acquiring 82% of their goods and services — an amount worth a cumulative R137bn — from BEE-compliant businesses in 2020. That exceeded the procurement target of 80% despite the negative effect of lockdown restrictions on business activities.
Local lenders also disbursed R27.8bn in empowerment financing in 2020, including R34.5bn to small black businesses, and spent R4.7bn on skills development for previously disadvantaged employees. Banks provided access to transaction points to 88% of South Africans in low-income households, against a target of 85%, and provided 20-million products that contribute to financial inclusion, against a target of 15-million.
Basa’s transformation report also highlighted the crucial role banks play in the economy, with the nation’s six largest lenders employing more than 154,000 people. The financial services industry as a whole also pays about 30% of all corporate tax (R63bn in 2021) despite accounting for only 23% of GDP.
Banks are the single largest source of financing for small and medium enterprises (SMEs), with R34.5bn in various forms of credit funding going to black SMEs in 2020. In 2021, banks disbursed R1.7-trillion in mortgage finance and R1.4-trillion in loans and advances to companies across the economy.
The report highlighted the role the financial sector has played in transforming SA’s energy sector: 34% of the projects to have reached financial close under the Renewable Energy Independent Power Producers Programme (REIPPP) are owned by black South Africans. SA’s financial firms have supplied 91.7% of the total project debt under the REIPPP, with Nedbank, Absa, Standard Bank and FirstRand the four biggest providers.
“For SA to grow and to have inclusive economic growth we need banks to be commercially sustainable,” said Basa MD Bongiwe Kunene.
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