SA banks are sitting on a treasure trove of dry powder, a war chest that could be deployed to reignite the economy, fund the infrastructure dreams that have long been promised but rarely delivered, and, crucially, shore up the fragile social compact underpinning our democracy.
Yet this dry powder remains untouched, waiting for the government of national unity (GNU) to prove it can turn lofty rhetoric into tangible action. The stakes couldn’t be higher. With the budget framework hanging in the balance ahead of Wednesday's deadline, the GNU risks turning what should be the heartbeat of democracy — a space where ideas are battle tested — into a chaotic spectacle that erodes the fragile goodwill that greeted its formation less than a year ago.
The banks, for their part, are ready but cautious. Their balance sheets are fortified, and their Common Equity Tier 1 (CET1) ratios are comfortably above regulatory minimums. Collectively, the sector could immediately free up R200bn-plus in capital if CET1 ratios were trimmed to regulatory thresholds. That’s a staggering amount of dry powder, enough to fund transformative projects and inject life into a stagnant economy.
But prudence, a hallmark of our banking sector that helped us escape largely unscathed from the 2008 global financial crisis, reigns supreme. The lenders, as rational businesses, won’t loosen their grip on this capital until they see a government capable of delivering stability, policy certainty and a credible growth plan. The GNU, composed of 10 parties with the ANC and DA as ringmasters, now faces a moment of truth.
As tempting as it might sound to unlock this dry powder now, doing so would raise eyebrows among regulators. The Reserve Bank’s Prudential Authority is laser focused on ensuring lenders remain well buffered against financial shocks. For banks, their CET1 ratio not only serves as a line of defence in volatile markets but also as a barometer of investor confidence. All four banks have opted to stay well above the threshold, aligning their capital reserves with board-approved ranges.
Still, all but Standard Bank have idle capital — albeit smaller than R200bn-plus if they were to pare back to the regulatory minimum — because their CET1 ratios remain above board-approved target ranges, money reserved for lending when the opportunity is precise and risk adjusted returns are clear and aligned with institutional strategies.
The GNU, a set-up born out of necessity rather than unity, emerged as a bulwark against political collapse. It was greeted with a wave of optimism by investors, business leaders and citizens alike. For evidence, take a look at the rand performance among emerging market currencies in 2024, bond yields and stock market returns, while the SA Chamber of Commerce and Industry’s business confidence index (BCI) has been on an upward trajectory since June last year.
Aside from the BCI — the January reading of which is hopelessly outdated — all of these indicators are on the back foot, exhibit A that goodwill is a perishable commodity. The latest Reserve Bank quarterly bulletin shows bond yields have crept up as a weaker rand and policy uncertainty, which is at its highest since inception in 2016 as measured by the North West University Business School, offset lower inflation.
Wednesday's budget framework vote is more than a procedural hurdle. It’s a test of the GNU’s ability to deliver on promises and govern with purpose. Failure to get the budget over the line would signal failure to prioritise economic recovery that millions of South Africans desperately need. Worse still, it would erode the flimsy trust holding the GNU together, potentially plunging the country into political and economic uncertainty.
But the stakes go beyond economics. GNU success — or failure — will have a direct impact on the threadbare trust between citizens and institutions — a trust essential to a democratic experiment that faces systemic challenges of unemployment, inequality and poverty. Failure risks widening the cracks in the democratic framework, jacking up public frustration and further eroding faith in governance.
The banks are watching this drama unfold with a mix of trepidation and pragmatism. The dry powder is there as a mix of regulatory box-ticking and deliberate buffer in a volatile environment. Still, this prudence comes at a cost. By hoarding capital, banks are in effect, sidelining resources that could be used to fund growth.
The argument for caution is compelling — why deploy capital in an economy in which policy uncertainty is the norm? But the counterargument is equally strong: without investment, the economy will remain stuck in a low growth trap, and the social fabric will continue to fray.
The GNU’s budget framework could be the catalyst that breaks this impasse. Time is running out. The message is clear: get the budget over the line, and do so with a vision that inspires confidence. It’s the kind of policy certainty that banks need to start deploying their capital, funding projects that create jobs, build infrastructure and drive economic recovery.
Anything less risks turning the delay in budget process, which is considered a crucial feature in the GNU to ensure ideas are rigorously tested, and the GNU itself, into an unruly circus — a missed opportunity in a country that can ill afford another one.
• Motsoeneng is Business Day acting editor.
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