Run on numbers: Credit give, and credit due
Prior to the greylisting of South Africa, most citizens were still living with a naive impression that all is well with our financial authorities. We saw an impressive (in appearance and size) South African Reserve Bank (SARB) building and Financial Sector Conduct Authority (FSCA) headquarters in Pretoria, and an ever-larger growing list of regulations was being churned out every year.
We had adopted the Twin Peaks regulation mode, which established a new Prudential Authority, housed within the SARB, tasked with overseeing the economic stability and soundness of financial institutions, and renamed the old Financial Services Board to the FSCA, which would be the conduct authority for the financial sector, to ensure efficiency and integrity of financial markets and affording greater consumer protection.
Yet in the Mutual Evaluation Report of South Africa, which is a comprehensive review of the effectiveness of the country’s measures and their level of compliance with the Financial Action Task Force (FATF) Recommendations, it is quoted: “South Africa has a relatively high volume and intensity of crime, and more than half of reported crimes fall into categories that generate proceeds. The main domestic proceeds-generating predicate crimes are tax crimes, corruption and bribery, fraud, then trafficking in illicit drugs, and environmental type crimes. As a large economy and a regional financial hub for sub-Saharan Africa, South Africa has a notable exposure to the threat of foreign proceeds of crime generated in the region being laundered in or through the country.”
The FATF isn’t wrong. Recent media reports showed officials at three major SA banks have helped a gold smuggling gang launder large sums of money in exchange for bribes. Thousands of documents and interviews later it was revealed that officers at Standard Bank, Absa and Sasfin were on the payroll of a money launderer who goes by the name “Mo Dollars” and is on the payroll of Zimbabwean cigarette magnate Simon Rudland. The banks defend themselves by merely stating that the officials caught red-handed no longer work there.
And the internal systems of control and checks of the big banks are not always investigated in detail by regulators on managed on a granular basis, so it is not too difficult to find a few things that fall through the cracks. But when the tables are turned, however, banks are quick in blacklisting clients' accounts or repossessing their assets, when they succumb to economic pressures, while they enhance their debt collection efforts to make margin.
According to the Consumer Credit Market Report of September 2022, issued by the National Credit Regulator, “the total outstanding gross debtors’ book of consumer credit for the quarter ended September 2022 was R2.22 trillion, representing a quarter-on-quarter increase of 6.83%. ” We need to write this out in a numerical manner for us to comprehend the magnitude thereof. It looks like this: R2 220 000 000 000.
The number of accounts increased by 2.36% for the quarter ended September 2022. Mortgages accounted for R1.166 trillion (52.49%); “Secured credit agreements” for R485.80 billion (21.84%); Credit facilities for R292.87 billion (13.18%); Unsecured credit for R218.23bn (9.82%); Developmental credit for R57.33bn (2.58%) and short-term credit for R1.96bn (0.09%) of the total gross debtor’s book.
The repo rate increases over the last year look so insignificant, so meek and mild. It does not do justice to the devastation that it brings to bear on the man on the street. Since a small number as 4.5% increases to 7.75%, it is only 3,25%, and counting.
The implication of the above increases is that the SARB has effectively reduced the consumers' cash by R70 200 000 000 and handed it over to the banks and other credit providers., Over this period interest payment increase of 3,25% on an amount of debt of R2 160 000 000 000 is this impact. This money is lost to the consumer who is also faced to pay 14% more for food for his/her family. daily the banks are now haunting the consumer to pay up or else.
Let us now look at what happened to the money the banks received in additional interest payments. The banks will pay it out as dividends and interest to the capital-rich people and institutions that invest their surplus funds with them. The fact that the consumer now has much less money is supposed to bring inflation down, but the money still exists, it is just in different hands. The latter is trusted not to cause inflation as the consumer would do. The only problem with this reasoning is that the consumer never caused demand-led inflation. It was always cost-push inflation. The banks have huge issues with reputational issues and rightly so. Yet as the “Al Jazeera” investigation shows the banks are complicit with weak control systems.
What every South African should now be asking is, if Eskom is losing R1bn per month due to corruption and the question is where does the ill-gotten money go? It can only first go into a bank before the laundromat takes over. A bank must know its customer. Many start-up companies are awarded huge contracts and the money flows into those accounts. Are these deals flagged and reported or are these clients refused banking services? The hawala system cannot operate in isolation. There need to be serious consequences and banks should not merely dismiss workers and carry on as if they are separately accountable.
* Kruger is an independent analyst.
PERSONAL FINANCE