Current proposals on land reform are too vague for
the Reserve Bank to panic about them, although a policy shift that leads
to “more fundamental changes to property rights” could pose a risk to
...
the financial system, the Bank's deputy governor Kuben Naidoo says.
The banking system has a gross exposure of R125bn to the agricultural
sector, with R41bn of this held by the state-owned Land Bank, he told
journalists in Johannesburg on Friday. He was speaking on the same day
that President Cyril Ramaphosa announced the appointment of a panel to
advise the government on policy matters associated with land reform.
Land reform has emerged as one of the most controversial issues of
Ramaphosa’s presidency, after he announced late on July 31 that the ANC
would seek to change the constitution to make explicit the conditions
under which expropriation of land without compensation can take place.
The announcement spooked markets, fueling a decline in the rand amid
concern that property rights might more broadly be compromised, which
would discourage investment.
The concern for commercial banks is that the policy, if
mishandled, could lead to the value of properties against which they
have lent money collapsing, causing defaults that would then threaten
their ability to fund themselves. While the rand, which has gained
almost 4% since September 15, is set for its biggest weekly gain since
December, it’s still down about 10% since Ramaphosa’s announcement. It
was also battered as emerging markets came under pressure and the
currencies of Turkey and Argentina collapsed.
“The proposals are too vague for us to panic,’’ said Naidoo, who is
also CEO of the Prudential Authority, which is responsible for
regulating financial institutions. “It’s an issue we note” but the
proposals “are nowhere [near] specific enough for us to be able to
cost."
Commercial banks have invested about R1.6-trillion of South Africans'
savings, salaries and investments into property loans, which they rely
on as security, Cas Coovadia, MD of the Banking Association of SA (Basa)
said in a statement on August 30. The economy will not be able to
withstand the shock of a marked decrease in the value of properties due
to “legislative changes or loss of investor confidence”, he said.
Ramaphosa’s advisory panel will be chaired by social entrepreneur and
public policy and development planning specialist Vuyokazi Mahlati and
includes Wandile Sihlobo, head of research at the Agricultural Business
Chamber of SA and a columnist for Business Day.
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