Chairperson, hon members, the Banks Amendment Bill seeks to substantially announce a regulatory framework for banks in this country. Furthermore, it seeks to effect the latest international standards published as the revised framework on International Convergence of Capital Measurement and Capital Standards, better known as Basel II of the New Capital Accord.
The aim of Basel II is to enhance financial stability in the system by ensuring that banks keep sufficient capital to cover various risks associated with their business. Basel II does this by requiring banks to risk weight or the assets to hold minimum capital to back any loss associated with those assets. This is important since these assets, which are dominated by loans and advances, are predominantly funded by deposits from the public.
Basel II, as broadly incorporated in the Bill, before the House today, seeks to achieve this by introducing three pillars to the banking regulatory framework. The first pillar deals with capital requirement; the second pillar deals with the supervisory review process and the third pillar deals with market discipline.
The incorporation of the three pillar framework into the legislation will ensure: Firstly that enhanced regulation of all relevant banks and banking groups are on a consolidated basis; secondly clearly define roles and responsibilities of consolidating and host supervisors; thirdly the co- operation and sharing of information between supervisors; fourthly clarifications of the responsibilities of banks, banking groups, boards of directors and banking groups; fifthly improved disclosure requirements for banks and banking groups; sixthly risk-sensitive minimum capital requirement in respect of credit, market and operational risk exposures; and seventhly an enhanced supervisory review process in order to, among other things, assess the capital adequacy and control environment of both banks and banking groups.
The National Treasury also undertook an extensive economic impact study of the implementation of Basel II in South Africa. The result of this study indicates that while the potential direct impact on the bank capital requirements, bank pricing and the macro economy is expected to be negligible, the potential longer term economic impact is considered to be significantly positive, given that Basel II is expected to lead to improved international competitiveness, enhanced financial stability and more efficient allocation of economic capital.
The Banks Amendment Bill of 2007 has gone through very extensive consultation. The passing of this Bill into an Act this year will ensure that South Africa fulfils its commitment to implement Basel II on 1 January 2008, which will put South Africa in the leading group of countries that have introduced this measure of international best practices. The passing of the Bill will also send a clear message that the confidence that international and local investors have in entrusting their monies with our banks is well placed.
I would like to take this opportunity to thank the Registrar of Banks for all the efforts in assisting with the Bill. I would also like to thank the Deputy Minister, Jabu Moleketi, the Director-General of National Treasury and his team, and more importantly, the Portfolio Committee on Finance, under the able chairpersonship of Mr Nhlanhla Nene.
I, hereby, table the Banks Amendment Bill for consideration and debate now. Thank you, Chair. [Applause.]
Chairperson and hon members, the South African economy and its financial services under the stewardship of the ANC have risen to occupy a position which is the envy of many in developing and developed economies alike.
Pre-1994 we would not be in a position to discuss our position, because we had an illegitimate government that was isolated from the rest of the world and only catered for the needs of the few to the total exclusion of the vast majority of the people.
The financial services sector and particularly the banking industry has continued to be an anchor of macroeconomic stability through keeping pace with global developments as this Bill clearly demonstrates.
The objects of this Bill, as the Minister has already indicated, are to facilitate the implementation of Basel II and to align the Act to the changing supervisory policy and market developments.
This Bill primarily contains amendments to the Act necessitated by the Revised Framework on International Convergence of Capital Measurement and Capital Standards published by the International Basel Committee on 26 June 2004. These Basel II amendments are intended to create a robust regulatory environment that will enable the registrar to properly discharge his or her respective roles and responsibilities in respect of banks, controlling companies and banking groups on a single, cross-border or consolidated basis.
It is further strengthened in the following areas. To avoid repeating the areas that the Minister has mentioned, I'll just run through them quite quickly, also taking advantage that some of the people were listening: Regulation of all relevant banks and banking groups on a consolidated banking; stating the respective roles and responsibilities of consolidating and host supervisors; provision for co-operation and sharing of information between supervisors - currently the Act does not make specific provision for this co-operation; clarification of the responsibilities of banks, banking groups and boards of directors of banks and banking groups, which otherwise was not adequately provided for in the current legislation; increase of the reporting requirements of and providing comprehensive disclosure requirements for banks and banking groups; facilitation of the various options available to banks and banking groups in calculating minimum capital requirements in respect of credit risk exposure, market risk exposure and operational risk exposure; and elaboration of the supervisory review process in order to among other things, assess the capital adequacy and control environment of banks and banking groups.
In addition, the Bill also clarifies and strengthens the powers of the registrar to ensure compliance with the Act. He or she is empowered to issue circulars, guidance notes and directives to request information from relevant institutions and to impose administrative penalties. The registrar's power to object to the appointment of directors is also clarified.
Currently, the regulatory authority of the registrar is limited to banks, and this Bill extends it to divisions and controlling companies of banks in certain respects.
This Bill also imposes an obligation on the registrar to keep a register of registered controlling companies, branches, eligible institutions, representative offices of foreign institutions or the subsidiaries and branches of banks.
The other amendments are more of a technical nature and I would not want to bore the House with those.
The committee held public hearings on this Bill and based on the responses received we are satisfied that the Bill is acceptable to the industry and that it is in the interest of all South Africans.
According to the note on assessment of the economic impact of Basel II by National Treasury, SMEs are not going to be adversely affected by the regulatory capital requirements introduced by Basel II. We are assured that capital requirements for lending to retail SMEs are actually expected to decrease under Basel II, which will in turn have a positive effect on SMEs' access to finance. We are also assured that the introduction of Basel II requirements will not change the banks' commitment in terms of the Financial Services Charter and BEE financing.
The commitment of the ANC-led government to the total emancipation of our people from all kinds of bondage, including economic bondage, is at the heart of this legislation. The ANC supports this Bill.
Thank you, Chair. [Applause.]
Chairperson, because this is my maiden speech as DA Finance Spokesperson, I assume that the hon Minister of Finance and the rest of the House will listen in the respectful silence normally accorded to maidens. [Laughter.]
Perhaps you will allow me to start by saying that I have been happy serving on the Portfolio Committee on Finance for those last two months. The hon Mr Nhlanhla Nene is an exemplary chairman and he and his members have made me feel very welcome and at home and I'd like to thank them for that. You'll be glad to know, Chairperson, that I will not detain you for very long this afternoon.
There are just two points I would like to make: The first is to say that South Africa's banking structure forms part of a globalised economy. It is absolutely right that we should shoulder the responsibilities and make the most of the opportunities that arise. Basel II requires measures to strengthen the soundness and stability of the international banking system and we, through this Amendment Bill, seek to strengthen the South African banking system.
The second point that I wish to make is that the subject of bank stability is very topical and relevant, given the events of the last week and the consequent turmoil on international markets. These were stabilised by unexpected action by the US Federal Reserve. The loss of confidence in certain US financial institutions resulted from what are euphemistically called subprime loans. What they really are, are loans that had inadequate security and borrowers who could not afford to repay them - that's what they really were. The good news is that there was and is no banking crisis in South Africa. There was no run on any South African bank and we know that if there had been the reserve bank would have been ready, willing and able to step in immediately to help. We as a party might have reservations about the extent of bank fees and charges and we also might have greater ambitions about more of our people being able to join the modern economy by having access to banking services, but one thing is certain and that is that South Africa has a modern banking system on par with the best in the world. It is reliable and it is a positive factor in making our country able to compete for investment funds, locally and internationally. The DA supports this Bill.
Chairperson, it's not every day that I follow on the hon Gibson and particularly not when he is delivering his maiden speech in this House. I had the privilege that he had to listen and was forced to listen to my maiden speech in 1981 in the old Transvaal Provincial Council. We served there together for five years, but I think he will make a worthwhile contribution over here and in the spirit of that we wish to welcome him, particularly as a new maiden to this particular setup. [Laughter.]
The Banks Amendment Bill is really a Bill that is based on a convention, on a conference and that type of thing and it is very, very positive that what has happened there and that South Africa can be part of this Basel II convention. The Amendment Bill introduces a plethora of new concepts in the definition sections of the Bank Act and to be in line with the spirit of the revised international framework known as Basel II.
The Basel II framework is based on a three-pronged structure comprising of minimum capital requirements, the supervision review process and market discipline. The IFP hopes that this Bill has captured most of the important recommendations of the Basel II framework and that the banks will over time derive positive benefits for compliance and, therefore, the IFP will definitely support this Bill.
Although Fedentia is not a bank, it has been masquerading in terms of certain of its investments that it has wilfully and meaningfully misled the organisations that are investing monies with banks and I think this is also an aspect that the Reserve Bank, via the Financial Services Board could take up and be sectored in terms of certain of these things. We support and thank you for the opportunity. Thank you. [Applause.]
Chairperson, this Bill brings about regulatory framework. It defines certain expressions of the Bank Act of 1990 and other related matters of controlling and consolidating the banking industry through various statutory bodies and individually controlled bodies, an accord implementation forum, the regulatory framework subcommittee, the register, managers, supervisors, as well as, organised sharing of valuable information and technology.
The Bill, if passed, will facilitate the implementation of a capital framework for banks, the International Convergence of Capital Measurement and Capital Standards, a revised framework known as Basel II. As stated in the Bill, this will strengthen the soundness and stability of international banking systems by the adoption of stronger risk management practices by the banking industry.
The PAC of Azania has taken a principled position, as far as the total liberation of the Africans is concerned. It will support all measures that are intended to develop a full potential human being. The PAC of Azania will devise all reasonable security measures in protecting the economic treasure of the Africans and the human kingdom all over the globe.
The PAC welcomes this Bill and gives it a thumbs up for other processes to be put in place with the full roll-out of Basel II in January 2008. The PAC firmly believes in equitable distribution of wealth, which must be state driven. The PAC supports the Bill.
Chairperson, Basel II is set to bring greater sound and stable banking to the South African banking arena. We support the Bill's deliberation on the registrar functions, duties and parameters that certainly cater for clarity in this regard and steer away from any autonomy.
Banking fraud is indeed undoubtedly a great concern and we hope that the new system will make it impossible for crimes of this nature to be committed.
While extended banking hours makes banking more accessible, the MF calls for the banks to explore methods of making finance for small and medium entrepreneurs possible with minimal risk and charges.
Technology has facilitated banking via telephone and internet, meaning that we do not have to leave our homes to manage our funds. However, exorbitant bank charges eat at our funds and the MF calls for a revision of bank charges to reduce them to a minimum.
We wish all banks well in the implementation of Basel 11, but we would like to see an oversight of the efficacy of this implementation to secure intent.
The MF will support the Bill.
Chairperson, hon members, the Banks Amendment Bill before this House today, is yet, another step in the economic and social transformation that this country has undergone since an ANC-led government took over. Our ANC-led government is currently grappling with legislation that would allow for new tiers of banking such as savings and loan banks. This Bill based on the, or informed by Basel II, enables the current highly concentrated banking sector to be opened to the lower middle income consumer. This is a statutory instrument to implement the new capital accord which will further strengthen the credibility and stability of the international banking system of which South Africa is a sound member.
Some of the highlights which we have already heard today, which I want to ensure that I have time to mention, are that, while improvements and risk management systems as well as human resource training may contribute to some degree to the cost of regulatory compliance, it would also result in lower capital charges.
This is extremely pertinent to South Africa where the smaller banks with limited capacity will now be able to avoid higher charges and this is certainly going to be done through this Bill once it is enacted, by targeting more standardised approaches which are similar to the existing requirements of Basel I.
One of the things which, I think, we have learnt as a country and an international banking community, is that Basel I gave us a first opportunity to address capital requirement and risk management. But what is particularly important is that through its implementation and application, we began to realise, particularly South Africa and other developing countries - but of course our banking system is on a par with the First World - that you cannot go with a ``one-size-fits-all'' financial system. You need not only to strengthen the credibility and stability but you also need to ensure that there is a lot more flexibility. And this is now being done.
The three-pillar concept, which we all heard the Minister allude to and others have enabled this much broader approach to the banking system so that the "Pillar 1", the supervisory, the capital requirements, "Pillar 11" the supervisory review process and the market discipline in "Pillar 3", enable us to address three interrelated but different challenges facing banking in our country.
The other fact which I think we can't ignore is that over the past 20 years or so, there has been, without a doubt, a significant change in the environment that we face whereas prior to this we know that physical geography used to be an impediment. Today it is absolutely no impediment to the movement of money and the growth in our cross border, trade, finance and investment, has accelerated beyond our expectations.
Perhaps another significant aspect which this Bill will address within the Basel II framework are the technological advances that have been made - the computing power, the storage, the networks, the communications. Of course, there is capacity now to do what we perhaps could not have done some 20, 15 or 10 years ago - which was to develop highly sophisticated and complex products with the advances in financial engineering.
Another aspect that I just want to touch on is that there is often a view or perception that if we address, maintain and meet some of the international standards required in this instance by the banking system, we may in fact overlook the challenges facing our own country.
However, the flexible approaches that Basil II offers as options to each country looking at it enables us to address economic groupings, financial investments and so on, that stretches from your macro international financial investments right down to your small and micro enterprises and so on. I think that is very important.
Another very useful aspect of this Bill, and a very constructive aspect, is the whole approach to the supervisory element. Rather than simply a stickler approach, there is a home network and regulatory framework and support process enables the bank itself to offer far more support, especially to fledgling financial investment institutions and the smaller banks. Under this Bill they will be able, once it has been enacted, to intervene at much earlier stages to prevent capital falling from below minimum levels.
Various other criteria have been identified peculiar to each country's financial system. Particularly important in our country, is the fact that transparency has received a fresh sense of support. Here the enhanced disclosure which we didn't have before, will improve our ability to engage and interact with the banks and will also provide incentives to avoid bank failure and prevent it.
I think, the poorly managed banks will become more and more a thing of the past and will no longer happen by accident because there will be all of the capacitating.
The last point that I wish to make is that the expanded risk measures in respect of both capital requirements and operational risk management will lead, I believe, to more efficient allocation of resources within the banks and improved international competitiveness while at the same time expanding the access of finance to the broader population which after all is the goal of our ANC-led government.
The ANC supports this Bill. I thank you. [Applause.]
Chairperson, clearly it's uncontroversial because it is a step forward but, in expressing appreciation for the various comments made and the detail made in the interventions by members across the floor, let me just remind us of a few issues.
The first of these is in respect of what is raised by the hon Bhoola in particular. Banks intermediate, and there's a rationale that it has to intermediate, between people who deposit and people who borrow, and if there are fewer depositors than borrowers, then banks will charge. It's a rationale of intermediation. I think it's one of the issues that we must always be mindful of. Banks don't generate money in and of themselves, unless there's a crisis and you have central bank intervention as you have seen in the last two weeks or so.
One of the things about South Africa is just the amount of change that we have lived through over the past 13 years. The Revised Framework on International Convergence of Capital Measurement and Capital Standards, known as Basel II, comes at a particular point, but I think the changes are manifest across the entire banking sector including the issues of access.
There are now three million or so South Africans who have access to banking services that previously they didn't have. It might still be elementary at the level of Mzansi accounts and so on, but it is important that first- level access is there and is part of this general change.
Also, in respect of that which banks report to and the respective Financial Services Charter obligations, they have to report on access lending to small business enterprise development and a series of other changes that are now there.
I hope the hon Gibson will remain an active part of the Portfolio Committee on Finance. Within the next few weeks, I imagine Mr Godongwana, on behalf of the Financial Sector Charter Council, will report to the committee. It's very important that Parliament engages with the progress that we can measure there.
In respect of the financial crisis, I want to comment on a very good article in one of the newspapers, yesterday. It started with the story ``Now I have less in my pension fund because the white boys in Albuquerque were lending to ninjas, no income, no job and no assets''.
When you don't have adequate banking supervision you have that kind of problem, where some institutions have been able to take horrible loans - unsecured loans - package them as something else, get them triple-A rated by rating agencies and then sell them onto derivative funds. What you've seen over the past two weeks has been a knock-on effect. So, part of the Basel II, too, and part of the changes we are talking of ensure that banks must hold capital against risk.
That first pillar is so important because it's by that introduction, hopefully, that the largest economy in the world, the United States, will get to the point where they, too, implement Basel II at some time in the not too distant future, because what we've seen is the contagion effect of poor supervision in some of these institutions.
Here we'd like to hold our heads up high and mark this as another important step forward in the security of the deposits of savers, because that sends the best possible signals about savings and investment in our economy.
Thank you very much, Chairperson, and thanks to all parties for their support. [Applause.]
Debate concluded.
Bill read a second time.
The Bill will be sent to the NCOP for concurrence.