Banks Amendment Bill: Treasury Response to Submissions & Voting

Meeting report

FINANCE PORTFOLIO COMMITTEE
13 June 2007
BANKS AMENDMENT BILL: TREASURY RESPONSE TO SUBMISSIONS & VOTING

Chairperson: Mr N Nene (ANC)

Documents handed out:
National Treasury’s Response to Public Submissions on the Banks Amendment Bill
Portfolio Committee Amendments to Banks Amendment Bill [B12A – 2007]
Banks Amendment Bill with Portfolio Committee Amendments inserted [B12B – 2007]

Relevant documents
South African Institute of Chartered Accountants (SAICA) submission
Standard Bank submission

Audio Recording of the Meeting

SUMMARY
The National Treasury team explained their response to submissions they received on the Banks Amendment Bill by the South African Institute of Chartered Accountants (SAICA), the Banking Association, NEDLAC and Standard Bank. For the most part, the concerns raised in the submissions were not considered to be relevant to the Banks Amendment Bill.

Questions raised by the Portfolio Committee focussed on good corporate governance, the Companies Bill, the link between liquidations and reckless lending by banks, statistics for liquidations and n the difference between systemic and bank specific risks.

MINUTES
Mr Jonathon Dixon (Chief Director: Financial Sector Policy Unit) described the comments received from the South African Institute of Chartered Accountants (SAICA), the Banking Association South Africa, NEDLAC and Standard Bank and Treasury’s response to these comments.

Mr Dixon indicated that the South African Institute of Chartered Accountants (SAICA) had raised concerns about the requirement that only non-executives may serve on the audit committee. Mr Dixon said that there had been a discussion with SAICA and that the requirement of only non-executives serving was consistent with international standards and best practice.

The Banking Association expressed concern about the amount of the maximum penalty that may be imposed and the remedies available to an aggrieved party. National Treasury's response was that a R10 million maximum penalty was appropriate and that there were sufficient remedies available in terms of appeals and review by the courts.

NEDLAC had raised concerns related to the impact on access to finance and affordability. Mr Dixon responded that Basel 11 was not expected to have a significant impact on bank pricing decisions or access to finance.

Standard Bank’s comments focused on the abolition of par value shares and nominal value in the Companies Bill (Section 26), the audit committee (Section 17), the Director’s Affairs Committee (Section 17), liquid assets as it relates to gold coin and bullion and references to other Acts. Mr Dixon responded that most of the comments were not relevant to the Banks Amendment Bill. [See National Treasury’s response document.]

Discussion
Mr K Moloto (ANC) said that he was supportive of the National Treasury approach. He asked if National Treasury were satisfied that banks were holding up standards of good corporate governance.

Mr Michael Blackbeard (Deputy Registrar of Banks) replied that in 2002-03 the Banks Supervision Commission did an independent study which confirmed that big banks complied well with good corporate governance. In 2004 -05 the Banks Supervision Commission did an in-house review of the rest of the banking sector. Smaller banks also displayed good corporate governance. Concerns were raised regarding the composition of the boards and skills levels of some board members.

Mr Bhamjee said that a lot of people were wondering when the Companies Bill was going to be introduced into Parliament. He asked how long it had been a draft because role players were concerned that it was taking too long.

Mr Dixon replied that the Companies Bill had been through an extensive consultation process. The Office of the Accountant General and National Treasury were engaging with the Department of Trade and Industry (DTI) on the Companies Bill.

Mr M Johnson (ANC) asked for clarity on the link between liquidations and reckless lending by banks.

Mr Dixon said that reckless lending referred to lending where clients were not in a good position to service loans. There was an important link between lending practices of banks and issues of liquidation. Basel II required banks to do a proper risk assessment and collect information.

Mr Johnson asked if it was required by law that statistics on liquidations were reported to the Master of the High Court.

Mr Errol Kruger (Registrar of Banks) replied that the Banks Supervision Department and the South African Reserve Bank were not the functionaries and did not keep statistics.

Mr Carel Oosthuizen (Head: Basel II) indicated that there was a yearly report which highlighted company as well as personal liquidations.

Mr Oosthuizen said that capital constitutes the basis of economic development. The amount of capital kept was finite and it was therefore important to ensure that it was well allocated. If less capital was well allocated and received a return, it would contribute to the general benefit of all participants in the economy. Capital has to be safeguarded and applied in the most productive manner possible.

Mr Kruger focussed on the move away from the gold standard. He said that the Reserve Bank would calculate how much funding would be needed in the economy for a year and bank notes would be issued. Bank notes were considered to be officially legal tenders.

The Chairperson noted the Treasury proposed amendments to B12-2007 that had been circulated. He asked National Treasury to brief the Committee on these amendments.

Mr Dixon explained that the amendments constituted a rewording of one the clauses because of concerns that the old wording might have been confusing.

Ms J Fubbs asked for further explanation on the difference between systemic and bank-specific risks as indicated under Pillar 2 of Basel II.

Mr Dixon replied that the National Treasury assessment also asked how to distinguish between systemic and bank-specific risks. The Regulator needed to disclose criteria for distinguishing between systemic and bank-specific risks. There was still a debate around this issue. National Treasury’s view was that there was a need to be transparent and that the logic and criteria also needed to be clear.

Mr Oosthuizen said that the important underlying concept was that the regulatory and supervisory approach did not become an intervention which undermines economic reality. An attempt was made to ensure that risks were being quantified. He said that proposals were made as scientifically and as responsible as possible, so that banks could understand why regulatory decisions were made. They had tried to ensure that one does not double count capital. The aim was the development of a sound banking system with adequate capital.

[Mr Dixon also responded to questions that had been raised by Mr Y Bhamjee (ANC) on 12 June 2007 regarding gold held by the Reserve Bank. Mr Dixon said that there were no legal provisions that required banks to hold a percentage of their assets in gold.

Mr Dixon responded to a question by Mr M Mbili (ANC) raised on 12 June 2007 about the link between liquidations and reckless lending by Banks. Mr Dixon said that Basel 11 provisions introduced through amendments to the Banks Act would not directly impact on bank lending practices.]
 
Voting on the Banks Amendment Bills
The Chairperson read the motion of desirability for the Bill and the Committee agreed to approve the Bill including the proposed amendments.

The meeting was adjourned.