The credit lending process in South Africa remains a contentious issue, with major banks under scrutiny for perceived biases in their lending practices.

On Tuesday, a joint meeting of the Portfolio Committee on Trade, Industry and Competition and the Standing Committee on Finance examined the state of transformation in the country’s financial sector.

The meeting also addressed ongoing concerns over discriminatory lending practices, particularly in relation to the country’s black population.

Standard Bank CEO, Kenny Fihla, highlighted a critical barrier to black South Africans accessing credit: the lack of an asset base that they can leverage when applying for loans.

“Credit decisions are by their nature discriminatory. Africans do not have an asset base one could leverage,” said Fihla, explaining the financial exclusion that many black South Africans face.

The meeting saw representatives from major banks, including ABSA, Capitec, FNB, Standard Bank, and Investec, join the session, along with regulators such as the South African Reserve Bank, the Prudential Authority, and the Banking Association of South Africa (BASA).

The discussion focused on issues such as account closures, high fees, and lack of progress in transforming the sector.

Committee member Lufefe Mkutu argued that the banking system was structured to serve the interests of South Africa’s white minority, a legacy of the apartheid era that has yet to be fully addressed.

“Fundamentally, we have not been able to transform these institutions. The post-1994 era was about managing the economic patterns and not changing the ownership patterns. We should ensure there is meaningful transformation,” he said.

Co-chairperson Dr. Joe Maswanganyi echoed these concerns, arguing that the banking sector must be held accountable for its failure to meet transformation targets.

“Over recent decades, South Africa has undertaken substantial legislative and policy initiatives aimed at reforming the financial sector to facilitate meaningful participation by historically disadvantaged groups.

“Nevertheless, despite these interventions, progress has been sluggish, fragmented, and often characterised by symbolic rather than substantive changes,” Dr. Maswanganyi said.

Mkutu also criticised the high interest rates charged to small, micro, and macro enterprises, particularly black entrepreneurs who lack collateral.

He further argued that banks were exacerbating inequality by failing to invest in quality education and criticized racial profiling in lending.

The Chairpersons expressed a desire for a broader follow-up meeting with the financial sector, including the insurance sector and the Public Investment Corporation, to discuss the role of bank owners in shaping the financial landscape.

“The discourse today must transcend rhetoric. The expectation for the implementation of actionable measures is paramount,” Dr. Maswanganyi said, suggesting that Parliament may consider legislative interventions if necessary.

BASA managing director Bongiwe Kunene responded to the criticisms by pointing out that the banking sector’s contributions to transformation.

“Already, banks’ financing of transformation and inclusive economic growth far exceed what is required of them by legislation and banks are likely to be able to do much more if there is a supportive operating environment for business and an expanding economy,” said Kunene at the launch of Basa’s transformation report for 2024 on Wednesday.

The report shows that banks have made significant progress in meeting the Amended Financial Sector Code (FSC) targets.

Black ownership in banks has reached 38%, surpassing the target of 25%, while black economic interest stands at 29%.

In terms of management diversity, 90% of junior managers are black, exceeding the 80% target.

While banks are making strides at junior and middle management levels, senior management diversity remains below target.

Banks’ financial contributions to empowerment financing have also surpassed expectations, with R337 billion in financing in 2023—more than three times the FSC’s target of R130 billion.

This financing has been directed towards affordable housing, transformational infrastructure, and black small and agricultural businesses.

Despite the progress, South African banks continue to face pressure from regulators and lawmakers to accelerate transformation, with growing calls for accountability and more tangible changes in ownership, management, and lending practices.