The prompt has been the campaign that the Institute of Race Relations is running to get the financial sector to declare itself on expropriation without compensation (EWC). The response has not been encouraging, with financial institutions dodging the issue – or at least seeking to dodge the consequences.
On Monday, the Afrikaans-language channel KykNet broadcast a report on the issue. As the on-the-spot reporter remarked, legal opinions on the status of bonds were ‘anything but good news’. Banking Association of South Africa (BASA) managing director Cas Coovadia confirmed concerns about the damage that EWC would do – and went on to argue for protection of the banking industry.
‘Where land is being expropriated, government needs to guarantee repayment to the banks’. This is in line with what banking executives have said on the matter.
Note that this is firmly about the interests of the banks, not their clients.
To its credit, BASA’s submission to Parliament on the amendment of Section 25 makes a reasonable if carefully worded case for property rights, and disputes the need for an amendment at all. It outlines the harm that the policy may do to the banks. But here again, it’s difficult to read this document and not come away with the impression that in the first instance it is the banks’ institutional interests first and foremost that they wish to see protected.
The submission, for example, quotes a policy framework document on land valuation and land acquisition which came before cabinet in 2011:
‘“Just and equitable” compensation may lie below market value. The change to “just and equitable” compensation will have implications for the collateral value of existing debt. This will in turn impact negatively on the capital adequacy of these institutions, and on their ability to provide credit to property-related sectors or accept such property where security for a loan granted is required. In order to mitigate these potential effects, government should automatically guarantee the difference between “just and equitable” compensation determined in terms of Section 25(3) and market value. Thus, where mortgaged land has been acquired at less than market value, government should pay directly the financial institution concerned the difference between the purchase price and the outstanding amount, up to a maximum of the market value of the property. This guarantee will allow financial institutions to continue lending to these sectors on the basis of market value.’
