South African bankers warn of looming crisis over planned land reforms

Global Business

The South African Banking Association has warned of a possible banking crisis if land expropriation without compensation takes effect.

CGTN’s Sumitra Nydoo reports.

While the association has acknowledged that going ahead with the policy is legitimate and important for transformation, it is worried about the impact such a move will have on the economy.

“Property rights are the foundation for the free market system, the only basis on which one can attract investment and generate more growth,” said Anthea Jeffery from the South African Institute of Race Relations. “Obviously investors are now looking at South Africa and knowing that we make up 0.5 percent of the world economy, can easily decide to go elsewhere.”

Despite assurances by President Cyril Ramaphosa, the lack of detail at this stage is causing a bit of panic, especially in the banking sector. Commercial banks have collectively loaned around $13 billion to farmers.

“They’ve stated as some of the conditions that the expropriation without compensation would only be done in cases where it would not disturb markets, it would not disturb the economy, it would not slow down food security,” said Cyril Mbatha from UNISA’s Graduate School of Business Leadership. “It would not slow down productivity. So, I don’t think in where instances where such negative effects on banks were possible, that would be pursued from the ANC perspective.”

Like other commercial banks and financial institutions in the country, the Land Bank of South Africa also faces the risk of being unable to recover on its debt. It has a massive loan book of just under $4 billion.

The Land Bank is state owned and is also a major mortgage holder. White farmers, hold 95 percent of the bank’s loan disbursements.

“It is a valid concern to say if expropriation were to be undertaken in a random, haphazard way, the potential risk is that the entire mortgage finance system of the country could be undermined,” said CEO of Land Bank Tshokolo Nchocho.

The Bank recently received new loans from the European Investment Bank, Germany and the World Bank, a sign of international investor confidence.

All parties have been urged not to panic and instead make representations that could assist with formulating policy on land reform.

Nhlanhla Sehume talks about the implications of possible land reforms

CGTN’s Rachelle Akuffo spoke with Power 98.7 FM News Anchor Nhlanhla Sehume about the implications possible land reforms could have on the country’s economy.