BASA Islamic Finance Conference: Opening statement

The Managing Director BASA: Bongiwe Kunene

On behalf of the Banking Association South Africa and its members, I would like to welcome you to our first Islamic Finance Conference.

We meet at a time when – despite the onset of spring – the coming months feel bleak.

The country’s dire economic conditions, exacerbated by the Covid-19 pandemic and national lockdown, has reduced incomes, worsened unemployment and eroded living standards among our most vulnerable.
Our social media, economic and political discussions are often abrasive, angry and divisive. Business – and banks in particular – understandably face demands to do more to transform the country and facilitate inclusive economic growth. Banks are eager to play their part, in a sustainable and responsible manner.
Business and investor confidence in government and its ability to curb maladministration and implement urgent economic reforms is low, while corruption continues to deprive the vulnerable of essential aid and fray the social compact which underpins the stability on which we all depend to conduct business and create opportunities for job creation and inclusive economic growth.

These challenging times demand something different from all us. A lot of what is required can be found in the fundamental tenets of Islamic banking: fairness, transparency, risk-sharing and socio-economic responsibility. Islamic banking services are open to all, regardless of faith. So it is vital that this conference succeed in its fundamental aim: to accelerate the growth of Islamic banking – and its ethics and values – in South Africa today.

The industry is already on the right path. The value of Islamic financial services products grew strongly during the period ending in June 2020, with deposits reaching R37 billion (2019: R35 billion) and loans and advances amounting to R14.6 billion (2019: R12.4 billion). Globally, Shari’ah-compliant financial assets are now worth $2 trillion.^.Islamic sukuk bonds are popular instruments used internationally to raise development funding and to finance major infrastructure projects. As you know, infrastructure development is the major component of South Africa’s economic recovery plan.

This growth has fuelled significant investment Shari’ah product development in South Africa. South African banks now offer a wide array of investing, lending, protection and transacting Shari’ah products, which compare favourably with conventional bank offerings and which add to South Africa’s world-class financial services sector. The market for Shari’ah products is expected to grow significantly beyond its traditional Muslim customer base in the coming years

We would like to thank the National Treasury and South African banking regulators for the steps they have taken to position South Africa as the hub for Islamic finance in Africa. These steps include the recognition of Islamic finance instruments in South African legislation, participating in the Islamic bond market, most notably by issuing a USD 500m sukuk in 2014. Earlier this year, Treasury launched a request for proposals for another sukuk.

BASA, through its Islamic Banking sub-committee, has crafted a Shariah Conduct Standard, which has been submitted to the Financial Sector Conduct Authority for final deliberation. The Islamic banking industry will be an important part of the financial services sector’s commitments to Treating Customer’s Fairly and meeting the prudential requirements of the “Twin Peaks” regulatory framework.

Working with our regulators, we hope solutions will be found to some of the key challenges to the growth of Islamic banking in South Africa, including some of those which will be addressed at this conference, like:

Providing consumer education on Shari’ah products and innovating appropriate products and services, not only for Muslims, but the broader banking market in Southern Africa.
Strengthening the industry’s human capital and developing staff trained in Shari’ah-compliant financial services as well as traditional banking products, and
The challenge of complying with regulatory policies that force Islamic banks to consume non-compliant capital and liquidity instruments.

Resolving some of these challenges will clear the way for the further expansion of the industry. We thank our stakeholders and regulators for their support so far in our journey and look forward to working together productively and constructively.

As I mentioned earlier, the South African banking industry faces a challenging few years. As it stands, banks have made significant provisions for future credit losses and very difficult economic conditions.

Bank earnings in the first half of 2020 are down between 70 and 80%
Credit losses are higher than in the global financial crisis; and
Share prices are down between 40 and 55%.

Despite this, banks are continuing to offer financial relief to their customers. As at 29 August banks have been able to provide a cumulative R48,04 billion in relief – R33,49 billion in payment breaks and R14,54 billion under the loan guarantee scheme – to South African businesses and individuals who are financially distressed due to the Covid-19 pandemic and national lockdown. The Covid-19 Loan Guarantee Scheme is a partnership between the National Treasury and the South African Reserve Bank (SARB) and commercial banks. It offers enterprises loans to support them until ‘new normal’ economic activity can resume. Since the relaxation by National Treasury and the South African Reserve Bank of some of the conditions of the loans, there has been an increase in the rate of uptake in the Covid-19 Loan Guarantee Scheme. This despite demand for credit from the private sector continuing to slow, due to uncertain business conditions, unreliable electricity supply and a weak economy.

The sustainable relief being offered to bank customers is ongoing. Besides Covid-19 initiatives, it is standard banking practice to assist customers experiencing financial distress, corporate and investment facilities are being restructured, and further bespoke relief is being offered to customers depending on risk policies of each bank.

South African banks are committed to the inclusive economic recovery of South Africa, without which their businesses will not be able to survive or thrive. They are eager to contribute their skill and resources in a responsible and sustainable manner. A strong and inclusive Islamic banking industry will strengthen our collective ability to contribute to the transformation and development of our country. I wish you the best in your deliberations.

– Thank you