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Enoch Godongwana's comments last night on using prescribed assets to force banks to finance coal is very concerning. It indicates a misunderstanding of how banks work and lack of appreciation of the +ve role funding decisions make in driving market discipline. A thread 1/13
Banks are intermediaries. They sit in between savers (funders) and borrowers. Funders have significant influences over banks because they will withhold funds from banks that do not meet desired criteria. 2/13
Funders have used their influence to force banks out of funding arms, Apartheid, tobacco and others. Coal is now a global issue in the climate change fight. Some of the world's biggest funders are refusing to support banks who do fund coal. 3/13
Were the ANC ever to implement prescribed assets and use it to force banks to lend, the consequence is that SA banks would be red lined by a rapidly growing list of international funders who want zero coal. The global climate change movement is building momentum. 4/13
SA has a major savings deficit so we rely on international savers to fund investment. It wouldn't just be coal that would be unfunded, but a lot else that relies on international money. Net impact on investment would be highly negative, even if some coal gets investment. 5/13
That is on the specific issue of coal funding. But more broadly, using prescribed assets on banks is unprecedented. Even when the apartheid government used prescribed assets to support its bankrupt state, it was asset managers and life insurers that were targeted. 6/13
Prescribed assets became necessary because the Apartheid state couldn't attract international investment which would not support the racist SA economy. Now the ANC wants to use prescribed assets because because coal is a pariah issue for global funders. 7/13
Banks have a unique responsibility to carefully manage credit risk. Any loss of faith by the public that they can do so would be catastrophic. The public opinion on prescribed assets can undermine faith in banks which is why Apartheid state left banks alone. 8/13
This is not about banks setting policy about coal. It is about banks operating in a global policy context. They are highly regulated by international standards. Climate change is going to be increasingly a driver of policy worldwide and banks are trying to stay ahead of it. 9/13
The ANC should be leading a policy outlook for SA that includes managing climate change. I do not believe it will be possible to fund another large scale coal power station. Global DFIs won't do it. Plus, legal opposition would be fierce when renewables are now cheaper. 10/13
Ironically it was president Zuma who committed SA to reducing CO2 emissions at COP15 with targets even more aggressive than required. The ANC's election manifesto says it remains committed to international agreements incl Paris Agreement. 11/13
That can't be squared with an economic policy that centers coal in a development strategy. We need instead a vision for development with a phased transition from coal. One that respects the way banks work and the +ve role they can play in funding our non-coal future. 12/13
Enabled by support of global funders looking for ways to achieve development impact as well as financial returns. The ANC should be designing policy to make our banks the darlings of global funders, not the pariahs. 13/13
