Key aspects of South African banking and finance landscape - 2011
Ulrike Naumann and Casper van Heerden
Bowman Gilfillan
Johannesburg
Ulrike Naumann (Bio)
Casper van Heerden (Bio)
South Africa is the largest and most diversified economy in sub-Saharan Africa, with the financial services sector and the manufacturing sector being the largest contributors. During 2010, the financial sector contributed 19.7% to the nations GDP, and South Africa as a whole was ranked 28th in the world in terms of GDP, based on purchasing power parity.
Financial services sector
South Africa's banking system and financial markets are sophisticated, efficient and well regulated. The central bank, the South African Reserve Bank (SARB), is headed by the Governor of the Reserve Bank, Gill Marcus. Within SARB there is a Banking Supervision Department which regulates both local and foreign banks and deposit taking institutions in South Africa.
Foreign banks can establish local branches or representative offices in South Africa in accordance with the Banks Act.
The Financial Services Board (FSB) and the SARB are primarily responsible for regulating the financial services and banking sector, with the FSB focusing mainly on financial services other than banking, and the SARB being mainly responsible for regulating banking activities.
The Banks Act 1990 (as amended) incorporates the Basel Committee on Banking Supervision's amended Core Principles for Effective Banking Supervision (Basel II) and its revised Capital Framework. Due to their generally higher than usual capital reserves, South African banks weathered the storm of the financial crisis well and have proved to be robust financial institutions.
Exchange control
Exchange control regulations, which restrict the free flow of capital in and out of the country, exist in South Africa. These regulations, which until the recent past were rather strict, have been significantly relaxed. The expressed goal of the South African Government is the ultimate equal treatment of residents and non-residents in relation to inflows and outflows of capital and the abolition of exchange control measures.
South Africa's exchange control regulations restrict business transactions between residents of the Common Monetary Area on the one hand, which consists of South Africa, the Republic of Namibia and the Kingdoms of Lesotho and Swaziland, and non-residents of the Common Monetary Area on the other hand.
In particular South African companies are:
- generally not permitted to export capital from South Africa, hold foreign currency in excess of certain limits or incur indebtedness denominated in foreign currencies without the approval of the South African exchange control authorities;
- prohibited from using transfer pricing and excessive interest rates on foreign loans as a means of expatriating currency; and
- generally not permitted to acquire an interest in a foreign venture without the approval of the South African exchange control authorities and subject to compliance with the investment criteria of the South African exchange control authorities.
Exchange control is administered by the Financial Surveillance Department, a department of the SARB.
JSE debt listing requirements
Prior to July 1 2009, listed debt securities were listed and traded via The Bond Exchange of South Africa (BESA). On July 1 2009, BESA was acquired by, and incorporated into JSE. After BESA's incorporation into the JSE, the listing and trading of debt securities continued to be regulated by the BESA Listing Disclosure Requirements. The BESA Listing Disclosure Requirements were recently superseded by the JSE's Debt Listings Requirements that came in to effect on March 1 2011.
Although the JSE Debt Listings Requirements have, to a large extent, been based on the BESA Listing Disclosure Requirements, the JSE has incorporated significant changes, which have been influenced by the equity listing requirements substantially. The market has had to promptly adapt to these unfamiliar requirements and the JSE is still in the process of implementing measures to allow for their practical application.
As part of the move to formalise certain processes pertaining to debt securities, the JSE has codified the submissions process for the approval of placing documents. The move towards formalising the submission process began with the JSE implementing the formal submission process during the latter part of 2010 and the process has now been incorporated into the JSE Debt Listings Requirements.
The new formal process essentially consists of various stages of submission, each with a specified timeline within which the JSE must either provide comments or progress the document to the next stage. The process culminates with the granting of formal approval after the JSE has been provide with all the requisite supporting documentation and is satisfied that placing document complies with the JSE Debt Listings Requirements.
One of the more contentious changes emanating from the introduction of the JSE Debt Listings Requirements is the change to the role of the debt sponsor which existed under the BESA Listing Disclosure Requirements but has found renewed emphasis under the JSE Debt Listings Requirements.
Companies Act 2008
The Companies Act 2008 came into force and effect on May 1 2011. The Companies Act 2008 (2008 Act) replaced the Companies Act 1973 (1973 Act) in its entirety except for Chapter 14 which governs the winding-up and liquidation of insolvent companies, and which remains in force and unaltered. There are proposals currently being considered by government to develop uniform insolvency legislation, which presumably includes a complete overhaul of the Insolvency Act 1936.
While the 2008 Act does contain numerous new concepts, rights, obligations and remedies, the fundamental common law principles of company law (being the law derived from historical sources, augmented by the courts over many years through case law) remain intact, with some exceptions.
Some of the main changes brought about by the 2008 Act are:
(i) the introduction of a solvency and liquidity test which a company is required to comply with in various circumstances, including the granting of financial assistance and the making of a distribution, directly or indirectly, to a holder of shares in that company;
(ii) the replacement of judicial management with a business rescue procedure for a company in financial distress, the latter being a broader concept. Business rescue includes the sale of the whole business of a financially distressed company to generate a better return than a liquidation dividend would manage; and
(iii) the partial codification of directors duties and liabilities and as a result under the new legislation, a director faces much greater personal financial risk under the 2008 Act.