Banks have warned that perceptions created by the debate about land expropriation could cause unnecessary damage to the economy and urged people to curb the alarmist rhetoric. Although the sector had expressed concerns about the possible consequences of expropriating land without compensation for its billions of land-backed credit, it did not believe that the government would implement the controversial land policy in a way that would harm the financial sector.
This after statements by the Landbank this week raised questions about whether the institution would survive as commercial companies that would have owed the bank money due to the expropriation policy.
But the bank said there was no reason to believe that the government would go this route.
If farms pledged as collateral to the Landbank were expropriated, the institution said in a statement in response to the citizen's questions that there would be an immediate deterioration of the collateral values that would require a bailout.
"While we are aware of the potential impact on lenders that might have this, we are consoled by the repeated commitment of both the government and the ruling party that this process will not manifest itself in a smash and grab scenario," added the bank.
"We have no reason to doubt that this matter will be handled responsibly, taking into account both the impact on the economy and on society."
Likewise, The Banking Association South Africa (Basa) argued that public discourse on the hot-button issue constituted a more direct danger than the industry thought that expropriation could.
"We have said before that the banks have about R300 billion in agricultural credit, where land is used as collateral, so there is potential that this would have a negative impact on the financial sector and the economy," said Cass Coovadia, the managing director of the body of the board.
"However, I have to say that I believe that the question of the country will ultimately be resolved in a pragmatic way.
"We can not see that the government is doing things in a way that has a bad effect on the banking sector.
"At the moment it is all about messages, the way government and people talk about this creates certain perceptions and perception drives businesses and that is a crucial issue for us in terms of investment and growth.
"We must be cautious about creating a negative investment and growth problem."
Earlier this week, the chairman of Landbank Arthur Moloto, speaking on the publication of the institution's annual report, called for respect for the rights of creditors, adding that land used as collateral would be removed, questions and unintended consequences.
In a speech to The Citizen yesterday, the bank said that if its activities were affected by the implementation strategy, the bilateral loan agreements contain an "expropriation event of default" clause.
"This is a standard clause in every bilateral agreement between a commercial bank and a customer," said a spokesperson for the bank yesterday. "This clause gives the commercial bank the right to accelerate the payment of their granted loan Land Bank has R9 billion bilateral loans that include the clause If lenders activate this clause, the bank will have to raise R9 billion to the lenders to pay back.
"The bank supports all efforts to set up an effective land reform program that will bring about transformation."
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