South Africa
Too early to panic about land reform

Banks in South Africa have lent farmers about R 150 billion and have in excess of R 1.3 trillion outstanding on property loans overall.

This is according to Banking Association of South Africa head Cas Coovadia.

Land reform has emerged as one of the most controversial issues of Cyril Ramaphosa’s presidency, after he announced in July that the ANC would seek to change the constitution to make explicit the conditions under which expropriation of land without compensation can take place.

The concern for commercial banks is that the policy, if mishandled, could lead to the value of properties against which they have lent money collapsing, causing defaults that would then threaten their ability to fund themselves.

Current proposals on land reform are too vague for the Reserve Bank to panic about them, although a policy shift that leads to “more fundamental changes to property rights” could pose a risk to the financial system, the Bank’s deputy governor Kuben Naidoo said.

“There’s also concern about what’s next – is agricultural land at risk or is residential land also at risk,” Naidoo told reporters Friday.

“If residential land comes under question, and if property rights more generally come under question, that could have an extremely large systemic effect on the banking sector.

The proposals are far too vague and uncertain for us to panic in any way.”

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