BBS demutualisation inches forward
Lerato Maleke | Thursday July 31, 2014 15:39
Trade and Industry minister, Dorcas Makgato-Malesu presented amendments that will allow the BBS to make its long awaited debut into commercial banking activities.
For years, the 37-year-old bank has pushed for demutualisation in order to better compete with commercial banks which have aggressively encroached into its mortgage lending mainstay.
Demutualisation refers to the process through which a customer/member owned organisation/society transforms into a shareholder-owned company.
Executives have said the Building Societies Act, prior to its amendment last year, kept the BBS in an operational straitjacket as it restricted the Society’s business scope, product and service offering and also imposed unduly stringent prudential requirements. This week, Makgato-Malesu explained that the amendments to the Companies Act were as a consequence of the Building Society Act amendments, whose net effect will be to allow the BBS to demutualise and apply for a commercial banking licence.
The BBS will, at that point, become the country’s first majority-citizen owned commercial bank.
“This amendment (to the Companies Act) therefore enables building societies to convert to companies so as to be able to apply for banking licenses as one way of making them more competitive,” Makgato-Malesu told parliamentarians. Part of the amendments presented to legislators this week detail the procedures to be followed in achieving demutualisation.
The BBS, however, has already conducted extensive consultation among the various categories of its membership and earlier this year, awarded the demutualisation consultancy to PriceWaterhouseCoopers, with Armstrongs as legal advisors.
The Society has also set up a Demutualisation Committee consisting of prominent captains of industry such as Tsetsele Fantan, James Kamyuka, Gerald Thipe and Pius Molefe.
The delay in demutualising, executives say, has contributed to flagging profits at the Society in recent years, as market share has been eaten away by commercial banks who have innovated around mortgage lending.
“There is the threat of ever increasing competition from the growing number of commercial banks, which in addition to offering products similar to those offered by BBS, also offer a myriad of banking related products and services which BBS is precluded from offering due to the regulatory constraints,” BBS managing director, Pius Molefe said in a previous results announcement.
“It is not only desirable but imperative to recognise that the long term survival of the Society rests on a radical change of its operating model and regulatory framework,” said former chairman, Kabelo Ebineng.
“Accordingly both the board and management will put considerable effort and focus behind the achievement of this strategy.”
BBS is scheduled to call a Special General Meeting to formalise the demutualisation process through a resolution.