IN the realm of finance, where trust is paramount, the inconsistent management of reputational risk by banks has become a pressing concern.
This issue has recently come into sharp focus with the Sekunjalo Group’s standoff against South Africa’s major banks, raising critical questions about whether bias underlies banks’ decision-making processes.
Banks are mandated by regulatory guidelines to manage reputational risk judiciously, which includes the right to sever ties with clients whose reputations could harm the financial institutions’ image. However, the discretionary nature of these choices invites a troubling question: Are banks applying these principles uniformly?
Critics assert that certain clients receive preferential treatment, echoing broader concerns of systemic bias.
The controversy surrounding the Sekunjalo Group exemplifies these inconsistencies. Despite ongoing legal challenges and the absence of any findings of wrongdoing against the group—be it from the Mpati Commission, courts of law, or the banks themselves—several financial institutions swiftly moved to terminate their banking relationships.
This selective application of reputational risk management raises valid suspicions about the motivations behind the banks' actions.
In stark contrast, consider the case of Lonmin, a London-based mining firm that faced intense scrutiny following the Marikana Massacre in 2012, where police killed 34 striking mineworkers demanding better wages. This tragic event, a dark chapter in South Africa's contemporary history, invited international outrage and calls for accountability.
Yet, despite the clear reputational fallout and moral outrage, no bank felt compelled to sever its ties with Lonmin. Instead, banks like FirstRand, Investec, and Standard Bank collectively provided substantial financial support to Lonmin, demonstrating an unsettling level of complicity in its operations.
Following the massacre, Lonmin reinforced its financial commitment by raising about $800 million (about R15 billion at current exchange rates) through agreements with multiple banks to support a rights issue. Additionally, the company allocated R5m to a fund for the children of the deceased—an act that, although noble, starkly highlights the disparity in response from banks when faced with different types of corporate scandals.
The handling of Sekunjalo’s reputation stands in striking contrast to that of Lonmin. Whereas the banks swiftly invoked “reputational risk” to justify closing accounts associated with Sekunjalo—allegedly due to unfounded allegations and negative media reports—the same banks maintained a deafening silence when confronted with Lonmin’s egregious actions.
This inconsistency begs the question: Are banks truly acting on reputational risk, or are deeper, more troubling prejudices at play?
Furthermore, the banks’ cavalier treatment of other white-owned companies embroiled in scandals further underscores the apparent bias in their decision-making. Organisations such as Steinhoff, EOH, and Tongaat-Hulett have faced serious allegations of fraud, yet have not experienced punitive measures from banks regarding their accounts.
For example, after being fined for its role in a bread cartel, Pioneer Foods remained untouched, continuing business as usual—an exemption that highlights the banks’ selective standards regarding reputation.
Amid these glaring discrepancies, the Sekunjalo Group has made a compelling argument in its court filings, suggesting that racial discrimination rather than genuine reputational risk may be the driving force behind the banks’ actions.
With the available evidence hinting strongly at biased practices, the need for transparency and accountability in managing reputational risk cannot be overstated. The financial sector must grapple with these inconsistencies, as they threaten to erode public trust and raise serious questions about fairness in its dealings.
As financial institutions continue to navigate the complexities of reputational risk, it is imperative they do so with a commitment to fairness and consistency. The stakes extend beyond individual clients; they touch on the broader principles of equity and justice that are essential for maintaining stakeholder trust in an increasingly scrutinised post-apartheid landscape.
If banks are to embody their role as trusted custodians of financial integrity, they must review and revise their practices to eradicate biases that endanger the very fabric of our society.