Some U.S. Banks Polish Image With Sanctions, Lend Privately

A number of the largest U.S. banks in recent months have declared or restated that they will no longer lend to the government of South Africa or to companies owned by the government. The statements, made by such giant institutions as Citibank, Chemical, Morgan Guaranty and Bank of America, helped them gain favorable publicity in the growing battle against apartheid.

But wait a minute, some apartheid fighters say. While these banks won’t lend any more to the South African government, they continue to lend vigorously to private South African banks and corporations.

In fact, federal data reveals, U.S. bank lending to private South African banks has increased more than fivefold in the last five years, to $3.12 billion in mid-1984 from $575 million in mid-1980. Some of these loans, critics contend, end up being transferred to the government or its agencies to support apartheid.

As a result, some recent bank policy statements are “nothing more than public-relations balderdash,” said Michael F. Kieschnick, trustee of a money market fund that bans investing in stocks of firms in South Africa. He calls the practice “another form of money laundering.”

One major institution, Bank of Boston, announced that it is ending loans to the South African private sector. Other banks, however, generally defend their policies.

“Our policy is to continue lending to the South African private sector because economic development is the end result,” Bank of America spokesman Peter Magnani says. “Sure, money is fungible and some of it gets to the government, but it also does good things” for South African blacks. The bank, he adds, “will take its lumps” from some critics.

The private-versus-public-lending debate has great significance for many cities deciding whether to withdraw deposits from banks that lend in South Africa. Perhaps the most dramatic case may be that of New York City.

A recent law directs the city’s treasury to withdraw deposits from banks lending to the South African government, but banks lending to the South African private sector are acceptable. City officials recognize the weaknesses of this limitation, but changing it might have massive consequences, given that nearly all major New York banks--Citibank, Chase Manhattan, Manufacturers Hanover, Chemical--lend to the South African private sector.

“We joked that we might have to put all our money in mattresses,” Assistant City Comptroller Steven Matthews chuckles, although noting seriously that a divestment plan that considers loans to the South African private sector has been discussed.