vision on banking - BankSETA

VISION ON BANKING

Presentation to The 3rd International BANKSETA Conference 11 October 2006

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Macroeconomic successes • South Africa’s Macro Economic Successes • Economic Growth – Economy has proved fairly resilient to 2005 oil price shocks – Growth rate is expected to average 4,9% this year, rising to 5,2% in 2008 (NT estimates)

– Financial sector growth:8,3%

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Macroeconomic successes • Financial Stability • Stable – investment environment – exchange rates • Reserves

– Interest rates – Inflation rates – Growth in banking sector • Effective monetary policy

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Compliance international standards • South African banks are of world-class stature: – Well managed and have sophisticated riskmanagement systems and corporate governance structures in place – Globally competitive & comply with international bank standards – Basel I and II – Positive feedback on FSAP (2000) 4

Growth of banking sector •

High concentration rates in the market: – Total bank assets R1 677,5 billion (12 % growth rate during 2005) – Four big banks constitute 83,8% of total bank assets (2005) – Five big banks constitute 89,6% of total bank assets (2005) – National Payments System ownership & management issues

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Capital adequacy •

Capital Adequacy: – the average capital and reserves held by the banking sector for purposes of assessing capital adequacy •

amounted to R130,7 billion and

•

R122,5 billion reserves (2005)

– The capital-adequacy ratio 13,3% (2005) 6

Efficient banking system •

Efficiency = Operating expenses as percentage of total income

•

International benchmark is 60%

•

Efficiency ratio of the SA banking sector deteriorated from 66, per cent in 2004 to 63,9 per cent in 2005

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Vision • Stable financial sector and banking system; • Market efficiency • Public protection and consumer confidence • Access to financial services for individuals; households; SMEs

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Private sector interventions • Financial sector Charter – Access to finance • Savings & transactional banking • Infrastructure, Housing, SME and Agriculture finance

– – – –

Human Resources Development Procurement & Enterprise development Empowerment financing Ownership & control

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Government interventions •

Possible policy options: – Minimum standards set in legislation • Punitive consequences – BB BEE Act? • Willingness to transform (value system) – Market development policies • Promoting competition & reducing regulatory barriers • Establishment of second and third tier banks – Market incentivisation schemes • Private sector led transformation initiatives (FSC); Risk management standards: Basle II • Government guarantees and risk-minimisation & mitigation

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Proposed banking structure •

Government intervention: Create an enabling environment to increase access and improve competition in the sector –

Core and Narrow banks •

–

Community banks •

–

Dedicated Banks Bill, 2004

Co-operative Banks Bill, 2006

Broader microfinance strategy

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Proposed banking structure Tier

Commercial Bank

Community Banks

Legislation

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Commercial Banks

Mutual Banks (Cooperative Banks)

Banks Act Mutual Banks Act

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Savings & Loans Bank

Cooperative Banks

Dedicated Banks Bill Cooperative Banks Bill

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Savings Bank

Cooperative Banks (Savings)

Dedicated Banks Bill Cooperative Banks Bill

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Challenges •

Key Challenges: •

Banks and broader financial sector

–

Keeping pace with international developments

–

Integrating the excluded market (about half of adult South Africans do not have access to financial services - Finscope, 2005)

–

Participation by previously disadvantaged citizens still minimal •

Skills development & human resources development

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Challenges • Government – Create enabling environment for change, remove barriers (Over regulation) – Strengthen financial stability and minimise shocks – Protect

consumers

and

improve

market

confidence

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Barriers • Regulatory barriers – Low-cost housing; • Institutional barriers – Charter implementation challenges – Mandates of the Development Finance Institution • Structural barriers – “Demand for money is a derived demand” – Transformational infrastructure

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Minimum critical conditions • Financial Stability – Deposit Insurance Scheme • Access to National Payment Systems – Social grant payments (biometric recognition) • Support of the private sector • Address barriers

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THANK YOU

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