South Africa’s Banks: Examining the Current Environment, Exploring the 10 Year Outlook

LAGOS (Capital Markets in Africa) – The 2015/16 Global Competitive Index, published by the World Economic Forum, rates the SA banking sector 6 out of 140 countries in the availability of financial services and 8th in the soundness of banks. This is high praise for a banking sector that is small in global terms, but is globally connected and punches way above its weight globally.

The quarterly S A Reserve Bank Report details statistics that demonstrate the size of the banking sector in SA. The following is pertinent in this regard (as at 30 June 2016):

Total assets                                                                    R 4,841 trillion 
Total deposits                                                                R 3,395 trillion
Total loans and advances                                              R 2,891 trillion

Capital adequacy
Tier 1                                                                                12.41%

Total                                                                                 15.19%

The latest Price Waterhouse Cooper Banking Survey also demonstrates the state of SA banks. The following, as at 31 March 2016, is pertinent:

Combined headline earnings up 12.5%
Average Return on Equity 17.9%
Bad debt expenses up to 10.8%
Total operating income up 6.69

The SA banking sector is clearly a sophisticated sector that is globally credible and respected. It is a developed country sector that can compete with any in the developed world, but it operates in a developing country with particular challenges. The rise in bad debt expenses, although still low in comparison to our peers, demonstrates the problem of indebtedness in our country and banks are using numerous mechanisms to address this, including debt restructuring, credit education and tougher criteria for lending. 

A critical challenge is to broaden access to banking services to as many people as possible. A particular complication in SA is that the majority of people that must be included in banking were systematically barred from banking under apartheid. This is thus a new market coming into a complex banking environment. We have, despite this, done very well for a developing country. The 2015 Finscope Survey shows 84% of SA adults have formal access to banking.

The legislation and regulations governing banks in SA is recognized to be at the cutting edge of global best practice, with a very proactive primary regulator in the SA Reserve Bank and a political department in National Treasury that develops appropriate and relevant policies keeping the sector at the cutting edge of global best practice, while enabling banks to respond positively to the particular circumstances in the SA market.

The SA Reserve Bank is independent of government and we must, in the national interest, protect that independence. We apply cutting-edge legislation to identify and stop money laundering and other such criminal activity through the Financial Intelligence Centre Act (FICA), amendments to which are to be signed off by the President. The banking sector has also established the SA Bank Risk Information Centre (SABRIC) to fight financial sector crime. SABRIC has established itself as the pre-eminent bank crime intelligence centre and works closely with relevant government departments to try and remain ahead of criminal activity in the sector.

The above details the current state of banking in SA. What then of the future? What are some of the critical issues and challenges for the banking sector in SA in the next ten years or so?

There is little doubt banking as we have known it will change substantially. The future of banking will be influenced by robotics, technology, customer expectations and demands, as well as social expectations. Some consultants working with banks are talking about “bionic banking” as the next phase of delivering optimal services to a customer base that is younger and used to instant services.

Ongoing development in the regulatory environment will also be a critical aspect of the future. The financial crisis in the USA and EU that started in 2008 still has an impact, with increasing regulations that banks will be expected to follow. These regulations emanate in the EU but impact on SA banks because of our global connectedness and keeping at the cutting edge of global best practice.

The ongoing problems in the major economies will also be a factor SA banks will be looking out for. China is expected to grow at 6.6% in 2016, which is still very good, but the pace of growth of the last decade is no longer there. Sub-Sahara Africa (SSA) is also facing the challenges of low commodity prices, exacerbated by economies too dependent on commodities instead of diversifying to reduce such dependency, Our country is expected, according to the SA Reserve Bank, to grow only at about 0.9%.

SA banks have a significant footprint in the rest of the continent and broader macroeconomic deficiencies will impact of business. It is thus important that SSA countries grow and diversify their economies.

We will also be watching political developments in SA and the rest of the continent, The ongoing policy and regulatory uncertainty in SA, the attacks on the Minister of Finance and National Treasury, the indication from some in government and civil society that they would want to dilute the regulatory environment in which banks operate and lack of progress in sorting out the State-Owned Enterprises are all political factors that need to be resolved to enable our economy to grow substantially. There are also political issues in the rest of the continent, with Zimbabwe on a powder keg and serious unrest in the Democratic Republic of Congo.

Banks in SA are stable and profitable. The banking sector is a critical asset and we must, as a country, ensure its continued growth, which must include it being relevant to the majority of our people.

This article features in the October Edition of INTO AFRICA Magazine, a special focus on the Banking Sector in Africa, with an overview of the current trends and opportunities in the Sector.

Contributor’s Profile
Cas Coovadia is the Managing Director at The Banking Association South Africa.  He has played a central role in the negotiations leading to the signing of the Financial Sector Charter and is playing a critical role in the implementation of agreements reached in the Charter.

Cas Coovadia obtained his B.Com from the University College – Durban in 1971.  He completed the Housing Finance Course with the Wharton Real Estate Centre at the University of Pennsylvania. He also completed the Effective Directors Programme with the Kagiso School of Leadership. He has contributed to numerous articles and publications on housing finance, civil society, local government and the role of civic organisations in governance.


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