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VISION ON BANKING

Presentation toPresentation toThe 3rd International BANKSETA ConferenceThe 3rd International BANKSETA Conference

11 October 200611 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 risk-management systems and corporate governance structures in place

– Globally competitive & comply with international bank standards – Basel I and II

– Positive feedback on FSAP (2000)

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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)

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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

• Dedicated Banks Bill, 2004

– Community banks

• Co-operative Banks Bill, 2006

– Broader microfinance strategy

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Proposed banking structure

Tier Commercial Bank

Community

Banks

Legislation

1 Commercial

Banks

Mutual Banks

(Cooperative Banks)

Banks Act

Mutual Banks Act

2 Savings & Loans Bank

Cooperative Banks

Dedicated Banks Bill

Cooperative Banks Bill

3 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