• Developing a vital tool • Basel III – a false dichotomy
• Banking Summit 2012 • Funding SA’s infrastructure
SA Edition 3 2012
Magazine of the Banking Association South Africa
African Bank’s Tami Sokutu
‘Managing risk proactively’
Shaping the future of bank security
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07 MD’s message
A Code of Conduct Registered commercial banks have adopted a Code to manage their impacts on society and the environment
African Bank Executive Director Tami Sokutu on unsecured lending, good data and talent
31 Customer’s view
14 Financial Inclusion
Responding to national, continental and global challenges
Bubble? What Bubble?
Financial Inclusion does matter for economic development A vital tool for the poor and for SME’s
16 Financial Inclusion
Dealing with a false dichotomy between Basel III and financial inclusion Prudential regulation should enhance inclusion
20 Banking Summit
Sharing the load
Solutions for funding infrastructure
Real Time Why customers use Facebook
34 Banking Customers take charge Ernst & Young’s 2012 global consumer banking survey.
40 IT IT complexity in banking “If you can’t measure something, you can’t understand it.”
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46 Banking Association Member Introducing Nedbank Raising over R6 billion in funding since inception
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48 Banking Association Member Introduction Absa Group Limited 12.2 million customers and a market cap of R101.4 billion
52 Business life
Mobility – More productivity, less baggage
54 Banking news: South Africa
What – and who – is making news in South African banking?
56 Banking news: International
Sales Consultants André Potgieter Basil Jones Financial Accountant Lodewyk van der Walt
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The next decade in banking, and a crowd-sourced credit card
Meet the Bankers Cas Coovadia on leadership, Steve Jobs, and walking in Clarens
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SUBSCRIPTIONS AND DISTRIBUTION Shihaam Adams E-mail: firstname.lastname@example.org Tel: 021 469 2400
My Protection and Security
Shaping the banking sectors
elcome to the third edition of The SA Banker magazine, South African Edition. The thought behind the magazine was to provide the platform for robust and enlightening debate in the banking space with a view of creating a globally competitive, but responsive banking sector that would serve South Africa well. The launch of the magazine was opportune as the financial services sector faced immense pressure as a result of the Global Financial Crisis and the Sovereign Debt Crises in ensuring that it keeps pursing business that is transparent and properly regulated. The financial services sector, regulators and governments were charged with the responsibility of arresting the mistakes of the past, thus ensuring that they are not repeated in the future. The effects of the crisis have forever changed the financial sector in the eyes of the bank client and the manner in which countries relate with each other as economic blocks. The third world economies have come out of the financial crisis relatively unscathed and strongly emerged as the possible economies of the future, and this is sure to change the manner in which future business deals are made. The challenge is to ensure that in responding to the challenges of better regulation, space is still left for the financial services sector to do business in a globally competitive environment. The impending implementation of Basel III and the costs involved will require South African banks trading within South Africa to rethink creatively and transparently to their business, so that the client does not bear all the costs while contributing to a thriving economy. The challenges facing the country are such that the country needs a vision that would unite all of us in the quest to making the lives of all South Africans better. In this regard, the banking sector welcomes the finalisation of the National Development Plan (NDP) and hopes that it will galvanise all sectors of the South African society. The banking sector stands ready to engage with government and other stakeholders as the NDP moves towards implementation.
The Banking Association South Africa (The Association) is committed to creating strong and mutually benefiting relationships with government and other stakeholders. In 2012 alone, The Association and its member banks hosted the annual Banking Summit to ponder the issue of infrastructure financing with particular reference to the roles of government, the development finance institutions and commercial banks. Furthermore, The Association convened the Financial Inclusion Indaba and Exhibition 2012, which centred its deliberations on: • the role of the banking sector in Financial Inclusion, • south-to-South Learnings of Inclusive Banking, and • the role of financial sector regulators in promoting Financial Inclusion and trade-offs in maintaining the integrity and stability of the financial system. In confronting challenges that South Africa faces, it is crucial that all sectors and stakeholders transcend the debilitating “stage” where societies assume some settled truths. What is required is for the process of interrogation and engagement to be openended and permanent, where ideas get richer and smarter, owing to their confrontation with error. The Banker magazine is but one of the avenues through which different stakeholders can shape the banking sectors. As you read this edition, I hope that you formulate your own thoughts and ideas in terms of which banking and financial services sector can respond to the national, continental and global challenges that it faces. Cas Coovadia Managing Director, Banking Association South Africa Edition 3
Bubble? What bubble? ‘What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty, and whether we’ll be able to stop those retrenchments,’ says Tami Sokutu, Executive Director of African Bank Limited. Phillip de Wet reports
day after banks met with Finance Minister Pravin Gordhan late August  to discuss the sudden growth in unsecured lending in South Africa over the last year, Tami Sokutu was even more sanguine about the future. Cautious and watchful, certainly – as you would expect from the Executive Director in charge of seeing the risk big picture for African Bank and Ellerines (which is wholly owned by African Bank) – but not worried. He sees plenty of upside in the market, if everyone continues to keep their heads. ‘The next couple of years will depend on how we respond now to the increase in unsecured lending, at an industry level and certainly at a bank level,’ he says. ‘We’re being a lot more conservative now, managing the risk pro-actively, and that’s where we need to be.’ The rise in unsecured credit has been swift, and that has raised eyebrows, but Sokutu is comforted by the fact that only a small portion of that lending is for consumption, and as long as people Edition 3
PROFILE The banks are on top of it; this is not a bubble. This is something we can manage.
are borrowing money for housing or education, he doesn’t consider it a bubble. To make sure it is sustainable, for both parties in the equation and for the stability of the local banking sector, he says, it just needs management. The key to averting trouble in unsecured lending (or in other areas of banking), Sokutu thinks is good data, and the ability to use that data further down the line. As the number of South Africans making use of debt financing grows, there is perhaps an increase in risk, but there is also an increase in the amount of data to be had. That makes it a matter of constant analysis of trends before they can turn into disasters. ‘We are tracking our clients through credit bureaux to see how much credit they are taking elsewhere,’ he says, ‘but at the same time, we’re also looking at those who are not necessarily our clients, to see what is happening generally.’ If what is happening points to trouble in any specific sector of the market or manufacturing, African Bank will hopefully be able to see the potential for job losses before it happens, and pull back from that affected sector. ‘Because we lend on a highly distributed basis across sectors, if there is a dramatic collapse of the economy across multiple sectors we will be greatly affected. If it is just one sector that’s not too big a deal, we can handle that.’ As long as people keep their jobs, he believes, their ability to make their debt payments will remain roughly the same. Inflation may eat into real earnings, but Sokutu has faith in the Reserve Bank, which he says has proven itself to be a robust institution, and has even showed grace under political pressure to move away from inflation targeting. Interest rates may tick up from their historic low, but he is comforted by the fact that rates will move gradually, without the kind of dramatic spikes that is anathema to affordability, and will be well-signalled before the fact. So even though 2013 is hardly likely to be a bumper year, it shouldn’t bode ill for African Bank, or the sector in general. The real question isn’t what will happen to those already taking advantage of debt, he says, but where future growth will come from. ‘What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty, and whether we’ll be able to stop those retrenchments,’ Sokutu says. 10
Even though the economy hasn’t been blooming – and even though car financing and mortgage uptake has been flat or declining in recent years – unsecured lending towards the bottom of the market has shown plenty of growth. The government, and its relationship with trade unions representing those it employs, has something to do with that. ‘One discussion point yesterday [in the meeting with Gordhan] was that there has been above-inflation increases in wages in the public sector for two or three years now, which made it relatively easy for public sector employees to access credit, with more disposable income,’ says Sokutu. But that can’t continue indefinitely, and eventually the growth in the market for lending in the range African Bank targets will start to track general economic growth. As a bank it could postpone that day with innovation in products, and smart structuring of finance, but that road too must come to an end. Eventually there will have to be employment growth, or even greater cannibalisation among lenders, and that is already starting to reach levels that Sokutu thinks needs watching. ‘Competition takes place and you do what you have to do,’ he says. ‘The concern is where it all ends. What happens if we all go for the same customers?’ He leaves his own question unanswered, but the implication is clear. Either the lenders or the borrowers, or both, will suffer the consequences of such intense competition. That is if government regulation doesn’t intervene, but perhaps that is another area in which Sokutu is somewhat more bullish than the average banker. ‘Government is interested in increasing access, to get more people using credit,’ he says. ‘On the other hand the government is obviously uncomfortable with the potential impact of players in the market on customers. We welcome that, because we think it’s a good thing for us as an industry to clean up the house. We’ll only become concerned if the regulations become too restrictive. So far they haven’t been.’ Besides the growth in job numbers in South Africa, and minor concerns about fiscal policy, there is only one thing that really worries Sokutu: the troubles far afield, in Europe and the USA, which could affect the flow of money his bank relies on. ‘Unfortunately those problems have a disproportionately high
TO BANKING, VIA THE SCENIC ROUTE Banking found Tami Sokutu rather than the other way around. His circuitous route to the industry has left him a little light on the paper qualifications in the likes of economics, but well versed in deflecting subtle offers of a bribe. ‘In government senior positions – if not every day, then every other day – there is a member of the public willing to give you a bribe for one thing or another,’ he says when asked if he ever had such approaches as Director-General of the Department of Public Works, his last job before joining African Bank. ‘Yes, I was subjected to that,’ is his response. His career also taught him a thing or two about environmental sustainability. He still chairs the South African National Biodiversity Institute, now in what he says will be his last year, where he advises the government on water issues and policies. That is natural, given his masters degree in the biological sciences combined with the political activism of his youth, which included stints on environmental policy for the ANC, but that’s about as close as he gets to either these days. He’s no longer active in the ANC, he says, and the closest he comes to physically managing the environment is when he “supervises” his keen gardener wife. In what spare time is left between his day job and pro-bono advise positions, he follows new writings on the US-led banking collapse and World Bank research, with the occasional sideline into leadership thinking, Christopher Hitchens and Xhosa history. Though he was famous for his love of Oscar Wilde in the past, that passion has faded with familiarity. ‘Oscar Wilde? I’ve probably read everything he has ever written,’ Sokutu says. Edition 3
What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty. impact, driven by sentiment more than anything else, particularly among global players investing in South Africa. We raise money globally now, not just in South Africa. To fund our assets, we raise money in Europe, in Asia, and if the ratings agencies downgrade those people we raise money from, that becomes a potential problem for us.’ Well, to be fair, he is also mildly concerned about the number of bankers circulating among local institutions, or what he calls the recycling of talent. ‘We recruit from another bank, those employees move from us to the next bank,’ he says. ‘The pool seems generally to be so small that we’re all poaching from one another. We need to bring in new entrants, especially black entrants.’ There aren’t enough heads to go around. Why? ‘I think it’s a combination of things. The pool of CAs produced by the system is quite small, and that’s the first port of call for banks. Another factor is because of the premium we pay to black people who are in demand and those who are qualified; it gets to a point where it is really costly to recruit people who are relatively inexperienced. It is a game we have to play, but we need more people who are qualified to get beyond that.’ Those are the kind of issues the industry can fix in the medium term, he believes, and are nowhere near the apocalyptic importance assigned to unsecured lending. That bugbear doesn’t bug him so much. ‘The banks are on top of it,’ Sokutu says. ‘This is not a bubble. This is something we can manage.’ ■ 12
A LESSON IN LENDING
Thanks to a series of bursaries (and, as an undergraduate, the savings of his nurse mother), Tami Sokutu didn’t have to go cap-in-hand to a bank until he had a masters degree. When he did, though, the experience turned into his first real lesson in different ways of assessing risk. ‘I opened an account with one of the big banks when I first started receiving bursary money, in 1984,’ he says. ‘In 1990, when I finished my masters, I thought I was ready to buy a small place of my own; it was under R200, 000. So I went to the bank I was with, and they turned me down. I went to another bank, one I didn’t have a relationship with, and they looked at the numbers and gave me a hundred percent loan.’
Financial Inclusion DOES matter for economic development Since the dawn of democracy18 years ago, South Africa has gone through many reforms aimed at reconstructing the economy into one in which all South Africans can fully participate and all benefit from.
overnment policies and initiatives have been aimed at meeting the constitutional imperatives of a truly democratic South Africa. While progress has been made in building a more equitable society, more still needs to be done. Sustainable economic development requires an inclusive economy, with full financial inclusion being a key component. Despite the economic achievements of the democratic era, many South Africans are still excluded from the mainstream economic activities. Inequality, poverty and unemployment remain obstacles to the optimal development of the economy. These challenges require a holistic approach and integrated solutions, where all stakeholders must work together with government to bring about social and economic change. The government objective to ensure that five million jobs are created by 2020 can be realised if economic growth accelerates. Reaching that employment goal will itself support further growth. Financial inclusion plays a critical role in enabling these efforts to promote sustained economic growth and development, particularly of the most vulnerable in our society. Financial inclusion specifically provides a platform to transact and exchange payments for goods and services, to access credit in order to establish or improve productive capabilities, as well as offering savings and insurance services that help the vulnerable to maintain and improve their human and social capital. ‘…a vital tool that the poor can use to increase their chances to escape poverty.’ Financial inclusion per se cannot lead to sustainable development. However, it can, together with job creation, capacity building and infrastructure development, be a vital tool that the poor can use to increase their chances to escape poverty. For example, the simple ability to send children to – and keep them at school – starts breaking the generational cycle of poverty. Through the efforts of government, financial institutions and other stakeholders progress has been made in promoting access
to financial services. The proportion of adults (16 years and older) using a basic bank account has increased from 30% in 1994 to 63% in 2011, and 50% of the adult population are credit-active consumers. Consumer protection has also been enhanced through legislation, such as the National Credit Act and the Consumer Protection Act. These initiatives aim to ensure that while we promote access to finance, financial capability in communities is improved and all users are treated fairly and with dignity. Access to finance for small and medium enterprises (SMEs) remains a challenge in South Africa. SME lending as a share of banks’ gross credit exposure has been deteriorating in the recent past from 12% in 2008 to 10% in December 2011. It would appear that moves to reduce risk by commercial lenders have affected SMEs to a significant extent. This is problematic, as it has a direct impact on both poverty reduction and economic development through a reduction in job creation opportunities. Clearly more must be done, especially by financial institutions, to support the robustness and vibrancy of this sector of our economy. Government has recognised the important role that SMEs play in the development of the economy and the creation of jobs, and is committed to addressing this challenge. The establishment of the Small Enterprise Finance Agency is a major government initiative to improve the SME financial services landscape through improved capital utilisation and focused interventions. Increasing access to financial services, with the ultimate aim of sustained economic development, requires multiple stakeholders to work together to ensure that financial inclusion increases economic opportunities in the segments of our society where it is most needed. Such efforts entail the synchronised actions of government, financial institutions, civil society organisations, and development partners. The ongoing sharing of information and exchange of ideas in an open fora, such as the Inclusion Indaba, are welcome opportunities to take this journey forward. Source: The National Treasury
‘…a vital tool that the poor can use to increase their chances to escape poverty.’ Financial Inclusion Indaba and Exhibition Event Bruce Whitfield, Master of Ceremonies.
Gift Manyanga, CEO of FNB EasyPlan; David Chewe, CEO of the Bankers Association of Zambia; Nhlanhla Nene, Deputy Minister of Finance; Sim Tshabalala, Chair of The Banking Association Board and Deputy Group CEO at Standard Bank. Panel 1 Gift Manyanga, CEO of FNB EasyPlan; Arrie Rautenbach, Head of Retail Markets at Absa Retail and Business Banking; Thembinkosi Mathe, Group Strategy Executive/Acting CEO at Ithala Limited.
Panel 1 Anton de Wet, Managing Executive of Client Engagements at Nedbank; Ayanda Mjekula, Acting CEO at Ubank Ltd; Gift Manyanga, CEO of FNB EasyPlan; Arrie Rautenbach, Head of Retail Markets at Absa Retail and Business Banking; Thembinkosi Mathe, Group Strategy Executive/ Acting CEO at Ithala Limited.
Dealing with a false dichotomy between Basel III and Financial Inclusion Often in the public discourse on transformation in the financial sector, an inverse relationship is assumed to exist between financial regulation and access to financial services.
o be more precise, prudential regulation is considered to be the main cause of inadequate financial inclusion, or of causing financial exclusion. I was recently invited to participate in the roundtable discussion organised by the Association of Black Securities and Investment Professionals (ABSIP). The topic for discussion was ‘The impact of Basel III on Black Economic Empowerment (BEE) finance’. What is implicit in this topic is an inherent hypothesis that Basel III is intrinsically designed to have an undesirable effect of crowding out BEE financing, whether intentional or not. Soon after that, on September 2, 2012, the business supplement of the City Press published an article with the heading: “Banking system security trumps BEE”. In this article, Ismail Momoniat, head of Financial Sector Policy at the National Treasury, is quoted as having said that Basel III regulations will take precedence when it comes to dealing with BEE to safeguard South Africa’s financial stability. Indeed, much of the narrative in this often emotional debate is based on the assumption that prudential regulation has a countervailing effect to financial inclusion. I would like to argue that there is no trade-off between these two public policy objectives. In fact, when correctly applied and adequately complied with, prudential regulation should enhance financial inclusion. Similarly, Basel III should have positive long-term spin-offs for BEE financing in South Africa. Prudential regulation seeks to achieve three objectives: (1) to protect the public’s deposits, especially of the retail, unsophisticated members of the public who save their hard-earned money with banks for safe-keeping rather than for investments or wealth creation; (2) to ensure institutional soundness of every registered bank; and (3) to promote the stability of the banking system as a whole. Basel III is an improvement compared to Basel II. It seeks to correct some of the weaknesses that the recent financial crisis helped to identify regarding the amount and quality of the capital held by banks as well as in the strength of their liquidity positions.
Capital in a bank is meant to enable it to absorb losses, both in normal times and in times of financial distress. Liquidity is meant to enable a bank to meet its liquidity obligations, such as the ability to meet withdrawals from the public at all times. To this end, Basel III requires banks to build financially sound balance sheets with enough resilience to sustain their services to the public even in times of severe domestic and international economic and financial crises. Basel III compliant banking systems should progressively build adequate reserves through boom periods to be able to better absorb losses under the most severe economic slumps. Basel III will also ensure that banks have adequate short and long-term funding from stable sources to meet their liquidity obligations. This is crucial to ensure that banks are resilient enough through economic cycles to continue their lending business in normal times and during periods of severe stress. Dealing with a false dichotomy between Basel III and financial inclusion, ‘…when correctly applied and adequately complied with, prudential regulation should enhance financial inclusion.’ What happened in the United States (US) and much of the developed nations was a complete collapse of lending activities in general, but in particular in the areas of low-cost housing and SMEs. Even after huge fiscal and monetary support, the economies in those jurisdictions failed to produce any meaningful demand, and therefore banking activity remained subdued despite government support. The US did not adopt Basel II when Australia, Canada and South Africa did in 2008. It is worth mentioning that these are the only three countries with developed financial systems that survived the worst effects of the financial crises. The US was still implementing Basel I when the global financial crisis hit its banks in 2008. South Africa adopted Basel II.5 in 2011 and is preparing to adopt Basel III in 2013. Despite the global financial crises, credit extension remained positive in South Africa and its banks proved buoyant throughout the recent benign global economic climate. Even under the more rigorous Basel II and II.5 regulations and throughout the course of the global economic crises, South African banks
Panel 1 Nichola Dewar, CFO of SA Postbank; Anton de Wet, Managing Executive of Client Engagements at Nedbank; Ayanda Mjekula, Acting CEO at Ubank Ltd.
‘…when correctly applied and adequately complied with, prudential regulation should enhance financial inclusion.’ continued their lending activities in general, including financing BEE transactions worth over R80 billion since 2007. According to the FinScope Small Business Survey (2002), only 39% of the adult South African population had access to basic financial services in 2002. Even while complying with the more rigorous requirements of Basel II since its adoption in 2008, the number of adult South Africans with access to banking services increased to 63% in 2011. South African banks extended over R175 billion for low-cost housing, developmental infrastructure, SMEs and black agriculture from 2004 right through the peak of the international crises up until 2010. It is only in South Africa that during times of worldwide financial circumspection, talk of asset bubbles developing in the banking system finds currency. With unsecured loans increasing at a rapid rate since 2009 to over R50 billion today, some have warned that this may lead to systemic instability, while others argue that it could result in the abuse of clients by leading them to unsustainable levels of over-indebtedness. Nevertheless, the problems South Africans face are not a lack of lending, or impairment to financial inclusion. The problem is the oversupply of credit to low-income people. This coming from a fairly healthy South African banking system. Financial inclusion in South Africa did not improve despite a rigorous prudential framework; it improved because of it. South African banks are healthy because they had to operate under a strict prudential framework. We need only look at the events unfolding across the Atlantic to see the effects of a lax prudential framework to lending when it is needed the most. Therefore Basel III should not be the impediment to BEE finance that it is made out to be. Basel III should indeed enhance financial inclusion and BEE finance. Empirical evidence in South Africa disproves the notion of a negative causal relationship between prudent financial regulation and financial inclusion. Evidence shows the opposite to be true.
Panel 2 Lowell Campbell, Head of Agent Banking for Africa at Standard Bank; Eric Silke, UNCDF.
Panel 3 Gerry Anderson , COO and Acting Deputy Executive Officer: Market Conduct & Consumer Education at FSB; Ingrid Goodspeed, Chief Director: Financial Sector Development for National Treasury; Olaotse Mantshane, Managing Director of Cooperative Banks Development Agency (CBDA).
Nkosana Mashiya is the Deputy Registrar of Banks: Banks Supervision Department, SARB. Edition 3
th BANKSETA CONFERENCE NOT TO BE MISSED
Preparations are well underway for BANKSETA’s 5th International Conference, to be held at the Sandton Sun, Johannesburg on 1 and 2 November 2012. The conference promises to inspire delegates to ‘Invest, Educate, Empower’, in line with the strategic goals of the SETA. For people to perform optimally, the mindset should shift from a local, national and international level to a global level. This requires continuous development through intellectual enlightenment. With this in mind, the event will give investment banking companies insight and thought leadership and will further the knowledge of the SETA’s business partners, providing a better understanding of the business and political-economic dynamics of frontier and emerging markets. It will be a platform for knowledge sharing on best practice in the sector, focusing not only on international/global trends and emerging issues, but on the realities of the South African sector.
Key speakers include the Minister of Higher Education and Training Dr. Blade Nzimande; local and international professionals such as Professor Ingo Walter...
The event builds on the 4th BANKSETA conference, which touched on globalisation and the future of banking. The agenda for this year will include evolving banking trends and their effect on the financial sector, the future of BRICS, Africa’s economic and development trajectory, Africa as an attractive private equity investment destination, and South Africa as the gateway to the rest of Africa. The benefits of investing in South Africa will also be explored, as will the role of investment banking in developing the country’s economic growth. Skills development, innovation and legislative developments will be highlighted. Key speakers include the Minister of Higher Education and Training Dr. Blade Nzimande and local and international professionals such as Professor Ingo Walter, Mr. Daniele Silke, Dr. Martyn Davies, Dr Mabouba Diagne and Mr. Steven Bacher, the business show host on Kaya FM as the programme director. We acknowledge the tremendous support received from stakeholders such as Absa Capital, Rand Merchant Bank, Absa Islamic Banking, New York University, Stern Business School and Fulcrum Asset Managers, which has guided us on the strategic and investment issues driving the sector. The conference is free to all staff members employed in the banking and financial services industries and reflects BANKSETA’s commitment to delivering continuous professional development to people in the sector that it serves. Take your place among the many local and international investment banking executives and thought leaders by attending this not-to-be-missed event. Visit www.banksetaconference.org.za today to reserve your seat.
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Sharing the load This year’s Banking Summit aimed to find solutions on how the country can better fund infrastructure projects, writes Ndivhuho Mafela.
The panel: Ravi Naidoo - Group Executive for Development Planning (DBSA), Jacqueline Molisane - Financial Analyst (Dept of Public Enterprise); Andre Smit - Snr Policy Advisor (ASISA), Cas Coovadia - MD (The Banking Association SA) and Sihlalo Jordan - Partner (Deloitte)
outh Africa’s 3.2 trillion rand infrastructure drive has been put at the heart of the nation’s economic development plan. Although government has been calling on the private sector to come to the party, there hasn’t been a clear plan on how funding of such projects would be structured. Stakeholders agree that such projects cannot be funded from the fiscus alone, therefore public–private partnerships would be the natural route to take if the country is to experience serious economic development. The Banking Association South Africa (The Association) hosted the Banking Summit 2012 with a strategic aim to find solutions on how the country can fund infrastructure projects better. The Summit
couldn’t have come at a better time when the National Planning Commission had just released the National Development Plan. Sizwe Nxasana, Deputy Chairman of the Banking Association, welcomed government’s National Development Plan and urged all South Africans to familiarise themselves with the document as it addresses key issues such as underdevelopment and unemployment, which affects the majority of South Africans. This sentiment was also echoed by Deputy Finance Minister Nhlanhla Nene who urged the financial services sector to look at ways of coming up with a plan that will match and fund the aspirations of the national development plan. Nene applauded The Association for opening up a dialogue that seeks to address the challenges facing South Africans today, which
Ravi Naidoo, DBSA: ‘ ‘There needs to be a shift from short-term to long-term strategic purpose of projects.’
are unemployment, better healthcare and public infrastructure. Both government and the banking sector are in agreement that the country’s problems cannot be solved by government alone. Nene further added that banks are key players in South Africa’s development and urged them to get more involved and come up with long-term visions to assist the government, since they already have the required skills and infrastructures in place to do so. ‘The government does experience challenges and the financial services sector is willing to partner with government to arrest challenges. Banks in particular are willing to explore innovative ways of funding infrastructure,’ said Cas Coovadia, Managing Director of The Banking Association South Africa. Through the summit, the banking sector has made it clear that it stands ready to partner with government at all levels to ensure that the infrastructure that is required is funded. But the coordination of such funding has remained a major challenge as Nxasana puts it: ‘The banking sector welcomes the establishment of the Presidential Infrastructure Coordination Commission to oversee the huge capital investment by the South African government. We should, however, register our concern in that the private sector is no wiser about its envisaged role and the processes thereto, in the funding process, except the occasional reference to the important role that the sector needs to play – often at the level of generalities.’ The banking sector has called on government to engage in thorough consultation process when it comes to financial modelling for public-private partnerships and role delineation between
commercial financial institutions and the Development Finance Institutions. This would be a key driver of successful public-private partnerships. Public-private partnerships – in which the public and the private sector share the financing, risk and reward of a public infrastructure project – have been unbalanced in the past and need to be refashioned. Traditionally, funding of such projects has been the exclusive domain of government. The identification and structuring of options for financing the infrastructure plan are not clear in all instances, whether it be projects being rolled out by government departments or state-owned enterprises. This includes funding mix between financing directly from the fiscus, finance raised on capital markets, debt financing or development and donor funding. Beyond direct financing from government, the financing of infrastructure equipment and component manufacturers and suppliers, as well as infrastructure developers in line with the objectives of the Industrial Policy Action Plan and the New Growth Path and the Local Procurement Accord, represent potential sectors where the South African banking sector may play a larger financing role. In particular, this may include financing for small to medium sized enterprises and cooperatives involved in components manufacturing and assembly. The integration with the African Union’s NEPAD Presidential Infrastructure Initiative, with a view to the creation of new regional markets and increased market access through deepening infrastrucEdition 3
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Andre Smit, ASISA: ‘All stakeholders involved in the NDP need to regulate stability and promote healthy investing.’ ture linkages and connectedness, present new markets for the provision of trade financing, banking platforms and transaction services for regional business subsidiaries and deal financing between South African enterprises and their regional counterparts. One cannot help but note that generally, the political tone has been one of an aversion to financing with stringent conditions such as those associated with the structural adjustment programmes of the International Monetary Fund (IMF) and World Bank. Many infrastructure projects have both a social and a commercial component, and therefore require a hybrid financing approach. Therefore, the optimal financing structure needs to be tailored on a case by case basis to fit the specific nature of the infrastructure project. The same applies to the repayment model. Government should provide first-mover guarantees, or fund the first stages of riskier projects so as to attract the banking sector into subsequent phases of a project. The more government can address private sector concerns, the more money will flow in. However,
government also needs to ensure that the private sector comes in on a proper developmental basis. This means localising production wherever possible. Panel discussions held throughout the day explored the key areas where the banking industry and government could plan and work together towards a common goal to alleviate the three ills facing our nation, which are unemployment, poverty and inequality. ‘It is now the appropriate time to form partnerships with clear roles so we can use the National Development Plan to achieve sustainable growth and development for our people,’ said Nxasana. He described South Africa as a young and vibrant economy with enormous opportunities and challenges that can only be addressed through platforms like the Banking Summit. The deputy minister said some of the projects are still in the implementation stages while others such as housing, railways, new hospitals and universities are already underway. ‘In order for this plan to succeed, we need the corporation of all Edition 3
Cas Coovadia, The Banking Association: ‘Banks in particular are willing to explore innovative ways of funding infrastructure,’ stakeholders including banks. We need to come up with plans to finance and maintain it. Many skills exist in the banking sector and we need to put our heads together and think out of the box to create sustainable development that will create sufficient jobs,’ said Nene. Sihlalo Jordan of Deloitte said that the true cost of the infrastructure is going to be commitment by government and the private sector in making sure that the NDP is a success. He said the main challenge will be to understand the South African population and their needs to create a social investment plan that will create jobs and make sure that people do business in South Africa. Andre Smit, Senior Policy Advisor at the Association for Savings and Investment South Africa (ASISA), said that all stakeholders involved in the implementation of the NDP needed to regulate stability and promote healthy investing. ‘In the R700 billion we have put into infrastructure we need to create relations that will coordinate efforts of improving our society.’ 24
Financial analyst at the Department of Public Enterprises, Jacqueline Molisane said that the summit had played an important role in creating a close relationship between the private sector and government. She said this will also encourage state-owned enterprises to commit themselves in strengthening and enhancing the roles they play in our societies. ‘There needs to be a shift from short-term to long-term strategic purpose of projects,’ emphasised Ravi Naidoo, group executive for development planning at DBSA. He said that a lot of work still needs to be done to create a long-term purpose plan for the country. ‘This will give us enough time to plan and make sure that the projects have a long lasting legacy in our societies,’ he said. ‘All successful countries have long-term plans,’ said Naidoo in conclusion. ■ Ndivhuho Mafela is the Manager in Stakeholder Relations Division at The Banking Association South Africa.
Deputy Minister Nhlanhla Nene: ‘We need to put our heads together and think out of the box to create sustainable development that will create sufficient jobs.’ Sizwe Nxasana, FirstRand: ‘It is now the appropriate time to form partnerships with clear roles so we can use the National Development Plan to achieve sustainable growth and development for our people.’ Edition 3
Cash-based collateral dethroned
n a world scarred by the events of 2008, considerable questions have been raised regarding asset safety, the mitigation of counterparty credit risk, the protection and use of collateral and greater demands on transparency within the financial services arena. New regulations will be enforced to mitigate many of the risks in the greater market regarding capital adequacy. Basel III, Solvency II and Regulation 28 of the Pension Funds Act are examples of these regulations that will place a greater emphasis on the retention of liquid assets on the balance sheet of South African financial institutions. This will increase the need to collateralise financial transactions, forcing banks to retain greater cash reserves and increase capital adequacy ratios. The trend globally in response to regulations such as these has been to rather substitute high-quality liquid securities as collateral for cash as far as possible. Recent published articles have alluded to the likely possibility of a shortage of high-quality eligible collateral, particularly cash, which is the most common form currently utilised in the South African financial markets. Collateral is a key risk-management tool used to manage credit and counterparty risk. It is common to re use collateral received against other financial exposures. However, the current bilateral nature brings with it limitations, such as the incomplete overview of placed and received collateral, as one counterparty can only “see” their collateral as far as their direct counterpart. There is often uncertainty relating to the size of the collateral, where it has been reused and how it can be traced throughout its movements to the final holder. The fungible nature of cash used as collateral also brings with it uncertainty of recovery in the event of financial failure of the counterparty receiving the collateral.
There are complexities when using securities as collateral, such as daily collateral calls, corporate actions, manual collateral substitutions, management of eligibility criteria and collateral valuations. This can be administratively intensive and the build-up of collateral silos across financial products also leads to inefficient use of collateral or over collateralisation. Studies show that in 2007 global defaults on debt were US$8 billion (approximately R54.64 billion), which spiked to over US$400 billion (approximately R3.98 trillion) a year later – when the financial crisis hit. According to Finadium, a specialist research and advisory firm in the securities and investments industry, failure to effectively manage and implement effective and efficient collateral management systems could result in the loss of financial and revenue opportunities. There is a growing demand for more automated solutions, focusing on solutions that streamline processes and improve operational efficiencies. The focus and trend internationally is to adopt a single, centralised market-wide collateral management system that manages the members’ pool of exposures against the members’ pool of collateral placed. The South African financial market is looking at a centralised, market-wide multi-asset class integrated collateral management solution. This complies with local regulations and complements current collateral management functions within financial institutions, and is aimed at improving the tracking and efficient use of collateral management in South Africa. The Tri-Party Collateral Management service, which is being driven by Strate as South Africa’s licenced Central Securities Depository (CSD), will manage eligible dematerialised bonds, equities and money markets in multi-currencies.
As South Africa’s world-class Central Securities Depository, we are always asking ourselves what can go wrong? Through our passionate management of risk for the financial markets, Strate is trusted to provide certainty to the post-trade securities environment, ensuring we leave nothing to chance.
Tel: +27 (11) 759 5300 • Fax: +27 (11) 759 5500 1st Floor, 9 Fricker Road, Illovo Boulevard, I l l o v o , S a n d t o n , 21 9 6 , S o u t h A f r i c a . Email: email@example.com • www.strate.co.za
AKILI NI NDONGE ‘Use of brains begets wealth’ is a ‘Sheng’ saying which is a youth language combining Swahili and English developed by Kenyan youth about working hard and thinking smart. You’ll find dedicated smart thinking legal professionals at Werksmans – who use their expertise and work together to ensure a successful outcome. Each of our legal professionals has a wealth of individual talent, which combined, makes Werksmans one of the leading legal firms in South Africa. No matter where business takes you in Africa, if you want an incisive banking and finance legal team behind you, keep us close. Visit www.werksmans.com to find out more about our legal success in Africa.
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Code of conduct for managing environmental and social risk Registered commercial banks have adopted a code to manage their impacts on society and the environment.
OWN OPERATIONS AND PROCUREMENT The Association members commit to complying with applicable national law and regulatory requirements and endeavour to meet international norms and standards. Each member bank will assess, document and report on the direct impacts that they have on the environment and the communities in which they operate and implement controls to mitigate risk. This includes their own use of energy and natural resources, waste management and promotion of recycling initiatives. On the social side members will seek to maximise social benefits that might result from operational choices, such as job creation, meeting economic empowerment standards and extending financial services into communities which have historically been excluded from the banking system.
he Banking sector, like so many others, is under pressure to demonstrate responsibility in managing the impacts its business has on society and the natural environment. Clearly its direct impacts are limited to those of accommodating staff, engaging customers through various media and enabling access through branches, ATMs and electronic means. The indirect and perhaps more important impact is in the secondary effects of what it finances. To demonstrate that it has considered the impacts and the risks and is taking proactive steps to reduce risk to the sector, the chief executive officers of members of The Banking Association South Africa (The Association) have adopted a Code of Conduct for Managing Environmental and Social Risk (Code of Conduct). The Code of Conduct recognises that financial institutions can, and do, play a role in the protection, promotion and fulfillment of social, economic and environmental rights in South Africa, by conducting their operations in a sustainable manner. The Code addresses both the operational and organisational impacts and the need to proactively promote responsible practice through their value chains. The lending decisions of members and the operations of their clients could have significant implications for the country as a whole, considering the resource-intensive nature of many of South Africa’s industries as well as the nation’s resource base and rich biodiversity. The Code supports and acknowledges the existing practice of The Association’s members and sets out a framework that provides a benchmark for what is required. The framework includes own operations and procurement, lending practices and products and services.
LENDING PRACTICES Members will set up internal processes to identify high risk industries where additional due diligence may be required, and will ensure that their credit and risk management policies give due recognition to environmental and social risks when making lending decisions. Further, each member will develop due diligence guidelines to guide their staff when interacting with high risk industries. Salient member banks which provide project finance facilities to clients have adopted the global Equator Principles framework for assessing and managing environmental and social risks when providing clients with credit facilities. Equator Principles Financial Institutions are required to create systems and procedures to identify, measure and monitor environmental and social risks during the life cycle of project finance agreements, which will be reviewed regularly for adequacy and effectiveness. PRODUCTS AND SERVICES Where it is commercially viable and sustainable, The Aassociation’s members will promote the inclusion of individuals and small enterprises into South Africa’s financial sector framework, as well as the promotion of job creation and economic and environmental sustainability in all activities, including corporate social investment. The members support the transition to a low-carbon economy and will develop commercially-viable approaches through lending facilities and financial products that support the expansion of the green economy. ■ www.banking.org.za Edition 3
How easily can your customers contact the right person in your bank? BANK CUSTOMER DANE INGS runs an Internet marketing consultancy, Ever.co.za. He gets a lot of mail, some of it very unwelcome. ‘What happened was that I got a fake e-mail, a phishing scam. I get quite a few that resemble the FNB website and on that day I thought ‘I’m really tired of this. I wish I could do something about it’. I wanted to actively help the bank to catch these individuals.’ Many of us have had the same impulse. It’s community-spirited, and the community in this case is the bank and its customers. That’s how banks would like their customers to think of them, so there are two opportunities here: to get real-time information on phishing, and to build a closer relationship with a client. Three opportunities, really. It’s also a chance to alienate a customer by making him do the work, and Dane was well aware of that risk. ‘Then I thought – okay, where do I get the right contact details, and how long is that going to take me? I’ve got to go to the website, find the right contact, then sit on the phone for who knows how long listening to music, and eventually get through to someone who’ll refer me to someone else.’ Dane played that out in his mind and thought, no, too much trouble. ‘And then it just dawned on me: I wonder if they have a Facebook page? So I searched in Facebook for FNB, landed on their page, pasted in the link and wrote ‘If you’re interested, someone pretending to be FNB just tried to scam me’. ‘Fifteen minutes later their representative replied to me and said “thanks for the heads up”.’ That near-instantaneous live interaction with a customer is a perfect example of social customer relationship management, social CRM. ‘I didn’t have to worry about phoning or cost or my time. I could quickly go to a site that I’m already subscribed to and just fill in
‘The faster it is, the easier it is for you to see the reply and to be a part of it. Real time is the best thing about it.’
whatever I needed to do. And that’s pretty much what happened.’ FNB’s Facebook presence had effectively brought the right contact to the customer. He didn’t get any further feedback after the initial acknowledgement, but doesn’t feel he needed it in this case. He was satisfied that he’d been heard and that his effort was appreciated. ‘I think a lot of banks are catching onto using social media as a CRM tool. Some are maybe more active than others, but they’re all looking at it.’ THE LESSON It’s true – look at any South African bank’s Facebook page and you’ll see clients posting all kinds of queries and banks answering them, though the usual response time seems to be about an hour. It’s effortless and free for clients who don’t want to drag themselves through call menus, pay for a call or even stop what they’re doing while they wait for an answer. ‘I was impressed that they had someone there monitoring it,’ Dane says. ‘Fifteen minutes was pretty much long enough. Once it passes that threshold it’s no longer real time, it turns to nothing.’ On busy social pages where the high number of users constantly keeps pushing posts down the page, just to find your post to check for a response can take time and effort. ‘The faster it is, the easier it is for you to see the reply and to be a part of it. Real time is the best thing about it,’ Dane affirms. ‘Build it and they will come,’ the old saying goes. The new saying should be ‘Build it, monitor it and respond in real time, and they will come back.’
Edition 3 DebtIN-200x81mm.indd 1
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Is technology, and the data it produces, the answer to inclusion? IsIs technology, technology, IsIs technology, technology, and andIsthe the and technology, and data data the theititdata dataand itit the data it produces, produces, produces, produces, the the answer answer the the produces, answer answer to to inclusion? inclusion? to to theinclusion? inclusion? answer to inclusion? 2.5bn
500 mn - 1 bn people worldwide will access fin services by mobile by 2015
Global mobile data
adults around the world are predicted to be unbanked
1 in 3 adults
South Africa Africa 500 50 adults around aroundthe adults the adults world world around around are arepredicted the predicted theworld world toare toare bebe predicted unbanked predicted unbanked adults around totobebeunbanked unbanked the worldincreased are predicted to be unbanked 2.5bn 2.5bn adults 2.5bn 2.5bn 2.5bn Global Global mobile mobile Global Globalmobile mobile Global mobile serv se 1 1inin3 3 1 1inin3 3 1 in 3 2011 18 fold 2016 adults adults
of adults do not have, any financial products and services
are financially excluded
8mSouth SouthAfrica South Africa SouthAfrica Africa adults
smartphones in 2011
78% compound annual growth rate (CAGR)
Now estimated at
ofofadults adultsdo do ofof adults adults do do of adults do are arefinancially financially are arefinancially financially are financially mobile phone connections nothave, have,any anynot not have, have, any any smartphones not have, any excluded excluded excluded excluded not excluded smartphones smartphones smartphones (March 2012) financial financial financial financial inin2011 2011 inin2011 2011financial products productsand andproducts products and and products and 27% (double (double that that of of 2010) (double 2010) (double that that ofof2010) 2010) services services services services services
37% under banked are unbanked or underbanked
unbanked 2 in 3 adults
1 in 3 adults
(78% (78%compound compound (78% annual (78% annual compound compound growth growth rate rate annual annual growth growth rate rate (78% compound annual East growth r (grew by 203 %) at 104 % CAGR The TheMiddle Middle The East Thepop an MaM (CAGR) (CAGR) (CAGR) (CAGR) (CAGR) Afr 19.17 % Data Insights Jan 2012 Strongest Strongestmobile mobile Strong Stron dat da 6.33 %
27% 8m 8m 8m8m 8m
have no form of insurance
18 18 fold foldEast and Africa 18 fold The Middle 2011 20162011 2011 2016 2016 2016 201 Combined, Combined,Africa Combin Africa Comb h les Strongest mobile data traffic growth of any region
27% 27% 27% 66.7m 9.1m 9.1m9.1m 9.1m27% 9.1m 57%
South AfricaAfrica Africaincreased Africa Africa increased increased
increased increased 18 18fold fold
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growth growthofofany any growth region grow regio active atat104 104%%CAGR. CAGR. atmobile at104 10p connections
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(double that of 2010) 70 % Egypt Data DataInsights InsightsData DataInsights Insights Data Insights 6.33 6.33 %% 6.3 6. 57 % South Africa jan jan2011 2011 jan jan 55 % Ghana mobile mobilephone phonemobile mobilephone phone mobile phone 54 % Kenya subscriptions subscriptions subscriptions subscriptions subscriptions Percentage Percentageof Percentage of Percentage mobile mobile ofofm 50 % Nigeria
only onlyinternet internet only users only users internet internetusu
providers 27% 27%Considerations 27% 27% for financial service 27%
57% 57%57% 57%37% 57% 37%37% 37% 37% under underbanked banked under underbanked banked
under banked Opportunities Challenges are areunbanked unbanked are are or or unbanked unbanked or or are unbanked or have haveno noform form have haveno noform form have no form Financial education and empowerment Financial literacy and disempowerment 10% 10% 10% 10% 10% ofofinsurance insurance ofofinsurance insurance of insurance underbanked underbanked underbanked underbanked underbanked Single view of the customer Siloed view of the customer Technology enabled economies unbanked ofunbanked scale Existing product/branch cost structures unbanked unbanked unbanked
Embedding risk management into systems and culture Entrenching customer analytics 22inin33Designed adults adults 2inin33byadults adults in33 3adults adults and2produced Creative Solutions 11inin33adults adults1Agent 12inin adults 1 in 3 adults banking and broking at Deloitte, Johannesburg. (803447/den) © 2012 Deloitte & Touche. All rights reserved. Member of Deloitte Touche Tohmatsu Limited.
Modern skills and governance procedures Credit and consumer regulation Insufficient infrastructure and access
57 57%% Sout Sou
Ghana 55 55%%Ghana 55 5
54 54%%Kenya 54%% Kenya54
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Sources: Deloitte Analysis, Wireless Intelligence, StatCounter, Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast UpdateOn Device Resea
Considerations Considerations Considerations Considerations for forfinancial financial for forservice financial service financial Considerations providers providers service serviceproviders for providers financial service providers
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© 2012 Deloitte & Touche. All rights reserved. Member of Deloitte Touche Tohmatsu Limited. Designed and produced by Creative Solutions at Deloitte, Johannesburg. (803447/den)
orldwide will access financial 5
500 500mn mn- -11bnbnpeople 500 people 500mn mn worldwide -worldwide -1 1bnbnpeople people will willworldwide access worldwide accessfinancial financial 500 will will mn access access - 1 bn financial financial people worldwide will access financial al mobile services servicesbybymobile mobile services services byby2015 2015 bybymobile mobilebyby2015 2015 services by mobile by 2015
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620 620 m m 620 620 m m 620 m mobile mobilephone phonesubscriptions mobile subscriptions mobilephone phonesubscriptions subscriptions mobile phone subscriptions
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Egypt70 Egypt 70 70%%Egypt 70%%Egypt
% 69 69% % 7069 69Egypt % %
ofofmobiles mobiles 57 57%% South 57 %%South 57 % South57 Africa Africa SouthAfrica Africa South ininAfrica Africa will will have have Ghana Ghana 55 55%%Ghana 55 55%%Ghana 55 % Ghana internet internet %%Kenya 54%%Kenya 54 % Kenya Kenya54 Kenya access access byby2014 2014 %%Nigeria 50 50%%Nigeria 50 % Nigeria Nigeria Nigeria
ofofmobiles mobiles Africa ininAfrica Africa will willhave have internet internet access access byby2014 2014
of mobiles in Africa will have internet access by 2014
st UpdateOn Device Research, mobiThinking
Challenges hallenges Challenges Challenges Challenges Sources:StatCounter, Sources:StatCounter, Sources:StatCounter, Sources:StatCounter, Cisco CiscoVisual Visual Cisco CiscoVisual Visual Networking Networking Index Index Networking (VNI) Networking (VNI)Global Global Index Index(VNI) (VNI)Global Global nancial ancial and ncial anddisempowerment disempowerment literacy literacyand anddisempowerment disempowerment Financial literacy and disempowerment Mobile MobileData DataTraffic Traffic Mobile Forecast Mobile Forecast Data DataTraffic TrafficForecast Forecast he eoed edcustomer customer view viewofofthe thecustomer customerSiloed view of the customer UpdateOn UpdateOnDevice DeviceUpdateOn Research, UpdateOn Research,Device DeviceResearch, Research, branch /branch ting stingproduct/branch product/branch cost coststructures structures cost costExisting structures structures product/branch cost structures mobiThinking mobiThinking mobiThinking mobiThinking ure odern dern dgovernance governance skills skillsand and procedures procedures governance governance Modern procedures procedures skills and governance procedures dit umer mer editand and regulation regulation consumer consumerregulation regulation Credit and consumer regulation ufficient structure ufficient fficient ructure infrastructure and infrastructure andaccess access and and Insufficient access access infrastructure and access
Sources:StatCounter, Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast UpdateOn Device Research, mobiThinking
Sources:StatCounter, Sources:StatCounter, Sources:StatCounter, Sources:StatCounter, Cisco CiscoVisual VisualNetworking Networking Cisco Cisco Index Visual Visual Index(VNI) Networking Networking (VNI)Global Sources:StatCounter, GlobalMobile Index Index Mobile (VNI) (VNI) Data Data Global Global Traffic Traffic Cisco Mobile Mobile Forecast Forecast VisualData Data Networking UpdateOn UpdateOn Traffic Traffic Forecast Forecast Device Index DeviceResearch, (VNI) UpdateOn UpdateOn Research, Global mobiThinking mobiThinking Device Device MobileResearch, Research, Data Traffic mobiThinking mobiThinking Forecast UpdateOn Device Research, mobiThinking
take charge The behaviors and preferences of banking customers are changing worldwide, according to Ernst & Young's 2012 global consumer banking survey.
onsumers who are taking control of their banking relationships, are increasingly likely to change banks and expect to be able to choose between a range of service levels and costs, according to Ernst & Young’s 2012 global consumer banking survey. The study, which questioned 28 560 banking customers across 35 countries, highlights how customers also expect to be financially rewarded for their loyalty. Pierre Pilorge, Ernst & Young’s Financial Services Advisory Markets Leader for Europe, Middle East, India and Africa says ‘Customers are sending banks a very clear message – “we are taking control”. ‘In response, banks must reevaluate customer trends region by region to prioritise products, enhance services, and ultimately give customers what they want,’ he adds. Banks need to make it personal. Globally only 44% of customers say their bank adapts products and services to meet their needs. Seventy percent of customers would be happy to disclose personal information if it improved the level of service and products they were offered. ‘Customers are looking to banks to help them shape their experience. Banks need to reassess their offer and consider more tiered products and services,’ pronounces Pierre. … and reward loyalty properly! Loyalty reward schemes are on the rise with 27% of customers are enrolled on a scheme, up by 50%
from 2011. However, customers expect more – the overwhelming majority agreed that if you have three products or more with a bank you should get better service (86%), and that you should be charged lower fees or given better rates on your savings accounts (91%). ‘Across multiple business sectors, technology has empowered customers to seek tangible rewards and now banks are facing that reality,’ says Pierre. ‘Customers expect to be rewarded for the value of their business not just the duration of their banking relationships.’ Customers are more likely to shop around Consumers are becoming less loyal and increasing the number of banks they use. Consumers who use only one bank have fallen from 41% to 31%. The number of consumers planning to change banks has risen from 7% to 12% year on year and attrition rates have increased in several major markets. Poor branch experience (31%) and lack of personalised contact or service (26%) are rising up the list of reasons for changing provider, although dissatisfaction with high fees continues to be the most commonly cited driver of attrition, cited by 50% of respondents. Pierre says ‘Pricing remains critical to customer satisfaction, but most customers have no idea how much they pay each year. As they start to take control of their banking relationships, clearer communication
mers u s n o c f o anks b e v i g d woul rsonal e p e r o m n if it o i t a m r info ice v r e s d e improv vels le
Only of customers say their bank currently adapts products and services to meet their needs about fees is customers’ most sought-after improvement. People are more willing than ever to shop around and want control over what they pay for the service they receive. Banks need to respond – pricing and service promises need to be transparent if banks are to deliver something customers value.’ The customer voice is growing in strength, amplified by increasing social media use. Banks have made progress in improving their communication channels. Both call centre and mobile banking services have improved, with customer satisfaction up by 8% and 16% respectively year on year, however, the power of the consumer voice has overtaken banks communication channels. Personal recommendations from family and friends are the top source of information about banking products, with 71% of consumers relying on this information as their primary source. Fifty five percent of consumers refer to online communities or social networks for advice and a third of customers who use social networking use it to actively comment on the service they receive from their bank. ‘Customers prefer turning to other sources than their bank for financial advice and to find the best deals. Comparison websites, relatively unknown five years ago, are now the second major source of influence, ranking higher than banking advisors, and the use of social media as a source of banking information is amplifying customers’ voices, giving them greater power as advocates or critics,’ concludes Pierre. SOUTH AFRICA ‘Across the world we are seeing consistent themes with customers taking control, concerned about how they are engaging with banks across the life cycle. We are seeing high upmarket loyalty, especially in the South African context,’ Colin Daley, Associate Director of Advisory Services for Ernst & Young, said on Summit TV. ‘We are seeing customers who are willing to be self-serviced and will engage with banks directly using the internet for transactions. If we look at South Africa, for instance, 91% of customers say they are willing to provide their banks with information and be involved in developing products and services. That’s a huge change.’ Of the customers in South Africa who have switched banks, 70% cited high fees or charges as the main factor, the survey reported. Thirteen percent of customers in South Africa are planning to switch banks. Daley says ironically banks in South Africa are quite forthcoming with information around fee structures and how 36
customers are charged, but 63% of South African customers are still citing clarity around fees as the top intervention for banks to improve customer satisfaction service. He said that in interactions with some of the South African banks, the banks felt that they were doing all they can in this area. However, customers are still not satisfied. The Ernst & Young survey shows that 39% of customers are using only one bank, compared with 11% in 2011. Among those who multibank, 29% are looking for the best rates or fees for each product. Daley says that customers are doing their own research more and more and the phenomenon of “omnichannel” strategies is important for banks to embrace. He explains that omnichannel focus refers to customers wanting to be able to engage with their banks through different channels – be it social media, physical structures such as branches or over the telephone. And they want all these channels to be integrated so that one query on one channel can be followed up using another channel. The study also found that new emerging players are increasingly encroaching on the large banks’ markets, often focusing on lowincome earners where revenue growth is highest. Two other factors coming out of the study are that South African customers place more importance on loyalty programmes and they are active in the social
The financial services landscape. We can help you navigate it.
We know in today’s world, you face unprecedented challenges and responsibilities. According to our At Ernst and Young, latest Global Consumer Banking to we’ll give you opportunities work for the leading survey, customers areworld’s switching businesses an environment banks, a changing theirinbehaviour and that we know you’ll find a demanding improvements. At challenging and stimulating. Ernst &aYoung, we help respond Welcome to thebanks world of seeing a to this by assisting them more. To find outwith more, go to a. ey.com/careers reconfiguring their business models around customer needs. Find out how See More | Opportunities our financial services teams can help you find a resolution at www.ey.com/za.
© 2012 EYGM Limited. All Rights Reserved.
See More | Vision
91% of consumers expect financial rewards
for loyalty to their banks
media space, which means that banks that are not focusing on these two aspects may fall behind the curve. Looking at an analysis done by Ernst & Young on the first half performances of the three major banks that have already reported, Emilio Pera, Financial Services Sector Leader for the Africa sub-area, said that it is unlikely that the bank’s cost to income ratios are going to get back to the levels it was in 2008. He said that especially with the demands from customers to offer multiple channels for interaction and the subsequent IT investment that is necessary, along with looming costs linked to regulatory changes, these ratios could remain at levels around 56%. ‘Banks want to contain their costs, but you could lose market share if you hold back too long,’ he said. ABOUT THE SURVEY This research was conducted between February and March 2012 using an internet questionnaire. A total of 28 560 participants were surveyed, comprising 13 001 in EMEIA, including 500 in South Africa; 3 002 in North America, 4 548 in Latin America and 8009 in Asia-Pacific. ■ To read the full report visit www.ey.com 38
HOW CAN BANKS REBUILD CUSTOMER CONFIDENCE?
Encourage customer self service Banks need to improve the way they provide information and advice to interest and convince self-directed customers, including financial planning tools, ranges of product and pricing bundles. Personalised banking Customers who report a more tailored experience are often most willing to provide their banks with more frequent updates. Better value and service Customers are demanding more control of their relationships and will look around for the most attractive fees and rates for the level of service provided. Leverage customer advocacy Banks should embrace the use of social media as a source of banking information, as views of online communities and affinity groups become more influential.
Special Feature We know in today’s world, you face unprecedented challenges and responsibilities. According to our At Ernst and Young, latest Global Consumer Banking to we’ll give you opportunities work for the leading survey, customers areworld’s switching businesses in an environment banks, a changing their behaviour and we know you’ll find a demanding that improvements. At challenging and stimulating. Ernst &aYoung, we help banks respond Welcome to the world of seeing a to this by assisting them more. To find outwith more, go to a. ey.com/careers their business Social networksreconfiguring are increasingly important sources ofmodels information, around customer needs. Find out how and magnify banking customers’ ability to act as influential We know See in today’s world, you face More | Opportunitiesadvocates unprecedented challenges and can — or critics. Justour under half of allservices South Africans surveyed use social financial teams help responsibilities. According toreceived. our networking sitesyou to comment the they have Atservice Ernst and find aonresolution atYoung, www.ey.com/za.
CONSUMER CONFIDENCE The financial IN THE services BANKING landscape. SECTOR. We can help you navigate it. anks have recently been on the receiving end of considerable
public scrutiny, driven by their perceived role in triggering the global financial crisis, and a sluggish economic recovery ever since. Executive compensation is seen to be out of sync with underlying fundamentals, and in many regions, banks are thought to be holding back on extending much needed loans, thereby exacerbating the slow growth environment. A recent Ernst & Young global survey of consumer banking confidence reveals some insightful perspectives on just what the consumer’s viewpoint of banks is. This is the second annual Global Consumer Banking survey, providing indications of where and how consumer perceptions and behaviour is shifting. Overall, the survey examines the views of more than 28,500 banking customers in 35 countries, and was polled in March 2012. The survey focuses on the reasons for the changing behaviour of the consumer towards their bank and how likely they are to switch banks. The survey also specifically focuses on the channels consumers use to engage and transact with their bank, the drivers for customer satisfaction and the steps banks can take to enhance customer loyalty.
Global Consumer Banking we’ll givepersonalised you opportunities to • Customers placelatest a high value on products and work for the world’s leading survey, customers are switching services. A majority are ready to provide more personal information to businesses an environment achanging banks, theirinbehaviour and See More | Vision their bank, as long as they receive athat more offering we tailored know you’ll find in return. a demanding improvements. At stimulating.products. However, personalisation agoeschallenging beyond and appropriate Ernst & Young, we help banks respond Welcome to theincreasingly world of seeing Customers’ channel preferences are becoming complex, to this a by assisting them with more. To find out more, go to and they like the convenience of flexible access to their bank. a. ey.com/careers reconfiguring their business models Banks need to let customers choose they interact and offerout different aroundhow customer needs. Find how cost See More | Opportunities and accessibility options. our financial services teams can help • Pricing remains ayou critical driver of customer satisfaction and a find a resolution at www.ey.com/za. vital tool in banks’ fight against customer attrition – this is particularly relevant for the South African consumer. In addition to demanding more See More | Vision transparency on fees and charges, as well as more favourable interest rates, customers desire improved digital banking. Mobile banking offers particularly strong potential for growth — and consequently for reducing costs — if customers can be reassured about its security. Overall satisfaction with the major distribution channels is high or improving, but customers want to see further improvement in vital, everyday services. • Customers see bank loyalty programs as playing a crucial role to play in retention and acquisition. For the banks, greater loyalty among more affluent customers has the potential to outweigh the cost of providing financial rewards. Enrolment in loyalty programs is accelerating fast, in particular in South Africa where the number of consumers that are enrolled in a loyalty programme doubled in the last year. Developing tailored rewards for specific groups of customer segments could help banks boost enrolment in other markets and interactions. In conclusion, the behaviour of retail banking customers continues to evolve rapidly. This survey shows that customers are becoming more assertive and taking greater control of their banking relationships. They are increasingly less loyal and are more likely to try new banks. They are listening to each other and becoming more vocal as advocates — or critics. They are also demanding lower costs, better service and greater personalisation and flexibility. Faced with this fast-changing environment banks are reconfiguring business models around customer needs. Just as no two banks are exactly the same, there is no single strategic response that will suit every institution.
The high level findings include: • Customers are switching banks, changing their behaviour and demanding improvements. In response, banks are re-evaluating and changing how they interact with their customers. They are providing customers with greater flexibility, choice and control, and reconfiguring their business models around customer needs. • Customers are becoming less loyal to their main bank, and they are increasing the number of banks they use. The proportion of customers planning to change banks has grown by 70% since 2011, and attrition rates have increased in several major markets. High fees are the leading driver of attrition. • Multi-banking is becoming more prominent as customers search more actively for the best rates and products. Attrition has increased in both developed and mature markets, with North America seeing particularly strong increases, whilst the developing world saw increased customer switching across three of the four BRICS countries, (namely Brazil, India and South Africa). In South Africa, although customer attrition has increased, close to 40% of the consumers surveyed remain loyal to their bank, making use of only one bank. • Customer advocacy and word of mouth is rapidly gaining power. Customers are most likely to seek banking advice and information from friends and family, but online reviews and opinions are also gaining influence. South Africans primarily use word of mouth to keep themselves informed. Financial comparison websites are used by 65% of customers, eclipsing financial advisors and encouraging customers to take control of their own research and decision-making. © 2012 EYGM Limited. All Rights Reserved.
© 2012 EYGM Limited. All Rights Reserved.
The financial services landscape. We can help you navigate it.
IT complexity in banking: model, measure and master ‘If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it,’ H James Harrington writes.
Capco, a global business and technology consultancy dedicated solely to the financial services industry. We work in this sector only. We recognize and understand the opportunities and the challenges our clients face. We apply focus, insight and determination to consulting, technology and transformation. We overcome complexity. We remove obstacles. We help our clients realize their potential for increasing success. The value we create, the insights we contribute and the skills of our people mean we are more than consultants. We are a true participant in the industry. Together with our clients we are forming the future of finance. We serve our clients from offices in leading financial centers across North America, Europe, Africa and Asia.
Capco Johannesburg 23 Wellington Road, Parktown, 2193, South Africa +27 (11) 486 9541 CAPCO.COM Bruce.Gordon@capco.com
ost established banks have evolved various core IT systems as product demands have changed. These have been further augmented by requirements for customer centricity, realtime demands of direct channels, along with analytical and reporting functionality in the middle office and business operations environments. The direct result has been a proliferation of peripheral systems and an ever-increasing level of complexity in the IT environment. Banks face increasing pressure to rapidly develop and deliver new products and services into existing and new markets, while reducing costs and complying with an ever-evolving regulatory environment. These challenges are further heightened by a complex IT environment. The IT field is filled with anecdotes about organisations trying to contain, explain and manage complexity. Often there is an inclination to assume that if complexity exists, we should try to reduce it. As computer science pioneer Alan Perlis once said, ‘Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.’ Pure genius, however, is rare. And with our world in a state of constant change, we need to master, not remove complexity. The reduction of complexity can reach a point of diminishing returns, and complexity can allow greater business flexibility. Without a doubt, an appropriate level of complexity is neces-
sary to maximise return. The challenge is how to achieve this. HOW DOES A COMPLEXITY METRIC FIT INTO THE BUSINESS AGENDA? The core parameters that dominate a chief information officer’s agenda – cost, quality and flexibility – are all influenced by complexity, and business leaders have to make daily tradeoffs between them. Consciously taking complexity into account, through a complexity metric, will improve the effectiveness of chief information office’s decision-making… and make those decisions easier to explain. THE COST IMPACT Cost containment has been one of the most pressing issues for CIOs in recent years. CIOs of large financial institutions preside over significant IT budgets and, by extension, substantial complexity. The decisions they make can influence long-term business, and have potentially significant financial consequences. Clearly, complexity drives cost. THE QUALITY IMPACT The issue of quality has also moved up on the CIO’s agenda. There are clear correlations between quality and long-term operational costs. And the maturation of technologies has led IT end-users to be less forgiving of quality issues. Complexity correlates to quality intuitively.
IT Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it. THE FLEXIBILITY IMPACT The relationship between complexity and flexibility often forms a vicious circle. The more complex the system landscape, the harder and more risky changes become. As a result, flexibility decreases. Flexibility gained by adding new functionality and new technology quickly drives up complexity. THE POWER OF QUANTITATIVE METRICS ‘Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.’ (H James Harrington) Complexity has become an overused word in the IT field. It is used with increasing frequency in publications and elsewhere to describe how management views decision-making broadly, as well as in relation to specific functions across and within industries, such as IT and risk management. All CIOs have biased opinion based on experience. Many decisions are tied almost exclusively to experience and straightforward financial analyses, such as project costs and estimations. CIOs and IT leaders need a transparent, objective framework to augment the experience they bring to decision making. Such a framework can aid in articulating and communicating decisions both across and outside the organisation, an increasingly important requirement as corporate directors and regulators expand their scrutiny of business and technology decisions. HOW TO MEASURE COMPLEXITY The observation offered above by leading performance and quality expert H James Harrington highlights the central role that measurement plays in addressing complexity. To address these issues, Commerzbank and Capco developed an IT complexity model and management decision tool. In its current state, the model applies to the application landscape: single applications, application clusters, application domains and the entire application landscape. The model consists of several complexity indicators covering relevant dimensions of application complexity. Capco and partner clients have statistically validated these complexity indicators through quantitative research using real-life data on approximately 1 000 applications over three years. The complexity indicators of the model cover four dimensions: functional, interface, data and technology. Each indicator measures a relevant aspect of complexity. According to Capco, these mea44
sures become most useful if considered in conjunction rather than in isolation. IMMEDIATE APPLICATION AND BENEFITS A complexity model can be applied to important IT decisions at any financial institution after some calibration and data gathering. The model can also help educate IT leaders, and it can foster dialogue between the IT department and the business units it serves. Decision and trending analysis: IT executives will immediately be able to use it to analyse the impact of decisions and perform trending analysis. This will help them understand how their decisions might affect future cost, quality and flexibility of IT projects. IT architecture: perhaps most interesting is the notion of looking for complexity across the overall architecture. This will support conclusions regarding the impact of change on the entire infrastructure, including networks and other aspects. Bridging the gap between business and technology: an addition to informing decision making within the IT organisation, a complexity measure should help IT executives to better explain and provide an objective basis for discussing their decisions with business, helping CIOs articulate implications of initiatives, costs over time and so forth. By articulating complexity in this way, CIOs will be able to strengthen inter-company partnerships and create new opportunities to achieve measurable results. Business processes: in many instances, technology cannot be simplified without corresponding simplification of the business process. In the future, a complexity metric could serve as a process measurement to help identify opportunities for simplification, or as a heuristic to measure the efficacy of business process changes. CONCLUSION A complexity model (with its associated metrics) provides a means to better measure and therefore manage complexity. The creation and application of a complexity model offers an extraordinary new opportunity to understand the levers that drive cost, quality and flexibility. Meaningful, simple to understand metrics will help objectively communicate the rationale behind various strategic decisions, and bridge the gap between business and technology in providing a new level of transparency across the business and IT. ■ For more information contact +27 (0) 11 486 9541 e-mail: firstname.lastname@example.org or visit: www.capco.com
MEMBER BANKS Introducing Banking Association Member
Q&A Name of bank: Nedbank Group Ltd. Who owns the bank: 52% is owned by Old Mutual Plc. Core business: Nedbank consists of five core clusters: Nedbank Capital, Nedbank Corporate, Business Banking, Nedbank Retail and Nedbank Wealth. Target market: Nedbank is a universal bank, offering products and services to all client groupings from individuals (entry level to high net-worth), small businesses to large corporates, multinationals and the public sector. Core values or differentiators: Nedbank is a vision-led and valuesdriven company. The most prevalent values, as voted by staff are: accountability, integrity, respect, pushing beyond boundaries and people-centred. Our Deep Green Aspirations is a differentiator and informs our products, our operations and business goals. Any newsworthy changes in the bank’s structure or business in the near future? Given that Africa remains a key medium- to long-term strategic focus area, the Africa division, which previously reported under Nedbank Corporate, has been transferred to the centre and reports to our COO, Graham Dempster. Is there a key product or initiative you wish to highlight? Nedbank is making banking more convenient for clients by adding a significant amount of new outlets and ATMs, extending opening hours in 58 outlets and Sunday banking in 50. The success of client value propositions such as Ke Yona (mass market), Savvy (middle market) and Nedbank 4 Me (youth market) resulted in client gains significantly above the industry average and improved cross-sell, evidenced by the 17% growth in NIR. Nedbank also saw increases in the M-Pesa registrations offering (with Vodacom), up 7-fold to 955 000. Servicing the business owner in his personal as well as business capacity is a new unique approach offered by Nedbank (convenience of one point of contact), while the Nedbank@Work proposition of servicing a business’ staff has been highly successful, adding 80 000 new clients in just six months. Nedbank is the first and only bank to have launched a retail savings bond, raising over R6 billion in funding since inception, followed by a green savings bond, supporting the funding of renewable energy projects.
Contact details www.Nedbankgroup.co.za Tel: +27 011 294 4444
International links: Through Old Mutual Plc and in Africa through our Ecobank Alliance, we have rights to acquire up to 20% in Ecobank (ETI, between November 2013 and November 2014. We also have operations in the UK, in investment banking as well as our private bank, Fairbairn. ■
CEO AND CHAIRPERSON:
CHIEF EXECUTIVE NEDBANK LTD: MIKE BROWN NEDBANK CHAIRMAN: REUEL KHOZA
CSI: The achievement of true social sustainability in Africa requires more than just financial support. It demands commitment to the principles of economic upliftment, business development, job creation, community empowerment and social transformation. Nedbank Group actively seeks out and pursues opportunities to support communities, develop and grow small businesses, foster job creation and contribute to the overall development of a sustainable and robust social structure in SA and Africa.
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email@example.com | Tel: +27 21 872 7065 | Fax: +27 21 872 7168 | 191 Main Road Paarl 7646 | PO Box 3505 Paarl 7620 | Registration Nr: 2006/032693/07 Zenith is a licensed Financial Services Provider, underwritten by Hollard, an authorised Financial Services Provider. FSB Number: 36469
MEMBER BANKS Introducing Banking Association Member
Q&A Name of bank? Absa Group Limited Who owns the bank? Absa is a subsidiary of Barclays Bank which owns 55.5%. As of June 2012, Absa had 718,2 million shares in issue and a market capitalisation of R101,4 billion. The group had assets of R808,8 billion. Barclays is a major global financial services provider with an extensive international presence in Europe, the US, Africa and Asia. Core business? Absa is a fully fledged financial services group, offering a full range of retail, business, corporate and investment banking, insurance and wealth management products and services. The group’s business is conducted primarily in South Africa. It also has equity holdings in banks in Mozambique and Tanzania, representative offices in Namibia and Nigeria and bancassurance operations in Botswana, Mozambique and Zambia. As of June 2012 the bank had 12.2 million customers, 9 822 automated teller machines and 956 staffed outlets. It has 34 086 employees in South Africa and 13 930 in the rest of Africa. Target market? At a consumer level the bank services from the entry level segment up to high net worth individuals and in the business segment from SMMEs to big corporations. Core values or differentiators? Under the One Absa Strategy, the bank’s goal is to be a customer and people centred organisation. It is committed to sustained growth in targeted markets, balance sheet optimisation and proactive risk management as well as building a streamlined group. Absa sees skills and people development as a key priority. Any newsworthy changes in the bank’s structure or business in the near future? In June 2011 Barclays and Absa launched their One Africa Strategy aimed at taking full advantage of Absa’s strong local footprint and Barclays businesses in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia, the Indian Ocean, Zimbabwe and Egypt. Is there a key product or initiative you wish to highlight? Absa’s partnership with Barclays gives it true competitive advantage: it combines a strong local operation with world class specialist knowledge and an international balance sheet. Significant progress has been made integrating the businesses across Africa under the One Africa Strategy. The Barclays Africa head office has been relocated from Dubai to Johannesburg and management structures
aligned. The benefits of integration are being seen and discussions are underway on commercial and legal integration. International links? Through its majority shareholder Absa has access to Barclays extensive global presence and network. Name/s of the CEO and/or Chair? Maria Ramos, chief executive: Absa Group and Barclays Africa; Garth Griffin, Chairman of Absa Group. A note on your CSI? As a responsible organisation, Absa has a clear sense of its business purpose – to help individuals, communities, businesses and economies progress and grow. Absa is committed to creating value for all its shareholders, customers, employees, the community, the government and regulators. ■
THE CEO: MARIA RAMOS
For further information contact Absa on 011 350 4000 or visit www.absa.co.za Address: 15 Troye Street, Johannesburg, 2001 Twitter @absa http://www.facebook.com/Absa.Bank
Maria Ramos joined Absa as Group Chief Executive in March 2009, and is a member of the Barclays PLC Executive Committee. Ramos was previously the director-general of The National Treasury and in January 2004, was appointed as the group chief executive of Transnet Limited. She holds an Institute of Bankers’ diploma (caib), Bcom honours, and an MSC (economics).
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BUILD YOUR BANKING CAREER WITH THE RIGHT QUALIFICATION AND SKILLS TO SUCCEED A degree in commerce with a major in banking will open doors for you in the corporate and investment banking environment. The Milpark BCom also responds to the qualification needs of the financial services industry and legislation such as the Financial Advisory and Intermediary Services (FAIS) Act. Offering a broad educational foundation for a business career, with two possible areas of specialisation - Banking or Financial Planning, Milpark Business School will give you a headstart.
MILPARK BUSINESS SCHOOL ACHIEVEMENTS • The Number One Private Provider of the MBA degree and fifth in the overall rankings of accredited business schools. (2012 PMR.africa national survey on accredited business schools offering MBA/MBL degrees in SA) • A complete learning path is provided for financial advisers/planners from NQF level 4 to NQF level 8. • Milpark’s qualifications are recognised by the Financial Services Board (FSB) for FAIS Fit and Proper purposes.
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Core Banking Disciplines
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Management and Leadership
Cornerstone Short Courses 2012 Banking Business Acumen 1 The Business Essentials Of Banking* Principles of Personal and Business Finance**
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Management and Leadership in Banking 5 Foundations of Effective Management for Banking* Shaping High Performance Teams in Banking**
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Target�Audience ������������������ �������������������� ������������������ ���������������� ������������ An introductory overview providing a framework for ���������������� �������������� Focused and in depth content ������������������������������ experience within the banking sector is advantageous
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Cost�2012 ��������������������� ������������ ������������������������������ �������������
Mobility – more productivity, less baggage. By Charles Boffard. APPLE MACBOOK PRO WITH RETINA DISPLAY
FROM R24 000 apple.com/za This is not just last year’s MacBook Pro with an eyeball-slicing Retina Display added, though we wouldn’t have said no to that. Apple has turbocharged what was already one of the best laptops on the market. With new quad-core Ivy Bridge i7 processor, solid-state drives starting at 256GB and upgraded graphics, it’s a steroid-pumped version of its former self, though still only 18mm thick. And that display! Images and even text give the sensual delight of a week in the Caribbean with the Victoria’s Secret models. Which might be cheaper, but if ever a laptop could tempt you to spend R24 000, this would be it.
MICROSOFT SURFACE PC’S
Charles Boffard is Deputy Editor of Stuff magazine.
RUMOURED FROM R2 000 microsoft.co.za Someone in a room full of grey-suited VPs in Seattle said, in a bitter voice, ‘Fine. If Google can launch its own tablet, we can launch two.’ And here they are: the Surface runs Windows RT, similar to iOS, and the bigger Surface Pro, which runs full-fat Windows 8 Pro on an Ivy Bridge Core i5 processor and can handle any Windows applications. They’re beautifully put together, with 10.6inch/ 27cm widescreens and sleek magnesium coating, but the features that will get your attention are the integrated kickstands and magnetically-attached keyboards: the Surface RT’s 3mm-thin Touch Cover with flat, pressure-sensitive keys, and the Pro’s Type Cover with mechanical keys and a multi-touch clickpad. Pricing? Nothing but wild rumours so far.
ASUS TRANSFORMER PAD INFINITY
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R3 500 micro.co.za Every traveller who needs to get somewhere on time has a pair of wheels on their luggage. If yours has four wheels and you can push it through arrivals with one figure, instead of dragging it, consider that an upgrade. And now… three wheels, on a bag that can carry you. Micro and Samsonite have designed this cabin-sized bag with a kickplate that folds away out of sight when not in use. Somewhere there’s a business person who’ll be able to get away with being seen on this. Is it you? Who dares, wins.
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BANKING NEWS Strong performance South African by South African banks despite economic News uncertainty The financial results of South Africa’s four major banks for the six months ended on June 30, 2012 have remained resilient despite the recent global economic uncertainty, according to a report issued by professional services firm PricewaterhouseCoopers (PwC). “ALTHOUGH IN MOST CASES, NOT DIRECTLY, OUR BANKS have had to cope with another six months of global financial instability, particularly in Europe. The downside risks in Europe remain elevated, which is weighing heavily on market sentiment and it appears that will be the case for some time,” says Tom Winterboer, Financial Services Leader for PwC Southern Africa and Africa. Despite these difficult economic circumstances, the four major South African banks (Absa, FirstRand, Nedbank and Standard Bank) posted combined headline earnings of R21.3 billion, up by 17% from the comparable period last year and average normalised return on equity (RoE) of 15.9%. This compares favourably to a benchmark group of Western global peers that recorded average RoE for the 2011 financial year in the range of 2.1% for US commercial banks and 14.7% for Canadian banks. ‘This was a strong performance by South African banks compared to the Western world. Even more interesting is the composition of earnings for local banks when compared to other countries, which shows that our banks have an enviable non-interest revenue mix and continue to operate at favourable
efficiency ratios,’ says Johannes Grosskopf, PwC banking and capital markets leader for Southern Africa. These are some of the findings from PwC’s South Africa Major Banks Analysis Report, analysing the results of the country’s major banks for the six months ended in June 2012. Capital levels continue to be a strength. Total qualifying capital and reserve funds across the major banks showed moderate growth. However, the combined total capital adequacy ratio of the major banks declined marginally by 50bps to 14.9% from 15.4% at the second half of 2011.The slower growth in capital and decline in capital adequacy levels reflect the capital challenges faced by the major banks. This is a result of six months of Basel II.5 implementation and the prospect of Basel III implementation on January 1, 2013. ‘The major banks have all indicated that the transition to the higher capital requirements anticipated by Basel III will take place without significant difficulty or deterioration in regulatory capital levels. This can largely be attributed to ongoing risk-weighted asset optimisation initiatives of the major banks, a prudent approach to business as well as the relatively prudent regulatory capital regime adopted by the regulator over the years,’ says Grosskopf.
The world is evolving...
‘The higher capital requirements anticipated by Basel III will take place without significant difficulty or deterioration in regulatory capital levels.’ However, there is some uncertainty over key aspects of the regulations, such as countercyclical buffers, domestic systemically important banks surcharge and the finalisation of the recovery and resolution regime that will affect the final capital landscape. It is also expected that all the major banks should be able to comply with the Liquidity Coverage Ratio (LCR) envisaged by Basel III requirements, supported by the committed liquidity facility that the Reserve Bank recently announced it would make available to mitigate potential liquidity shortfalls. The most sensitive areas underpinning the results continue to be the banks’ ability to grow revenue, contain their bad debt charge and manage their cost base. Total income, up by 12%, shows a focus on margin protection and transactional revenues. Compared to the prior period, banks’ operating expenses increased by only 1.5%, while total operating income increased by 4.8%. Consequently, their combined cost-to-income ratio improved from 58.1% in the first half of 2011 to 55.9% for the same period of 2012. Salaries, which continue to represent about half of the total expense bill, grew at a rate of 12.6% in the first half of 2012, when compared to the same period for 2011. This increase reflects annual salary increases as well as the increased shortand long-term incentive awards associated with the improved operating performance of the banks. ‘We have already seen that the next generation of productivity improvements will come from responding to changes in
customer expectations by deploying strategic technology solutions,’ PwC’s Grosskopf says. Leveraging distribution in the world of social media will require making further improvements in the use of customer analytics to unlock value. The key is being able to integrate all the levers at the banks’ disposal to further improve customer engagement. These include rethinking product solutions in a Basel III world, harnessing technology for customer convenience, optimising internal centres of excellence and improving operational efficiencies. Total balance sheet impairments increased 12.2% to R52 billion for the first half of 2012, compared to the amount of R48.8 billion at the end of the second half of 2011. Total income statement impairments increased 33.5% from the first half of 2011 to R14.2 billion at the end of the second half of 2012. Grosskopf points out that the banks have focussed on their Non Performing Loans (NPL) portfolios and the adequacy of their specific impairments on these portfolios. This focus will continue given the size of the NPL portfolio (which is in excess of R100 billion) and the state of the housing market. ‘While there are some headwinds in the domestic economy and significant uncertainties from Europe, the banks continue to demonstrate the capability to manage and adapt,’ Grosskopf concludes. Compared to its international counterparts, the South African banking sector remains sound, being profitable, well capitalised and maintaining good returns on equity.’ ■
BANK OF INDIA OPENS BRANCH IN SOUTH AFRICA
Bank of India, long present in Africa, opened its first South African branch in Sandton in September , and is due to open an office in Botswana in November . Chairman and MD Alok Misra says that the initial focus will be on existing Indian clients, especially businesses which are active in South Africa.
BANKING NEWS INTERNATIONAL
Scenarios for the next decade of banking
Rebuilding a system that will be beneficial in a complex and changing world.
n the banking industry’s first-ever interactive eBook, published by Ernst & Young and Knowledge@Wharton, Global Banking 2020: Foresight & Insights, banking leaders explore potential scenarios – including some extreme possibilities – that could develop in the coming decade, along with strategies to help global banks thrive. Banking practitioners, Wharton professors and members of Ernst & Young’s Global Banking and Capital Markets practice, recently completed a year-long scenario planning exercise aimed at envisioning what the banking industry might look like eight to ten years from now. The result is a video-enhanced eBook, which blends a text report with graphic information and video clips from an extensive series of interviews. It outlines the key strategies distilled from the scenario planning process — strategies for banks to consider now in order to be successful over the next decade. The four scenarios that emerged from the discussions are: “business as usual,” “financial issues,” “new markets” and “change, change, change”. If a bank prepares for all four scenarios, according to Ernst & Young, it will be equipped to deal not only with these possible futures but also with those that fall in between. ‘The purpose of scenario planning is not to identify one certain outcome to plan for, but to model for how your business would perform under a variety of conceivable scenarios,’ said Ian Baggs, Ernst & Young Global Banking and Capital Markets deputy leader. ‘Institutions that organise cross-functional leadership teams to prepare long-term business strategies and contingencies will undoubtedly rise above their competitors.’ Mauro Guillén, director of the Lauder Institute and a management professor at Wharton, added: ‘Trigger events, especially in the banking sector, cannot be expected to unfold in a linear way. It is vital for an organisation to be proactive in developing solutions for potential challenges. A reactive approach will leave you fighting to keep pace and potentially without a place in the game.’ The series highlights three key strategies: move into emerging markets, develop a nimble culture and invest heavily in technology. In the video series Roch Parayre, partner at Decision Strategies International, discusses how banks should use scenario planning
Mauro Guillén: ‘A reactive approach will leave you fighting to keep pace.’
to assess their business plans and evaluate customer drivers. ‘Many organisations plan for one view of the future. In a world that’s very uncertain, that’s a very risky posture to have,’ says Parayre. ‘To prepare for the future amidst today’s uncertainty, there are three things banks need to do. Firstly, they need to do a pressure test to assess how well prepared they are to succeed under different possible scenarios. Secondly, they need to identify which aspects of their organisations work under the different scenarios. Thirdly, they need to realise that it’s futile to try to predict the future. Consequently, they should look to add some flexibility to their organisations so that they are able to adjust and succeed in a very complex and changing world.’ The Global Banking 2020: Foresight & Insights enhanced eBook can be purchased in the Apple iBookstore and on Amazon. It can be viewed on an iPad, iPhone or iTouch using the Apple iBookstore app or the Kindle app. For more information or to view the video go to kw.wharton.upenn.edu/ey-global-banking/.
Crowd-sourced credit card Billed by Barclays US as the first “crowd-sourced” credit card, the new Barclaycard Ring MasterCard allows cardholders a say — up to a point — in how it is managed, serviced and even marketed by participating in an online community. ‘This could be a major step in the likely application of “crowdsourced everything” to consumer credit,’ says Wharton business and public policy professor Jeremy Tobacman.
he product opened to the general public in April . It comes with an 8% APR that applies to all balances, including purchases, transfers and cash advances. There’s no annual fee and customers won’t have to pay a penalty APR if they default. ‘When we were developing this product, we were looking for aspects of credit cards that are often complicated to explain to the customer,’ says Jared Young, senior director of consumer markets for Barclaycard. ‘Even if [these features] made us a little bit of revenue, we decided to pull them out and make it as simple as possible.’ The card’s website is unclear about exactly what influence card holders will have, but it shows a sample discussion page with a query for users about how active community members should be rewarded for their efforts, and a community stats page with information including the number of accounts. Young continues to add ‘There are a lot of different places we can go. Everything online is up for grabs, but we have to provide a framework — we can’t give away the farm.’ If there’s a feature the community wants to build, we’ll share [information about] the expense of actually building it, and discuss how to fund it.’ Another feature of the card is that it gives community members a look at aspects of the card’s profit and loss (P&L) statements. Young acknowledges that it would be ‘very difficult’ to report the profits of a specific portfolio. ‘We’ve treated the P&L on a more cash flow basis, created a good-faith estimate of P&L and created a rewards program based on how well P&L performs.’ The Giveback rewards program is billed as a way for card holders to share in the profit. But the card’s terms and conditions note that
‘this profit-sharing feature is not based on the actual profits of the program. Instead, the Giveback program contains a transparent calculation that is used to determine what will be shared with the community members and which may or may not approximate actual profits.’ Young notes that the company is hoping to use the level of consumer control over how the Giveback funds are used to build trust with card holders. He also revealed that engagement levels from the card holder community have been strong, but noted that ‘in almost all online communities, including Wikipedia, the law of participation is usually that 90% of people just kind of come in and read, 9% occasionally add content to the site and 1% of the community is engaged and drives most of the volume. We’re not expecting anything different.’ ■ Ref: www.barclaycardring.com
Meet the bankers Banking Association South Africa Managing Director, Cas Coovadia, lives in Northcliff with his wife Sabera, a fashion designer, and their 17-year-old daughter, Nabeelah. He also has a 32-year-old son, Bilal, from his previous marriage. Coovadia turns 61 in October.
HOW DID YOU BECOME A BANKER? Well, I did a B Comm. Then throughout the 80s I was very involved in politics, with SANCO, the UDF and so on, and around the 1994 elections I was on the ANC list. I was sitting in a meeting with Tokyo Sexwale and Paul Mashatile, ANC leadership in Gauteng and we were saying we can’t all go into government; some of us have to take another path. Around that time I was also involved in the Community Bank, the first low-income bank in South Africa, with Paul Tucker. So I took that path, and I’m glad I that did because it’s taken me to where I am today. 58
WHAT DO YOU READ? I like biographies. For relaxation, I like to read crime and detective fictions. I also read a lot about politics and economics and about leadership issues – recently, Reuel Khoza, on servant leadership, and The Fortune at The Bottom of the Pyramid by PJ Prahalad, which talks about the potential and opportunities that people at the bottom of the pyramid present. I think that’s particularly pertinent to some of the financial inclusion issues we’re looking at. WHAT SOURCES DO YOU USE FOR BUSINESS NEWS? I look at Creamer media quite often, particularly in some of the
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Steve Jobs had this term: ‘The reality distortion field’. Essentially saying that reality is what you make it. Push hard enough and reality changes. I found that quite fascinating. critical areas that banks lend into, mining, engineering and so forth; some material from CNBC, and the daily Banking Genesis email I subscribe to from Genesis Analytics.
between meetings, I’ll find a gym. I enjoy movies (Cinema Nouveau) and we do a lot of hiking. Most recently we went to Clarens – we did a lot of good walking there.
DO YOU FOLLOW ANYONE’S BLOGS OR TWEETS? I’m not a blogger, fortunately, so I don’t keep in touch with bloggers. I keep in touch with whatever economists are writing in the papers, and with what business and other leaders are saying on the broader socio-economic and political issues facing our country. I go through the newspapers and read what captures my attention rather than home in on particular people.
YOU’RE KNOWN AS A TECHNOPHILE. WHAT TECH TOOLS DO YOU USE? My iPad, with a keyboard – the iPhone didn’t agree with me. I seldom use a laptop.
HOW MUCH TIME DO YOU SPEND TRAVELLING? Too much. Our banking structure is the second most stable in the world and we rank second in access to financial services. We have recognition above our weight, so we get quite involved in international structures. All that entails travelling. We also manage the SADC Banking Association, so I do a lot of travelling on the continent as well. YOUR SPORT / LEISURE ACTIVITIES? My gym bag is in the car, and if I’m in Pretoria with an hour or two
ANY RECENT BUSINESS BOOKS YOU’D RECOMMEND TO COLLEAGUES? On business and leadership issues, I really enjoyed a biography on Steve Jobs. He was quite an arrogant character, but despite that I was quite taken by the way he was able to get people who worked with him to actually go beyond the boundaries they thought they had. Even though people found him to be arrogant and obstreperous in many ways, they allowed him to push their boundaries. I found that interesting. He [ Jobs] had this term: ‘The reality distortion field’. Essentially it says that reality is what you make it. Push hard enough and reality changes. I found that quite fascinating. ■ Edition 3
Growth in the Banking Sector Uniprint stands out as one of the foremost print media companies in South Africa.
heir success locally and across the African continent in the secure execution of election-related print requirements, including ballot papers and voter’s rolls, has gained Uniprint the respect as a trustworthy security printer locally and on the continent. This also includes the supply of non-printed election items such as indelible inks all the way down to stamp-pads and pencils, which in some countries is kitted out to polling station level using the Uniprint proprietary kitting programme. Their success and integrity in dealings at this level has caught the eye of the banking industry where integrity is paramount. The net result has seen Uniprint experience unprecedented growth in the banking sector over the past few years with successes across a variety of print media, notably the secure PIN market. In assisting banks to protect their customers, Uniprint applies a high secure message transfer system for PIN numbers known as FISCODE™ to banking card carrier sheets in their Durban Business Forms plant. FISCODE™ is purchased under license from Swissbased Foilen Fischer and is an internationally recognised brand prominent throughout Europe in PIN and validation code protection. With banks continually fighting for market share, banking products evolve and new innovative banking packages are continually introduced to high, middle and low-end clients. Traditionally banks had a few standard packages and long print runs were the order of the day. However, thanks to Uniprint pioneering local production of secure PINs, banks now have the flexibility for frequent, quick turn-around artwork changes. Waiting months for an imported product is no longer an inhibitor and cost-efficiency can also be factored into shorter print runs. Since launching FISCODE™ in mid-2010 over 6 million secure-card carriers have been produced by Uniprint with that figure expected to double in the coming year.
Bank Marketing Wars It’s clear that bank marketing wars are ever increasing across all media fronts as they grapple for market share. The visual space includes billboards, various print media, posters, brochures and in-branch branding. Uniprint’s long-standing experience across all of these print mediums has over the past few years moved successfully into the banking sector over and above their traditional retail stronghold. Many of Uniprint’s long-standing retail clients have become authorised financial service and credit providers, evidenced by the many non-banking household retail names now appearing on banking cards.
Day to day running Banks require a host of printed items in order to function efficiently, ranging from head office operational requirements through to branch level. Items such as statements, deposit slips and ATM, rolls are common-place. Forms are conceptualised by the banks operational staff with technical assistance provided by Uniprint. Uniprint then proof, print and deliver directly to the bank or to Uniprint’s finished goods warehouse as part of their stock management offering.
Warehousing and fulfilment For the banking sector, with limited storage space at branches in almost every city and town as well as in neighbouring countries, stock management / fulfilment is a lifeline in ensuring continuity of transactional forms at branch level. With many procurements platforms on offer, Uniprint’s adaptation to a variety of such platforms has ensured that hundreds of deliveries are executed successfully each week.
Contact the Uniprint Business Forms division on 031 560 2300 to arrange for a presentation on how they can tailor a printing / security package to your specific requirements.
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The Banking Association South Africa is the mandated representative of the sector and addresses industry issues through: • Lobbying • Policy inﬂuence • Guiding transformation in the sector • Acting as a catalyst for constructive and sustainable change in the sector • Research and development • Engagement with critical stakeholders
The Banking Association South Africa manages numerous committees that advise the executive on issues pertinent to the sector. Such committee areas include:
• Access to ﬁnancial services • Accounting and ﬁnancial reporting standards • Agriculture • Banking sector regulation • Codes of practice • Consumer protection • Direct tax • Housing • Indirect tax • Preferential procurement • Small, medium enterprise ﬁnance
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• Financial services sector / insurance / cooperatives / international banks • CEOs, deputy CEOs, CFOs, COOs and middle/junior management SA Banker is a quarterly publication, published in June, September, December 2012 and March 2013.
To advertise in SA Banker or for any further information, please contact Warren Daries at email@example.com • Tel: 021 469 2400 switchboard • Direct: 021 469 2408 • Cell: 082 200 6922
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