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ISLAMIC FINANCE To grow emerging markets

SME AND NATIONAL GROWTH A solution to reducing unemployment

SA Edition 6 2013

Magazine of The Banking Association South Africa


The Banking Association at 21 PICASSO HEADLINE

The future of banking

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Into the shadows A South African perspective on Shadow Banking

Mo sh en off wh

The shadow of the traditional banking system has lengthened in recent years as the golden sun of profit past is forced to the horizon by the weight of greater regulatory burden.

An ou im

Indeed, we have seen the demise of traditional banking giants such as Lehman Brothers in the wake of the financial crisis. Subsequent regulatory reform has weighed heavily on the profit margins of banking institutions across the globe. In the United Kingdom, the five biggest banks (Barclays, RBS, HSBC, Lloyds and Standard Chartered) reported a 40% reduction in combined profit as a result of regulatory fines, redress of customer provisions, and accounting consequences.

Un co in

So So ser for

Standard Bank Group’s new joint chief executive officer Sim Tshabalala, was quoted by the Mail & Guardian in 2011 as saying that “[w]e’ve never faced so much regulation in the history of global banking”. Mr Tshabalala continued to argue that South African banks have at least 150 pieces of non-banking legislation to contend with.

Ho Ins ba ba

It is in these stringent regulatory conditions that shadow banking activities flourish. But what is shadow banking and why does it flourish where formal banking regulation is at its strongest?

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Defining and quantifying the shadow banking sector The United Kingdom Financial Stability Board (“FSB”) broadly defines it as credit intermediation involving entities and activities outside the regular banking system. Based on the activities of these “other financial intermediaries”, the FSB argues that the sector has grown from $26 trillion in 2002 to $62 trillion in 2007 before declining sharply in 2008. It estimates the current value of the sector at approximately $67 trillion. But there are disparate definitions of the concept. For the purposes of compiling its Shadow Banking Index, Deloitte includes only money market mutual funds, asset backed commercial paper conduits, assetbacked securities, non-agency mortgage-backed securities, collateralised debt obligations, repurchase agreements (“repos”), securities lending, and agency mortgage backed securities in its definition. Based on this definition, Deloitte found dramatic growth in the United States shadow banking sector between 2004 (the base year for the index) and 2008. Thereafter, the index dropped significantly and has been stable ever since.

W Pro pa ba fin sig it e inc un

Why ‘shadow banking’? The term shadow banking arguably carries too negative a connotation. Essentially, it is a sector that brings lenders and borrowers together in a less formal way than normal banking channels. As such they avoid the suite of regulation that banks are subjected to as well as the related costs. These transactions are therefore often more cost effective even though they may carry greater risk. The concept is therefore not new – in fact one could argue that shadow banking established banking activities.

EM hil W Af in lan oth

In pro req Af wi sha


What could be lurking in the shadows? Procyclicality found its place in the common vernacular over the past six years. The IMF argues that transaction within the shadow banking sphere may perpetuate this. At the beginning of the financial crisis it was asset backed paper that showed the first signs of significant distress as the underlying assets devalued. Later it emerged that certain compensation arrangements may have incentivised executives to over expose themselves to assets with underestimated credit risk. Monetary policy is affected by the state of capital markets where shadow banking appears to play a major role. In a low interest rate environment other financial intermediaries flourish as the returns they offer often exceed prevailing rates. This may have adverse implications when the economic cycle turns and asset bubbles burst. And when the cycle turns it could be up to average Joe to bail out these other financial intermediaries. This may have significant implications for fiscal policy. Understandably, many an investor is questioning the quality of the collateral underpinning their investments while those issuing assets in the shadows scratch their heads in terms of pricing. South Africa in the shadows South Africa has a very well developed and regulated financial services sector. Lenders and borrowers actively transact using all forms of shadow banking assets. However, Ingrid Goodspeed (the Governor of the South African Institute of Financial Markets) perhaps better defines shadow banking in the South African context as “non-banks carrying out bank-like activities… with limited (if any) supervision and regulation”. The key differentiator between banks and non-banks according to this definition lies not in their lending activities, but rather in their deposit taking capabilities – only registered banks are able to legally take deposits in South Africa. The South African Reserve Bank currently recognises 19 registered banks. EM Foster once said that “... there are shadows because there are hills”. This could not be more apt in the South African context. The World Economic Forum’s Global Competitiveness Index rates South African banks as the second most sound of the 144 countries surveyed in 2012/13. It could be argued that our banking sector is not merely a landscape of hills but rather a vast mountain range. The emergence of other financial intermediaries follows naturally. In terms of the National Credit Act (“NCA”), all entities who aim to provide loans and advances to both individuals and legal persons are required to register with the National Credit Regulator (“NCR”) of South Africa. Currently, there are more than 4000 credit providers registered with the NCR. These financial intermediaries profoundly influence the shape and size of the South African shadow banking sector.

Bringing this sub-section of South African shadow banking into sharper focus is the widely publicised concerns regarding the levels of household debt in South Africa, and in particular the exponential growth in unsecured lending. Various publications have quoted Finance Minister Pravin Gordhan expressing his concern about levels of unsecured lending especially as they relate to lower income earners. In October 2012, the NCR conducted surprise inspections in reaction to the violent protests in Marikana. NCR chief executive Nomsa Motshegare said that ten of the twelve credit providers inspected in that area were found to be non-compliant with the NCA. In response to these findings Minister of Trade and Industry, Rob Davies, noted that his department had seen practices that verged on reckless lending. Statistics from the NCR shows that total personal loans and advances grew from R1.21 trillion in quarter 1 (“Q1”) 2011 to R1.32 trillion for the same period in 2012. Of this R110 billion growth, R40 billion can be attributed to pure unsecured credit and a further R15 billion to credit facilities. It is important to note that not all unsecured lending originates in the shadow with major players African Bank and Capitec Bank taking the lion’s share, but the shadow is certainly lengthening as a result of this growth. Is darkness upon us? Valid concerns have been raised about the size and growth of shadow banking in the global sense. This has not been empirically quantified from a South African perspective, but all indicators are that the global trend applies here as well. However, arguably the most risky of the South African shadow banking sub-segments is subject to some regulations and certainly to regulatory scrutiny even if it is indirectly via the central bank and credit watchdog. And while our banking sector is one of the best in the world, our population remains significantly under-banked. Other financial intermediaries have a noteworthy role to play in this particular segment of the population. In South Africa it therefore seems that the lengthening shadow may be as a result of the dawn of future opportunity. Upon further investigation we may find that the sun is indeed rising not only on South Africa, but on the African continent as a whole. Marius van Reenen is a senior manager in the Financial Institutions Services Team at Deloitte. Email: Tel: 011 209 8811

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07 MD’s Message

The Banking Association South Africa MD Cas Coovadia on The Banking Association’s achievements in its 21 years of growth

08 Main Feature

From strength to strength Over 21 years The Banking Association South Africa has grown to develop the industry and the country

14 Financial Services From Charter to Code

The Banking Association developed an instrument to transform South Africa’s financial services sector

21 SA Regulation

Regulation: the art of getting it right The rules and laws governing banking have grown from an ongoing process of co-operation between The Banking Association and government


24 SME Development

SMEs: the role of banking

The NDP gives an important role to banking in the development of SMEs

30 Profile

More than the sum of its parts

The Banking Association has continually adapted to perform its functions

43 Customer Story

The evolution of customer service We’ve come a long way

46 Banking IT

The realisation of industrialisation The need to industrialise banking processes represents an opportunity

50 Legal Viewpoint

Micro Lending and breaking the bank A new challenge for credit providers

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Publishers: Picasso Headline (Pty) Ltd Times Media Building Central Park, Black River Park Fir Street, Observatory, 7925 Cape Town 8001, South Africa Tel: +27 21 469 2400 Fax: +27 21 462 1124 Editor

Banking Association Editorial Board

Charles Boffard Prof Steve Fredman Sure Kamhunga Phakamisa Ndzamela

Copy Editor

Fikiswa Majikela

Content Coordinator

Head of Design Studio Designers

Business Manager

Financial Capability is the enemy of poverty

Lawrence Khoza Luyanda Tetyana Ndivhuho Mafela Thenji Nhlapo


Production Editor

53 Training

Charles Boffard

Shamiela Brenner Michele Jarman Rashied Rahbeeni Dalicia du Plessis Mfundo Ndzo Robin Carpenter-Frank

Special Projects

John Dos Santos

Project Manager

André Potgieter

Sales Consultants

Financial Accountant

Andrew Green Basil Jones Lodewyk van der Walt

Partnering with customers is key, writes Dr Derek Shirley

58 Industry Survey

“Innovation is critical”

PwC’s South African Banking Survey 2013

65 Banking News: South Africa

Senior General Manager: Newspapers and Magazines Mike Tissong Associate Publisher Jocelyne Bayer


Tel: 021 469 2498

What – and who – is making news in South African banking?

68 Banking News: International

Britain’s “electrified fence” and Kenya’s mobile money

70 Lifestyle

A state of grace

Celebrating the role of women in The Banking Association South Africa



Copyright: Picasso Headline and The Banking Association South Africa. No portion of this magazine may be reproduced in any form without written consent of the publishers. The publishers are not responsible for unsolicited material. SA Banker is published quarterly by Picasso Headline Reg: 59/01754/07. The opinions expressed are not necessarily those of Picasso Headline. All advertisements/advertorials and promotions have been paid for and therefore do not carry any endorsement by the publishers.

SUBSCRIPTIONS AND DISTRIBUTION Shihaam Adams E-mail: Tel: 021 469 2400

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MD’S MESSAGE The Banking Association South Africa celebrates numerous achievements in its 21 years of growth


he Banking Association South Africa (The Banking Association) was established in 1992. South Africa was in the throes of negotiations towards the first non-racial democratic elections for a government elected by universal suffrage. It is fitting that an association representing the banking sector was born during such a historical period. The South African banking sector is one of the most important assets the country has. The sector has consistently been rated as one that is among the most stable banking sectors in the world. We have also been highly rated for enabling access to financial services. Banks conduct their business responsibly and the sector is regulated efficiently and robustly. These factors contributed to the sector’s ability to withstand the financial crisis precipitated in the USA and Europe. The Banking Association has recognised the significance of the period of its birth by working with its members to position the sector at the forefront of responding to the transformation challenges in South Africa. The banking sector was the catalyst for the voluntary Financial Sector Charter (FSC) well before legislation to promote black economic empowerment was promulgated. Together with other sectors of the financial industry, the banking sector made a significant contribution to transformation in the first five years of the FSC. The banking sector’s performance against the FSC scorecard in two critical elements from 2003-2008 was: • Targeted Investments (includes Low-income Housing, Black SME, Transformational Infrastructure and Agriculture) amounting to R53,168 billion. • Equity transactions amounting to R86,799 billion. The sector also surpassed targets in other elements on the scorecard, including Employment Equity, Skills Development, Preferential Procurement, Access to financial services, Corporate Social Investments and Management Control. The sector can celebrate a number of achievements in its 21 years of growth, to name a few: • The Banking Association was instrumental, with the Department of International Funding and Development (DFID) in the United Kingdom, in the establishment of Finmark Trust (FT). This organisation is now an independent research and policy house in the area of Financial Inclusion and making financial markets work for the poor. FT’s annual Finscope is recognised as the pre-eminent analysis of Financial Inclusion in South Africa. • The Banking Association established the office of the Banking Ombuds as a voluntary Ombuds for the sector. This organisation

is now independent of the sector, with representation from consumer bodies and other organs of civil society on its board. Advocate John Myburgh is the chairman of the board and the Ombuds is recognised as an independent body with very good oversight on customer relations within the banking sector. • The Banking Association established the SA Banking Risk Information Centre (SABRIC) organisation to work with relevant government departments and other stakeholders to lead the fight against bank-related crime. SABRIC works closely with the Departments of Justice, Safety and Security, Home Affairs and others and has developed critical intelligence on bank-related criminal activity. • Over five years ago, The Banking Association launched the Teach Children to Save South Africa (TCTS SA) initiative in the country. South Africa is one of three emerging countries asked to pilot this initiative, which is very active in the USA, where the Hope Foundation, together with Citi and other sponsors. • The Banking Association is an active member of Business Unity SA (BUSA), with The Banking Association MD being chairman of the BUSA Finance and Management Committee. The Banking Association also participates in other business organisations such as the Centre for Development and Enterprise (CDE), National Business Initiative (NBI) and the Nepad Business Foundation (NBF). • The Banking Association has developed a substantial continental and international standing. We are members of the African Union for Housing Finance (AUHF), of which I serve as Treasurer. We are also members of the International Union for Housing Finance (IUHF). The Banking Association is the only African banking body belonging to the International Banking Federation (IBFed), and is a full member with representation on the board. The banking sector continues to engage on its role in promoting socioeconomic growth and development, so that the lives of ordinary people can be improved through enabling people to access opportunities, with support within a conducive environment. I believe our organisation has made significant progress in demonstrating its commitment by contributing to the democracy of this country. The achievement, at great sacrifice, of a non-racial democracy has itself given birth to fresh challenges. All of society, in different ways, must address these challenges so that we consolidate the democracy that was given birth to through enormous sacrifice. The banking sector, through The Banking Association, will continue its efforts to meet these challenges. We will continue to be an asset to our country and be relevant to the majority of our people! Cas Coovadia Managing Director, The Banking Association South Africa Edition 6

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From strength to strength From its humble beginnings 21 years ago, The Banking Association South Africa (The Banking Association) is looking to an even more eventful and fruitful future as it continues to play an integral role in the development of the country’s financial sector, says MD Cas Coovadia.


ust over two decades The Banking Association South Africa has grown to develop the industry and the country. Started as the Council of South African Banks (COSAB) in 1992, The Banking Association has undergone a series of changes to its profile and membership, and also initiated and participated in major policy initiatives by the government to grow, strengthen and protect the financial sector in general, and the banking sector in particular. The Banking Assosciation’s MD Cas Coovadia says that the organisation’s achievements are evidenced by among other accolades – South Africa’s banking sector being rated by the World Economic Forum Competitive Survey for 2012/13 as second out of 144 countries in terms of soundness, and third in terms of the development of its financial sector.

As a result of the organisation’s involvement, Coovadia says the banking sector is playing a major role in the broader socio-economic growth strategy of the country, including promoting wider financial inclusion, financial literacy and responsible lending by banks. Through its Teach Children To Save South Africa programme The Banking Association is also involved in instilling a saving culture in South Africa, whose gross national savings are the lowest among the BRICS countries. Local bankers agree that The Banking Association’s achievements have been instrumental in the development of South Africa’s financial sector, which now contributes about 10,5% to tour GDP with assets to the value of over R6 trillion. The banking sector’s assets alone represent just over 50% of total financial services sector assets. Mike Brown, the Group CEO of Nedbank, believes The Banking Association has come of age since its humble beginnings in 1992.

While banks in South Africa compete strongly with each other in the client environment, there are also benefits that can be derived for the industry from collaboration in the non-competitive environment, and The Banking Association plays a key role in facilitating this. 8


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FRONTROW: Fikile Kuhlase – Snr General Manager: Socio-Economic Growth & Development Cas Coovadia – Managing Director Thabo Tlaba-Mokoena – General Manager: Socio-Economic Transformation, Socio-Economic Growth & Development MIDDLE ROW: Charles Botes – General Manager: Finance, Shared Services Beverley Reyneke – Snr General Manager, Shared Services Luyanda Tetyana – Manager: Media & Communications, Strategy & Stakeholder Management Ndivhuho Mafela – Manager: Stakeholder Relations, Strategy & Stakeholder Management BACKROW: Pierre Venter – General Manager: Human Settlements, Banking & Financial Services Mark Brits – General Manager: Strategic Projects, Office of the Managing Director Lawrence Khoza – Snr General Manager: Strategy & Stakeholder Management Stuart Grobler – Snr General Manager: Banking & Financial Services Nicky Lala-Mohan – General Manager: Legislation, Banking & Financial Services Muzi Mhlambi – Manager: Programmes, Socio-Economic Growth & Development Edition 6

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The Banking Association has played an indispensible role in the finalisation of the Financial Sector Charter, as well as facilitating industry inputs into the evolving regulatory environment and more recently the transition from Basel I to Basel II, to Basel II.5. In particular, he says The Banking Association has managed to bring together players in the banking sector who, although competitors, have forged a unity of purpose on issues of national and sectoral importance through The Banking Association. ‘While banks in South Africa compete strongly with each other in the client environment, there are also benefits that can be derived for the industry from collaboration in the non-competitive environment, and The Banking Association plays a key role in facilitating this,’ says Brown. He says that the organisation has played an indispensible role in the finalisation of the Financial Sector Charter, as well as facilitating industry inputs into the evolving regulatory environment and more recently the transition from Basel I to Basel II, to Basel II.5. And now from beginning of the year, South Africa becoming one of only a handful of countries around the world to go live on Basel III.

Under Basel rules, banks globally are expected to hold higher regulatory capital buffers to enable them to withstand cyclical and unexpected shocks to their sector. Coovadia says South Africa’s tight regulatory environment is credited with shielding the banking sector from the worst impact of the last credit crisis that led to the collapse of major banking institutions in the US and Europe. South Africa’s banking regulator, Rene van Wyk, says the country’s top five banks already have capital buffers well above those stipulated by the Basel Committee on Banking Supervision, of which South Africa is a committee member. Brown says the ranking of South Africa’s banking sector by the World Economic Forum (WEF) is testimony to the collaborative effort between The Banking Association, local banks and the banking regulators. ‘Outlining other achievements, Coovadia says The Banking Association has been a critical player in the development



For 11 years now the South African Banking Risk Information Centre (SABRIC), which has grown from its initial incarnation as a unit of The Banking Association South Africa, has been in the vanguard of combating crime at South Africa’s top banks. During that time the crime threats facing the country’s banks and their clients have developed in ways barely imagined a few years before. South Africa’s banks responded to this challenge in a unique way. Since 2002, when SABRIC was created at the initiative of the big local banks, a co-operative approach between all the stakeholders has reaped great rewards. CEO Kalyani Pillay says SABRIC follows a unique model. ‘We are privileged to have such an enviable model that is characterised by the collaboration of natural competitors. It really demonstrates the seriousness that our clients place on combating crime.’ Initially a unit of The Banking Association, SABRIC was incorporated as a non-profit company in September 2003. The Banking Association MD Cas Coovadia, who also chairs SABRIC’s board, explains: ‘SABRIC was established after, as The Banking Association, we realised that the scale of bank crime in the country was increasing and there were also clear signs that we needed to collaborate more with law enforcement agencies and other government departments on this issue. As a result, the banks benefit from economies of scale and collaborate on a common goal. The local banking industry is able to engage in collective crimecombating initiatives without compromising their competitive imperatives.’ When SABRIC was formed, bank robberies were the predominant form of crime to be addressed. Today, instead, says Pillay, cybercrime – whereby information communication technologies are used to defraud customers – has become the major challenge to the local industry as it is the case globally. SABRIC serves a vital communication function between the banking industry and government departments on crime-related issues. Edition 6

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PROFILE of the National Housing Accord, which for the first time provided the framework for banks to provide affordable housing finance. ‘After signing of the Accord, we partnered government in the establishment of Servcon to manage mortgage holders in default in the low-income market,’ says Coovadia. The Banking Association facilitated the participation of the banking sector in the formation of Business Against Crime (BAC), an initiative by the business sector to combat crime in the country. Other milestones include establishing the SADC Banking Association (SADCBA) of which The Banking Association is still the Secretariat; managing development and implementation of integrated payments and settlements system for SADC; finalisation of the new Code for Banking Practice which is now being used by the Banking Ombudsman to oversee bank interaction with customers; established the office of the Banking Ombudsman as an independent voluntary Ombudsman, chaired by Advocate John Myburgh. Finmark Trust is also another entity which was established by the Association which does a substantial amount of work in the research sector of financial inclusion for the majority of the unbanked South African citizens. In August 2002 at the NEDLAC Financial Sector Summit, The Banking Association volunteered to develop the Financial Sector Charter. The Charter was implemented from 2003-2008 as a voluntary instrument and was finally gazetted as a sector code on 26 November 2012. The Charter is a blueprint setting the transformation agenda in the country’s highly competitive financial services sector. The Banking Association says that out of the R122 billion that South African financial services companies have agreed to provide for empowerment finance between now and 2017, about R80 billion will come from banks, a sign of commitment and a substantial vote of confidence in the transformative Code. The other R42 billion is expected to come from the Association of Savings Institutes of South Africa (ASISA). The Banking Association’s Thabo Tlaba-Mokoena, General Manager in the Socio-Economic Growth and Development Division, says the performance of the financial services sector in adhering to the FSC is expected to be measured by verification agencies. Reports are expected to be produced from next year. He says financial services companies with annual revenue of R10 million and more are expected to report on how they are meeting the transformation agenda set in the Code. Coovadia says The Banking Association is proud to have played a key role in facilitating the signing by banks of a Code of Conduct on Credit extension which has since been incorporated into the Code of Banking Practice. The Association was also part of an agreement signed with National Treasury in October 2012, to address bad practices in the unsecured lending environment. The deal came after National Treasury raised concerns about the increasing indebtedness of consumers. The Banking Association has also engaged on behalf of the banking sector on critical legislative and regulatory issues; among them, the National Credit Act, Companies Act, Consumer Protection Act and the Home Loans Mortgage Disclosure Act. By Sure Kamhunga ■ 12


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Member Bank 1 2

Name of your bank? African Bank

How has The Banking Association advanced banking’s interests?

The Banking Association South Africa (The Banking Association) has made a significant contribution to the banking industry to ensure that South Africa is rated one of the most stable banking environments in the world. This has occurred through The Banking Association’s promotion of fair, transparent and responsible banking practices. The Banking Association has also positively influenced and supported the National Credit Act which has contributed significantly to the financial stability in the country.


What difference has The Banking Association’s efforts (in lobbying government, representing the industry, aiding transformation) made to your bank and the business / regulatory environment in which it operates?

The Banking Association’s efforts have facilitated numerous industry strategic debates which eventually delivered our banking industry standards, which African Bank subscribes to. This art of obtaining all stakeholder inputs and then defining what is in the best interest for the industry is exemplary and ensures government regulatory bodies hear a single voice. The Banking Association has also taken up the national agenda through working with government to foster the objectives of the National Development Plan.


How has The Banking Association’s efforts aided in achieving a good environment in southern Africa for international banking? Through their ongoing professional media engagements and transparent industry research, The Banking Association has assisted to instil confidence in our banking industry for international investors to consider South Africa as a destination for their financial activity. In Southern Africa, The Banking Association is collaborating with SADC countries to ensure good working relationships and to share best practice in the financial sector.

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From Charter to Code The Banking Council proposed an instrument to transform South Africa’s financial services sector. The Banking Association concluded it.


outh Africa’s banking sector has played a key role in crafting the long-awaited Financial Sector Code (FSC), a blueprint setting the transformation agenda in the country’s highly competitive financial services sector. Of a whopping R122 billion that South African financial services companies have agreed to provide for empowerment finance between now and 2017, some R80 billion will come from banks, a sign of commitment and a substantial vote of confidence in the transformative Code. The other R42 billion is expected to come from the Association of Savings Institutes of South Africa (ASISA). The Financial Sector Code, successor to the Financial Sector Charter, was gazetted by Minister of Trade and Industry Rob Davies in November 2012. Implementation of the Code began in January this year. It has taken a full 10 years for the financial services industry and other stakeholders, including government, to agree on and finalise the Code. The Banking Association South Africa’s Thabo Tlaba-Mokoena, General Manager in the Socio-Economic Growth and Development Division, says the performance of the financial services sector in adhering to the FSC is expected to be assessed by verification

agencies. Reports are expected to be produced from next year. Financial services companies with annual revenue of R10 million and more are expected to report on how they are meeting the transformation agenda set in the Code. The long journey to realisation of the FSC began when the Banking Council – now The Banking Association South Africa – initially volunteered a Charter in 2002. ‘We then approached other sectors in the financial industry, including black interest in the industry, and began the negotiation process to give effect to the FSC,’ Tlaba-Mokoena says. ‘The Banking Association has been intricately involved since then in all aspects of negotiations, implementation, monitoring and tracking, under the auspices of the Financial Sector Charter Council.’ The voluntary Charter was presented by Derek Cooper, the former chairman of Standard Bank, following a financial sector summit in 2002. It was signed in 2003 and the Financial Sector Charter came in effect in January 2004. The ultimate goal was to redraft the Financial Services Charter into the Financial Sector Code, which was finally gazetted in November last year. The Charter had set transformation targets which included addressing access to financial services, employment equity,

The Financial Services Charter also called on banks to provide banking services closer to communities in order to reduce the costs of accessing banking. 14


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One of the challenges that stalled implementation of a final Code was disagreement on the concept of ownership, especially the principle of “once empowered, always empowered”. This principle deals with the question of what happens to the rating of a company if black investors lose or sell their shares. Coovadia notes that it has been agreed in the new Financial Sector Code that if dilution of black ownership occurs as a result of an institution raising capital for regulatory reasons, “once empowered, always empowered” will apply. If dilution of black ownership occurs as a result of black shareholders selling their shares to white people, the principle will apply provided that there has been growth in the share value for the black shareholders. However, Coovadia says that if a company makes a business decision which leads to the dilution of the shareholding of black investors, then the “once empowered, always empowered” principle will not apply. ‘In that case, the institution can top-up the black shareholding through further equity deals or sacrifice points on the scorecard,’ he adds.

ownership targets, human resources development, preferential procurement and empowerment financing. Access to financial services spoke to the need to finance low-income housing, broadening access to financial services products like transactional bank accounts, insurance and other savings facilities. In addition to the targets that were set in the Financial Sector Charter, the newly gazetted Financial Sector Code will put more emphasis on facilitating access to finance for black people and black-owned enterprises, affordable housing, agricultural activities, and encourage investments in transformational infrastructure to help grow the economy on an equitable basis. The Code recognises the power that the financial services sector has in transforming South Africa. The Banking Association MD, Cas Coovadia says that the banking industry exceeded most of the targets that were set under the old Charter, and the new Code will add to the gains made under the Charter. Coovadia notes that the Financial Sector Charter contributed to a major improvement in employment equity in the banking industry. In 2008, the number of black women in senior management positions improved to eight percent, up from four percent in 2005. The Charter had set a four percent target. The number of black women in middle management rose to 18% over that period, exceeding the 10% target. Black women in junior management positions increased to 32%, more than double the 15% target set by the Financial Sector Charter. Coovadia says that by the end of 2008, total black senior management in the banking industry stood at 25% while black middle management had increased to 39%. Junior management had improved to 53%. He adds that the proportion of black directors in the banking industry rose to 76% in 2006. By the end of the Charter reporting period in 2008 the number eased to 42%, but this was still higher than the set target of 33%. The percentage of black executives also grew, rising to 33% in 2007. It declined in 2008 to 27%, but this was still higher than the set target of 25%. In terms of ownership, all South Africa’s major banks did Black Economic Empowerment deals which invited black South Africans

ry The volunta harter s e rvic C Financial Se The Banking by was signed South Africa, n o Associati ciation, nkers Asso -Term a B l a n o ti a Intern , Short Association Life Officers Association, the e, Insurers ck Exchang nt to S rg u b s e vestme Johann Collective In tion f o n o ti ia c o cia Ass nd the Asso d a s e m e h c S curities an of Black Se fessionals. Pro Investment


Since 1998 The Banking Association has sought to align the activities in the banking industry in South Africa and in other SADC countries, with the agenda of the Committee of Central Bank Governors in SADC (CCBG). The Banking Association spearheaded the creation of the SADC Banking Association and today, the SADC Association’s membership is comprised of 13 Banking Associations from SADC member countries – The Banking Association is the Secretariat for the SADC Association. In his role of Secretariat to the SADCBA, Cas Coovadia together with the Chairman of the SADCBA regularly participate in SADC Governors meeting and have been invited to inform the development of projects relevant to improving banking in the region.

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FINANCIAL SERVICES to purchase equity in banks. Billions of rand in equity were transferred into the hands of black shareholders. The Charter expected banks to spend 50% of their procurement budget on Black Economic Empowerment suppliers. Coovadia says that by the end of 2008, about 62% of procurement budgets had been spent on Black Economic Empowerment suppliers. In driving access to cheaper financial services products, the Financial Sector Charter led to the creation of millions of Mzansi accounts, transactional accounts targeted at low-income earners and increasing the unbanked population. In 2008, more than 2.3 million active Mzansi accounts had been opened. Over three million accounts were active, according to the FinMark Trust, out of six million accounts that had been opened. A 2009 research paper commissioned by the FinMark Trust, The Mzansi Bank Account Initiative in South Africa showed that the percentage of people aged 16 and over in South Africa who were banked increased to 63% in 2008, up from 46% in 2004. This means that the banked adult population rose from 13.2 million in 2004 to 20 million in 2008. The unbanked population fell to 11.9 million in 2008, compared to 15.8 million in 2004. The FinMark Trust paper points out that the Mzansi account initiative exceeded the Financial Sector Charter target of opening just over 2.1 million active accounts by December 2008. South Africa’s banking industry took further steps to improve the Mzansi offering by opening up cheaper products which catered for the low-end and the unbanked markets. Increased competition among South African banks contributed to the creation of more innovative products that helped increase access to financial services, especially in the low-income group. Innovative technology and expansion of footprint were used by the banking industry to reach previously un-serviced communities. The Financial Services Charter also called on banks to provide banking services closer to communities in order to reduce the costs of accessing banking. Over the period of the Charter, says Coovadia, banks committed to providing banking services within a 20km radius of South Africans’ places of residence, especially for people in LSM’s one to five. On the issue of increasing funding for housing, Coovadia states that South Africa’s big-four banks had originated loans to the value of R45 billion between 2004 and 2008. When smaller banks are factored in, loan origination for housing increased to R53 billion between 2004 and 2008; Coovadia says that about one million loans had been originated. This meant that the South African banks were originating an average of R9 billion in loans per year. ‘Since the affordable housing market was redefined in January 2009, banks have, on average, advanced loans valued at around R11 billion annually. The total value of loans originated to the affordable housing market between 2009 and 2012 was R46.2 billion or R63 billion after including smaller banks. On average, banks originated over 280 000 loans each year with 1.1 million new loans for the period,’ Coovadia said in The Banking South Africa annual review. By Phakamisa Ndzamela ■

... and the Code of Banking Practice Consumer protection is an essential element of the dynamic and challenging business environment in which the banking sector operates. A critical tool through which banks fulfill their obligations to customers is the Code of Banking Practice, which sets out the aspirational commitments banks make to their customers, and provides information on the respective rights and obligations of both parties. The Banking Association South Africa in 2011 completed a significant review of the Code to account for changes in regulation and to respond to recommendations made by the 2008 Competition Commission’s Banking Enquiry – the Jali enquiry. This review involved a long and vigorous consultation process with member banks and stakeholders. The revised Code of Banking Practice has specific provisions to respond to the Jali Banking Enquiry into certain banking matters, the Consumer Protection Act of 2008 (CPA) and the National Credit Act of 2005 (NCA). The revised Code of Banking Practice came to effect on 1 January 2012. ‘The Code provides the platform within which the Ombudsman for Banking Services adjudicates disputes between banks and their customers,’ says Cas Coovadia, MD of The Banking Association South Africa. ‘It supplements the regulatory and contractual requirements that govern relationships between banks and these customers, committing the banks to do that little bit more in providing good service. ‘Consumer education and information is becoming integral to sustainable banking business, and the revised Code enables banks to provide this in an effective manner,’ Coovadia adds.

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Regulation: the art of getting it right The rules and laws governing banking have grown from an ongoing process of co-operation between The Banking Association and several organs of government.


outh Africa has been able to comply with tougher global capital requirements under the Basel regime because of the “exceptional” relationship and collaboration between The Banking Association and the local regulators, says Mark Brits, General Manager for Special Projects at The Banking Association. He says that as a result of this collaboration, South Africa

has been able to meet the deadline for the implementation of regulations such as Basel II, II.5 and now Basel III, which is being implemented in phases until 2019. Brits says the next few years will be crucial for South Africa’s financial sector as The Banking Association will continue to be involved in the implementation of Basel III, as well as collaborating with the authorities in the implementation of the twin-peaks regulatory regime that is being introduced by National Treasury. ‘We therefore see ourselves also interacting quite closely not only with the South African Reserve Bank and National Treasury, but also with the Financial Services Board,’ says Brits. Under the twin-peak regime, the central bank will be in charge of prudential regulatory matters and the FSB will be in charge of market conduct of the financial sector. Brits likens the relationship between The Banking Association and the regulators to that of a hand and a glove.

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We were helping the regulator understand what sort of returns could be developed so that banks could submit information that is relevant to the regulations that were being proposed. ‘Since 2008 we have gone through a journey where we basically managed the implementation of the Basel regulations through a collaborative approach, facilitating the implementation and discussions between The Banking Association, the South African Reserve Bank, National Treasury and the audit and accounting professions,’ says Brits. ‘We were helping the regulator understand what sort of returns could be developed so that banks could submit information that is relevant to the regulations that were being proposed,’ he says. Brits says The Banking Association has and continues to have frank and constructive talks with the regulators on banking matters. ‘We respect the fact that the responsibility of regulators is to regulate, so our engagement has been very fruitful and we try at every opportunity to understand the subtleties of the application of rules versus the academic view of the regulatory framework of banking,’ Brits says. He says the major challenge has been to find a balance between adopting the global banking regulations – since South Africa is a member of the G20 – and ensuring that they are applicable to local conditions. ‘Because Basel III is a global framework borne out of the banking failures in North America and Europe, it does not necessarily sit easily in South Africa; we have had to try to talk with our bankers to find ways of implementing it and see how we can meet the requirements without, for example, passing on the costs to the consumer or creating more administrative problems,’ Brits explains.

He says that the biggest challenge in implementing global regulations is to get a sense of what the economic impact will be on a country like South Africa. He notes that the banking sector is already over-regulated, having to deal with up to 244 pieces of different financial and non-financial regulations. ‘For the next few years we will be challenged with regulations, and I think at some point we will have to stop and assess whether the regulations have impeded economic recovery or have slowed down the transformation agenda of the country,’ Brits says. ‘There might be a very painful and long-winded process to get equilibrium globally as everyone seems to be focusing on ensuring that banks do not fail,’ says Brits. ‘But we are not yet sure whether the costs associated with these joint efforts (of regulating the banking sector) can be justified in the long run,’ he asserts. Brits argues that the face of banking has forever changed, and banks and regulators will have to continue to adapt to new regulations, new ways of doing business and the competitive environment. Despite the onerous regulatory environment brought about mainly as a result of the last credit crisis, Brits says there are useful lessons from what happened in 2008/09. ‘The lessons learnt from Europe cannot be ignored because they are real and it was a tangible crisis. We therefore need to learn from these lessons and take appropriate measures, even though we still have the problem of different countries having a different framework of (national) regulations,’ Brits says. By Sure Kamhunga ■ Edition 6

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SMEs and national development:

the role of banking The National Development Plan (NDP) gives an important role to banking in the development of SMEs. How are banks contributing to this vital sector?


outh African banks have faced a stream of criticism for apparently not doing enough to extend financial services support to Small and Medium Enterprises (SMEs). ‘It is of concern that South Africa’s banks do not extend sufficient credit to businesses, especially smaller firms,’ Chapter Three of the NDP policy document starkly puts it. Discussions in public forums around the financing of SMEs have risen following the crafting of the NDP and the strong focus on it in President Zuma’s State of the Nation address earlier this year, and more calls are being made to prioritise the funding of SMEs. The NDP, a policy framework whose aim is to extinguish poverty in South Africa and increase the levels of employment, puts emphasis on the need to support entrepreneurs. Small and Medium Enterprises are seen as one of the key solutions to dealing with the challenge of high unemployment and low economic growth. To fight challenges around the creation of jobs, the NDP has an ambitious target to cut unemployment to 6% by 2030. In highlighting the important need to fund SMEs in order to reduce unemployment, the Plan cites a South African financial services sector survey commissioned seven years ago. The 2006 Finscope Survey stated that 90% of jobs created between 1998 and 2005 were in small, medium and micro enterprises. The idea of financing emerging SMEs is also seen as key to transforming patterns of business ownership in South Africa, which have largely been skewed by a racial Apartheid system. The NDP has also called for government and private sector to work together to find ways to increase business lending. According to the 2012 Global Entrepreneurship Monitor report, South Africa’s total early-stage entrepreneurial acitivity fell from 9.1% in 2011 to 7.3% in 2012. Lacklustre levels of entrepreneurship

Banks financed black SMEs in the sum of R15 billion in the FSC (Financial Sector Code) market from 20032008. There is room for improvement, but there are a number of challenges that affect access to finance.

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SME DEVELOPMENT Development Finance Insitutions (DFIs ) should be developmental, through working with banks to address dysfunctional markets, instead of competing with the banks. are attributed to a number of challenges, including a poor education system in the country, difficult labour laws, corruption and nepotism. On the issue of funding, the Global Entrepreneurship Monitor report believes there is sufficient funding for SMEs but suggests the challenge is that the available finance from both private and public institutions is not made easily accessible for new and growing firms. The report also finds that the finance that is available ‘comes at very high cost’.

‘Finance was cited by 43% of the experts as one of the three most constraining factors to developing entrepreneurship,’ the report states. Efforts have been made to actively address the concerns around funding: The Banking Association notes that banks currently provide about 95% of all funding to SMEs. ‘Banks financed black SMEs in the sum of R15 billion in the FSC (Financial Sector Code) market from 2003-2008. There is room for improvement, but there are a number of challenges that affect

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SME DEVELOPMENT We have recently consulted with the Minister for Planning in the Presidency and the National Planning Commission. We are exploring a number of initiatives to support the NDP, one of which is SME development. access to finance,’ says Muzi Mhlambi, Manager: Programmes for Socio-Economic Growth and Development Division at The Banking Association. While billions of rands have been funneled to SMEs, Mhlambi says there are some hurdles that stall their financing. He cites a study done by his organisation and USAID’S Financial Sector Programme which showed that at the lower end, SMEs require ‘ancillary support before they can become candidates for funding’. One of the challenges mentioned in the study was that entrepreneurs found it difficult to keep accurate and up-to-date financial records, especially financial statements. Other contributing factors cited were poor sales pitches by entrepreneurs and lack of proper knowledge of the sectors that the entrepreneurs venture into. Mhlambi also points to a generally poor entrepreneurial culture in South Africa, regulatory and policy issues, lack of equity funding to SMEs, and the fact that there is no structure in government which is purely focused on looking after SMEs. He further adds that uncertainty and a lack of commitment to the vision of the NDP poses a challenge.There is also an attitude that seems to think the NDP is somthing that must happen in the future whereas implementation needs to start now if its objectives are to be fulfilled. On the issue of dealing with regulatory barriers and lowering the cost of doing business, the Plan proposes a series of interventions, including the appointment of an expert panel to prepare a comprehensive regulatory review on SMEs. The review will look into business registration, tax, labour laws and local government matters. Although there are challenges, The Banking Association has been working with politicians to find ways in which the private and public sector can collaborate to fund SMEs. ‘We have recently consulted with the Minister for Planning in the Presidency and the National Planning Commission. We are exploring a number of initiatives to support the NDP, one of which is SME development,’ says Mhlambi. ‘The Banking Association had a Memorandum of Understanding (MoU) with the then Khula (Government Enterprise Finance,

now known as SEFA) on numerous SME interventions. However, Khula went into restructuring, which resulted in new leadership and changed its reporting from the Department of Trade and Industry (DTI) to the Department of Economic Development. The Banking Association is in the process of engaging the new leadership on the MoU.’ Mhlambi points out that banks have always been keen to finance SMEs in South Africa but maintains that roles between the private and public sector need to be clearly defined. ‘For instance, Development Finance Insitutions (DFIs ) should be developmental, through working with banks to address dysfunctional markets, instead of competing with the banks. ‘The NDP calls for collaboration, Mhlambi emphasises. ‘We believe such collaboration must occur on an agreed understanding of the roles of public and private sector institutions, risk allocation, and an understanding that banks must look for a return on their loans,’ he says. Asked how far the banking industry could go in financing SMEs, Mhlambi says the sector can be innovative in stretching to the limits of being responsible in conducting its business. But he points out that this has to guarantee the safety of depositor’s funds. ‘Any business that impacts negatively on depositor’s funds will not be undertaken. The role of banks must also be looked at within the context of debt being just one instrument of SME finance. Equity and venture capital must also be raised,’ Mhlambi says. Business support is another priority focus area, currently there is dearth of suitably qualified or quality business development support (BDS) providers in the SME sector. Banks have had to step in and provide these services, however this is not their core business. On the call for public private partnerships to be formed to provide advisory and support services to SMEs in order to reduce lending risks, Mhlambi says The Banking Association has been engaging with government agencies in order to find solutions. He says that it is in the interest of banks to collaborate on building non-financial skills among SMEs to help reduce risk. But he notes that ‘the provision of non-financial support is not the core business of banks, hence the need for collaboration’. By Phakamisa Ndzameza ■

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More than the sum of its parts The Banking Association has continually adapted to perform its functions.


he Banking Association South Africa is the successor to the Council of South African Banks (COSAB), formed from the merger of four separate associations which came together in 1992. These were the Association of Mortgage Lenders, the Merchant Bankers Association, the Clearing Bankers Association and the Association of General Banks. But as the financial sector evolved, it was felt that COSAB’s committee-driven structure was increasingly becoming inappropriate.

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PROFILE Caption for opening image


STAIRS LEFT TO RIGHT: Razaana Sayed – Divisional PA & Admin Officer: Shared Services Thenji Nhlapo – Media and Communications Officer Melinda Coetzer – PA to Stuart Grobler: Banking & Financial Services Division Rachael Moalusi – Admin & Housekeeping: Shared Services Tamara Honono – Divisional PA: Strategy & Stakeholder Management Soneni Bhango – Receptionist: Shared Services Agnes Qhala – Kitchen Executive: Shared Services Aleta Morebane – Housekeeping: Shared Services Thabo Tlaba-Mokoena – General Manager: Socio-Economic Transformation, Socio-Economic Growth & Development Fikile Kuhlase – Snr General Manager: Socio-Economic Growth & Development Mvelenhle Yaka – Programme Officer: Socio-Economic Growth & Development Beverley Reyneke – Snr General Manager: Shared Services BOTTOM LEFT TO RIGHT: BACKROW Pierre Venter – General Manager: Human Settlements, Banking & Financial Services Kaifas Selotole – Driver: Shared Services Nicky Lala-Mohan – General Manager: Legislation, Banking & Financial Services

It was then decided to establish the Banking Council of South Africa in March 1998 under the stewardship of RSK (Bob) Tucker. The Council was an executive-driven body that was structured to address the challenges in the sector. On 7 March 2005, the board of the council resolved to change the name of the council to The Banking Association South Africa because this was a more appropriate description of the structure of the body and its role. It has been led since then by Cassim (Cas) Coovadia, who was appointed the Managing Director, a position he still retains today. The main role of the Association is to represent all registered banks in South Africa, including the international banks also operating in the country. The main board of The Banking Association comprises the Chief Executives of the five largest banking groups – Standard Bank, Absa, FirstRand, Nedbank and Investec. The main board members are SK Tshabalala (Chair) - Standard Bank; S Nxasana (Deputy Chair) - FirstRand Bank; M Ramos (Absa); M Brown (Nedbank); T Sokutu (African Bank, representing independent banks); Ms D Oosthyse - Citi and Ebenezer Essoka – Standard Chartered (both Citi and Standard Chartered represent the International Bankers Association); S Koseff (Investec) and C Coovadia. The Board Executive Committee meets bi-monthly to assist with strategic guidance and direction on the many issues ranging from regulatory, market conduct, financial literacy and market conduct as well as the transformation of the financial sector that The Banking Association deals with on a daily basis. The Committee is comprised of the banks heads of retail; F Montjane (Chair) - Standard Bank; M Jordaan (Deputy Chair) – First National Bank; B Malabie (Absa); G Dempster (Nedbank); T Sokutu (African Bank, representing Independent Banks); 32


Mark Brits – General Manager: Strategic Projects, Office of the Managing Director Luyanda Tetyana – Manager: Media & Communications, Strategy & Stakeholder Management Ndivhuho Mafela – Manager: Stakeholder Relations, Strategy & Stakeholder Management Muzi Mhlambi – Manager: Programmes, Socio-Economic Growth & Development Rukesh Rambally – Bookkeeper: Shared Services FRONTROW: Charles Botes – General Manager: Finance, Shared Services Mohlobani Moloko – Intern: Strategic Projects, Office of the Managing Director Veronica Steffenini – PA to Nicky Lala-Mohan & Mark Brits: Banking & Financial Services Thami Mofokeng – Divisional PA: Socio-Economic Growth & Development Nonhlanhla Makhubu – PA to Pierre Venter: Banking & Financial Services Cas Coovadia – Managing Director Cheryl Naidoo – PA to Cas Coovadia: Office of Managing Director Sifiso Buthelezi – Intern: Inclusive Banking, Office of the Managing Director Stuart Grobler – Snr General Manager: Banking & Financial Services

Ms D Oosthuyse Citi and E Essoka (Standard Charted Bank), both Citi and Standard Chartered represent the International Bankers Association; D Lawrence (Investec Bank) and C Coovadia, The Banking Association MD. The Banking Association’s mandate is to represent the financial sector by addressing industry issues through such initiatives as lobbying various stakeholders including the government, legislators and regulators; pushing through the transformation agenda, research and development as well as acting as a catalyst for constructive and sustainable change in the sector. ‘The broad role of The Banking Association is to establish and maintain the best possible platform on which banks can do responsible, competitive and profitable banking,’ notes the Association. ‘A critical role of The Banking Association is to work with its members to enable this role within the context of the transformation challenges our country is addressing,’ it adds. The Banking Association manages numerous committees that advise the executives on issues pertinent to the sector, focusing on such areas as Access to financial services, Codes of practice, Housing, Preferential Procurement and Small and Medium Enterprise (SME) finance. Among its structures are forums that deal with such issues as the Credit Risk Business Forum, whose main mandate is to promote, coordinate and drive initiatives to enhance the legislative framework specifically in the field of credit risk, facilitate discussion on best international practice as it relates to credit risk, identify issues for discussion with the South African Reserve Bank (SARB) or any other appropriate body, and to promote the mission and objectives of The Banking Association at all times. It also has the Consumer Affairs Business Forum which deals with all matters that relate to consumer interests with special emphasis on dealing with the new Consumer Protection Bill.

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Coovadia says that in his opinion, the major achievements of the organisation have been numerous in its 21 years of history. He lists examples that have transformed the sector, such the as establishment of an independent Ombudsman, volunteering the Financial Sector Charter and its impact on transformation, establishing FinmarkTrust and enabling its independent growth, establishing the South African Banking Risk Information Centre (SABRIC) as an independent anti-crime body, positioning sector vis-à-vis government and other stakeholders, becoming the only African banking association on International Banking Federation and its role in the establishment of SADC Banking Association. Banks have and continue to benefit from the establishment of appropriate regulation and legislative framework, co-ordination at industry level to achieve “optimal scale and cost efficiencies”, pushing the envelope and enabling a sustainable way of doing business and establishing sound relationships with relevant government departments, ministers and Parliament. Another important achievement of the Association has been its role in assisting National Treasury to devise relevant and suitable regulations for the banking sector, Coovadia says. These regulations include implementing the Basel rules on capital and liquidity ratios for banks, as well as the introduction of the twin-peaks regulatory framework under which National Treasury has decided to place prudential regulations and supervision under the SARB and market conduct under a strengthened Financial Services Board (FSB).


The Southern African Development Community (SADC) region is in the throes of a process of integration in critical areas of the economy. The financial sector is critical in this process because it provides the oil for the economic engine of the region, and The Banking Association South Africa is playing a key role in the process. The SADC Banking Association (SADCBA), with the active assistance of The Banking Association South Africa, which currently acts as SADCBA’s secretariat, is pursuing a number of innovative projects to enable and develop integration of the region’s banking. SADCBA’s projects are of fundamental importance for the region and its financial future. One such project is the SADCBA Payment Project. The Banking Association South Africa is responsible for executing the SADCBA Payment Project and continues to work with SADCBA members to create the necessary governance frameworks, roles and structures for the project. Funding has been secured and resources retained to implement the project. Furthermore, a portal has been created to facilitate interaction and decision-making. These facilities will enable critical participation of all members to enable the SADCBA to implement a successful initiative.

This is in line with international best practice and is felt to be the most appropriate legislative and regulatory framework for the financial sector, particularly after the impact of the last credit crisis, which has revealed the need for tighter and more intrusive regulation into the operations and conduct of the sector. Coovadia says, ‘The Banking Association engages various departments and influences policy and regulation through making objective research available, working with independent consultants to provide objective input, including international best practice and submissions to departments on appropriate policy and regulations.’ By Sure Kamhunga ■

Teaching children to save THE BANKING ASSOCIATION SOUTH AFRICA believes that the lack of a saving culture in South Africa can be addressed by teaching children how to save from an early age. Currently, South Africa has the lowest savings rate among the BRICS countries, a situation which Finance Minister Pravin Gordhan says needs to be addressed if the country is to promote economic growth and most importantly, ensure people retire in comfort. It is for this reason that The Banking Association launched its Teach Children to Save South Africa campaign in 2008, in partnership with the financial sector. ‘Without financial literacy the full and informed participation of individuals in economic life is more challenging,’ explains Fikile Kuhlase, Senior General Manager of The Banking Association South Africa. The programme's intention is to instil – and also to popularise – the notion of saving as a smart, savvy choice among children. ‘We are excited to be working with our volunteer bankers and financial sector professionals who take time out of their considerably hectic schedules to dedicate an hour to imparting useful and practical saving skills to South Africa’s children,’ Kuhlase says. ‘Educating young children, particularly those in Grades 4 to 7, on how to save is the cornerstone of future financial success. This is the reason why thousands of school children throughout South Africa are being exposed to this campaign which takes its inspiration from the Zulu saying “Ligotshwa lisemanzi”, meaning “best shape a stick while it is still moist”. Edition 6

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and its partners have set the mark in skills development and training.

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For paving the way to solid banking across South Africa. We are happy to support the Banking Association of South Africa in celebration of its 21st anniversary. Your commitment to helping banks and clients conduct business responsibly, competitively and profitably is an endeavour we share not just in South Africa but in communities in 160 countries around the globe. We wish you a happy and industrious 21st.

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WORLDCLASS WORLDCLASS BANKING HAPPEN HAPPEN Congratulations to The Banking Association South Africa on 21 years. Congratulations to The Banking Association South Africa on 21 years.

At Nedbank our focus is always on sustainable banking. It’s something we share with The Banking Association South Africa, Atwhich Nedbank our that focus always on sustainable banking. It’s services something share that withcontributes The Banking Association South Africa, ensures all isSouth Africans have access to banking in awemanner to financial empowerment, which ensures that and all South AfricansInhave to banking services services in a manner contributes to as financial economic growth sustainability. fact, access the South African financial sectorthat is widely regarded amongempowerment, the best in the world, with the WorldInEconomic Survey placing the country second globallythe forbest the in economic growth and2012/2013 sustainability. fact, the Forum South Global AfricanCompetitiveness financial services sector is widely regarded as among availability of financial servicesWorld and for the soundness of banks. Well done on the role placing played in better banking happen. the world, with the 2012/2013 Economic Forum Global Competitiveness Survey themaking country second globally for the availability of financial services and for the soundness of banks. Well done on the role played in making better banking happen.

Nedbank Limited Reg No 1951/000009/06, VAT Reg No 4320116074, 135 Rivonia Road, Sandown, Sandton, 2196, South Africa. We subscribe to the Code of Banking Practice of The Banking South Africa and,VAT for Reg unresolved disputes, support resolution Nedbank LimitedAssociation Reg No 1951/000009/06, No 4320116074, 135 Rivonia Road, through the Ombudsman forSouth Banking Services. are an authorised financial services provider. Sandown, Sandton, 2196, Africa. WeWe subscribe to the Code of Banking Practice areBanking a registered credit provider terms of the for National Credit Act (NCR Reg No NCRCP16). ofWe The Association SouthinAfrica and, unresolved disputes, support resolution through the Ombudsman for Banking Services. We are an authorised financial services provider. We are a registered credit provider in terms of the National Credit Act (NCR Reg No NCRCP16).

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Visa congratulates The Banking Association South Africa on its 21 years of commitment to bringing about financial literacy education to all South Africans.


It is a tremendous achievement for any entity. Congratulations to THE BANKING ASSOCIATION SOUTH AFRICA on achieving this milestone. We are proud to be associated with such an organization and look forward to many more years of our contribution to the growth of South Africa.


Congratulations on 21 years of


HAPPEN The South African financial services sector is widely regarded as being among the best in the world, with the 2012/2013 World Economic Forum Global Competitiveness Survey placing the country second globally for the availability of financial services and for the soundness of banks. This would not be possible without industrywide collaboration and oversight. The role played by The Banking Association South Africa in this achievement cannot be underestimated and its efforts are worthy of recognition. As the industry body representing all registered banks in South Africa, The Banking Association South Africa is tasked with championing the interests of the industry, at the same time ensuring that all South Africans have access to banking services in a manner that contributes to financial empowerment, economic growth and sustainability. Congratulations to The Banking Association South Africa on 21 years of making worldclass banking happen in South Africa. Mike Brown Nedbank Chief Executive

Nedbank is an authorised financial services and credit provider.

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SABRIC congratulates the Banking Association of South Africa on turning 21. ‘Ukhule, ukhokhobe baba wami’ SABRIC is a Not for Profit Company (NPC) established by four major South African Banks to assist the Banking and Cash-in-Transit industries combat organised crime. It was established in 2002 as a wholly-owned subsidiary of The Banking Association of South Africa (BASA). In September 2003, SABRIC was incorporated as an NPC in terms of the Companies Act. SABRIC’s clients are ABSA, First National Bank, Nedbank and Standard Bank, Investec, African Bank, Al Baraka Bank, Capitec Bank, Mercantile Bank, Bank of Athens, Post Bank, Ubank and Bidvest Bank, SBV, G4S , Protea Coin, ATM Solutions and Bytes Technology.

Our Vision: “ To be Africa’s trusted Financial Crime Risk Information Centre leveraging on public and private partnerships” SABRIC, making banking safe, secure and fraud free

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No working day waits required Customer service in the banking industry has come a long way from the dark days of teller tyranny.


urn back the clock to the bad old days of the Eighties and the experience of going into your local bank branch where things were completely different to that of today, assuming you still do your banking in-branch, that is. All transactions had to be done manually and with no ATMs, notoriously short business hours, teller queues, minimal personal engagement and lengthy response

times were the order of the day. Loan approvals took days rather than minutes and were heavily dependent on your relationship with your bank manager. An appointment at the bank was only slightly more pleasant than a visit to Home Affairs. And there wasn’t even a TV showing the cricket to while away the time in the queue. Today, your local bank branch is more a haven for modern, techsavvy staff and consumers, rather than a dustbowl of screeching dot-matrix printers and leaking ballpoints. Social networking and internet, cellphone banking and ATMs that allow you to conduct everything but a coup d’etat have transformed the banking experience beyond recognition. The entire service divisions have sprung up to support and engage directly with customers.

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‘Banking on the National Development Plan’ The Banking Association South Africa hosts the annual Banking Summit 2013

4 September 2013 Crowne Plaza Hotel, Rosebank 09:00 – 13:00 Keynote Address to be delivered by: ANC Deputy President and Deputy Chairman of the National Planning Commission, Mr Cyril Ramaphosa

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We live in the 21st century and technology should make access to banking easier for clients. The banking experience needs to change and banks must take ownership of helping clients manage their financial lives better. access to banking easier for clients. The banking experience Technology and data are the engine on which this drive for needs to change and banks must take ownership of helping innovation is based and blessed as they are with deep data wells; clients manage their financial lives better. Top management banks are in a prime position to be leaders of change. must be regularly available in the forecourt of branches to better The immediacy of the internet and social networking enables understand how to address the service requirements and needs banks to forge a much closer relationship with customers, with of customers,’ Stassen says. interaction literally a couple of key-presses away. The rise of Stassen says that Capitec stresses personal interaction and online consumer watchdogs like Hello Peter is another potent support to consumers, at a time when banks were outlet for customers to voice their complaints and receive moving online and in danger of losing their human attention. Twitter service handles – with banks’ CEOs touch. He adds that the presence of the manager and chief economists communicating directly in the bank forecourt and use of the vernacular with customers alongside dedicated service are key ingredients in the 2013 customer professionals – form key components of the service mix. banking sector’s customer advocacy policy. of South The banking sector has made great strides Even the call centre, long seen by customers A banking frican in improving customer service over the past as a weak link in the chain, has evolved to 25 years. However, according to South African complain clients meet the demands of customers who want to a b o u t Customer Satisfaction Index (SAcsi) founder communicate through a variety of electronic th quality o f produc e and CEO, Andre Schreuder, the local banking channels, such as web, e-mail, social media, ts and serv industry has room for improvement in responding and of course, the telephone. Sophisticated voice ices to customer complaints. ‘Around 12 to 23% of South biometric security systems, cloud computing and African banking clients complain about the quality of other transformative technologies have altered the products and services,’ explains Schreuder. face of the customer service centre. In-house call centres, like The Deloitte 2013 Banking Industry Outlook holds that ABSA’s massive operation, are now seen as a central part of customer technological innovation and an increased focus on customer retention and revenue protection strategies, rather than only for service, despite the economic downturn and spiraling costs, will customer acquisition. And although there is a move towards selfhelp retain and grow customer bases in an increasingly wellservice centres, the face remains essentially a human one. informed and demand driven market where customer churn is Capitec Bank CEO, Riaan Stassen, notes that recurring issues becoming more prevalent. The idea is for customer service to move concerning bank service are still raised by the public, including beyond ease of access to the manager or CEO, to the point where confusing fee structures, lack of transparency, inaccessible bank consumers are effectively managing their own affairs, becoming managers and short working hours. bank managers themselves. By Ebrahim Moolla ■ ‘We live in the 21st century and technology should make

12 to 23%

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realisation of industrialisation The

Industrialisation: unavoidable but full of opportunity, argue Capco partners Ido Gileadi and Stephen O’Sullivan in this extract from their thought leadership paper.


oday, key industrialisation drivers include globalisation, the emergence of scores of new, high-growth economies and tens of millions of new middle-class populations. Meanwhile, technologies from cloud computing to permanently networked mobile devices have totally transformed the way most other industries manufacture goods and services, as well as interact with consumers. For financial services, this is an opportunity on an unprecedented scale. But it requires an equally profound rethink of what banks are for and how they work in order to move to efficiency levels achieved by other sectors. Capco partners Ido Gileadi and Stephen O’Sullivan envision a transformed financial services industry, made agile by industrialisation, enabling progress in four key areas: • Cost cutting that finally cuts it: With an ability to plan cost reduction on a rational and productive basis, rather than today’s tactical, reactive and frequently limited actions. • Sustainable business basis: With costs, earnings, capital and growth moving back into alignment. • Efficient straight-through processing: While at the same time improving response to new regulatory rules. • Innovating to service customers’ needs: By responding cost-effectively to demands for “everywhere and anywhere” banking from an increasingly tech savvy, knowledgable and mobile customer base. In this article, we look at the challenges facing the industry as it attempts to embrace industrialisation and how this can enable banks to reattain pre-crisis levels of return on equity (ROE). We then look in more detail at the steps progressive businesses can take to industrialise activities not just in operations but also across the entire organisation, including the front office.



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INDUSTRIALISATION The traditional “cut first, evaluate after” approach makes it difficult to optimise what remains. Instead, banks need to adopt a balanced approach that combines cost management, return profile and riskbased capital. Industrialisation is not new. But the circumstances that demand it are more pressing than ever. Why argue the urgency of industrialisation? After all, banks have survived the worst crisis of this generation. But survival alone does not indicate an assured future. In the depths of crisis, politicians and their electorates asked ‘What are the banks for?’ A sustainable long-term answer must begin with the commercial fundamentals. It must also recognise that the traditional financial services model is threatened by the increasing strength of new non-bank entrants. Pure cost cutting will not solve this problem. Successful industrialisation changes the basis of the industry that implements it. Such change is surely now imperative in banking. In fact, many banking professionals acknowledge that it is no longer a question of getting the existing model “back on its feet.” Instead, banks have to use this opportunity to make more profound changes to their operating and business models. It’s not as if banking is the first sector to experience a near perfect storm of competition, regulation and plummeting demand. Many traditional heavy industrial and manufacturing operations have reengineered to achieve growth and drive ROE. INNOVATION: THE ULTIMATE PRIZE Innovation is the ultimate prize. And we can be optimistic that some amazing innovation will be driven by industrialisation of financial services. Nor will it be restricted to “traditional” process areas. Again, consider the automotive industry as an example. It took many years after the manufacturing conveyor belt, followed by the

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Changing the Face of Financial Services

Don’t blink. Financial Services are being transformed before our eyes. At Capco, we’re helping banks innovate to meet the challenges posed by regulation, disruptive technologies and the economy-to name just three. We also believe that innovation can be a positive

force in every walk of life. That helping our clients isn’t just good for banking, it’s good for the economy and society as a whole. This also makes us a great place to pursue a dynamic career. Especially if you want to work in a business that recognizes and rewards bright people with bright ideas.

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Currently, most banks are focused in the “improve cost management” space. But, as this paper argues, a return to acceptable levels of ROE requires banks to look at opportunities to leverage utilities and suppliers. optimisation of supply chain logistics, for the “protected areas” of automotive design itself to be addressed. Now, the design function accesses the best talent and tools, regardless of their location. For financial services, this “access all areas” approach to design, innovation and talent will create the most conducive environment for leading product design, redesigned customer interfaces and new partnering models.

about our customer proposition? Which services and products could be better funded, designed and delivered by collaborating with a commercial partner? How can we acquire a healthy slice of commercial revenue from services that traditionally focus on internal customers? While this requires new ways of thinking and a profound culture shift in many departments, it still remains the most viable strategy for tackling falling demand, surplus capacity and stagnating ROE.

AN OPPORTUNITY, NOT A THREAT st Pure cnog CHANGING THE FACE OF BANKING Banking industry leaders realise that, in no cutti We anticipate that a wave of “first movers” will adopt sense can they continue to count on superthe financial services industrialisation model in the next profits from a return to overheated markets, s i h two to three years. They will sharpen their competitive and still less on limitless central government t solve m. edge. Their products and services will be assembled from liquidity injections. proble best-in-class components, increasing the probability that The “to do” list is both clear and challenging. they will outperform competitors’ in-house products. Get ROE on track. Returning to 15% ROE, or Their advantages will increase the pressure on “nongreater, remains a critical target. Achieving it – taking industrialised” competitors. They will also start a process of even the most positive income forecast – requires additional “climate change” among wider industry stakeholders. Examples whole-industry cost cutting of 20% ($500 billion). of early success will galvanise shareholders to insist on The less optimistic scenario is that it may require savings of as concerted efforts to regain ROE of 15% or more. There will also much as 33% ($825 billion) if revenue levels fall. be industrialisation adoption pressure from regulatory bodies, Manage surplus capacity. Surplus capacity in the sector needs which expect higher capitalisation or a business model with less to be addressed effectively (given studies indicating that 12.5% inherent risk. of capacity could be removed from the market today, without Yes, banks need to prepare for a tough future with every compromising industrywide ability to meet market demand). likelihood of falling revenues, greater global competition and Industrialisation offers an actionable route to tackle these ever more demanding customers. This has been termed the immense and pressing issues. It delivers greater operational “new normal” – the way things are going to be. But it is also the efficiency, higher-value products and services, and the effective “new opportunity.” A real focus on operational and front-office management and application of surplus capacity. costs and processes, together with adopting the industrialisation methodologies described in this article, is a robust and rational LOW-HANGING FRUIT: RIPE FOR INDUSTRIALISATION? route to survive and flourish. Currently, most banks are focused in the “improve cost management” Many sectors have been forced to industrialise to survive space. But, as this article argues, a return to acceptable levels of and this has allowed leaders to thrive – financial services can do ROE requires banks to look at opportunities to leverage utilities and the same. ■ suppliers (medium-complexity value). Reference data, market data, asset servicing, and settlement and clearing – to name a few – fall Capco is a global business and technology consultancy dedicated into this category. solely to the financial services industry. You can download Ido Things really heat up when you look at strategies that support Gileadi and Stephen O’Sullivan’s full paper from commercialisation of assets. Although complex, this really insights/research-thoughts. boils down to a few fundamental questions: What is unique


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Micro lending and

breaking the bank A new challange for credit providers


icro Loans. Just the mention of them solicits a variety of emotional responses. Essential service to the poor or exorbitant; some call it opportunity, others risk; some say it is part of our culture and others say it is a financially oppressive system. The formalised commercial Micro Loan industry in South Africa originated approximately 20 years ago by an exemption in the Usury Act, 1968. The effect of this exemption was that micro-lenders were no longer bound by the maximum rates of interest laid down in the Usury Act. This paved the way for an influx of capital into the industry and a handful of entrepreneurs identified and seized the opportunity. Industry self-regulatory bodies set the interest rate at the time at 30%. Strangely enough, in the early days the retail banks viewed this sector (unsecured credit to low-income individuals) as risky or unsustainable and had a general disassociation from the market segment due to their socio-economic assumptions about the consumers. In 1995 the industry showed an incredible growth of 192% for the year, while credit volume had almost tripled from R3.6 billion to R10.1 billion over the same period. It was approximately at this point that the major retail banks, perhaps because of a fear of missing out precipitated by the staggering numbers, decided to revisit their credit policies and warily entered into the market of micro lending. In 2006 the National Credit Act, 34 of 2005 (NCA) was promulgated. In terms of the NCA, there are only three possible ways to gain profit on a Micro Loan: an initiation fee, service fees, and interest.



IS UNSECURED CREDIT BREAKING THE BANK? African Bank Investments Ltd (ABIL) represents between 20 to 25% of the unsecured lending market in South Africa. ABIL announced on 2 May 2013 that headline earnings were down by 26% for the six-month period ending in March 2013. This was largely due to its decision to hike provisions for bad debt while tightening loangranting criteria. ABIL wrote off R445 million to bad debt. This triggered a sharp decline in the com pany’s share price. Capitec also faced dual challenges in respect of its unsecured lending operations in the first half of 2013. Capitec offers unsecured loans of up to R230 000 and reportedly increased its unsecured lending by 24% from 2012 to 2013. Its credit granting policies were widely criticised in the media and the NCR launched an application against the creditor at the National Consumer Tribunal, alleging that the bank contravened certain sections of the Act pertaining to initiation and service fees. It has set aside R2.7 billion for doubtful debt in 2013. Notwithstanding this, the SARB maintained in a press briefing on 27 May that unsecured credit levels are too small to pose a risk to the banking industry. THE COST OF CREDIT TO THE PROVIDER In Barko Financial Services (Pty) Ltd v The National Credit Regulator & another, North Gauteng High Court, A499/2011 (Barko), the court found that the service provider fee, being the cost of Early Debit Orders (EDO’s) – the collection method employed by the appellant – are included in the service fees and cannot be charged to the consumer

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Ronél (Lewies) de Klerk

separately despite the fact that the nature of the cost is an expense to the credit provider. The decision has been taken on appeal. Micro Loan financiers have complained that the Barko decision will suffocate them financially. To aggravate the situation, the NCR and credit providers have vastly different interpretations of the sections of the Act pertaining to service fees. What is quite obvious is that what was an attractive market segment has developed into a costly and dangerous one. What caused this paradigm shift? Section 101(1)(c)(iii) of the NCA reads as follows: ‘Cost of Credit – (1) A credit agreement must not require payment by the consumer of any money or other consideration, except…. (c) a service fee, which… must not exceed the prescribed amount relative to the principal debt.’ SECTION 105 READS: ‘Maximum rates of interest, fees and charges – (1) The Minister… may prescribe a method for calculating… the maximum fees… the Minister must consider, among other things… the need to make credit available to persons contemplated in section 13(a); (b) conditions prevailing in the credit market, including the cost of credit and the optimal functioning of the consumer credit market; and (c) the social impact on low income consumers…’ REGULATION 44 READS: ‘…The maximum monthly service fee, prescribed in terms of section 105(1) of the Act, is R50…’ The NCA has been described as a nebulous piece of legislation and Regulation 44 surely adds to the confusion. Regulation 44 prescribes only one amount for a service fee, R50, regardless of the principal debt. It seems obvious that section 101 in actual fact envisages a fluctuating service fee reliant on upon the size of the principal debt. One should also question whether the requirements in Section 105 were properly considered. The requirement ‘…condition prevailing in the credit market, including the cost of credit and the optimal functioning of the consumer credit market…’ is of significant importance to the Micro Finance industry.

I submit that the credit provider is entitled to charge a service fee of R100. The NCR is of the view that a fee of only R50 is payable. The service fee has remained at R50 since inception of the regulations, now almost seven years. There appears to be no difficulty in the calculation of the service fee in circumstances where a loan has been granted and has to be repaid within the same month it was granted. In such event both credit providers and the NCR are agreeable that a R50 service fee is entitled to be charged. The dispute arises in circumstances where a loan is granted during a particular month (for example on 20 January 2013) and is repayable the following month of that year (for example 5 February 2013) and the loan is for a period of less than 30 days. I submit that the credit provider is entitled to charge a service fee of R100. The NCR is of the view that a fee of only R50 is payable. At the centre of this dispute lies the question of how a “month” is defined, as the NCA is silent in that regard. In terms of the Interpretation Act 33 of 1957, a month means a calendar month. I am of the view that the monthly service fee chargeable is not dependent upon the number of days to which the loan relates, but rather whether or not those days span either one or two calendar months or parts thereof. It is particularly important here to bear in mind that service fees relate to the “routine administration cost of maintaining a credit agreement” and are not to be confused with interest. The consumer who seeks a longer loan would obviously incur a higher interest charge. CONCLUSION Whatever your emotional response to Micro Loans, one thing is certain: the South African economy cannot afford the deterioration of this important sector. If Micro Loans are breaking the proverbial bank, the powers must crisply intervene to prevent this developing into a situation where Micro Loans break the actual bank. By Ronél (Lewies) de Klerk ■

RONÉL (LEWIES) DE KLERK Attorney and Director of Lewies Attorneys Edition 6

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Name: Mvelenhle Yaka Tel: 011 645 6713 Email:

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‘Partnering with customers is key’

Poverty. Unjust, unsustainable poverty. For South Africans, it is our most dangerous enemy. To all intents and purposes, it is our only enemy.


he National Development Plan (NDP) sets out a 12-page vision of a society all but free of the scourge of poverty and its handmaidens – unemployment, crime, ineffective public service and exploitative business practices. It focuses on the common enemy. There may be much controversy about how to eliminate it, but the goal is clear. It is no surprise that the NDP explicitly addresses banking. Banks are inevitably

going to be co-creators of the country that the NDP promises. Without banking, there can be little or no growth. There will be no capital for the creation of the 11 million jobs that will reduce South Africa’s GINI co-efficient from 0.69 to 0.6, or for the massive increases in infrastructure and efficiencies required to drive improvements in all spheres of South African life and create a fairer, more equal, infinitely more sustainable society.

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7 & 8 August 2013, Emperors Palace, Kempton Park, Johannesburg

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Banking Risk and Regulation Assessing the impact of regulation on risk management and customer relationship management for the financial services sector Attending the Banking Risk and Regulation conference will enable you to: • Enhance your knowledge of the latest regulatory changes and how to prepare for them • Gain a deeper understanding of Basel III and its impact on the South African banking industry • Discover how the Twin Peaks model of regulation will increase consumer confidence in the industry • Learn how to mitigate operational and liquidity risk • Hear what leading South African banks are doing to ensure full compliance

26 and 27 August 2013 The Hyatt Regency, Rosebank, Johannesburg

Key themes to be explored at this event: • An overview of the Basel III framework and its key outcomes • Determining the business impact of Basel III • Achieving full compliance in the face of changing regulatory requirements • Risk culture building: how to mitigate human control malfunctioning • Measuring banking operational risk Media partners:

Researched and developed by:

TO REGISTER IIR on +27 (0) 11 771 7000

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SKILLS The extent of regulation of South Africa’s financial services sector reflects the vulnerability of the populace as a consequence of deeplyentrenched systemic disadvantages. Banks have a much broader role to play than their traditional one as intermediaries in the capital markets. Consider just one “enabling milestone” identified in the NDP – to ‘broaden ownership of assets to historically disadvantaged groups’. To own and benefit from assets of various classes, one must be able to transact. A bank account is a prerequisite. One must also be able to form assets through savings and investments, and use these to buffer against risk as well as to grow wealth. To acquire, grow, protect and benefit from assets, one needs a spectrum of products that enable one to participate in an economy by transacting, saving and investing; borrowing and managing risk. Banking groups provide these products – packages that offer varying elements of this mix to various segments. But merely allowing more and more people to participate in the economy is not enough to fight off poverty. The missing link in the chain is Financial Capability, which is the behaviour that leads to financial success through the appropriate use of bank (and other) products. During his first term of office, US President Barack Obama’s administration upgraded an existing national financial literacy programme, creating “Financial Capability Month”. This was implemented to recognise that consumers need Financial Capability to succeed economically in the US. Consider that the US does not have the albatross of Apartheid around its neck. It does not have a massive majority of people living on the breadline, and it does not face service delivery constraints and backlogs as we do. Next to our economic and social challenges, the fiscal cliff looks like a pothole. If a Financial Capability Month is necessary in the US to help people cope with the financial crisis, how much more does South Africa need its own Financial Capability programme? The extent of regulation of South Africa’s financial services sector reflects the vulnerability of the populace as a consequence of deeply-entrenched systemic disadvantages. The “Twin Peaks” regulatory regime may make the sector more conservative, but it will not develop Financial Capability. Our education system has other priorities, like getting schools to function and improving maths and science marks – it looks unlikely to deliver Financial Capability. Similarly, government coffers have many caverns to fill – land, infrastructure, electricity, health services, houses, schools, public servants … they cannot fund Financial Capability. Banks, however, can play a significant role in supporting the NDP

by building customers’ Financial Capability – thus “breeding” better customers who are more likely to succeed economically. Naturally, customers with greater Financial Capability are better customers – they pay on time, they use efficient channels, they save, and they are better at self-managing their risk, thus transferring fewer risks to the bank. In a brief, intriguing review available on, Jennifer Tescher and Joshua Sledge of the USA’s Center for Financial Services Innovation illustrate what banks can do to promote Financial Capability. They show that relevant, timely, actionable and ongoing interventions can be driven by banks themselves to successfully promote Financial Capability. In recent years, much text has been devoted to the need for banks to play an advisory role to win and retain customers. Tescher and Sledge’s argument is that an advisory role that builds the customer’s Financial Capability can be driven by product and systems innovation that enables the customer to achieve more beneficial financial outcomes. It is important to recognise that nuances in sales behaviour are critical to building Financial Capability. There is a considerable body of respectable research demonstrating that the role of a sales person is increasingly becoming that of a facilitator and an educator. A great sales person is a great educator. What more important role could a banking salesperson play in South Africa today? If we were to couple the kind of innovation that Tescher and Sledge describe with ethical, forward-thinking, professional sales behaviour, we would have a powerful formula for driving Financial Capability. Banking cannot sustain simple resource-extraction thinking – viewing customers as assets to be mined. We increasingly need to partner with customers for their well-being, living as we do in the long shadows of our history. That means new product designs, systems and sales behaviour. Bankers can turn on poverty as its implacable enemies. The financial crisis reminded us that the behaviour of banks is inseparable from socio-economic well-being. When banks collectively do not recognise and manage risk correctly, they imperil broader society. As co-creators of the future economy of South Africa, we must recognise the risk that our fragile social compact may disintegrate if we do not learn to partner with our customers. ■ Dr Derek Shirley, Managing Director of Cornerstone Performance Solutions, Edition 6

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Infrastructure development:

key to fostering global interconnectedness African Regional Conference in Botswana highlights pace of change and opportunity across Africa


here are huge shifts in the global economy: Africa is now one of three global trading blocks that are as big as the West, but which are growing 10 times as fast. This dynamic is here to stay.’ Gottfried Leibbrandt, Chief Executive Officer of SWIFT, reiterated these closing remarks at the annual SWIFT African Regional Conference, reminding delegates that the African continent has moved on from the stereotype of a recipient of western aid. ‘Africa has firmly positioned itself in this new reality – the West is no longer in charge,’ he said. Held in Gaborone, Botswana from 21–23 May, the 2013 SWIFT African Regional Conference attracted more than 455 delegates from 40 countries to this three-day annual event. Key themes to emerge were the focus on infrastructure at every level, and the opportunities posed by boosting intra-Africa investment. In his official opening address, the Honorable Minister Kenneth Matambo, Minister for Finance and Development Planning for Botswana, said, ‘Cited by The Economist in 2000 as “the hopeless continent”, Africa has proved largely resilient in an increasingly competitive and global economy. Far from being hopeless, African governments are increasingly able to raise funds from international bond markets, while investment in Africa has grown at an annual rate of nearly 13% since 2007,’ he said. Christian Sarafidis, Head of Western Europe, Middle East & Africa, SWIFT, supported this statement and said that Africa has firmly established itself as a continent of hope and opportunity. Sarafidis highlighted Botswana’s second position on the base profitability index of returns on Foreign Direct Investment. ‘Of course, there is still a lot to do, not least the need for huge investment in Africa’s infrastructure, but the momentum is clearly underway – Africa’s future is in Africa’s hands,’ Sarafidis said. ‘Lack of infrastructure creates real barriers to growth – whether these are barriers to physical travel or to trade and communications,’ he said. ‘But projects across Africa demonstrate that national governments are working to improve their own domestic infrastructure, as well as working with others in regional integration projects to address cross border issues.’



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MAINTAINING THE MOMENTUM Alain Raes, Chief Executive of EMEA & APAC, SWIFT, said it was imperative to look at ways of maintaining the momentum that has been achieved. He agreed that cross-border financial infrastructure was a critical element of Africa’s regional integration projects; only when this part of the puzzle is in place can substantive growth follow. ‘We need to continue to be innovative in the way that we support these developments, because SWIFT and other providers are important components of the financial architecture that facilitates Africa’s expanding regional growth as well as its role in global trade.’ Nerina Visser, Head of Beta Solutions and ETFs at Nedbank Capital, said regionalisation projects must facilitate cross-border access to financial markets and thereby unleash African investment, particularly in equity markets. ‘The dividends and capital growth that is currently flowing out should be captured in Africa, for Africans. There are huge pension funds in Africa but they largely focus on their own economies, and primarily on bonds. This is a highly risky strategy: it offers no diversification, no risk sharing – and definitely no intra-African investment,’ she said. Visser had a clear message for delegates. While Africa is moving “from aid to investment”, there are still too many outflows to overseas investors and intra-African investment has to be increased so that it is Africans who benefit from growth and development. UNLEASHING REGIONAL GROWTH A key theme that resonated throughout the conference was that regional harmonisation projects have the potential to revolutionise African trade, and that standardisation and harmonisation will not only cut costs and improve efficiency, but will also release free market forces to drive innovation. Tim Masela, Head of the SADC Payments System Project, South Africa Reserve Bank, emphasised the idea that payments infrastructure create the “bridges” linking countries, and stressed the need for operational collaboration across multiple projects. ‘If we adopt standards that are open and international, this will fuel growth. This is important not only to drive intra-SADC growth, but to fuel growth between regions. If EAC, WAMZ, COMESA and SADC, for example, are all using the same standards, this unlocks huge growth potential.’

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Lack of infrastructure creates real barriers to growth – whether these are barriers to physical travel or to trade and communications. Discussing the role of regional harmonisation projects as a catalyst for African trade reform at the SWIFT African Regional Conference included (from left to right): • Christian Sarafidis, Head of Western Europe, Middle East & Africa, SWIFT • Leina Gabaraane, Chairman of the SADC Banking Association and Managing Director of Stanbic Botswana • Dr Bwalya Ng’anda, Deputy Governor, Operations, Bank of Zambia • Tim Masela, Head of the SADC Payments System Project, South Africa Reserve Bank • Ravi Shunmugam, Head, First National Bank Payments and in-country payments leader, SADC Payments System Project (South Africa)

While acknowledging progress made, speakers stressed that regional projects have to maintain the momentum and avoid politicisation. Leina Gabaraane, Chairman of the SADC Banking Association and Managing Director of Stanbic Botswana, warned that participants should not lose sight of the fundamental drivers for the SADC Payment System Project – such as driving regional economic growth – nor lose the political will that set out to establish the region as a hub. ‘We must not let issues become politicised, such as where will the central bank be situated or what will be the settlement currency. We have to remain focused on the benefits that we set out to create and not be sidelined by individual interest,’ Gabaraane said. In the panel looking at other regionalistion projects across Africa – featuring Juliet Kairuki, SADC Banking Association and Twum OheneObeng, Deputy Director, West African Monetary Institute, among others – the message was that Africa will stand or fall on collaboration. Ohene-Obeng said projects require a significant amount of effort and dedication from all participants, and that project leaders must not forget to fully communicate the benefits. He said that the move from paper to automation across WAMI had been a financial revolution with a broad range of benefits – some of them unexpected. ‘Not only has automation had a big impact on the efficiency of our money markets, it has generated significant benefits for central bank liquidity management,’ he said. SADC BA’s Kairuku said that the continent’s various projects must ensure that they do not compete with each other. Participants must remember the reason for these projects: the customer. ‘[Projects] should be learning from each other and co-operating with each other. We should standardise our systems and processes as much as possible so that the end product supports our customers better than our own interests.’ ADDRESSING REGULATORY CHALLENGES The regulatory panel examined the issues faced by banks and operational challenges presented by sanctions compliance.

‘Sanctions compliance is a major challenge for banks,’ said Daniel Agamah, Chief Risk Officer and Head of Compliance, Zenith Bank in Ghana. ‘For example, due to the absence of a national database on Politically Exposed Persons and because international blacklists are usually not focused on local PEPs, banks are forced to develop their own databases,’ he said. ‘These lists are not uniform, and may miss sanctioned persons or affiliates,’ Agamah said. He added that the screening process was challenging and timeconsuming, particularly in the case of small banks that have limited compliance capabilities and teams. Joseph Amoah-Awuah, Assistant Director in the Banking Supervision Department, Bank of Ghana, said: ‘Banks need to make dollar investments in systems such as SWIFT sanctions screening tools and customer account monitoring mechanisms, to be able to detect and report suspicious activities and transactions to appropriate law enforcement agencies. This will enhance bankwide risk management and make them compliant with statutory and regulatory requirements.’ Commending SWIFT for its role in fostering global interconnectedness, Minister Kenneth Matambo said SWIFT has already made significant advances in Africa. He urged delegates to ‘explore ways of creating a more cost-effective financial infrastructure that will deepen pan-African economic integration by facilitating trade and capital flows.’ ‘This cannot be achieved without the availability of reliable and secure messaging platforms that will underpin both domestic and cross-border payments and transfers,’ Minister Matambo concluded. By Hugo Smit, Head: SWIFT Africa South Region ■

For more information, please contact SWIFT via Atmosphere PR on (+27) 82 825 3262, or e-mail or visit Edition 6

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SA bankers:

“Innovation is critical” PwC’s South African Banking Survey 2013 forecasts new partnerships, fewer branches and big IT investment.


hange is the only constant in banking, globally and in South Africa. Although banks in South Africa are in healthy shape with the majority of banks generating strong return on equity (ROE) compared to their global counterparts, CEOs have to navigate through various challenges and opportunities to maintain their ROEs above what is now seen as the “new normal”, according to a survey issued by PwC today. Tom Winterboer, Financial Services Leader for PwC Southern Africa and Africa, says: ‘PwC’s South African Banking Survey 2013 shows that executives acknowledge that the industry is evolving fast, with a number of trends and developments currently shaping the global landscape for financial services and in particular the banking industry. ‘These trends could either contribute to or detract from banks’ ability to achieve sustainable revenue growth.’ The purpose of the survey is to highlight the challenges and opportunities faced by CEOs as they position their banks to succeed in the future. The survey also explores industry trends to provide perspectives on how banking in South Africa may evolve over the next three years. The challenges and opportunities faced by banks have been grouped into four broad themes: external developments, macro trends, internal responses and stakeholder expectations. ‘Banking chief executives have adapted their strategies in response to regulatory changes, global and local economic pressures, changing customer behaviors and opportunities in Africa,’ says Johannes Grosskopf, Banking and Capital Markets Leader for PwC Africa. Grosskopf adds that ‘innovation is critical in this rapidlychanging landscape with the Big Four banks all ranking it of maximum importance.’ EXTERNAL FACTORS The results of the survey indicate the continued importance of retail markets to banks. Traditional retail banking, electronic banking and personal banking are considered the most important retail market



segments, with intense competition being experienced in these areas. Banks believe a fundamental change in strategy and positioning is required to compete aggressively in this segment. ‘Partnerships between banks and non-financial institutions, such as retailers and telecom companies are expected to become more prevalent as banks aim to broaden distribution and reach unbanked populations in South Africa and Africa,’ says Grosskopf. Banks in South Africa are not overly concerned about the potential threat of new entrants into the market. However, bank executives acknowledge the threat posed by non-traditional competitors such as retailers and mobile service providers, as they adapt to changing customer behaviour. Regulatory reform is regarded as the most significant and pressing issue as well as the most significant weakness in the banking industry. MACRO TRENDS Many respondents recognise the growth potential in sub-Saharan Africa, which forms part of the SAAAME region (South America, Asia, Africa and the Middle East). Almost half of participants expect 10-15% of their after-tax profits to come from the sub-Saharan region (excluding South Africa) in the medium term, with Nigeria, Ghana and Kenya regarded as key growth territories.

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Partnerships between banks and non-financial institutions, such as retailers and telecom companies are expected to become more prevalent as banks aim to broaden distribution and reach unbanked populations in South Africa and Africa. INTERNAL RESPONSES To date, banks have been successful in implementing costcontainment strategies as a means to maintain profitability. This is expected to continue over the medium term as cost containment is now regarded as the most important driver facilitating improvements in ROE and return on assets (ROA), up from third place in the 2011 survey. Internal efficiency drives, automation and optimisation of staff levels are key mechanisms for containing costs. Overall staff numbers are predicted to grow marginally from 150 768 to 154 354 by 2016, which equates to growth of 2%. Based on these modest increases, rapid adoption and implementation of automation will be critical if banks are to achieve their growth aspirations. The Big Four banks are also evaluating their current branch network. They currently operate 2 877 traditional branches; this number is forecast to reduce by 21% to 2 285 by 2016. This is consistent with their stated intention to transition more customers to electronic distribution channels. This does not necessarily mean that their distribution networks will be negatively affected. Instead, banks are reaching out to customers through new selfservice touch points and smaller lower-cost branches which have been increasing. As the speed of technological innovation increases, banks are facing immense challenges as to where to focus their investment and what technology to use. Most banks say they will invest significantly to upgrade IT platforms over the next three to five years. The Big Four banks are forecast to invest R3 - R5 billion each in the next three years.


• Corporate banking, flow businesses (foreign exchange and rates) and business banking are the most important wholesale market segments. • Traditional retail banking (deposit taking and transactional banking), electronic banking and personal banking are the most important retail market segments. • Traditional retail banking (deposit taking and transactional banking) is viewed as the most intensely competitive market segment and banks believe a fundamental change in strategy and positioning is required to compete aggressively in this segment. • Rapid expansion in unsecured lending is the second-most important development in the South African banking industry. Interestingly it was also considered to be the second-biggest weakness of the industry.

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2013/07/18 8:02 AM

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2013/07/16 11:55 AM

INDUSTRY SURVEY Ultimately, the winners will be those banks that can execute flawlessly to achieve alignment to these long-term trends.


The likelihood of new entrants into the South African banking market is regarded as low. The likelihood of a foreign entrant is considered to be higher than the establishment of a new local bank. Bank executives acknowledge the threat posed by non-traditional competitors, such as retailers and mobile service providers. Nearly half of respondents expect 10 - 15% of their after-tax profits to come from the sub-Saharan region (excluding South Africa) in the medium term, with Nigeria, Ghana and Kenya regarded as key territories for growth. • Growth potential, political stability and the availability of quality local talent are important considerations for executives when expanding across Africa.

Big 4

reduce. In this scenario, the investor is therefore not Leading banks are also adopting a more The banks worse off. Participants viewed the growing level holistic approach to customer relationships. ar foreca st to ine of government attention towards the role of the They are analysing data to identify the vest banking sector in the economy as the third-most needs of customers and inform more important development affecting the sector. Most granular pricing decisions. Most banks respondents believe a twin peaks regulatory sighted their client onboarding processes model will benefit the South African banking as a differentiating factor; however, some system, despite some concerns about potential acknowledge that the efficiency of their each in regulatory duplication. onboarding processes could be improved. t ‘The evolving competitive environment, Attracting and retaining the right talent three yhe next ears. coupled with the external developments, will require remains a priority on the boardroom agenda. banks to continually rethink their strategies,’ Grosskopf This is even more of a challenge as authorities concludes. ‘Executives will need to adapt to new trends that continue to explore how best to regulate rewards in may manifest over the medium to long-term. This means constant the sector. evaluation of business and operating models. ‘Ultimately, the winners will be those banks that can execute STAKEHOLDER EXPECTATIONS flawlessly to achieve alignment to these long-term trends.’ ■ Although banks are positive about forecast ROE levels, they do not Download the full PwC South African Banking Survey 2013 from expect these returns to recover to pre-crisis levels. However, PwC believes that given lower gearing levels, the cost of equity may also

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By Charles Boffard Boost your productivity and have some fun with these new tech tools. LENOVO HELIX ULTRABOOK

R27 800 If you like Lenovo’s clever new “rip and flip” convertible, you won’t have to choose between a laptop and a tablet. The Helix is a high-specced Windows 8 business notebook, with Intel Core i7 Ivy Bridge processor, 4GB RAM and 256GB solid-state drive that will wake it from standby mode in under seven seconds. Flip its 11.6 touchscreen display into “stand mode” for presentations; detach it and you have a powerful tablet with five hours battery life (and another 5 hours when docked to the keyboard).


Charles Boffard is a tech journalist and editor of Business Class magazine.

R8 500 If you’re using a Galaxy S3 you’re probably very happy with it. But Samsung’s upgraded and so can you. What’s improved? Samsung’s managed to fit a bigger, 5-inch Full HD Super AMOLED screen onto a smaller phone, with less power consumption and a bigger battery than the S3’s. The same generous storage options and microSD slot, plus an infrared sensor and a barometer for, um, perhaps, for night flying.


R8 000 Sony have really got it right this time. The Xperia Z’s sleek design, razor-sharp 5inch/12.7cm display with Sony’s Bravia image processing, performance and outstanding cameras should make it very successful. Multimedia, sound quality and the 13Mp rear-facing camera are outstanding, as you’d expect from Sony. And it’s waterproof.



R44 Even if you don’t know it, your Android virtual keyboard is probably holding you back. Swiftkey’s gesture-based typing allows faster, easier screentyping based on swiping. It makes a real difference – that’s why it’s one of the biggest sellers on the Android Market/ place. With version 4 you can write an entire phrase without lifting your finger from the screen. Sign up for a free 30-day trial and you won’t look back.


R8 000 Sony have really got it right this time. The Xperia Z’s sleek design, razor-sharp 5inch/12.7cm display with Sony’s Bravia image processing, performance and outstanding cameras should make it very successful. Multimedia, sound quality and the 13Mp rear-facing camera are outstanding, as you’d expect from Sony. And it’s waterproof.


R7 800 The all-metal HTC One is one of the best-looking phones we’ve seen, and its 4.7 inch/12cm display of 468 pixels per inch, more than the Xperia Z and the Galaxy S4. On top of that, there’s a class-leading resolution and 1.7 GHz processing power; if of course the built-in battery and 4MP camera aren’t an issue for you.

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Debates and discussions from the figureheads who are shaping the unsecured market include among others

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200X128_Layout 1 2013/06/11 10:11 AM Page 1

Credit Management Africa Summit

Examining effective strategies for the assessment and management of commercial and consumer credit 16 & 17 September 2013 The Crowne Plaza, Rosebank, Johannesburg Influential speakers at this event include:

Key themes to be explored at this event:

• Richard Rotoye, Head: Credit Control and Management, Rosabon Financial Services, Nigeria • Marcel Bruwer, Head: Nedbank Retail Recoveries, Nedbank • Craig Nel, Executive: Collections, Recoveries and Fraud, RCS Group • Michael Hill, Regional Manager: Retail & SME Credit, BancABC • Senior Representative, TransUnion • Konrad Ruess, Managing Director: South Africa, Standard and Poor’s • Uwe Schneider, Director, BASF – The Chemical Company

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BANKING NEWS South African News

Decline in banking M&A: a fundamental shift [SA NEWS] Recent years’ decline in banking Mergers and Acquisitions (M&A) is not simply due to a cyclical downturn but represents changes in the regulatory and economic environment, according to research from PwC. RECENT POLITICAL AND ECONOMIC uncertainty is making it difficult to agree on valuations, predict future impairments, arrange funding and gain shareholder approval. The market instability is also having an effect on deal confidence, and therefore frustrating M&A activity. ‘The picture is less gloomy in South Africa than in Europe and the US, but some financial institutions still have some significant restructuring ahead of them,’ says Tom Winterboer, PwC Financial Services Leader for Africa and Southern Africa. ‘Africa has the potential to generate increasing volumes of banking M&A over the next few years. ‘South African banks are among those looking to other African markets for future growth, and the country remains the leading gateway into Africa for foreign entrants. Most major African domestic banks have international strategic or equity partners, but there is still potential for inbound M&A.’ Winterboer says that South Africa’s major banks’ earnings growth and returns on equity compare favourably with those of its global peers. PwC’s report “Brave new world: New frontiers in banking M&A” identified a range of factors driving a change in the financial sector. These include fiscal pressures, regulatory reform, customer behaviour, and the shortage of skills, economic shifts and the future of M&A activity in the sector. Simon Venables, PwC Head of Deals for Africa, says: ‘The total number and value of global banking M&A transactions has declined steadily over the past few years. Banking deals have consistently accounted for the majority of financial services M&A over the past decade. The decline in M&A over the past three years – or excluding government-led deals, over the past five years – is not just a cyclical downturn; there are permanent changes taking place.’

High-growth economies are now home to some of the world’s largest and increasingly influential banks. A far broader range of institutions are initiating transactions than in the years leading up to the financial crisis. Banks from high-growth economies are becoming more active acquirers, both in their home markets and abroad, and are establishing their own approaches including partnerships and distribution agreements. Venables says that favourable demographics and a central role in trade between SAAAME countries (South America, Africa, Asia and the Middle East) are encouraging local and international

AND GLOBALLY... • Supported by rapid economic expansion, an increasing middle-class demand for banking products and a growingnet-worth segment, Asia-Pacific is likely to remain the most active region for banking M&A. • Restructuring will remain the most important driver of banking M&A in Western Europe over the next few years, as banks seek to focus on core businesses and exit peripheral activities. • The US looks poised to experience a fresh wave of consolidation among small and mid-sized banks. The Durbin Amendment and the Dodd-Frank Act are set to add to the costs of compliance and encourage small banks to strengthen their capital and seek greater scale. • Middle Eastern banks’ appetite for outbound M&A has been selective; there is continued interest in nearby growth markets such as Turkey, as well as European private banking assets and the growing role of Islamic Banking in Central Asia and the Far East. Edition 6

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Is South Africa doing enough in Africa? ISSUE 46 SECOND QUARTER 2012

3/29/10 12:26:31 PM

Published by the Institute for African Alternatives New Agenda is a social and economic policy journal providing opportunities for policy makers and analysts to contribute to current debates in articles which are comprehensible by the general reader. The intention is to foster a deep understanding of South Africa’s social and economic system and its transformation, as part of the renewal of Africa.

We publish forward-thinking research on various socio-economic issues, and strive to bring an alternate understanding to the issues the South African economy is facing today. New Agenda promises: • HESA-accredited peer-reviewed research • Exclusive interviews with political and economic leaders • Up-to-date knowledge for investors and business on how the SA economy works All in 59 pages, four times a year for just R100. Tel: 021 403 2593 | To receive our magazine | or subscribe online at Also available in stores: CNA, Exclusive Books, and selected Spar stores nationwide

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BANKING NEWS players to increase their exposure to African banking. Further attractions include low levels of banking penetration, African banks’ strong levels of deposit funding and the scope for buyers to improve acquirees’ operational efficiency. The case for investment in African banking is clearly improving. The report shows that Nigeria also offers growing potential for M&A activity. The banking sector has gone through several rounds of restructuring in response to regulatory reforms and government intervention aimed at raising capital levels and strengthening balance sheets. Other African markets, such as

Kenya, have similar potential for banking consolidation and rationalisation, in addition to their attractive growth prospects. Private equity funds willing to invest in risk-carrying businesses remain in the minority, but are expected to change over time as regulators become more comfortable with private equity ownership, the report states. ‘In the longer term, patterns of banking M&A will become more complicated and less predictable,’ says Venables. ‘As in other industries, it will become more important, not just to pick the right market, but also the right target.’

E-banking survey reveals surge ONLINE RESEARCH SPECIALISTS Columinate have released the results of the second annual Internet Banking SITEisfaction survey, the most comprehensive report on customers’ usage and perceptions of e-banking in South Africa. The survey quizzed over 1400 South African e-bankers about their online banking habits and attitudes, and revealed several interesting trends. ‘This year we saw big changes in the way customers approach their digital banking,’ explains Columinate CEO Henk Pretorius. The survey revealed that the South African e-banking landscape has in the last year seen an increase in the number of customers who use mobile phones and tablets to do their banking. Mobile phone banking, through both banking apps and phone browsers, has increased to 54% from 42% last year. E-bankers who do their banking via tablets have risen to 17% compared to 10% last year. This E-bankers who ‘FNB users are most likely to report that their trend is likely to continue with Absa’s recent do their banking e-banking is user-friendly, innovative and secure,’ mobile app release, which means that via tablets have Pretorius says. ‘FNB has also succeeded in getting the traditional “big four” banks now all offer users to utilise more of the available services a mobile banking app. Capitec might be missing than other banking users. This has positive an opportunity in this regard, with 44% of its implications for both the users who capitalize on customers indicating that they intend to use the convenience of internet banking and for the a banking app should one be made available bank to ensure greater customer loyalty.’ to them. Pretorius notes that the variety of financial fraud Users are not only using more devices to types has increased in recent years. ‘Banking access their bank accounts, but are also making customers have to contend with familiar and novel use of more of the available online banking attacks on their accounts: phishing, smishing, features. According to Pretorius, the results deposit refund scams, 419 scams and so on. It’s showed that aside from making payments and no surprise then that awareness of the different managing accounts, online banking users are scams differs widely. While 90% have heard of becoming increasingly likely to log in to apply for phishing, only 54% have heard of the SMS version of this new banking products (59%) such as loans and overdrafts. scam, called ‘smishing’. This shows the difficulty in educating Users also showed an increased likelihood to buy airtime (60% customers on how to be vigilant against these attacks.’ up from 53%), data (29% up from 23%) and lottery tickets (19% Various online financial management tools have been launched up from 13%) via their online banking service. locally by banks and third parties. The survey revealed that Customer satisfaction with internet banking facilities was awareness (11%) and usage (2%) of these services remain very compared again this year using Columinate’s SITEisfaction low and on par with last year. Pretorius says, ‘The reluctance measure. The results revealed that FNB has stretched its lead of banking users to use these services is predominantly due to over the competitors by attaining a SITEisfaction score of 75, security concerns, lack of clarity on protection from users banks the highest score measured to date. Capitec achieved an overall if accounts are linked to the service, and low awareness of the second position in the ranking with a score of 62 – outdoing advantages offered by these tools.’ three more-established players. Standard Bank and Nedbank tied with a score of 50, while Absa attained the lowest score For the full report, e-mail of 36.

risen to

17% compared to 10% last year.

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Islamic finance

to grow emerging markets L

ondon Islamic trade finance could provide new opportunities and become the preferred choice for emerging rapid growth markets (RGMs) such as Turkey, Indonesia, Malaysia, Qatar, Saudi Arabia and the UAE, according to Ernst & Young’s Global Islamic Banking Center. RGMs are emerging as hot spots for global business and they promise to permanently alter global trade over the next decade. Many of these markets already have strong trade links with other “core” Islamic finance markets, which offer new opportunities for growth for Islamic trade finance. ‘The increase of trade flows to the East and within emerging economies combined with growing interest in Islamic finance, means that Islamic trade finance is now a serious alternative,’ says Ashar Nazim, Partner at Global Islamic Banking Center of Excellence at Ernst & Young. ‘A constant challenge for business leaders is to anticipate and interpret how global trade is changing, while understanding the opportunities and risks it creates. Boards and management of Islamic banks must take note. Trade, technology, culture, labour and capital will integrate at different rates across these markets and need to be anticipated when transforming the financial institution’s trade finance operations. ‘Trade will grow between these markets, creating a wide range of new opportunities for them and advanced economies will also benefit as exports to emerging markets become a rising source of growth,’ says Gordon Bennie, Ernst & Young’s MENA Financial Services Industry Leader. ‘Middle Eastern countries are trading increasingly with other RGMs, reflecting the faster growth in demand from these countries. Banking, insurance and other financial services sectors in these countries will grow as the economies mature and the middle classes expand, offering new opportunities for trade. Demand for more sophisticated financial services is already growing rapidly as wealth levels rise.’



The degree of change in both the scale and direction of trade will have an impact on the competitive environment for companies around the world. Trade will also be increasingly focused around Asia, the Middle East and Africa, suggesting that the key geographical locations for companies may change. CHALLENGES AHEAD

To compete in the market effectively, Islamic institutions will need to align their trade finance operations with global common practices. There has to be a clear understanding of how Islamic financial institutions can add value to businesses in their trade functions. Despite the high percentage of Muslim populations in emerging markets, conversion to Islamic trade finance will not be successful without a clear framework that gives businesses a good reason to switch. Islamic institutions also need to maintain the talent pool that serves these emerging markets and ensure that talent management is an integral part of their business strategy. There is currently a shortage of staff with extensive experience in Islamic markets and this issue needs to be addressed. Islamic banks need to build international connectivity and scalable trade finance platforms that can connect with businesses and financial institutions beyond borders. This could be challenging given the small size and localised nature of most Islamic banks. ‘The road to Islamic trade finance is not one without obstacles. However, if the correct framework is used and awareness about Shari’a-compliant initiatives continues to grow, Middle East and North African markets will be able to strengthen their trade focus on the growing Muslim populations in emerging markets. These initiatives have the potential to significantly increase the value and volume of trade of these expanding markets. This is an opportunity that should not be overlooked,’ Ashar says.

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Keen interest from Japanese banks to support their clients on the ground in South Africa. President Zuma in Japan

SA, Japan

push investment D

uring President Zuma’s visit to Japan in June, Mizuho Corporate Bank Ltd signed a cooperation agreement with South Africa’s Department of Trade and Industry to promote and develop economic and industrial cooperation between the two countries. Department of Trade and Industry Deputy Director-General, Pumla Ncapayi, said that the DTI and Mizuho would pool their information resources to promote investment development between South African and Japanese companies. ‘A framework is to be established between us and Mizuho to discuss the most effective means by which to execute the types of cooperation outlined herein,’ Ncapayi said in a statement. Mizuho CEO, Yasuhiro Sato, said that agreement would benefit Japanese businesses doing business in South Africa. ‘We will support Japanese companies as they expand their businesses into South Africa, support the establishment of joint ventures with local businesses, and strengthen support in fields such as mergers and acquisitions,’ Sato said. This is the third agreement the DTI has signed with Japanese institutions this year, following agreements with the Japan External Trade Organization and the Bank of Tokyo-Mitsubishi, Mitsubishi UFJ Financial Group. Japan is South Africa’s third-largest export destination and fifth-largest source of imports. Japanese direct investment in South Africa has been steadily increasing in recent years, amounting to nearly R20 billion in 2010. Addressing the South Africa-Japanese Business Forum in Tokyo, early in June, President Zuma said there were 110 Japanese companies currently doing business in South Africa, in the process generating more than 150 000 jobs. Addressing the Japan National Press Club, Zuma said Japanese companies were also actively participating in South Africa’s infrastructure programmes, particularly in the rail sector. ‘Of late, we have also witnessed keen interest from Japanese banks to support their clients on the ground in South Africa. This is a very encouraging sign.’


Japan is to force losses on investors in troubled banks, brokers and insurers, leading efforts by regulators around the world to lighten the burden on taxpayers. New legislation tabled in Japan will make investors liable for bank losses. Holders of new types of preferred shares will face losses, or mandatory conversion to common stock, if Japan’s Financial Services Agency deems a bank insolvent and implements so-called “bail-in” clauses on such stock. At time of going to press only Nomura Securities had issued bonds with bail-in clauses, but as Japanese banks become Basel III compliant, more banks are expected to follow suit.

HOW DOES THAT MAKE YOU FEEL? In the 1980s investment bankers were highly regarded. Not so much these days, according to London therapist Karin Peeters, who counts many of them among her patients. Writing in The Guardian’s Banking Blog she recounts her patients’ discontent and even embarrassment at being affiliated with finance. ‘It’s as if they feel ashamed of working for a bank nowadays,’ Peeters reports. ‘Their own parents accuse them of misusing tax money. ‘Some of my clients have removed their job title from internet dating sites.’ After Wall Street, the US Savings and Loan crisis and the 21st Century’s crash and bailouts, Peeters says society has turned bankers into scapegoats and stereotyped them. ‘I’ve never heard a client say, “I’m doing this for the money”.’ Most, she says, are motivated by the intellectual challenge the job provides. Edition 6

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Dedicated, skilled, professional (from left to right): Fikile Kuhlase, Snr General Manager: Socio-Economic and Growth Division; Thenjiwe Nhlapo, Media and Communications Officer: Strategy and Stakeholder Division; Beverley Reyneke, Snr General Manager: Shared Services Division; Luyanda Tetyana, Media and Communications Manager: Strategy and Stakeholder Division; Mvelenhle Yako, Programme Officer: Socio-Economic and Growth Division.

A state of

grace Celebrating the role of women in the Banking Association South Africa.



Beverley Reyneke’s motto in life is “Velle Est Posse: where there is a will, there is a way”, and this is certainly true of her professional life. Having joined The Banking Association South Africa in 2005, Beverley began her career as a minute-taker and later appointed as HR manager. Today she is the Head of Shared Services and responsible for HR, IT, finance, admin and maintenance, overseeing a team of 10. Her journey is an inspiration to all women and reveals what an abundance of dedication, passion, commitment and a whole lot of hard work can achieve. She also credits some of her success to a powerful sixth sense, and says this and her belief in positive affirmations seldom let her down. What makes Beverley such a breath of fresh air is that despite her success, she also strongly believes in a balance in life and work, ‘I constantly remind myself that we should not just focus on making a living but also need to live.’

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Optimism correlates with success; attitude determines altitude and leaders are readers! Know yourself and be yourself as a woman in the banking sector. Luyanda Tetyana began her career as a journalist, a far cry from her current position of Manager of Media & Communications at The Banking Association South Africa. She muses that at one of her first banking jobs, she knew little about the world of finance, ‘The only thing I understood about banking at the time was the relationship I had with my bank through a savings account.’ However, having joined the industry in 2007, just before the Global Economic Recession hit, she learned fast and grew to understand the basics of banking and the relationship banking has with the broader economy. A strong advocate of social issues and commentary, Luyanda developed her skills further by writing a newspaper column covering politics, finance and the broader economy. She believes in pushing the envelope when it comes to education and is currently studying further in management and business. Her future aspirations? ‘To one day attain my law degree, which I truly believe will assist me in transforming the industry and society towards a better future.’ Thenji Nhlapo joined The Banking Association South Africa in 2000 and enjoyed a number of PA roles to various general managers. She studied towards a PR diploma with Provox while working for the Managing Director Cas Coovadia. She took the leap and applied for the position of Media & Communications Officer and the rest, as they say, is history. Thenji’s advice to any woman wanting to climb the corporate ladder is to always believe in yourself and your skills and abilities. Something she personally found hard to do. ‘Never underestimate yourself and never be afraid of a new challenge.’ She believes that in order to grow professionally and personally, one must continually be learning, expanding and challenging oneself, and if this means changing career paths every few years or taking on a scary project … then do it! ‘You are never too old to learn new things!’ Thenji is also excited about her future and where the field of media and communications will take her. Her advice on the home front is important too. She says, ‘Leave the cellphone (and work) at the front door. Enjoy your meal; discover what your family did that day … aim to be the best you can be in all facets of your life.’

Fikile Kuhlase made the move from the Industrial Development Corporation (IDC) to her current position as a Senior General Manager of the Socio-Economic Growth and Development Division, a career path that has put her in good stead: she is now responsible for Financial Inclusion, Financial Literacy, Small Medium Enterprise (SME) Development and CSI. She lives by the adage that the only place where success comes before work is in the dictionary, and her list of tertiary qualifications backs this up. Not only does Fikile have a Master’s in Management (Public and Development Management) cum laude from Wits, she also studied the Advanced Management Programme (AMP) of IESE Business School of the University of Navarra, Spain. Her game plan is to continually explore transformation and inclusive economic development; her aim is to democratise finance and demystify banking. Fikile’s advice to women aiming for similar roles is to consider the three Cs of leadership: Consideration, Caring and Courtesy. ‘Optimism correlates with success; attitude determines altitude and leaders are readers! Know yourself and be yourself as a woman in the banking sector.’ Nwabisa Matoti is a stalwart of the industry, having started her career in 2000 as a cadet at the South African Reserve Bank. Having worn many different hats in different departments, including analysing banking sector trends and Economic and Trade Policy, today she is a Research Consultant at The Banking Association. Nwabisa is an avid learner and feels strongly about education and furthering one’s knowledge. With an MCom (Economic Development and Policy Issues), she gained a distinction in Econometrics from UJ (2009) and was invited to become a member of the Golden Key International Honour Society – an internationally-recognised organisation that provides academic recognition to high-achieving students. And Nwabisa has a similar passion for research – an area she has been involved in most of her working life. ‘It gives you an opportunity to make the unknown known. I enjoy sourcing and packaging information in a way that will facilitate efficient decision-making.’ She was honoured when some of her work was used in study guides for a business school in Johannesburg. She commends her uncle and her mother for her life choices, and she holds her mother responsible for where she is today, ‘I’m indebted to her for the sacrifices she made for me to get a good education, and for her teachings that have made me become the responsible and independent person that I am today. She is and will remain my greatest inspiration.’ Mvelenhle Yaka cut her teeth in the corporate world at Unilever Foods South Africa and Unilever Italy. With five years of research and product development under her belt, she made the transition to the banking industry initially as an intern and has now been appointed as Programme Officer in the Socio-Economic Growth and Development at the Association. With a Master’s degree in Business Administration and a Bachelor’s degree and diploma cum laude in Food Technology, Mvelenhle is not sitting on her laurels and instead aspires to explore and enable social cohesion through inclusive economic growth. By Nicky Manson ■ Edition 6

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PRODUCT NEWS New CCTV solutions now viable protection for ATMs Automatic Teller Machine (ATM) fraud is on the rise and banks need to look for affordable yet effective video surveillance solutions that can record criminals in the act. Servision solutions provide pro-active surveillance tools that will allow you to remotely monitor your ATMs using a minimal amount of bandwidth. Servision streams clear video using as little as 8 kilobits or 1 kilobyte per second of data. Thanks to the low bit rate, these video streams are cost-effectively delivered directly to desktops, smartphones or iPad and Android tablets via GPRS, 3G, ADSL or any other IP-based WAN link. Videos are streamed at a fraction of the storage capacity and cost of other IP-based CCTV solutions. Ensure the non-repudiation of transactions by scammers and protect against ATM fraud with Servision solutions. For more information, visit or contact Mark Chertkow from Graphic Image Technologies on 011 483 0333.

Ezio Plug & Sign Gemalto launched for the South African market its Ezio Plug & Sign, the high security online transaction device that targets primarily the corporate banking, and protects online transactions against wire transfer fraud. This truly zero footprint device requires no software installation and is perfectly adapted to the needs of the South African market. The solution provides a secure web browser for online banking to overcome the inherent risks of an open online environment. Easy to use the user simply plugs the device into the USB port of any computer or whatever browser is installed, and the device launches a “safe zone” that permits the user to securely review, approve and sign all types and amounts of banking transactions within a protected online environment. Corporate users can safely log into any online banking session and be assured of the session integrity even if the computer they connect from may be at risk of being compromised. For more information please contact Frederic Guillou at

CASH HANDLING – NEW WAYS OF WORKING Cash in circulation is ever growing and the trend looks set to continue. Handling cash still costs money. The costs associated with cash are linked to robbery risks, time involved in managing cash, shrinkage losses, manual preparation and reconciliation and information. Reducing these costs, optimising cash operations along the whole length of the cash chain – from the store all the way up to head office – as well as streamlining the processes for retailers, banks and CIT (cash-in-transit) involved in the cash cycle, all call for a whole new approach to cash handling. The Gunnebo product portfolio offers a combination of hardware, software and global services, ranging from entry-level systems to complete closed cash-handling solutions – from cash deposit to front-office security and back-office automation. For further information, contact Gail Carew on 011 878 2300 or email or visit

Foam protection In line with its strategy to deter and deflect crime, G4S Cash Solutions South system stops Africa is installing a new foam protection system in all of its cash-in-transit vehicles that carry bulk and high value consignments. Based on technology from Penman Engineering, cash-in-transit a UK-based company, this solution makes it nearly impossible for criminals to steal contents robbers in from the hold of the cash-in-transit vehicles. The G4S Denial of Access (DOA) Solution comprises of two units that contain a “mix their and dispense pack” of expanding foam. When a trigger event occurs, the foam rapidly expands until it fills the hold of the vehicle and hardens into a hardy material similar in composition to tracks polyurethane fillers. This material cannot be melted with chemicals or fire, meaning that it will take a would-be robber longer to chip through the foam in order to get to the valuables, than it will take the SAPS or armed response backup to arrive at the scene. [Says Hannes Venter, sales director at G4S Cash Solutions South Africa] ‘The introduction of this foam protection system falls in line with our commitment to using the latest technologies to safeguard our customer’s assets as well as the lives of our security officers and members of the public.’

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South African mobile enablement giant has become one of the first and biggest service providers in Africa covering over 1000 networks in more than 220 territories and countries. What was once a local South African start-up company is now growing its business by targeting the development of Africa’s fast-growing mobile banking and financial services sector. Clickatell has extensive reach into the African mobile communications market, which enables it to deliver financial transactions alongside its traditional messaging business. They already operate in Nigeria and Rwanda, with Kenya and Ghana to follow shortly. They differentiate themselves by enabling banks to reach and transact with their clients securely through cost-effective channels, thus reducing the bank’s cost to serve. Simultaneously, they can also drive the bank’s cost to serve down further by building additional revenue streams into their offerings, such as the convenience of selling prepaid airtime and other value-added services. Clickatell sees the mobile market as the number one area for growth in the banking and retail sectors, especially in Africa where not everyone has access to a computer or to a local bank branch. The growth of mobile networks across Africa has been exponential. A recent study showed that by 2015 more people in Africa will have access to a mobile network than will have electricity in their homes. An independent study by ABI Research expects mobile phone subscriber penetration levels to pass 80% in the first quarter of 2013, up from 76.4% or 821 million subscribers in the last quarter of 2012. ‘Clickatell is primarily a mobile enablement company. It helps businesses connect, interact and transact with their customers on mobile devices. We can deliver our services reliably, efficiently and over a wide geographic footprint. That’s our competitive advantage,’ says Pieter De Villiers CEO and founder of Clickatell. Clickatell is already in partnership with several banking and financial

institutions where they deliver their preferred mobile solution. They work with these banks to address their channel cost to serve needs, while functioning as a preferred mobile enabler. The company has direct access to all the major mobile networks in South Africa and the majority of networks across the continent. Clickatell’s approach is unique in that their channels do not replace each other but rather complement each other. In one case study, which demonstrates their ability, they can deliver 98.9% of their transaction services and messages in less than a second. Pieter can be proud of what the company has achieved since he cofounded it in South Africa with three others, including his brother Casper, in 2000. Initially they wanted to start their own dot-com business to inform customers by SMS about last-minute discounted airfare deals. In their search for a mechanism that would enable them to do this they spotted a gap in the market. Clickatell was launched to provide an interface between the internet and telecommunications services. With an initial startup capital of R180 000 in Cape Town, they grew via acquisition and venture capital backing from Sequoia Capital (one of the early investors in Apple and Google amongst others) to become an international mobile enablement company, head quartered in Redwood City, California. Clickatell has high hopes for its push into Africa, where it already generates about half its revenues. It hopes to increase revenues beyond $100 million in the next three years and is ramping up its mobile enablement services to be the driving force behind this. ‘We are very excited about the prospects for growth in Africa,’ says Pieter. ‘The African continent presents a wonderful opportunity and we are happy that we can be a part of this continents progress.’ For more information:Please visit or contact Clickatell Enterprise on +27 21 910 7700 or alternatively via email at

Banker S.A. Edition 06  
Banker S.A. Edition 06  

The sixth edition of the official publication of the Banking association of South Africa. This edition covers the 21 years of the Associatio...