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BANKING A S S O C I AT I O N O F SOU TH AFRICA

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Interview

Cas Coovadia MD of The Banking Association of South Africa

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Banking Association of South Africa FEATURE

Cas Coovadia, managing director of the Banking Association of South Africa, talks to South Africa Magazine about the industry’s progress.

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he banking sector is critical to any economy. South Africa has a developed and well-regulated banking system, comparable to that of any industrialised country. The sector has undergone a lot of changes in the past two decades. The promulgation of the Banks Act of 1990 led to a number of banking licenses being issued and by the end of 2001 there were 43 registered banks in South Africa. Saambou’s financial troubles in 2002, however, resulted in a run on BOE and other smaller banks. A number of foreign banks have since established a presence in SA and others have acquired stakes in major banks. It is a healthy sector. “The SA banking industry is currently made up of 19 registered banks, two mutual banks, 13 local branches of foreign banks, and 43 foreign banks with approved local

We think SA has a healthy level of competition in the market, helping low income and the previously ‘unbankable’ get access to finance representative offices,” says Cas Coovadia, managing director of the Banking Association of South Africa. “There have been a number of changes in respect of the regulatory environment, products, and number of players over the years. We think SA has a healthy level of competition in the market, helping low income and the previously ‘unbankable’ get access to finance.” The South African banking system is, he says, world class, with adequate capital resources, technology and infrastructure, as well as a strong regulatory and supervisory environment. www.southafricamag.com

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Banking Association of South Africa FEATURE

FINANCIAL SECTOR CHARTER The Financial Sector Charter (FSC), a voluntary transformation charter, in was signed in 2003 for implementation in 2004. It means financial institutions have committed to ‘actively promoting a transformed, vibrant, and globally competitive financial sector that reflects the demographics of South Africa, and contributing to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy’. Coovadia, 59, played a key role in the negotiations around the Charter and has been responsible for driving its implementation. He has also been responsible, at a strategic and policy level, for the industry’s initiatives in low4

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income housing, microfinance, SMME finance, organised business as well as lobbying and Government interaction. “The banking sector has played a major part in the transformation process in the financial industry and we intend to ensure that it continues playing that role,” he says. “How are the banks progressing in terms of the financial sector charter as an industry? Our view is that the industry has done very well generally. “One thing we are always working to improve is to consistently address South Africa’s unbanked population,” he adds. “The banking sector has taken some great strides. The implementation of the FSC resulted in an increase in product offerings, with smaller banks emerging as significant players in enabling access to financial


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services and creating some competition in catering for the needs of this market through entry-level banking. “All said, we still need to do more – we need to create a more diversified financial service sector that will have a regulatory environment where it makes it possible for different types of financial institutions to actually service different segments of the market,” Coovadia says. “So you could have cooperative banks for instance. You could have village banks. You could have savings and credit cooperatives. You could have microfinance institutions. I think that what we need is a regulatory environment that would enable all of those institutions, regulate that appropriately, depending on their market and their risk, and I think that will create a situation where there is interaction between formal commercial banks and those sorts of institutions to actually get services to where they need to be delivered.” 6

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STRONG REGULATORY SYSTEM Of course, the South African banking system is heavily regulated. Coovadia says this saved the sector from the global financial crisis that started in 2007, which resulted in bank bailouts in a number of countries. “The SA banks’ risk management systems are fairly robust,” he says. Banks also started to apply stricter lending measures as a result of the implementation of the National Credit Act in 2007. “In South Africa we really withstood the first phase of the crisis very well,” Coovadia explains. “That was the financial crisis.” The country, however, went through an economic recession in 2009, which had an impact on the banking sector. “We were affected by what I call the second phase of the crisis, which was a broader economic crisis. Our major trading partners were badly affected – it led to a slowdown in our economy and that obviously had an impact on the banking


Banking Association of South Africa FEATURE

sector because corporates started borrowing less, people started defaulting and so on. We did have an impact as a result of that, but it wasn’t as strong as some parts of Europe and America. We are still very well capitalised, we have liquidity, and not a single bank required a bailout, nor will that be the case. ” Talking further about the financial crisis, Coovadia adds: “We have been affected but things have started to pick up and the country is moving out of recession. “Has SA fared better than most? Yes. Our banks, mercifully, managed very well, but there’s no question SA has taken pain from the global economic crisis. Everyone agrees that SA’s banking system was largely sheltered from the subprime crisis. Fundamentally, the SA banking system is sound. We don’t have any significant exposure to the catalyst for the crisis overseas. “Things are picking up at the moment but it is slow,” Coovadia continues. “I think we are in for a tough 12 to 18 months. Again, primarily because of external factors: the rand is very strong at the moment. It has an impact on our export and we are an export-orientated economy. The rand is strong because of dollar weakness and inflow of funds as a result of better returns in emerging countries than in Europe or USA. I think, though, that we have turned the corner and growth is slowly starting to be seen.”

exchange rate. It is also reprioritising public spending in an effort to boost the economy and create five million jobs over the next 10 years. “Government has made moves to weaken the rand,” says Coovadia. “I think the businesses in the country would agree with what the government is doing. We would not have agreed with a direct intervention like we saw in the early 1990s, which actually caused a lot of pain. But to get rid of remaining exchange controls, and to look at possible reduction in interest rates to make our markets not as attractive to particularly short-term money coming in, those actions we would agree with.” Coovadia says there is a need to ensure high quality in Government budgeting and spending with appropriate bank, non-bank, supervision and regulation. “We have challenges,” he explains. “South Africa has always been in the situation where I think we have a very good policy environment but we fall short on implementation, for various reasons. So we continuously work with Government. I think the interaction between Government and business is reasonably healthy but we are continuously looking for ways, means and mechanisms through which we can improve.” The financial services sector is the biggest contributor to the South African economy, with the sector representing about 21 percent of GDP during the second quarter of 2010. After a contraction in growth for the most part of 2009, growth in the sector improved in fourth quarter of 2009 and has continued to improve, growing by 2.9 percent in the second quarter of 2010. END

How are the banks progressing in terms of the financial sector charter as an industry? Our view is that the industry has done very well generally

WEAKENING THE RAND The Government has recently said that it would weaken the rand to boost economic growth and create a more competitive

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