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1
VISION ON BANKING
Presentation toPresentation toThe 3rd International BANKSETA ConferenceThe 3rd International BANKSETA Conference
11 October 200611 October 2006
2
Macroeconomic successes
• South Africa’s Macro Economic Successes
• Economic Growth– Economy has proved fairly resilient to 2005 oil
price shocks– Growth rate is expected to average 4,9% this
year, rising to 5,2% in 2008 (NT estimates)
– Financial sector growth:8,3%
3
Macroeconomic successes
• Financial Stability• Stable
– investment environment– exchange rates
• Reserves
– Interest rates– Inflation rates– Growth in banking sector
• Effective monetary policy
4
Compliance international standards
• South African banks are of world-class stature:
– Well managed and have sophisticated risk-management systems and corporate governance structures in place
– Globally competitive & comply with international bank standards – Basel I and II
– Positive feedback on FSAP (2000)
5
Growth of banking sector
• High concentration rates in the market:
– Total bank assets R1 677,5 billion (12 % growth rate during 2005)
– Four big banks constitute 83,8% of total bank assets (2005)
– Five big banks constitute 89,6% of total bank assets (2005)
– National Payments System ownership & management issues
6
Capital adequacy• Capital Adequacy:
– the average capital and reserves held by the banking sector for purposes
of assessing capital adequacy
• amounted to R130,7 billion and
• R122,5 billion reserves (2005)
– The capital-adequacy ratio 13,3% (2005)
7
Efficient banking system
• Efficiency = Operating expenses as percentage of total
income
• International benchmark is 60%
• Efficiency ratio of the SA banking sector deteriorated from 66, per cent in 2004 to 63,9 per cent in 2005
8
Vision
• Stable financial sector and banking system;
• Market efficiency
• Public protection and consumer confidence
• Access to financial services for individuals; households; SMEs
9
Private sector interventions
• Financial sector Charter– Access to finance
• Savings & transactional banking
• Infrastructure, Housing, SME and Agriculture finance
– Human Resources Development– Procurement & Enterprise development– Empowerment financing– Ownership & control
10
Government interventions
• Possible policy options:
– Minimum standards set in legislation• Punitive consequences – BB BEE Act?• Willingness to transform (value system)
– Market development policies• Promoting competition & reducing regulatory barriers• Establishment of second and third tier banks
– Market incentivisation schemes• Private sector led transformation initiatives (FSC); Risk
management standards: Basle II• Government guarantees and risk-minimisation & mitigation
11
Proposed banking structure
• Government intervention: Create an enabling environment to
increase access and improve competition in the sector
– Core and Narrow banks
• Dedicated Banks Bill, 2004
– Community banks
• Co-operative Banks Bill, 2006
– Broader microfinance strategy
12
Proposed banking structure
Tier Commercial Bank
Community
Banks
Legislation
1 Commercial
Banks
Mutual Banks
(Cooperative Banks)
Banks Act
Mutual Banks Act
2 Savings & Loans Bank
Cooperative Banks
Dedicated Banks Bill
Cooperative Banks Bill
3 Savings Bank Cooperative Banks (Savings)
Dedicated Banks Bill Cooperative Banks Bill
13
Challenges
• Key Challenges:
• Banks and broader financial sector
– Keeping pace with international developments
– Integrating the excluded market (about half of adult South Africans do
not have access to financial services - Finscope, 2005)
– Participation by previously disadvantaged citizens still minimal
• Skills development & human resources development
14
Challenges
• Government
– Create enabling environment for change, remove
barriers (Over regulation)
– Strengthen financial stability and minimise shocks
– Protect consumers and improve market
confidence
15
Barriers
• Regulatory barriers– Low-cost housing;
• Institutional barriers– Charter implementation challenges – Mandates of the Development Finance Institution
• Structural barriers– “Demand for money is a derived demand”– Transformational infrastructure
16
Minimum critical conditions
• Financial Stability
– Deposit Insurance Scheme
• Access to National Payment Systems– Social grant payments (biometric recognition)
• Support of the private sector
• Address barriers
17
THANK YOU
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