1 VISION ON BANKING Presentation to The 3rd International BANKSETA Conference 11 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 TierCommercial Bank Community Banks Legislation 1Commercial Banks Mutual Banks (Cooperative Banks) Banks Act Mutual Banks Act 2Savings & Loans Bank Cooperative Banks Dedicated Banks Bill Cooperative Banks Bill 3Savings BankCooperative 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