An Overview of the Banking Sector

1. PRESENTATION TO THE STANDING COMMITTEE ON FINANCE, 10 AUGUST 2010, CAPE TOWN BY CAS COOVADIA: MD, BANKING ASSOCIATION SOUTH AFRICA An Overview of the Banking Sector

2. Structure of Presentation • Introducing the Banking Association: Its roles and Objectives • Financial Services Sector and Banking: Key Statistics • Banking Regulatory Regime • Financial Sector Charter Progress to date (2008) • Transformation Challenges • High Impact Economic Initiatives

3. Role of the Banking Association • It is the only mandated representative of the banking sector in South Africa. It is a voluntary association made up of South African and international banks operating in SA • Contributes to the socio-economic growth and development of our country through facilitating and encouraging members to deliver financial services to a broad spectrum of the population. To continually catalyse transformation and innovation in the sector and enable the consolidation of the outcome of such transformational and innovative initiatives into the business of banks. • Encourages and facilitates the sustainability of the banking sector through profitable, responsible and environmentally sensitive business • Undertakes the necessary research and development to inform international best practice in the industry. • Forges dynamic partnerships with relevant stakeholders to influence an environment in which banks can do profitable, and sustainable, business in a way that promotes international best practice and sustainable socio-economic growth and development. • Plays a key role for The Banking Association in the SADC region and the African continent, and plays a catalytic role in ensuring environment attractive to sustainable banking

4. Critical areas of Activity • Policy and legislative influence • Partnership with government to establish platforms, and explore capacitation of government departments, where practicable • Market Conduct – Ombudsman/Code • Payments related matters – credit cards on forecourts • SADC – PPP/financial markets/payments/SADC Committee of Central Bank Governors/SADC Banking Association • Africa – African Union for Housing Finance/African Task Force • Organised business participation, such as BUSA • SME development – USAID • Co-operatives and micro-finance • Teach Children to Save • Engagement with Cabinet and Parliament on banking issues • Transformation – Charter and beyond

5. Financial Sector Performance: Financial Mail, 2010

6. Selected banks: dti and Charter ratings

7. Overview of the sector - Facts and Figures • Financial Sector contributes 18.96 % to SA GDP according to SA Reserve Bank figures in Quarter 4 2009 • Financial Sector contributes approximately R475b to GDP in Quarter 4 2009 • Financial Sector (Banks, LT and ST Insurance) accounts for R646bn of Market Caps of the JSE • The Sector incorporates world class Information Technology and Communication platforms • The Banking Sector compares favorably with those of the industrialized world, and boasts the presence of numerous international banks • The banking industry provides services such as commercial, retail and merchant banking, mortgage lending, insurance and investment

8. Banking Regulatory Regime • The South African banking system is well developed and effectively regulated by the S A Reserve Bank, comprising, a few large, financially strong banks and investment institutions, and a number of smaller banks • The Bank Supervision Department under the Registrar of Banks, at the Reserve Bank, is responsible for licensing institutions as banks or mutual banks as well as enforcing all the requirements of the Banks Act. • Examples of other regulatory authorities and legislation impacting on banks • National Credit Regulator • Consumer Protection Act • Companies Act • Home Loans Mortgage Disclosure Act Fragmentation/coordination

9. Transformation of the Financial Services Sector • In October 2003, five trade associations within the Financial Sector reached agreement on a transformation charter, together with other constituencies. • Financial Sector Charter committed the sector to promote a transformed and globally competitive financial sector that reflects the demographics of South Africa, and contributes to the establishment of an equitable society, providing accessible financial services to black people and directing investment into targeted sectors of the economy. • Called on the Sector for addressing inequality in the workplace, investing in HRD, promoting BEE targeted procurement strategies, ensuring access to basic financial services and increasing investment in projects that strengthen infrastructure, create jobs, meet basic needs, and stimulate economic activity in the poorest regions and communities of South Africa

10. Transformation of the Financial Services Sector • The FSC applies to all institutions active in the financial services sector: • Banks • Long-term insurers • Short-term insurers • Re-insurers • Managers of collective investments • Exemptions • Less than 50 employees – human resource development elements • Less than R10m designated investments – empowerment financing element • International banks • Global policy for equity • Boards – because branches

11. Transformation of the Financial Services Sector • It was a bold and demanding commitment, essentially driven by the following principles: • A commitment that is voluntarily developed by the Sector • A transformation framework that establishes mechanisms for BBBEE • A balanced scorecard approach to measure achievements in broad transformation and BEE objectives • Growth & development of the sector integral to BEE • Provisions subject to sound business principles • Transformation of the sector in the interest of economic growth and stability of the country • Looked at the quintessential role of the sector itself and its role in the broader economy, hence the specialist nature of transformation

12. Pillars of Success Transformation Human Resources Dev. Empowerment Financing Access to Financial Serv. Procurement & Ent. Dev. Corp. Soc. Responsibility Ownership & Control Financial Sector Charter

13. Transformation – 2008 Performance (1) • Human Resource • Black senior managers 25.79% (Women 8.23%) • Black middle managers 39.6% (Women 18.26%) • Black junior managers 53.57% (Women 31.93%) • Skills development • Spend on black staff R537,049,473 • Learnerships • 2162 matriculants • 275 graduates • Procurement • 55.29% procured from black companies

14. Transformation – 2008 Performance (2) • Access to financial services • Transaction points 77% of LSM 1-5 within 10km • Full service points 75% of LSM 1-5 within 15 km • Savings products 98% of LSM 1-5 2,845,172 accounts • Origination of loans • Low-income housing R45.8b (target of R45 bn) • Agriculture R1.8b to Black Farmers (over target of R1.5) • Black SME R12.8b (Ahead of R5bn target) • Transformational infrastructure R7.9b • Boards • Black directors 45.08% • Black women directors 14.47%

15. Transformation – 2008 Performance (3) • Targeted Investments • Targeted Investment spend of 64.6 bn (slightly ahead of the target of 63.5 bn. Includes low-income housing, black sme, development agriculture and transformational infrastructure) • BEE Transactions • R 101 billion in BEE transaction financing on its books, exceeding the industry target of R 50 billion by over 100%. • Corporate Social Investment • The sector invested R 525 million in CSI programmes in 2008, an increase of R 136,85 million compared to 2007 (35%),in spite of the sector’s profits decreasing by 13%, which represented 0.88% of profits after tax

16. Transformation Challenges (1) • Structure of BEE equity deals and emphasis on narrow approach • The support to Black Empowered companies vis-à-vis Black Owned companies to encourage entrepreneurship among Black people is a challenge • The relative absence of Black people in “real economy” is a challenge as the country needs more Black people in manufacturing and innovation, for banks to fund • The SME sector faces many challenges and need support that goes beyond financing • The Regulatory Environment and the objectives of BEE, such as cost of capital and liquidity requirements, such as the G20 recommendation on capital adequacy requirements

17. Transformation Challenges (2) • The vicissitudes of the global environment and impact such as the global meltdown • Lack of financial security for Black Companies and such risky areas as Agri-financing • Regulatory and policy issues to deal with areas such as affordable housing, such as budgeting for bulk infrastructure, land access and turn around times • Some regulatory requirements such as the National Credit Regulator’s credit requirements, FAIS and FICA requirements • Need for vibrant partnership between the commercial banks and the Development Finance Institutions • Mandate of DFI’s – risk leader iso competitor • Failure to gazette the Financial Sector Charter.

18. Other High Impact Economic Initiatives • Development of approach to deal with micro-financing and co-operatives • Significant interest in industrialization efforts and partnership with DFIs to support Industrial Policy Action Plan • Establishment of Community Banking Units by the Banks to enhance lending to entrepreneurs who normally would not qualify for funding, and to broaden access • Innovative ways to deal with SME funding, including study funded by USAID • Participation in Growth Task Team at BUSA – to input on role of banking in country’s growth, development and transformation • Major interest in land reform, rural development and agrarian reform, as well as urban regeneration, infrastructure financing, etc

19. Parliament – its role • Finance Standing Committee should interact more frequently, not just for submissions, but engage on strategic issues • Understand all facets of challenges facing banking sector, including transformational issues, regulatory constraints, regulatory regime and its impact and dictates of global regimes • Understand particularly critical role of banking sector in socio-economy, and its financing structure and regulation, thus the need to address sector differently across range of issues including transformation • Engage The Banking Association regularly to sensitise us on issues pertaining to the sector and be informed by us on issues of significance • Consider impact of regulation and legislation in process on enactment

20. Conclusion • The Banking Sector is willing to work with government, as a critical partner, in addressing critical aspects of the sector and facilitating the transformation agenda, to consolidate a competitive and sustainable banking sector in the country. We will also engage all other relevant stakeholders, as appropriate • A transforming, competitive and sustainable banking sector is critical to the sustainable growth and development of South Africa’s socio-economy, but the sector itself must be sustainable. • We agree with Ten Year Review “great progress had been made in growing the economy and stabilising macro-economic policy. But what is of concern is that economic inclusion and exclusion posed a grave challenge and had therefore failed to deal decisively with unemployment and management and ownership patterns in the broader economy. There was therefore a need to evolve from energetic focus on macroeconomic imperatives of stabilising an economy in crisis to those of using the space created for speeding up growth and transforming the economy“ THANK YOU !!!