South Africa’s banking sector is one of the best in the world in terms of management and conduct, according to audit, tax and advisory firm KPMG.

KPMG financial services head Trevor Hoole tells Engineering News that South Africa also has a “remarkable Reserve Bank” that displays top-class governing in keeping the country’s economy on track. “Our banking supervision, for years, has been at the forefront of conduct and helping to shape local legislation.”

Nonetheless, he describes South Africa’s current economic situation as fragile. “It is important to keep in mind that South Africa is still a Third World country – so, when there is a recession in the US, for example, this will also affect South Africa’s economy. We are, therefore, tainted by financial incidents that happen on a global scale and, usually, South Africa catches the rough end of the situation.”

However, Hoole says South Africa’s economy does have a few strong basic fundamentals, which come to the fore in some sectors where volatile activities, such as strike action, political intrigue, corruption and instability, pose a threat to the economy.

“The multibillion-rand collapse of African Bank, in August, owing to major losses incurred by the bank, has had a considerable impact on banking confidence and ratings agencies’ views of South Africa’s banking sector,” he states, adding that, in the greater scheme of things, the African Bank issue had little impact on the financial services industry as a whole.

“Our banking sector is dominated by five major banks that have regional dominance, and, therefore, this situation had minimal effect on the rest of the industry.”

Hoole suggests there will be increased focus on unsecured lending. “Small businesses might find it difficult to obtain funding from banks. Overall, banks have been significantly reluctant to lend in recent years, demanding increased measures of security and increased loan-to-value requirements,” he says.

Weathering the Storm
“The wise offshore investor will see past the African Bank issue, regarding the situation simply for what it is, and still consider South Africa as a good place for investment,” he tells Engineering News.

“The situation is simply a blip on the screen on a much larger scale of events.”

These investors are more worried about political instability, strikes and a lack of strong government action in the labour space that might influence their investment spending in a country, says Hoole.

Meanwhile, on a global banking scale, the topic of separating banks’ investment and corporate banking activities from the industry’s retail banking activities has been controversial, he notes, adding that this action is yet to take place with any bank.

“In a South African context, there is no move to do this through the banks or the bank regulatory authorities,” says Hoole, adding that while he thinks the topic will remain open for discussion, the underlying question is: Can you take money from the man on the street and speculate with it in the corporate and investment space?

Locally, banks will not opt to do this, he says. “It will have to be enforced by legislation before it will become a reality, and this is a scenario I do not see happening any time soon, if ever.”

Trends and Growth
Hoole tells Engineering News that the South African banking industry is also leading technology and innovation by offering the latest in terms of modern technology, such as mobile banking, specialised banking applications for mobile devices and a cellular phone-based money transfer and micro-financing services.

“The nature of customers, particularly in the retail space, is changing,” he says, adding that new customers, especially the younger generation, who are often also first-time bankers, are highly technologically astute, demanding the latest technological channels of delivery.

The demand for the simplest mobile-banking platforms, with a great degree of flexibility in options and customisation, is developing the banking arena into an increasingly competitive sector, says Hoole.

Further, he foresees a large portion of the banking sector’s growth being the result of advances in the telecommunications sector in Africa. “It is a fast-expanding sector with new service providers entering the market and rapid expansion in terms of network coverage. Across Africa, the telecommunications sector provides some interesting opportunities for financial institutions,” concludes Hoole.