S.A. Banker 03/2012

Edition 32012

Magazine of the Banking Association South Africa

‘Managing risk proactively’

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African Bank’s Tami Sokutu

REPORT BACK • Banking Summit 2012• Funding SA’s infrastructure

FINANCIAL INCLUSION • Developing a vital tool• Basel III – a false dichotomy

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CONTENTS

3Edition 3 SA BANKER

07 MD’s message Responding to national, continental and global

challenges

09 Profile Bubble? What Bubble? African Bank Executive Director Tami Sokutu on

unsecured lending, good data and talent

14 Financial Inclusion Financial Inclusion does matter for

economic development A vital tool for the poor and for SME’s

16 Financial Inclusion Dealing with a false dichotomy between Basel III

and financial inclusion Prudential regulation should enhance inclusion

20 Banking Summit Sharing the load Solutions for funding infrastructure

29 Sustainability A Code of Conduct Registered commercial banks have

adopted a Code to manage their impacts on society and the environment

31 Customer’s view Real Time Why customers use Facebook

34 Banking Customers take charge Ernst & Young’s 2012 global consumer

banking survey.

40 IT IT complexity in banking “If you can’t measure something, you can’t

understand it.”

5 41


46 Banking Association Member Introducing Nedbank Raising over R6 billion in funding since inception

48 Banking Association Member Introduction Absa Group Limited 12.2 million customers and a market

cap of R101.4 billion

52 Business life Technology Mobility – More productivity, less baggage

54 Banking news: South Africa What – and who – is making news in South African

banking?

56 Banking news: International The next decade in banking, and a crowd-sourced

credit card

59 Lifestyle Meet the Bankers Cas Coovadia on leadership, Steve Jobs, and walking

in Clarens

64 Subscribe Subscribe to SA Banker

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My Protection and Security

MD’S MESSAGE


Shaping the banking sectors

Welcome to the third edition of �e SA Banker magazine, South African Edition. �e thought behind the magazine was to provide the platform for robust and enlightening debate in the banking space with a view of creating

a globally competitive, but responsive banking sector that would serve South Africa well.

�e laun� of the magazine was opportune as the �nancial services sector faced immense pressure as a result of the Global Financial Crisis and the Sovereign Debt Crises in ensuring that it keeps pursing business that is transparent and properly regulated. �e �nancial services sector, regulators and governments were �arged with the responsibility of arresting the mistakes of the past, thus ensuring that they are not repeated in the future. �e e ects of the crisis have forever �anged the �nancial sector in the eyes of the bank client and the manner in whi� countries relate with ea� other as economic blos.

�e third world economies have come out of the �nancial crisis relatively unscathed and strongly emerged as the possible economies of the future, and this is sure to �ange the manner in whi� future business deals are made. �e �allenge is to ensure that in responding to the �allenges of be�er regulation, space is still le� for the �nancial services sector to do business in a globally competitive environment.

�e impending implementation of Basel III and the costs involved will require South African banks trading within South Africa to rethink creatively and transparently to their business, so that the client does not bear all the costs while contributing to a thriving economy.

�e �allenges facing the country are su� that the country needs a vision that would unite all of us in the quest to making the lives of all South Africans be�er. In this regard, the banking sector welcomes the �nalisation of the National Development Plan (NDP) and hopes that it will galvanise all sectors of the South African society. �e banking sector stands ready to engage with government and other stakeholders as the NDP moves towards implementation.

�e Banking Association South Africa (�e Association) is commi�ed to creating strong and mutually bene�ting relationships with government and other stakeholders. In 2012 alone, �e Association and its member banks hosted the annual Banking Summit to ponder the issue of infrastructure �nancing with particular reference to the roles of government, the development �nance institutions and commercial banks. Furthermore, �e Association convened the Financial Inclusion Indaba and Exhibition 2012, whi� centred its deliberations on:• the role of the banking sector in Financial Inclusion,• south-to-South Learnings of Inclusive Banking, and• the role of �nancial sector regulators in promoting Financial

Inclusion and trade-o s in maintaining the integrity and stability of the �nancial system.In confronting �allenges that South Africa faces, it is crucial

that all sectors and stakeholders transcend the debilitating “stage” where societies assume some se�led truths. What is required is for the process of interrogation and engagement to be open-ended and permanent, where ideas get ri�er and smarter, owing to their confrontation with error. �e Banker magazine is but one of the avenues through whi� di erent stakeholders can shape the banking sectors.

As you read this edition, I hope that you formulate your own thoughts and ideas in terms of whi� banking and �nancial services sector can respond to the national, continental and global �allenges that it faces.

Cas CoovadiaManaging Director, Banking Association South Africa

PROFILE

9Edition 3 THE BANKER

Bubble? What bubble?

A day a� er banks met with Finance Minister Pravin Gordhan late August [2012] to discuss the sudden growth in unsecured lending in South Africa over the last year, Tami Sokutu was even more sanguine about the future. Cautious and wat ful, certainly

– as you would expect from the Executive Director in arge of seeing the risk big picture for African Bank and Ellerines (whi is wholly owned by African Bank) – but not worried. He sees plenty of upside in the market, if everyone continues to keep their heads.

‘� e next couple of years will depend on how we respond now to the increase in unsecured lending, at an industry level and certainly at a bank level,’ he says. ‘We’re being a lot more conservative now, managing the risk pro-actively, and that’s where we need to be.’

� e rise in unsecured credit has been swi� , and that has raised eyebrows, but Sokutu is comforted by the fact that only a small portion of that lending is for consumption, and as long as people

‘What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty, and whether we’ll be able to stop those retrenchments,’ says Tami Sokutu, Executive Director of African Bank Limited. Phillip de Wet reports

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PROFILE

THE BANKER Edition 3

are borrowing money for housing or education, he doesn’t consider it a bubble. To make sure it is sustainable, for both parties in the equation and for the stability of the local banking sector, he says, it just needs management.

�e key to averting trouble in unsecured lending (or in other areas of banking), Sokutu thinks is good data, and the ability to use that data further down the line. As the number of South Africans making use of debt �nancing grows, there is perhaps an increase in risk, but there is also an increase in the amount of data to be had. �at makes it a ma�er of constant analysis of trends before they can turn into disasters.

‘We are traing our clients through credit bureaux to see how mu� credit they are taking elsewhere,’ he says, ‘but at the same time, we’re also looking at those who are not necessarily our clients, to see what is happening generally.’

If what is happening points to trouble in any speci�c sector of the market or manufacturing, African Bank will hopefully be able to see the potential for job losses before it happens, and pull ba from that a�ected sector. ‘Because we lend on a highly distributed basis across sectors, if there is a dramatic collapse of the economy across multiple sectors we will be greatly a�ected. If it is just one sector that’s not too big a deal, we can handle that.’

As long as people keep their jobs, he believes, their ability to make their debt payments will remain roughly the same. In�ation may eat into real earnings, but Sokutu has faith in the Reserve Bank, whi� he says has proven itself to be a robust institution, and has even showed grace under political pressure to move away from in�ation targeting. Interest rates may ti up from their historic low, but he is comforted by the fact that rates will move gradually, without the kind of dramatic spikes that is anathema to a�ordability, and will be well-signalled before the fact. So even though 2013 is hardly likely to be a bumper year, it shouldn’t bode ill for African Bank, or the sector in general.

�e real question isn’t what will happen to those already taking advantage of debt, he says, but where future growth will come from.

‘What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty, and whether we’ll be able to stop those retren�ments,’ Sokutu says.

Even though the economy hasn’t been blooming – and even though car �nancing and mortgage uptake has been �at or declining in recent years – unsecured lending towards the bo�om of the market has shown plenty of growth. �e government, and its relationship with trade unions representing those it employs, has something to do with that.

‘One discussion point yesterday [in the meeting with Gordhan] was that there has been above-in�ation increases in wages in the public sector for two or three years now, whi� made it relatively easy for public sector employees to access credit, with more disposable income,’ says Sokutu.

But that can’t continue inde�nitely, and eventually the growth in the market for lending in the range African Bank targets will start to tra general economic growth. As a bank it could postpone that day with innovation in products, and smart structuring of �nance, but that road too must come to an end. Eventually there will have to be employment growth, or even greater cannibalisation among lenders, and that is already starting to rea� levels that Sokutu thinks needs wat�ing.

‘Competition takes place and you do what you have to do,’ he says. ‘�e concern is where it all ends. What happens if we all go for the same customers?’

He leaves his own question unanswered, but the implication is clear. Either the lenders or the borrowers, or both, will su�er the consequences of su� intense competition. �at is if government regulation doesn’t intervene, but perhaps that is another area in whi� Sokutu is somewhat more bullish than the average banker.

‘Government is interested in increasing access, to get more people using credit,’ he says. ‘On the other hand the government is obviously uncomfortable with the potential impact of players in the market on customers. We welcome that, because we think it’s a good thing for us as an industry to clean up the house. We’ll only become concerned if the regulations become too restrictive. So far they haven’t been.’

Besides the growth in job numbers in South Africa, and minor concerns about �scal policy, there is only one thing that really worries Sokutu: the troubles far a�eld, in Europe and the USA, whi� could a�ect the �ow of money his bank relies on.

‘Unfortunately those problems have a disproportionately high

�e banks are on top of it; this is not a bubble. �is is something we can manage.


TO BANKING, VIA THE SCENIC ROUTEBanking found Tami Sokutu rather than the other way around. His circuitous route to the industry has left him a little light on the paper qualifications in the likes of economics, but well versed in deflecting subtle offers of a bribe.

‘In government senior positions – if not every day, then every other day – there is a member of the public willing to give you a bribe for one thing or another,’ he says when asked if he ever had such approaches as Director-General of the Department of Public Works, his last job before joining African Bank. ‘Yes, I was subjected to that,’ is

his response.His career also taught him a

thing or two about environmental sustainability. He still chairs the South African National Biodiversity Institute, now in what he says will be his last year, where he advises the government on water issues and policies. That is natural, given his masters degree in the biolog-ical sciences combined with the political activism of his youth, which included stints on environmental policy for the ANC, but that’s about as close as he gets to either these days. He’s no longer active in the ANC, he says, and the closest he comes to physically managing the environment is when he “supervis-es” his keen gardener wife.

In what spare time is left between his day job and pro-bono advise positions, he follows new writings on the US-led banking collapse and World Bank research, with the occasional sideline into leadership thinking, Christopher Hitchens and Xhosa history. Though he was famous for his love of Oscar Wilde in the past, that passion has faded with familiarity.

‘Oscar Wilde? I’ve probably read everything he has ever written,’ Sokutu says.

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PROFILE


A LESSON IN LENDINGThanks to a series of bursaries (and, as an undergraduate, the savings of his nurse mother), Tami Sokutu didn’t have to go cap-in-hand to a bank until he had a masters degree. When he did, though, the experience turned into his first real lesson in different ways of assessing risk.

‘I opened an account with one of the big banks when I first started receiving bursary money, in 1984,’ he says. ‘In 1990, when I finished my masters, I thought I was ready to buy a small place of my own; it was under R200, 000. So I went to the bank I was with, and they turned me down. I went to another bank, one I didn’t have a relationship with, and they looked at the numbers and gave me a hundred percent loan.’

impact, driven by sentiment more than anything else, particularly among global players investing in South Africa. We raise money globally now, not just in South Africa. To fund our assets, we raise money in Europe, in Asia, and if the ratings agencies downgrade those people we raise money from, that becomes a potential problem for us.’

Well, to be fair, he is also mildly concerned about the number of bankers circulating among local institutions, or what he calls the recycling of talent. ‘We recruit from another bank, those employees move from us to the next bank,’ he says. ‘�e pool seems generally to be so small that we’re all poa�ing from one another. We need to bring in new entrants, especially bla� entrants.’

�ere aren’t enough heads to go around. Why? ‘I think it’s a combination of things. �e pool of CAs produced by the system is quite small, and that’s the �rst port of call for banks. Another factor is because of the premium we pay to bla� people who are in demand and those who are quali�ed; it gets to a point where it is really costly to recruit people who are relatively inexperienced. It is a game we have to play, but we need more people who are quali�ed to get beyond that.’

�ose are the kind of issues the industry can �x in the medium term, he believes, and are nowhere near the apocalyptic importance assigned to unsecured lending. �at bugbear doesn’t bug him so mu�. ‘�e banks are on top of it,’ Sokutu says. ‘�is is not a bubble. �is is something we can manage.’ ■

What concerns me about the macro-economic environment is whether we’ll be able to create enough jobs going forward in order to deal with unemployment and with poverty.

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FINANCIAL INCLUSION


Government policies and initiatives have been aimed at meeting the constitutional imperatives of a truly democratic South Africa. While progress has been made in building a more equitable society, more still needs to be done.

Sustainable economic development requires an inclusive economy, with full �nancial inclusion being a key component.

Despite the economic a�ievements of the democratic era, many South Africans are still excluded from the mainstream economic activities. Inequality, poverty and unemployment remain obstacles to the optimal development of the economy. �ese �allenges require a holistic approa� and integrated solutions, where all stakeholders must work together with government to bring about social and economic �ange.

�e government objective to ensure that �ve million jobs are created by 2020 can be realised if economic growth accelerates. Rea�ing that employment goal will itself support further growth.

Financial inclusion plays a critical role in enabling these e�orts to promote sustained economic growth and development, particularly of the most vulnerable in our society. Financial inclusion speci�cally provides a platform to transact and ex�ange payments for goods and services, to access credit in order to establish or improve productive capabilities, as well as o�ering savings and insurance services that help the vulnerable to maintain and improve their human and social capital.

‘…a vital tool that the poor can use to increase their �ances to escape poverty.’

Financial inclusion per se cannot lead to sustainable development. However, it can, together with job creation, capacity building and infrastructure development, be a vital tool that the poor can use to increase their �ances to escape poverty. For example, the simple ability to send �ildren to – and keep them at s�ool – starts breaking the generational cycle of poverty.

�rough the e�orts of government, �nancial institutions and other stakeholders progress has been made in promoting access

to �nancial services. �e proportion of adults (16 years and older) using a basic bank account has increased from 30% in 1994 to 63% in 2011, and 50% of the adult population are credit-active consumers. Consumer protection has also been enhanced through legislation, su� as the National Credit Act and the Consumer Protection Act. �ese initiatives aim to ensure that while we promote access to �nance, �nancial capability in communities is improved and all users are treated fairly and with dignity.

Access to �nance for small and medium enterprises (SMEs) remains a �allenge in South Africa. SME lending as a share of banks’ gross credit exposure has been deteriorating in the recent past from 12% in 2008 to 10% in December 2011. It would appear that moves to reduce risk by commercial lenders have a�ected SMEs to a signi�cant extent. �is is problematic, as it has a direct impact on both poverty reduction and economic development through a reduction in job creation opportunities. Clearly more must be done, especially by �nancial institutions, to support the robustness and vibrancy of this sector of our economy.

Government has recognised the important role that SMEs play in the development of the economy and the creation of jobs, and is commi�ed to addressing this �allenge. �e establishment of the Small Enterprise Finance Agency is a major government initiative to improve the SME �nancial services landscape through improved capital utilisation and focused interventions.

Increasing access to �nancial services, with the ultimate aim of sustained economic development, requires multiple stakeholders to work together to ensure that �nancial inclusion increases economic opportunities in the segments of our society where it is most needed. Su� e�orts entail the syn�ronised actions of government, �nancial institutions, civil society organisations, and development partners.�e ongoing sharing of information and ex�ange of ideas in an open fora, su� as the Inclusion Indaba, are welcome opportunities to take this journey forward.

Source: �e National Treasury

Financial Inclusion DOES matter for economic developmentSince the dawn of democracy18 years ago, South Africa has gone through many reforms aimed at reconstructing the economy into one in which all South Africans can fully participate and all bene�t from.


‘… a vital tool that the poor can use to increase their � ances to escape poverty.’

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Gift Manyanga, CEO of FNB EasyPlan; David Chewe, CEO of the Bankers Association of Zambia; Nhlanhla Nene, Deputy Minister of Finance; Sim Tshabalala, Chair of The Banking Association Board and Deputy Group CEO at Standard Bank.

Bruce Whitfi eld, Master of Ceremonies.

Panel 1 Anton de Wet, Managing Executive of Client Engagements at Nedbank; Ayanda Mjekula, Acting CEO at Ubank Ltd; Gift Manyanga, CEO of FNB EasyPlan; Arrie Rautenbach, Head of Retail Markets at Absa Retail and Business Banking; Thembinkosi Mathe, Group Strategy Executive/Acting CEO at Ithala Limited.

Panel 1Gift Manyanga, CEO of FNB EasyPlan; Arrie Rautenbach, Head of Retail Markets at Absa Retail and Business Banking; Thembinkosi Mathe, Group Strategy Executive/Acting CEO at Ithala Limited.

Financial Inclusion Indaba and Exhibition Event

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FINANCIAL INCLUSION


To be more precise, prudential regulation is considered to be the main cause of inadequate nancial inclusion, or of causing nancial exclusion.

I was recently invited to participate in the roundtable discussion organised by the Association

of Bla� Securities and Investment Professionals (ABSIP). �e topic for discussion was ‘�e impact of Basel III on Bla� Economic Empowerment (BEE) nance’. What is implicit in this topic is an inherent hypothesis that Basel III is intrinsically designed to have an undesirable e�ect of crowding out BEE nancing, whether intentional or not.

Soon a�er that, on September 2, 2012, the business supplement of the City Press published an article with the heading: “Banking system security trumps BEE”. In this article, Ismail Momoniat, head of Financial Sector Policy at the National Treasury, is quoted as having said that Basel III regulations will take precedence when it comes to dealing with BEE to safeguard South Africa’s nancial stability. Indeed, mu� of the narrative in this o�en emotional debate is based on the assumption that prudential regulation has a countervailing e�ect to nancial inclusion. I would like to argue that there is no trade-o� between these two public policy objectives. In fact, when correctly applied and adequately complied with, prudential regulation should enhance nancial inclusion. Similarly, Basel III should have positive long-term spin-o�s for BEE nancing in South Africa. Prudential regulation seeks to a�ieve three objectives: (1) to protect the public’s deposits, especially of the retail, unsophisticated members of the public who save their hard-earned money with banks for safe-keeping rather than for investments or wealth creation; (2) to ensure institutional soundness of every registered bank; and (3) to promote the stability of the banking system as a whole.

Basel III is an improvement compared to Basel II. It seeks to correct some of the weaknesses that the recent nancial crisis helped to identify regarding the amount and quality of the capital held by banks as well as in the strength of their liquidity positions.

Capital in a bank is meant to enable it to absorb losses, both in normal times and in times of nancial distress. Liquidity is meant to enable a bank to meet its liquidity obligations, su� as the ability to meet withdrawals from the public at all times. To this end, Basel III requires banks to build nancially sound balance sheets with enough resilience to sustain their services to the public even in times of severe domestic and international economic and nancial crises. Basel III compliant banking systems should progressively build adequate reserves through boom periods to be able to be�er absorb losses under the most severe economic slumps. Basel III will also ensure that banks have adequate short and long-term funding from stable sources to meet their liquidity obligations. �is is crucial to ensure that banks are resilient enough through economic cycles to continue their lending business in normal times and during periods of severe stress. Dealing with a false di�otomy between Basel III and nancial inclusion, ‘…when correctly applied and adequately complied with, prudential regulation should enhance nancial inclusion.’

What happened in the United States (US) and mu� of the devel-oped nations was a complete collapse of lending activities in gener-al, but in particular in the areas of low-cost housing and SMEs. Even a�er huge scal and monetary support, the economies in those ju-risdictions failed to produce any meaningful demand, and therefore banking activity remained subdued despite government support.

�e US did not adopt Basel II when Australia, Canada and South Africa did in 2008. It is worth mentioning that these are the only three countries with developed nancial systems that survived the worst e�ects of the nancial crises. �e US was still implementing Basel I when the global nancial crisis hit its banks in 2008. South Africa adopted Basel II.5 in 2011 and is preparing to adopt Basel III in 2013. Despite the global nancial crises, credit extension remained positive in South Africa and its banks proved buoyant throughout the recent benign global economic climate. Even under the more rigorous Basel II and II.5 regulations and throughout the course of the global economic crises, South African banks

Dealing with a false dichotomy between Basel III and Financial InclusionOften in the public discourse on transformation in the �nancial sector, an inverse relationship is assumed to exist between �nancial regulation and access to �nancial services.


continued their lending activities in general, including � nancing BEE transactions worth over R80 billion since 2007.

According to the FinScope Small Business Survey (2002), only 39% of the adult South African population had access to basic � nancial services in 2002. Even while complying with the more rigorous requirements of Basel II since its adoption in 2008, the number of adult South Africans with access to banking services increased to 63% in 2011. South African banks extended over R175 billion for low-cost housing, developmental infrastructure, SMEs and bla� agriculture from 2004 right through the peak of the international crises up until 2010.

It is only in South Africa that during times of worldwide � nancial circumspection, talk of asset bubbles developing in the banking system � nds currency. With unsecured loans increasing at a rapid rate since 2009 to over R50 billion today, some have warned that this may lead to systemic instability, while others argue that it could result in the abuse of clients by leading them to unsustainable levels of over-indebtedness. Nevertheless, the problems South Africans face are not a la� of lending, or impairment to � nancial inclusion. � e problem is the oversupply of credit to low-income people. � is coming from a fairly healthy South African banking system.

Financial inclusion in South Africa did not improve despite a rigorous prudential framework; it improved because of it. South African banks are healthy because they had to operate under a strict prudential framework. We need only look at the events unfolding across the Atlantic to see the e� ects of a lax prudential framework to lending when it is needed the most. � erefore Basel III should not be the impediment to BEE � nance that it is made out to be. Basel III should indeed enhance � nancial inclusion and BEE � nance. Empirical evidence in South Africa disproves the notion of a negative causal relationship between prudent � nancial regulation and � nancial inclusion. Evidence shows the opposite to be true.Nkosana Mashiya is the Deputy Registrar of Banks: Banks Supervision Department, SARB.

‘… when correctly applied and adequately complied with, prudential regulation should enhance � nancial inclusion.’

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Panel 1Nichola Dewar, CFO of SA Postbank; Anton de Wet, Managing Executive of Client Engagements at Nedbank; Ayanda Mjekula, Acting CEO at Ubank Ltd.

Panel 2Lowell Campbell, Head of Agent Banking for Africa at Standard Bank; Eric Silke, UNCDF.

Panel 3Gerry Anderson , COO and Acting Deputy Executive Offi cer: Market Conduct & Consumer Education at FSB; Ingrid Goodspeed, Chief Director: Financial Sector Development for National Treasury; Olaotse Mantshane, Managing Director of Cooperative Banks Development Agency (CBDA).

Preparations are well underway for BANKSETA’s 5th International Conference, to be held at the Sandton Sun, Johannesburg on 1 and 2 November 2012. The conference promises to inspire delegates to ‘ Invest, Educate, Empower’, in l ine with the strategic goals of the SETA.

For people to perform optimally, the mindset should shift from a local, national and international level to a global level. This requires continuous development through intellectual enlightenment. With this in mind, the event will give investment banking companies insight and thought leadership and will further the knowledge of the SETA’s business partners, providing a better understanding of the business and political-economic dynamics of frontier and emerging markets. I t wi l l be a p lat form for knowledge sharing on best practice in the sector, focusing not only on international/global trends and emerging issues, but on the realities of the South African sector.

The event builds on the 4th BANKSETA conference, which touched on globalisation and the future of banking. The agenda for this year will include evolving banking trends and their effect on the financial sector, the future of BRICS, Africa’s economic and development trajectory, Africa as an attractive private equity investment destination, and South Africa as the gateway to the rest of Africa.

The benefits of investing in South Africa will also be explored, as will the role of investment banking in developing the country’s economic growth. Skills development, innovation and legislative developments will be highlighted.

Key speakers include the Minister of Higher Education and Training Dr. Blade Nzimande and local and international professionals such as Professor Ingo Walter, Mr. Daniele Silke, Dr. Martyn Davies, Dr Mabouba Diagne and Mr. Steven Bacher, the business show host on Kaya FM as the programme director.

We acknowledge the tremendous support received from stakeholders such as Absa Capital , Rand Merchant Bank, Absa Islamic Banking, New York University, Stern Business School and Fulcrum Asset Managers, which has guided us on the strategic and investment issues driving the sector.

The conference is free to al l staff members employed in the banking and financial services industries and reflects BANKSETA’s commitment to delivering continuous professional development to people in the sector that it serves. Take your place among the many local and international investment banking executives and thought leaders by attending this not-to-be-missed event.

Visit www.banksetaconference.org.za today to reserve your seat.

5th BANKSETA CONFERENCENOT TO BE MISSED

Key speakers include the Minister of Higher Educationand Training Dr. Blade Nzimande; local and international professionals such as Professor Ingo Walter...

Tel: +27(0)11 805 9661Fax: +27(0)11 805 8348Call Centre: 086 102 0002Anti-fraud line: 0800 205 054

94 Bekker Road, Thornhill Office Park, Block 22, Vorna Valley, Midrand, 1686 www.bankseta.org.za

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BANKING SUMMIT


Sharing the loadThis year’s Banking Summit aimed to �nd solutions on how the country can better fund infrastructure projects, writes Ndivhuho Mafela.

South Africa’s 3.2 trillion rand infrastructure drive has been put at the heart of the nation’s economic development plan. Although government has been calling on the private sector to come to the party, there hasn’t been a clear plan on how funding of su�

projects would be structured. Stakeholders agree that su� projects cannot be funded from the

�scus alone, therefore public–private partnerships would be the natural route to take if the country is to experience serious economic development.

�e Banking Association South Africa (�e Association) hosted the Banking Summit 2012 with a strategic aim to �nd solutions on how the country can fund infrastructure projects be�er. �e Summit

couldn’t have come at a be�er time when the National Planning Commission had just released the National Development Plan.

Sizwe Nxasana, Deputy Chairman of the Banking Association, welcomed government’s National Development Plan and urged all South Africans to familiarise themselves with the document as it addresses key issues su� as underdevelopment and unemployment, whi� a�ects the majority of South Africans.

�is sentiment was also e�oed by Deputy Finance Minister Nhlanhla Nene who urged the �nancial services sector to look at ways of coming up with a plan that will mat� and fund the aspirations of the national development plan.

Nene applauded �e Association for opening up a dialogue that seeks to address the �allenges facing South Africans today, whi�

The panel: Ravi Naidoo - Group Executive for Development Planning (DBSA), Jacqueline Molisane - Financial Analyst (Dept of Public Enterprise); Andre Smit - Snr Policy Advisor (ASISA), Cas Coovadia - MD (The Banking Association SA) and Sihlalo Jordan - Partner (Deloitte)


are unemployment, be�er healthcare and public infrastructure.Both government and the banking sector are in agreement that

the country’s problems cannot be solved by government alone.Nene further added that banks are key players in South Africa’s

development and urged them to get more involved and come up with long-term visions to assist the government, since they already have the required skills and infrastructures in place to do so.

‘�e government does experience �allenges and the nancial services sector is willing to partner with government to arrest �allenges. Banks in particular are willing to explore innovative ways of funding infrastructure,’ said Cas Coovadia, Managing Director of �e Banking Association South Africa.

�rough the summit, the banking sector has made it clear that it stands ready to partner with government at all levels to ensure that the infrastructure that is required is funded. But the coordination of su� funding has remained a major �allenge as Nxasana puts it: ‘�e banking sector welcomes the establishment of the Presidential Infrastructure Coordination Commission to oversee the huge capital investment by the South African government. We should, however, register our concern in that the private sector is no wiser about its envisaged role and the processes thereto, in the funding process, except the occasional reference to the important role that the sector needs to play – o�en at the level of generalities.’

�e banking sector has called on government to engage in thorough consultation process when it comes to nancial modelling for public-private partnerships and role delineation between

commercial nancial institutions and the Development Finance Institutions. �is would be a key driver of successful public-private partnerships.

Public-private partnerships – in whi� the public and the private sector share the nancing, risk and reward of a public infrastructure project – have been unbalanced in the past and need to be refashioned. Traditionally, funding of su� projects has been the exclusive domain of government.

�e identi cation and structuring of options for nancing the infrastructure plan are not clear in all instances, whether it be projects being rolled out by government departments or state-owned enterprises. �is includes funding mix between nancing directly from the scus, nance raised on capital markets, debt nancing or development and donor funding.

Beyond direct nancing from government, the nancing of infrastructure equipment and component manufacturers and suppliers, as well as infrastructure developers in line with the objectives of the Industrial Policy Action Plan and the New Growth Path and the Local Procurement Accord, represent potential sectors where the South African banking sector may play a larger nancing role. In particular, this may include nancing for small to medium sized enterprises and cooperatives involved in components manufacturing and assembly.

�e integration with the African Union’s NEPAD Presidential In-frastructure Initiative, with a view to the creation of new regional markets and increased market access through deepening infrastruc-

Ravi Naidoo, DBSA: ‘ ‘�ere needs to be a shi� from short-term to long-term strategic purpose of projects.’

��

��

��


BANKING SUMMIT

ture linkages and connectedness, present new markets for the provi-sion of trade �nancing, banking platforms and transaction services for regional business subsidiaries and deal �nancing between South African enterprises and their regional counterparts.

One cannot help but note that generally, the political tone has been one of an aversion to �nancing with stringent conditions su� as those associated with the structural adjustment programmes of the International Monetary Fund (IMF) and World Bank.

Many infrastructure projects have both a social and a commercial component, and therefore require a hybrid �nancing approa�. �erefore, the optimal �nancing structure needs to be tailored on a case by case basis to �t the speci�c nature of the infrastructure project. �e same applies to the repayment model.

Government should provide �rst-mover guarantees, or fund the �rst stages of riskier projects so as to a�ract the banking sector into subsequent phases of a project. �e more government can address private sector concerns, the more money will �ow in. However,

government also needs to ensure that the private sector comes in on a proper developmental basis. �is means localising production wherever possible.

Panel discussions held throughout the day explored the key areas where the banking industry and government could plan and work together towards a common goal to alleviate the three ills facing our nation, whi� are unemployment, poverty and inequality.

‘It is now the appropriate time to form partnerships with clear roles so we can use the National Development Plan to a�ieve sustainable growth and development for our people,’ said Nxasana.

He described South Africa as a young and vibrant economy with enormous opportunities and �allenges that can only be addressed through platforms like the Banking Summit.

�e deputy minister said some of the projects are still in the implementation stages while others su� as housing, rail-ways, new hospitals and universities are already underway. ‘In order for this plan to succeed, we need the corporation of all

Andre Smit, ASISA: ‘All stakeholders involved in the NDP need to regulate stability and promote healthy investing.’

24

BANKING SUMMIT


stakeholders including banks. We need to come up with plans to nance and maintain it. Many skills exist in the banking sector and we need to put our heads together and think out of the box to create sustainable development that will create su�cient jobs,’ said Nene.

Sihlalo Jordan of Deloi�e said that the true cost of the infrastruc-ture is going to be commitment by government and the private sector in making sure that the NDP is a success. He said the main �allenge will be to understand the South African population and their needs to create a social investment plan that will create jobs and make sure that people do business in South Africa.

Andre Smit, Senior Policy Advisor at the Association for Savings and Investment South Africa (ASISA), said that all stakeholders in-volved in the implementation of the NDP needed to regulate stabil-ity and promote healthy investing. ‘In the R700 billion we have put into infrastructure we need to create relations that will coordinate e�orts of improving our society.’

Cas Coovadia, �e Banking Association: ‘Banks in particular are willing to explore innovative ways of funding infrastructure,’

Financial analyst at the Department of Public Enterprises, Jacqueline Molisane said that the summit had played an important role in creating a close relationship between the private sector and government. She said this will also encourage state-owned enterprises to commit themselves in strengthening and enhancing the roles they play in our societies.

‘�ere needs to be a shi� from short-term to long-term strategic purpose of projects,’ emphasised Ravi Naidoo, group executive for development planning at DBSA. He said that a lot of work still needs to be done to create a long-term purpose plan for the country.

‘�is will give us enough time to plan and make sure that the projects have a long lasting legacy in our societies,’ he said. ‘All successful countries have long-term plans,’ said Naidoo in conclusion. ■ Ndivhuho Mafela is the Manager in Stakeholder Relations Division at �e Banking Association South Africa.


Deputy Minister Nhlanhla Nene: ‘We need to put our heads together and think out of the box to create sustainable development that will create su�cient jobs.’

Sizwe Nxasana, FirstRand: ‘It is now the appropriate time to form partnerships with clear roles so we can use the National Development Plan to a�ieve sustainable growth and development for our people.’

Cash-based collateral dethroned

In a world scarred by the events of 2008, considerable questions have been raised regarding asset safety, the mitigation of counterparty credit risk, the protection and use of collateral and greater demands on transparency within the financial services arena.

New regulations will be enforced to mitigate many of the risks in the greater market regarding capital adequacy. Basel III, Solvency II and Regulation 28 of the Pension Funds Act are examples of these regulations that will place a greater emphasis on the retention of liquid assets on the balance sheet of South African financial institutions. This will increase the need to collateralise financial transactions, forcing banks to retain greater cash reserves and increase capital adequacy ratios.

The trend globally in response to regulations such as these has been to rather substitute high-quality liquid securities as collateral for cash as far as possible. Recent published articles have alluded to the likely possibility of a shortage of high-quality eligible collateral, particularly cash, which is the most common form currently utilised in the South African financial markets.

Collateral is a key risk-management tool used to manage credit and counterparty risk. It is common to re use collateral received against other financial exposures. However, the current bilateral nature brings with it limitations, such as the incomplete overview of placed and received collateral, as one counterparty can only “see” their collateral as far as their direct counterpart. There is often uncertainty relating to the size of the collateral, where it has been reused and how it can be traced throughout its movements to the final holder.

The fungible nature of cash used as collateral also brings with it uncertainty of recovery in the event of financial failure of the counterparty receiving the collateral.

There are complexities when using securities as collateral, such as daily collateral calls, corporate actions, manual collateral substitutions, management of eligibility criteria and collateral valuations. This can be administratively intensive and the build-up of collateral silos across financial products also leads to inefficient use of collateral or over collateralisation. Studies show that in 2007 global defaults on debt were US$8 billion (approximately R54.64 billion), which spiked to over US$400 billion (approximately R3.98 trillion) a year later – when the financial crisis hit.

According to Finadium, a specialist research and advisory firm in the securities and investments industry, failure to effectively manage and implement effective and efficient collateral management systems could result in the loss of financial and revenue opportunities.

There is a growing demand for more automated solutions, focusing on solutions that streamline processes and improve operational efficiencies. The focus and trend internationally is to adopt a single, centralised market-wide collateral management system that manages the members’ pool of exposures against the members’ pool of collateral placed.

The South African financial market is looking at a centralised, market-wide multi-asset class integrated collateral management solution. This complies with local regulations and complements current collateral management functions within financial institutions, and is aimed at improving the tracking and efficient use of collateral management in South Africa.

The Tri-Party Collateral Management service, which is being driven by Strate as South Africa’s licenced Central Securities Depository (CSD), will manage eligible dematerialised bonds, equities and money markets in multi-currencies.

Tel: +27 (11) 759 5300 • Fax: +27 (11) 759 55001st Floor, 9 Fricker Road, Illovo Boulevard,I l l o vo , Sand ton , 2196 , Sou th A f r i c a .Email: [email protected] • www.strate.co.za

As South Africa’s world-class Central Securities Depository,

we are always asking ourselves what can go wrong? Through

our passionate management of risk for the financial markets,

Strate is trusted to provide certainty to the post-trade

securities environment, ensuring we leave nothing to chance.

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‘Use of brains begets wealth’ is a ‘Sheng’ saying which is a youth language combining Swahili and English developed by Kenyan youth about working hard and thinking smart. You’ll fi nd dedicated smart thinking legal professionals at Werksmans – who use their expertise and work together to ensure a successful outcome. Each of our legal professionals has a wealth of individual talent, which combined, makes Werksmans one of the leading legal fi rms in South Africa. No matter where business takes you in Africa, if you want an incisive banking and fi nance legal team behind you, keep us close.

Visit www.werksmans.com to fi nd out more about our legal success in Africa.

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THE CORPORATE & COMMERCIAL LAW FIRM

JOHANNESBURG +27 (0)11 535 8000 CAPE TOWN +27 (0)21 405 5100 www.werksmans.com

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TLG_JN5074

SUSTAINABILITY


The Banking sector, like so many others, is under pressure to demonstrate responsibility in managing the impacts its business has on society and the natural environment. Clearly its direct impacts are limited to those of accommodating sta�, engaging customers

through various media and enabling access through bran�es, ATMs and electronic means. �e indirect and perhaps more important impact is in the secondary e�ects of what it �nances.

To demonstrate that it has considered the impacts and the risks and is taking proactive steps to reduce risk to the sector, the �ief executive o�cers of members of �e Banking Association South Africa (�e Association) have adopted a Code of Conduct for Managing Environmental and Social Risk (Code of Conduct).

�e Code of Conduct recognises that �nancial institutions can, and do, play a role in the protection, promotion and ful�llment of social, economic and environmental rights in South Africa, by conducting their operations in a sustainable manner. �e Code addresses both the operational and organisational impacts and the need to proactively promote responsible practice through their value �ains. �e lending decisions of members and the operations of their clients could have signi�cant implications for the country as a whole, considering the resource-intensive nature of many of South Africa’s industries as well as the nation’s resource base and ri� biodiversity.

�e Code supports and a�nowledges the existing practice of �e Association’s members and sets out a framework that pro-vides a ben�mark for what is required. �e framework includes own operations and procurement, lending practices and products and services.

OWN OPERATIONS AND PROCUREMENT�e Association members commit to complying with applicable national law and regulatory requirements and endeavour to meet international norms and standards.

Ea� member bank will assess, document and report on the direct impacts that they have on the environment and the communities in whi� they operate and implement controls to mitigate risk. �is includes their own use of energy and natural resources, waste management and promotion of recycling initiatives. On the social side members will seek to maximise social bene�ts that might result from operational �oices, su� as job creation, meeting economic empowerment standards and extending �nancial services into communities whi� have historically been excluded from the banking system.

LENDING PRACTICESMembers will set up internal processes to identify high risk industries where additional due diligence may be required, and will ensure that their credit and risk management policies give due recognition to environmental and social risks when making lending decisions. Further, ea� member will develop due diligence guidelines to guide their sta� when interacting with high risk industries.

Salient member banks whi� provide project �nance facilities to clients have adopted the global Equator Principles framework for assessing and managing environmental and social risks when providing clients with credit facilities. Equator Principles Financial Institutions are required to create systems and procedures to identify, measure and monitor environmental and social risks during the life cycle of project �nance agreements, whi� will be reviewed regularly for adequacy and e�ectiveness.

PRODUCTS AND SERVICESWhere it is commercially viable and sustainable, �e Aassociation’s members will promote the inclusion of individuals and small enterprises into South Africa’s �nancial sector framework, as well as the promotion of job creation and economic and environmental sustainability in all activities, including corporate social investment.

�e members support the transition to a low-carbon economy and will develop commercially-viable approa�es through lending facilities and �nancial products that support the expansion of the green economy. ■

www.banking.org.za

Code of conduct for managing environmental and social riskRegistered commercial banks have adopted a code to manage their impacts on society and the environment.

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CUSTOMER’S VIEW


BANK CUSTOMER DANE INGS runs an Internet marketing consul-tancy, Ever.co.za. He gets a lot of mail, some of it very unwelcome.

‘What happened was that I got a fake e-mail, a phishing scam. I get quite a few that resemble the FNB website and on that day I thought ‘I’m really tired of this. I wish I could do something about it’. I wanted to actively help the bank to catch these individuals.’

Many of us have had the same impulse. It’s community-spirited, and the community in this case is the bank and its customers. That’s how banks would like their customers to think of them, so there are two opportunities here: to get real-time information on phishing, and to build a closer relationship with a client.

Three opportunities, really. It’s also a chance to alienate a customer by making him do the work, and Dane was well aware of that risk. ‘Then I thought – okay, where do I get the right contact details, and how long is that going to take me? I’ve got to go to the website, find the right contact, then sit on the phone for who knows how long listening to music, and eventually get through to someone who’ll refer me to someone else.’ Dane played that out in his mind and thought, no, too much trouble. ‘And then it just dawned on me: I wonder if they have a Facebook page? So I searched in Facebook for FNB, landed on their page, pasted in the link and wrote ‘If you’re interested, someone pretending to be FNB just tried to scam me’. ‘Fifteen minutes later their representative replied to me and said “thanks for the heads up”.’

That near-instantaneous live interaction with a customer is a perfect example of social customer relationship management, social CRM. ‘I didn’t have to worry about phoning or cost or my time. I could quickly go to a site that I’m already subscribed to and just fill in

Real timeHow easily can your customers contact the right person in your bank?

whatever I needed to do. And that’s pretty much what happened.’FNB’s Facebook presence had effectively brought the right contact

to the customer. He didn’t get any further feedback after the initial acknowledgement, but doesn’t feel he needed it in this case. He was satisfied that he’d been heard and that his effort was appreciated. ‘I think a lot of banks are catching onto using social media as a CRM tool. Some are maybe more active than others, but they’re all looking at it.’

THE LESSONIt’s true – look at any South African bank’s Facebook page and

you’ll see clients posting all kinds of queries and banks answering them, though the usual response time seems to be about an hour. It’s effortless and free for clients who don’t want to drag themselves through call menus, pay for a call or even stop what they’re doing while they wait for an answer.

‘I was impressed that they had someone there monitoring it,’ Dane says. ‘Fifteen minutes was pretty much long enough. Once it passes that threshold it’s no longer real time, it turns to nothing.’ On busy social pages where the high number of users constantly keeps pushing posts down the page, just to find your post to check for a response can take time and effort. ‘The faster it is, the easier it is for you to see the reply and to be a part of it. Real time is the best thing about it,’ Dane affirms.

‘Build it and they will come,’ the old saying goes. The new saying should be ‘Build it, monitor it and respond in real time, and they will come back.’

DebtIN-200x81mm.indd 1 9/17/12 12:31:40 PM

‘The faster it is, the easier it is for you to see the reply and to be a part of it. Real time is the best thing about it.’

Sources: Deloitte Analysis, Wireless Intelligence, StatCounter, Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast UpdateOn Device Research, mobiThinking

© 2012 Deloitte & Touche. All rights reserved. Member of Deloitte Touche Tohmatsu Limited.

Designed and produced by Creative Solutions at Deloitte, Johannesburg. (803447/den)

Percentage of mobile only internet users

Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %

Is technology, and the data it produces, the answer to inclusion?

8m

10m

smartphones in 2011(double that of 2010)

Now estimated at

smartphones (March 2012)

Combined, Africa has 230 million financially excluded households

(grew by 203 %)

The Middle East and Africa

Strongest mobile data traffic growth of any region at 104 % CAGR

less than10%

internet-enabled mobiles 84m

69%of mobiles in Africa will have internet access by 2014

of the insurable population in Africa is insured

are financially excluded

1 in 3 adults

9.1m

South Africa Africa

of adults do not have, any financial products and services

27%

are unbanked or underbanked

unbanked

27%under banked

10%

37%

2 in 3 adults

have no form of insurance

57%

66.7mmobile phone connections(March 2012)

Challenges Financial literacy and disempowerment Siloed view of the customer Existing product/branch cost structuresModern skills and governance proceduresCredit and consumer regulationInsufficient infrastructure and access

Opportunities Financial education and empowerment Single view of the customer Technology enabled economies of scale Embedding risk management into systems and culture Entrenching customer analytics Agent banking and broking

Considerations for financial service providers

adults around the world are predicted to be unbanked

78% compound annual growth rate (CAGR)

1 in 3 adults

2.5bn 500 mn - 1 bn people worldwide will access financial services by mobile by 2015Global mobile data

2011 2016increased18 fold

6.33 %Jan 2011

19.17 %Jan 2012

Data Insights

700mactive mobile phone connections

Sources:StatCounter, Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast UpdateOn Device Research, mobiThinking




Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %


8msmartphones in 2011(double that of 2010)


grew by 203 %


Strongest mobile data traffic growth of any region at 104 % CAGR. less than10%

internet-enabled mobiles

620 mmobile phone subscriptions

84 m

69 %of mobiles in Africa will have internet access by 2014

of the insurable population in Africa are insured


1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%

59mmobile phone subscriptions





(78% compound annual growth rate (CAGR)

1 in 3 adults

2.5bn 500 mn - 1 bn people worldwide will access financial services by mobile by 2015Global mobile


6.33 %jan 2011

19.17 %jan 2012

Data Insights







Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights


Sources: Deloitte Analysis, Wireless Intelligence, StatCounter, Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast UpdateOn Device Research, mobiThinking




Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %


8m

10m

smartphones in 2011(double that of 2010)

Now estimated at

smartphones (March 2012)


(grew by 203 %)


Strongest mobile data traffic growth of any region at 104 % CAGR

less than10%

internet-enabled mobiles 84m

69%of mobiles in Africa will have internet access by 2014

of the insurable population in Africa is insured


1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%

66.7mmobile phone connections(March 2012)





78% compound annual growth rate (CAGR)

1 in 3 adults

2.5bn 500 mn - 1 bn people worldwide will access financial services by mobile by 2015Global mobile data


6.33 %Jan 2011

19.17 %Jan 2012

Data Insights

700mactive mobile phone connections





Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights







Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights






Egypt

South AfricaGhana

Kenya

Nigeria

70 %

57 %

55 %

54 %

50 %




grew by 203 %





84 m




1 in 3 adults

9.1m

South Africa Africa


27%


unbanked

27%under banked

10%

37%

2 in 3 adults


57%







1 in 3 adults



6.33 %jan 2011

19.17 %jan 2012

Data Insights


70% of consumers

would give banks

more personal

information if it

improved service

levels

34

BANKING NEWS


Customers take chargeThe behaviors and preferences of banking customers are changing worldwide, according to Ernst & Young's 2012 global consumer banking survey.

Consumers who are taking control of their banking relationships, are increasingly likely to ange banks and expect to be able to oose between a range of service levels and costs, according to Ernst & Young’s 2012 global consumer banking survey.

�e study, whi questioned 28 560 banking customers across 35 countries, highlights how customers also expect to be �nancially rewarded for their loyalty. Pierre Pilorge, Ernst & Young’s Financial Services Advisory Markets Leader for Europe, Middle East, India and Africa says ‘Customers are sending banks a very clear message – “we are taking control”. ‘In response, banks must re-evaluate customer trends region by region to prioritise products, enhance services, and ultimately give customers what they want,’ he adds.

Banks need to make it personal. Globally only 44% of customers say their bank adapts products and services to meet their needs. Seventy percent of customers would be happy to disclose personal information if it improved the level of service and products they were o�ered. ‘Customers are looking to banks to help them shape their experience. Banks need to reassess their o�er and consider more tiered products and services,’ pronounces Pierre. … and reward loyalty properly! Loyalty reward semes are on the rise with 27% of customers are enrolled on a seme, up by 50%

from 2011. However, customers expect more – the overwhelming majority agreed that if you have three products or more with a bank you should get be�er service (86%), and that you should be arged lower fees or given be�er rates on your savings accounts (91%). ‘Across multiple business sectors, tenology has empowered customers to seek tangible rewards and now banks are facing that reality,’ says Pierre. ‘Customers expect to be rewarded for the

value of their business not just the duration of their banking relationships.’

Customers are more likely to shop around Consumers are becoming less loyal and

increasing the number of banks they use. Consumers who use only one

bank have fallen from 41% to 31%. �e number of consumers planning to ange banks has risen from 7% to 12% year on year and a�rition rates have increased in several major markets. Poor bran experience

(31%) and la£ of personalised contact or service (26%) are rising up the list of

reasons for anging provider, although dissatisfaction with high fees continues

to be the most commonly cited driver of a�rition, cited by 50% of respondents. Pierre says

‘Pricing remains critical to customer satisfaction, but most customers have no idea how mu they pay ea year. As they start to take control of their banking relationships, clearer communication


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36

BANKING NEWS


about fees is customers’ most sought-after improvement. People are more willing than ever to shop around and want control over what they pay for the service they receive. Banks need to respond – pricing and service promises need to be transparent if banks are to deliver something customers value.’

The customer voice is growing in strength, amplified by increasing social media use. Banks have made progress in improving their communication channels. Both call centre and mobile banking services have improved, with customer satisfaction up by 8% and 16% respectively year on year, however, the power of the consumer voice has overtaken banks communication channels. Personal recommendations from family and friends are the top source of information about banking products, with 71% of consumers relying on this information as their primary source. Fifty five percent of consumers refer to online communities or social networks for advice and a third of customers who use social networking use it to actively comment on the service they receive from their bank.

‘Customers prefer turning to other sources than their bank for financial advice and to find the best deals. Comparison websites, relatively unknown five years ago, are now the second major source of influence, ranking higher than banking advisors, and the use of social media as a source of banking information is amplifying customers’ voices, giving them greater power as advocates or critics,’ concludes Pierre.

SOUTH AFRICA‘Across the world we are seeing consistent themes with customers taking control, concerned about how they are engaging with banks across the life cycle. We are seeing high upmarket loyalty, especially in the South African context,’ Colin Daley, Associate Director of Advisory Services for Ernst & Young, said on Summit TV. ‘We are seeing customers who are willing to be self-serviced and will engage with banks directly using the internet for transactions. If we look at South Africa, for instance, 91% of customers say they are willing to provide their banks with information and be involved in developing products and services. That’s a huge change.’

Of the customers in South Africa who have switched banks, 70% cited high fees or charges as the main factor, the survey reported. Thirteen percent of customers in South Africa are planning to switch banks. Daley says ironically banks in South Africa are quite forthcoming with information around fee structures and how

customers are charged, but 63% of South African customers are still citing clarity around fees as the top intervention for banks to improve customer satisfaction service. He said that in interactions with some of the South African banks, the banks felt that they were doing all they can in this area. However, customers are still not satisfied.

The Ernst & Young survey shows that 39% of customers are using only one bank, compared with 11% in 2011. Among those who multi-bank, 29% are looking for the best rates or fees for each product. Daley says that customers are doing their own research more and more and the phenomenon of “omnichannel” strategies is important for banks to embrace.

He explains that omnichannel focus refers to customers wanting to be able to engage with their banks through different channels – be it social media, physical structures such as branches or over the telephone. And they want all these channels to be integrated so that one query on one channel can be followed up using another channel.

The study also found that new emerging players are increasingly encroaching on the large banks’ markets, often focusing on low-income earners where revenue growth is highest. Two other factors coming out of the study are that South African customers place more importance on loyalty programmes and they are active in the social

Only 44% of customers say their bank currently adapts products and services to meet their needs

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At Ernst and Young,we’ll give you opportunities towork for the world’s leadingbusinesses in an environmentthat we know you’ll findchallenging and stimulating.Welcome to the world of seeingmore. To find out more, go toey.com/careers

See More | Opportunities

We know in today’s world, you face unprecedented challenges and responsibilities. According to our latest Global Consumer Banking survey, customers are switching banks, changing their behaviour and demanding improvements. At Ernst & Young, we help banks respond to this by assisting them with reconfiguring their business models around customer needs. Find out how our financial services teams can help you find a resolution at www.ey.com/za.

See More | Vision

The financial services landscape.

We can help you navigate it.

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BANKING NEWS


91% of consumers expect financial rewards for loyalty to their banks

media space, which means that banks that are not focusing on these two aspects may fall behind the curve. Looking at an analysis done by Ernst & Young on the first half performances of the three major banks that have already reported, Emilio Pera, Financial Services Sector Leader for the Africa sub-area, said that it is unlikely that the bank’s cost to income ratios are going to get back to the levels it was in 2008. He said that especially with the demands from customers to offer multiple channels for interaction and the subsequent IT investment that is necessary, along with looming costs linked to regulatory changes, these ratios could remain at levels around 56%. ‘Banks want to contain their costs, but you could lose market share if you hold back too long,’ he said.

ABOUT THE SURVEYThis research was conducted between February and March 2012 using an internet questionnaire. A total of 28 560 participants were surveyed, comprising 13 001 in EMEIA, including 500 in South Africa; 3 002 in North America, 4 548 in Latin America and 8009 in Asia-Pacific. ■

To read the full report visit www.ey.com

HOW CAN BANKS REBUILD CUSTOMER CONFIDENCE?Encourage customer self service Banks need to improve the way they provide information and advice to interest and convince self-directed customers, including financial planning tools, ranges of product and pricing bundles.Personalised banking Customers who report a more tai-lored experience are often most willing to provide their banks with more frequent updates.Better value and service Customers are demanding more control of their relationships and will look around for the most attractive fees and rates for the level of service provided.Leverage customer advocacy Banks should embrace the use of social media as a source of banking information, as views of online communities and affinity groups become more influential.

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See More | Vision



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CONSUMER CONFIDENCE IN THE BANKING SECTOR.

Banks have recently been on the receiving end of considerable public scrutiny, driven by their perceived role in triggering the global �nancial crisis, and a sluggish economic recovery ever

since. Executive compensation is seen to be out of sync with underlying fundamentals, and in many regions, banks are thought to be holding back on extending much needed loans, thereby exacerbating the slow growth environment.

A recent Ernst & Young global survey of consumer banking con�dence reveals some insightful perspectives on just what the consumer’s viewpoint of banks is. This is the second annual Global Consumer Banking survey, providing indications of where and how consumer perceptions and behaviour is shifting. Overall, the survey examines the views of more than 28,500 banking customers in 35 countries, and was polled in March 2012.

The survey focuses on the reasons for the changing behaviour of the consumer towards their bank and how likely they are to switch banks. The survey also speci�cally focuses on the channels consumers use to engage and transact with their bank, the drivers for customer satisfaction and the steps banks can take to enhance customer loyalty.

The high level �ndings include:• Customers are switching banks, changing their behaviour and

demanding improvements. In response, banks are re-evaluating and changing how they interact with their customers. They are providing customers with greater �exibility, choice and control, and recon�guring their business models around customer needs.

• Customers are becoming less loyal to their main bank, and they are increasing the number of banks they use. The proportion of customers planning to change banks has grown by 70% since 2011, and attrition rates have increased in several major markets. High fees are the leading driver of attrition.

• Multi-banking is becoming more prominent as customers search more actively for the best rates and products. Attrition has increased in both developed and mature markets, with North America seeing particularly strong increases, whilst the developing world saw increased customer switching across three of the four BRICS countries, (namely Brazil, India and South Africa). In South Africa, although customer attrition has increased, close to 40% of the consumers surveyed remain loyal to their bank, making use of only one bank.

• Customer advocacy and word of mouth is rapidly gaining power. Customers are most likely to seek banking advice and information from friends and family, but online reviews and opinions are also gaining in�uence. South Africans primarily use word of mouth to keep themselves informed. Financial comparison websites are used by 65% of customers, eclipsing �nancial advisors and encouraging customers to take control of their own research and decision-making.

Social networks are increasingly important sources of information, and magnify banking customers’ ability to act as in�uential advocates — or critics. Just under half of all South Africans surveyed use social networking sites to comment on the service they have received.

• Customers place a high value on personalised products and services. A majority are ready to provide more personal information to their bank, as long as they receive a more tailored offering in return.

However, personalisation goes beyond appropriate products. Customers’ channel preferences are becoming increasingly complex, and they like the convenience of �exible access to their bank. Banks need to let customers choose how they interact and offer different cost and accessibility options.

• Pricing remains a critical driver of customer satisfaction and a vital tool in banks’ �ght against customer attrition – this is particularly relevant for the South African consumer. In addition to demanding more transparency on fees and charges, as well as more favourable interest rates, customers desire improved digital banking. Mobile banking offers particularly strong potential for growth — and consequently for reducing costs — if customers can be reassured about its security. Overall satisfaction with the major distribution channels is high or improving, but customers want to see further improvement in vital, everyday services.

• Customers see bank loyalty programs as playing a crucial role to play in retention and acquisition. For the banks, greater loyalty among more af�uent customers has the potential to outweigh the cost of providing �nancial rewards. Enrolment in loyalty programs is accelerating fast, in particular in South Africa where the number of consumers that are enrolled in a loyalty programme doubled in the last year. Developing tailored rewards for speci�c groups of customer segments could help banks boost enrolment in other markets and interactions.

In conclusion, the behaviour of retail banking customers continues to evolve rapidly. This survey shows that customers are becoming more assertive and taking greater control of their banking relationships.

They are increasingly less loyal and are more likely to try new banks. They are listening to each other and becoming more vocal as advocates — or critics. They are also demanding lower costs, better service and greater personalisation and �exibility. Faced with this fast-changing environment banks are recon�guring business models around customer needs. Just as no two banks are exactly the same, there is no single strategic response that will suit every institution.

Special Feature

40

IT


IT complexity in banking: model, measure and master‘If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it,’ H James Harrington writes.

Capco, a global business and technology consultancy dedicated solely to the financial

services industry. We work in this sector only. We recognize and understand the opportunities

and the challenges our clients face. We apply focus, insight and determination to consulting,

technology and transformation. We overcome complexity. We remove obstacles. We help our

clients realize their potential for increasing success.

The value we create, the insights we contribute and the skills of our people mean we are more

than consultants. We are a true participant in the industry. Together with our clients we are

forming the future of finance. We serve our clients from offices in leading financial centers across

North America, Europe, Africa and Asia.

Capco Johannesburg 23 Wellington Road, Parktown, 2193, South Africa+27 (11) 486 9541 CAPCO.COM [email protected]

42

IT


Most established banks have evolved various core IT systems as product demands have anged. �ese have been further augmented by requirements for customer centricity, real-time demands of direct annels, along with

analytical and reporting functionality in the middle o�ce and business operations environments. �e direct result has been a proliferation of peripheral systems and an ever-increasing level of complexity in the IT environment.

Banks face increasing pressure to rapidly develop and deliver new products and services into existing and new markets, while reducing costs and complying with an ever-evolving regulatory environment. �ese allenges are further heightened by a complex IT environment.

�e IT �eld is �lled with anecdotes about organisations trying to contain, explain and manage complexity. O�en there is an inclination to assume that if complexity exists, we should try to reduce it. As computer science pioneer Alan Perlis once said, ‘Fools ignore complexity. Pragmatists su�er it. Some can avoid it. Geniuses remove it.’

Pure genius, however, is rare. And with our world in a state of constant change, we need to master, not remove complexity. The reduction of complexity can reach a point of diminishing returns, and complexity can allow greater business flexibility. Without a doubt, an appropriate level of complexity is neces-

sary to maximise return. The challenge is how to achieve this.

HOW DOES A COMPLEXITY METRIC FIT INTO THE BUSINESS AGENDA?�e core parameters that dominate a ief information o�cer’s agenda – cost, quality and �exibility – are all in�uenced by complexity, and business leaders have to make daily tradeo�s between them. Consciously taking complexity into account, through a complexity metric, will improve the e�ectiveness of ief information o�ce’s decision-making… and make those decisions easier to explain.

THE COST IMPACTCost containment has been one of the most pressing issues for CIOs in recent years. CIOs of large �nancial institutions preside over signi�cant IT budgets and, by extension, substantial complexity. �e decisions they make can in�uence long-term business, and have potentially signi�cant �nancial consequences. Clearly, complexity drives cost.

THE QUALITY IMPACT�e issue of quality has also moved up on the CIO’s agenda. �ere are clear correlations between quality and long-term operational costs. And the maturation of tenologies has led IT end-users to be less forgiving of quality issues. Complexity correlates to quality intuitively.

44

IT


THE FLEXIBILITY IMPACT�e relationship between complexity and �exibility oen forms a vicious circle. �e more complex the system landscape, the harder and more risky �anges become. As a result, �exibility decreases. Flexibility gained by adding new functionality and new te�nology qui�ly drives up complexity.

THE POWER OF QUANTITATIVE METRICS‘Measurement is the �rst step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.’ (H James Harrington)

Complexity has become an overused word in the IT �eld. It is used with increasing frequency in publications and elsewhere to describe how management views decision-making broadly, as well as in relation to speci�c functions across and within industries, su� as IT and risk management.

All CIOs have biased opinion based on experience. Many decisions are tied almost exclusively to experience and straightforward �nancial analyses, su� as project costs and estimations. CIOs and IT leaders need a transparent, objective framework to augment the experience they bring to decision making. Su� a framework can aid in articulating and communicating decisions both across and outside the organisation, an increasingly important requirement as corporate directors and regulators expand their scrutiny of business and te�nology decisions.

HOW TO MEASURE COMPLEXITY�e observation o�ered above by leading performance and quali-ty expert H James Harrington highlights the central role that mea-surement plays in addressing complexity. To address these issues, Commerzbank and Capco developed an IT complexity model and management decision tool. In its current state, the model applies to the application landscape: single applications, application clusters, application domains and the entire application landscape.

�e model consists of several complexity indicators covering relevant dimensions of application complexity. Capco and partner clients have statistically validated these complexity indicators through quantitative resear� using real-life data on approximately 1 000 applications over three years.

�e complexity indicators of the model cover four dimensions: functional, interface, data and te�nology. Ea� indicator measures a relevant aspect of complexity. According to Capco, these mea-

sures become most useful if considered in conjunction rather than in isolation.

IMMEDIATE APPLICATION AND BENEFITSA complexity model can be applied to important IT decisions at any �nancial institution aer some calibration and data gathering. �e model can also help educate IT leaders, and it can foster dialogue between the IT department and the business units it serves. Decision and trending analysis: IT executives will immediately be able to use it to analyse the impact of decisions and perform trending analysis. �is will help them understand how their decisions might a�ect future cost, quality and �exibility of IT projects. IT ar�itecture: perhaps most interesting is the notion of

looking for complexity across the overall ar�itecture. �is will support conclusions regarding the impact of �ange on the entire infrastructure, including networks and other aspects. Bridging the gap between business and te�nology: an addition to informing decision making within the IT organisation, a complexity measure should help IT executives to be�er explain and provide an objective basis for discussing their decisions with business, helping CIOs articulate implications of initiatives, costs over time and so forth. By articulating complexity in this way, CIOs will be able to strengthen inter-company partnerships and create new opportunities to a�ieve measurable results. Business processes: in many instances, te�nology cannot be simpli�ed without corresponding simpli�cation of the business process. In the future, a complexity metric could serve as a process measurement to help identify opportunities for simpli�cation, or as a heuristic to measure the e�cacy of business process �anges.

CONCLUSIONA complexity model (with its associated metrics) provides a means to be�er measure and therefore manage complexity.

�e creation and application of a complexity model o�ers an extraordinary new opportunity to understand the levers that drive cost, quality and �exibility. Meaningful, simple to understand metrics will help objectively communicate the rationale behind various strategic decisions, and bridge the gap between business and te�nology in providing a new level of transparency across the business and IT. ■

For more information contact +27 (0) 11 486 9541 e-mail: [email protected] or visit: www.capco.com

Fools ignore complexity. Pragmatists su�er it. Some can avoid it. Geniuses remove it.

46

MEMBER BANKS

SA BANKER Edition 3

Contact detailswww.Nedbankgroup.co.za

Tel: +27 011 294 4444

Q & AName of bank: Nedbank Group Ltd.Who owns the bank: 52% is owned by Old Mutual Plc. Core business: Nedbank consists of �ve core clusters: Nedbank Capital, Nedbank Corporate, Business Banking, Nedbank Retail and Nedbank Wealth.Target market: Nedbank is a universal bank, o�ering products and services to all client groupings from individuals (entry level to high net-worth), small businesses to large corporates, multinationals and the public sector. Core values or di�erentiators: Nedbank is a vision-led and values-driven company. �e most prevalent values, as voted by sta� are: accountability, integrity, respect, pushing beyond boundaries and people-centred. Our Deep Green Aspirations is a di�erentiator and informs our products, our operations and business goals. Any newsworthy �anges in the bank’s structure or business in the near future? Given that Africa remains a key medium- to long-term strategic focus area, the Africa division, whi� previously reported under Nedbank Corporate, has been transferred to the centre and reports to our COO, Graham Dempster.Is there a key product or initiative you wish to highlight? Nedbank is making banking more convenient for clients by adding a signi�cant amount of new outlets and ATMs, extending opening hours in 58 outlets and Sunday banking in 50.

�e success of client value propositions su� as Ke Yona (mass market), Savvy (middle market) and Nedbank 4 Me (youth market) resulted in client gains signi�cantly above the industry average and improved cross-sell, evidenced by the 17% growth in NIR. Nedbank also saw increases in the M-Pesa registrations o�ering (with Vodacom), up 7-fold to 955 000.

Servicing the business owner in his personal as well as business capacity is a new unique approa� o�ered by Nedbank (convenience of one point of contact), while the Nedbank@Work proposition of servicing a business’ sta� has been highly successful, adding 80 000 new clients in just six months.

Nedbank is the �rst and only bank to have laun�ed a retail savings bond, raising over R6 billion in funding since inception, followed by a green savings bond, supporting the funding of renew-able energy projects.

Introducing Banking Association Member Nedbank

CEO AND CHAIRPERSON: CHIEF EXECUTIVE NEDBANK LTD: MIKE BROWN NEDBANK CHAIRMAN: REUEL KHOZACSI: The achievement of true social sustainability in Africa requires more than just financial support. It demands commitment to the principles of economic upliftment, business development, job creation, community empowerment and social transformation.

Nedbank Group actively seeks out and pursues opportunities to support communities, develop and grow small businesses, foster job creation and contribute to the overall development of a sustainable and robust social structure in SA and Africa.

International links: �rough Old Mutual Plc and in Africa through our Ecobank Alliance, we have rights to acquire up to 20% in Ecobank (ETI, between November 2013 and November 2014. We also have operations in the UK, in investment banking as well as our private bank, Fairbairn. ■

CONTACT: BELINDA BEZUIDENHOUT (Marketing Director) – 083 302 76440861 114 665 • www.auctionoperation.co.za

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48

MEMBER BANKS

SA BANKER Edition 3

For further information contact Absa on 011 350 4000 or

visit www.absa.co.zaAddress: 15 Troye Street,

Johannesburg, 2001Twitter @absa

http://www.facebook.com/Absa.Bank

Q & A Name of bank? Absa Group LimitedWho owns the bank? Absa is a subsidiary of Barclays Bank whi� owns 55.5%. As of June 2012, Absa had 718,2 million shares in issue and a market capitalisation of R101,4 billion. e group had assets of R808,8 billion. Barclays is a major global �nancial services provider with an extensive international presence in Europe, the US, Africa and Asia. Core business? Absa is a fully �edged �nancial services group, o�ering a full range of retail, business, corporate and investment banking, insurance and wealth management products and services. e group’s business is conducted primarily in South Africa. It also has equity holdings in banks in Mozambique and Tanzania, representative o�ces in Namibia and Nigeria and bancassurance operations in Botswana, Mozambique and Zambia. As of June 2012 the bank had 12.2 million customers, 9 822 automated teller ma�ines and 956 sta�ed outlets. It has 34 086 employees in South Africa and 13 930 in the rest of Africa.Target market? At a consumer level the bank services from the entry level segment up to high net worth individuals and in the business segment from SMMEs to big corporations.Core values or di�erentiators? Under the One Absa Strategy, the bank’s goal is to be a customer and people centred organisation. It is commi�ed to sustained growth in targeted markets, balance sheet optimisation and proactive risk management as well as building a streamlined group. Absa sees skills and people development as a key priority. Any newsworthy �anges in the bank’s structure or business in the near future? In June 2011 Barclays and Absa laun�ed their One Africa Strategy aimed at taking full advantage of Absa’s strong local footprint and Barclays businesses in Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia, the Indian Ocean, Zimbabwe and Egypt.Is there a key product or initiative you wish to highlight? Absa’s partnership with Barclays gives it true competitive advantage: it combines a strong local operation with world class specialist knowledge and an international balance sheet. Signi�cant progress has been made integrating the businesses across Africa under the One Africa Strategy. e Barclays Africa head o�ce has been relocated from Dubai to Johannesburg and management structures

Introducing Banking Association Member ABSA

THE CEO: MARIA RAMOSMaria Ramos joined Absa as Group Chief Executive in March 2009, and is a member of the Barclays PLC Executive Committee. Ramos was previously the director-general of The National Treasury and in January 2004, was appointed as the group chief executive of Transnet Limited. She holds an Institute of Bankers’ diploma (caib), Bcom honours, and an MSC (economics).

aligned. e bene�ts of integration are being seen and discussions are underway on commercial and legal integration.International links? rough its majority shareholder Absa has access to Barclays extensive global presence and network.Name/s of the CEO and/or Chair? Maria Ramos, �ief executive: Absa Group and Barclays Africa; Garth Gri�n, Chairman of Absa Group.A note on your CSI? As a responsible organisation, Absa has a clear sense of its business purpose – to help individuals, com-munities, businesses and economies progress and grow. Absa is commi�ed to creating value for all its shareholders, customers, employees, the community, the government and regulators. ■

Milpark Business School is registered with the Department of Higher Education and Training (DHET) as a Private Higher Education Institution (No 2007/HE07/003) and is provisionally registered with the DHET as a private FET college (No 2009/FE07/058) valid until 31 December 2015.

MILPARK BUSINESS SCHOOL ACHIEVEMENTS

• The Number One Private Provider of the MBA degree and fifth in the overall rankings of accredited business

schools. (2012 PMR.africa national survey on accredited business schools offering MBA/MBL degrees in SA)

• A complete learning path is provided for financial advisers/planners from NQF level 4 to NQF level 8.

• Milpark’s qualifications are recognised by the Financial Services Board (FSB) for FAIS Fit and Proper purposes.

To register, visit www.milpark.ac.za or contact a consultant at the nearest campus for assistance.

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NEW BCOM DEGREE OFFERS MAJOR IN BANKING

BUILD YOUR BANKING CAREER WITH THE RIGHT QUALIFICATION AND SKILLS TO SUCCEED

A degree in commerce with a major in banking will open doors for you in the corporate and investment banking environment. The Milpark BCom also responds to the qualification needs of the financial services industry and legislation such as the Financial Advisory and Intermediary Services (FAIS) Act.

Offering a broad educational foundation for a business career, with two possible areas of specialisation - Banking or Financial Planning, Milpark Business School will give you a headstart.

Milpark Business School is registered with the Department of Higher Education and Training (DHET) as a Private Higher Education Institution (No 2007/HE07/003) and is provisionally registered with the DHET as a private FET college (No 2009/FE07/058) valid until 31 December 2015.

MILPARK BUSINESS SCHOOL ACHIEVEMENTS

• The Number One Private Provider of the MBA degree and fifth in the overall rankings of accredited business

schools. (2012 PMR.africa national survey on accredited business schools offering MBA/MBL degrees in SA)

• A complete learning path is provided for financial advisers/planners from NQF level 4 to NQF level 8.

• Milpark’s qualifications are recognised by the Financial Services Board (FSB) for FAIS Fit and Proper purposes.

To register, visit www.milpark.ac.za or contact a consultant at the nearest campus for assistance.

CT 021 673 9100 | JHB 011 718 4000 | DBN 031 266 0444

NEW BCOM DEGREE OFFERS MAJOR IN BANKING

BUILD YOUR BANKING CAREER WITH THE RIGHT QUALIFICATION AND SKILLS TO SUCCEED

A degree in commerce with a major in banking will open doors for you in the corporate and investment banking environment. The Milpark BCom also responds to the qualification needs of the financial services industry and legislation such as the Financial Advisory and Intermediary Services (FAIS) Act.

Offering a broad educational foundation for a business career, with two possible areas of specialisation - Banking or Financial Planning, Milpark Business School will give you a headstart.

Format��

Assessment��

Target�Audience��

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Banking Business Acumen 1

The Business Essentials Of Banking*Principles of Personal and Business Finance**

Credit 2

Sustainable Unsecured Lending**Effective and Compliant Credit Collections*

Successful Bank Credit for Business Clients**

Sales 2

Mastering Banking Product Sales*

Risk & Risk Management 2

Principles of Governance, Risk and Compliance*Essentials of Compliance Practice in Banking**

Specialised Banking and Finance 3

Principles of Foreign Exchange**Principles of Investment**

Professional Effectiveness for Bankers 4

Personal and Professional Effectiveness*

Management and Leadership in Banking 5

Foundations of Effective Management for Banking*Shaping High Performance Teams in Banking**

Sales Management 5

Mastering Sales Management in Banking**

Specialised aspects of Management 5

Effective Procurement in Banking*Practical Project Management in Banking**

Cornerstone Short Courses 2012

1 Business Acumen 5 Management and Leadership

4 Professional Effectiveness

3 Specialised Banking Disciplines

2 Core Banking Disciplines

52

TECHNOLOGY

SA BANKER Edition 3

GadgetsMobility – more productivity, less baggage. By Charles Boffard.

APPLE MACBOOK PRO WITH RETINA DISPLAYFROM R24 000apple.com/zaThis is not just last year’s MacBook Pro with an eyeball-slicing Retina Display added, though we wouldn’t have said no to that. Apple has turbo-charged what was already one of the best laptops on the market. With new quad-core Ivy Bridge i7 processor, solid-state drives starting at 256GB and upgraded graphics, it’s a steroid-pumped version of its former self, though still only 18mm thick.

And that display! Images and even text give the sensual delight of a week in the Caribbean with the Victoria’s Secret models. Which might be cheaper, but if ever a laptop could tempt you to spend R24 000, this would be it.

MICROSOFT SURFACE PC’SRUMOURED FROM R2 000microsoft.co.zaSomeone in a room full of grey-suited VPs in Seattle said, in a bitter voice, ‘Fine. If Google can launch its own tablet, we can launch two.’ And here they are: the Surface runs Windows RT, similar to iOS, and the bigger Surface Pro, which runs full-fat Windows 8 Pro on an Ivy Bridge Core i5 processor and can handle any Windows applications.

They’re beautifully put together, with 10.6inch/ 27cm widescreens and sleek magnesium coating, but the features that will get your attention are the integrated kickstands and magnetically-attached keyboards: the Surface RT’s 3mm-thin Touch Cover with fl at, pressure-sensitive keys, and the Pro’s Type Cover with mechanical keys and a multi-touch clickpad. Pricing? Nothing but wild rumours so far.

ASUS TRANSFORMER PAD INFINITYR8 000za.asus.comIf you prefer Android phones, you may want to stick with an Android tablet. Like this one: it’s basically last year’s very impressive Transformer with next year’s 1920x1200 HiDef wide-viewing-angle screen on the front and a more powerful quad-core 1.6GHz processor inside. Battery life

with the dock is 14 hours, and the keyboard / dock offers the USB2.0 and microSD

slots that would make iPad owners’ lives so much easier. Available with 64/32GB onboard storage and 8GB

free cloud storage.

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MICRO LUGGAGER3 500micro.co.zaEvery traveller who needs to get somewhere on time has a pair of wheels on their luggage. If yours has four wheels and you can push it through arrivals with one fi gure, instead of dragging it, consider that an upgrade. And now… three wheels, on a bag that can carry you. Micro and Samsonite have designed this cabin-sized bag with a kickplate that folds away out of sight when not in use.

Somewhere there’s a business person who’ll be able to get away with being seen on this. Is it you? Who dares, wins.

APPLE MACBOOK PRO WITH RETINA DISPLAYFROM R24 000apple.com/zaThis is not just last year’s MacBook Pro with an eyeball-slicing Retina Display added, though we wouldn’t have said no to that. Apple has turbo-charged what was already one of the best laptops on the market. With new quad-core Ivy Bridge i7 processor, solid-state drives starting at 256GB and upgraded graphics, it’s a steroid-pumped version of its former self, though still only 18mm thick.

And that display! Images and even text give the sensual delight of a week in the Caribbean with the Victoria’s Secret models. Which might be cheaper, but if ever a laptop could tempt you to spend R24 000, this would be it.

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54

BANKING NEWS

SA BANKER Edition 3

“ALTHOUGH IN MOST CASES, NOT DIRECTLY, OUR BANKS have had to cope with another six months of global financial instability, particularly in Europe. The downside risks in Europe remain elevated, which is weighing heavily on market sentiment and it appears that will be the case for some time,” says Tom Winterboer, Financial Services Leader for PwC Southern Africa and Africa.

Despite these difficult economic circumstances, the four major South African banks (Absa, FirstRand, Nedbank and Standard Bank) posted combined headline earnings of R21.3 billion, up by 17% from the comparable period last year and average normalised return on equity (RoE) of 15.9%. This compares favourably to a benchmark group of Western global peers that recorded average RoE for the 2011 financial year in the range of 2.1% for US commercial banks and 14.7% for Canadian banks.

‘This was a strong performance by South African banks compared to the Western world. Even more interesting is the composition of earnings for local banks when compared to other countries, which shows that our banks have an enviable non-interest revenue mix and continue to operate at favourable

South African News

Strong performance by South African banks despite economic uncertainty

The �nancial results of South Africa’s four major banks for the six months ended on June 30, 2012 have remained resilient despite the recent global economic uncertainty, according to a report issued by professional services �rm PricewaterhouseCoopers (PwC).

efficiency ratios,’ says Johannes Grosskopf, PwC banking and capital markets leader for Southern Africa.

These are some of the findings from PwC’s South Africa Major Banks Analysis Report, analysing the results of the country’s major banks for the six months ended in June 2012.

Capital levels continue to be a strength. Total qualifying capital and reserve funds across the major banks showed moderate growth. However, the combined total capital adequacy ratio of the major banks declined marginally by 50bps to 14.9% from 15.4% at the second half of 2011.The slower growth in capital and decline in capital adequacy levels reflect the capital challenges faced by the major banks. This is a result of six months of Basel II.5 implementation and the prospect of Basel III implementation on January 1, 2013.

‘The major banks have all indicated that the transition to the higher capital requirements anticipated by Basel III will take place without significant difficulty or deterioration in regulatory capital levels. This can largely be attributed to ongoing risk-weighted as-set optimisation initiatives of the major banks, a prudent approach to business as well as the relatively prudent regulatory capital regime adopted by the regulator over the years,’ says Grosskopf.

The world is evolving...


However, there is some uncertainty over key aspects of the regulations, such as countercyclical buffers, domestic systemically important banks surcharge and the finalisation of the recovery and resolution regime that will affect the final capital landscape.

It is also expected that all the major banks should be able to comply with the Liquidity Coverage Ratio (LCR) envisaged by Basel III requirements, supported by the committed liquidity facility that the Reserve Bank recently announced it would make available to mitigate potential liquidity shortfalls.

The most sensitive areas underpinning the results continue to be the banks’ ability to grow revenue, contain their bad debt charge and manage their cost base.

Total income, up by 12%, shows a focus on margin protection and transactional revenues. Compared to the prior period, banks’ operating expenses increased by only 1.5%, while total operating income increased by 4.8%. Consequently, their combined cost-to-income ratio improved from 58.1% in the first half of 2011 to 55.9% for the same period of 2012.

Salaries, which continue to represent about half of the total expense bill, grew at a rate of 12.6% in the first half of 2012, when compared to the same period for 2011. This increase reflects annual salary increases as well as the increased short- and long-term incentive awards associated with the improved operating performance of the banks.

‘We have already seen that the next generation of productivity improvements will come from responding to changes in

customer expectations by deploying strategic technology solutions,’ PwC’s Grosskopf says. Leveraging distribution in the world of social media will require making further improvements in the use of customer analytics to unlock value. The key is being able to integrate all the levers at the banks’ disposal to further improve customer engagement. These include rethinking product solutions in a Basel III world, harnessing technology for customer convenience, optimising internal centres of excellence and improving operational efficiencies.

Total balance sheet impairments increased 12.2% to R52 billion for the first half of 2012, compared to the amount of R48.8 billion at the end of the second half of 2011. Total income statement impairments increased 33.5% from the first half of 2011 to R14.2 billion at the end of the second half of 2012. Grosskopf points out that the banks have focussed on their Non Performing Loans (NPL) portfolios and the adequacy of their specific impairments on these portfolios. This focus will continue given the size of the NPL portfolio (which is in excess of R100 billion) and the state of the housing market.

‘While there are some headwinds in the domestic economy and significant uncertainties from Europe, the banks continue to demonstrate the capability to manage and adapt,’ Grosskopf concludes. Compared to its international counterparts, the South African banking sector remains sound, being profitable, well capitalised and maintaining good returns on equity.’ ■

BANK OF INDIA OPENS BRANCH IN SOUTH AFRICABank of India, long present in Africa, opened its first South African branch in Sandton in September [2012], and is due to open an office in Botswana in November [2012]. Chairman and MD Alok Misra says that the initial focus will be on existing Indian clients, especially businesses which are active in South Africa.

‘�e higher capital requirements anticipated by Basel III will take place without signi�cant di�culty or deterioration in regulatory capital levels.’

56

BANKING NEWS INTERNATIONAL


Scenarios for the next decade of banking

In the banking industry’s �rst-ever interactive eBook, published by Ernst & Young and Knowledge@Wharton, Global Banking 2020: Foresight & Insights, banking leaders explore potential scenarios – including some extreme possibilities – that could develop in the coming decade, along with strategies to help

global banks thrive.Banking practitioners, Wharton professors and members of Ernst & Young’s Global Banking and Capital Markets practice, recently completed a year-long scenario planning exercise aimed at envisioning what the banking industry might look like eight to ten years from now. �e result is a video-enhanced eBook, whi� blends a text report with graphic information and video clips from an extensive series of interviews. It outlines the key strategies distilled from the scenario planning process — strategies for banks to consider now in order to be successful over the next decade. �e four scenarios that emerged from the discussions are: “business as usual,” “�nancial issues,” “new markets” and “�ange, �ange, �ange”. If a bank prepares for all four scenarios, according to Ernst & Young, it will be equipped to deal not only with these possible futures but also with those that fall in between. ‘�e purpose of scenario planning is not to identify one certain outcome to plan for, but to model for how your business would perform under a variety of conceivable scenarios,’ said Ian Baggs, Ernst & Young Global Banking and Capital Markets deputy leader. ‘Institutions that organise cross-functional leadership teams to prepare long-term business strategies and contingencies will undoubtedly rise above their competitors.’Mauro Guillén, director of the Lauder Institute and a management professor at Wharton, added: ‘Trigger events, especially in the banking sector, cannot be expected to unfold in a linear way. It is vital for an organisation to be proactive in developing solutions for potential �allenges. A reactive approa� will leave you �ghting to keep pace and potentially without a place in the game.’�e series highlights three key strategies: move into emerging markets, develop a nimble culture and invest heavily in te�nology.In the video series Ro� Parayre, partner at Decision Strategies International, discusses how banks should use scenario planning

to assess their business plans and evaluate customer drivers. ‘Many organisations plan for one view of the future. In a world that’s very uncertain, that’s a very risky posture to have,’ says Parayre. ‘To prepare for the future amidst today’s uncertainty, there are three things banks need to do. Firstly, they need to do a pressure test to assess how well prepared they are to succeed under di�erent possible scenarios. Secondly, they need to identify whi� aspects of their organisations work under the di�erent scenarios. �irdly, they need to realise that it’s futile to try to predict the future. Consequently, they should look to add some �exibility to their organisations so that they are able to adjust and succeed in a very complex and �anging world.’�e Global Banking 2020: Foresight & Insights enhanced eBook can be pur�ased in the Apple iBookstore and on Amazon. It can be viewed on an iPad, iPhone or iTou� using the Apple iBookstore app or the Kindle app. For more information or to view the video go to kw.wharton.upenn.edu/ey-global-banking/.

Rebuilding a system that will be bene�cial in a complex and changing world.

Mauro Guillén: ‘A reactive approach will leave you fighting to keep pace.’


The product opened to the general public in April [2012]. It comes with an 8% APR that applies to all balances, including pur� ases, transfers and cash advances. � ere’s no annual fee and customers won’t have to pay a penalty APR if they default.

‘When we were developing this product, we were looking for aspects of credit cards that are o� en complicated to explain to the customer,’ says Jared Young, senior director of consumer markets for Barclaycard. ‘Even if [these features] made us a li� le bit of revenue, we decided to pull them out and make it as simple as possible.’

� e card’s website is unclear about exactly what in� uence card holders will have, but it shows a sample discussion page with a query for users about how active community members should be rewarded for their e� orts, and a community stats page with information including the number of accounts. Young continues to add ‘� ere are a lot of di� erent places we can go. Everything online is up for grabs, but we have to provide a framework — we can’t give away the farm.’ If there’s a feature the community wants to build, we’ll share [information about] the expense of actually building it, and discuss how to fund it.’

Another feature of the card is that it gives community members a look at aspects of the card’s pro� t and loss (P&L) statements. Young a� nowledges that it would be ‘very di� cult’ to report the pro� ts of a speci� c portfolio. ‘We’ve treated the P&L on a more cash � ow basis, created a good-faith estimate of P&L and created a rewards program based on how well P&L performs.’

� e Giveba� rewards program is billed as a way for card holders to share in the pro� t. But the card’s terms and conditions note that

‘this pro� t-sharing feature is not based on the actual pro� ts of the program. Instead, the Giveba� program contains a transparent calculation that is used to determine what will be shared with the community members and whi� may or may not approximate actual pro� ts.’ Young notes that the company is hoping to use the level of consumer control over how the Giveba� funds are used to build trust with card holders.

He also revealed that engagement levels from the card holder community have been strong, but noted that ‘in almost all online communities, including Wikipedia, the law of participation is usually that 90% of people just kind of come in and read, 9% occasionally add content to the site and 1% of the community is engaged and drives most of the volume. We’re not expecting anything di� erent.’ ■

Ref: www.barclaycardring.com

Billed by Barclays US as the � rst “crowd-sourced” credit card, the new Barclaycard Ring MasterCard allows cardholders a say — up to a point — in how it is managed, serviced and even marketed by participating in an online community. ‘This could be a major step in the likely application of “crowd-sourced everything” to consumer credit,’ says Wharton business and public policy professor Jeremy Tobacman.

Crowd-sourced credit card

HOW DID YOU BECOME A BANKER?Well, I did a B Comm. Then throughout the 80s I was very involved in politics, with SANCO, the UDF and so on, and around the 1994 elections I was on the ANC list. I was sitting in a meeting with Tokyo Sexwale and Paul Mashatile, ANC leadership in Gauteng and we were saying we can’t all go into government; some of us have to take another path.

Around that time I was also involved in the Community Bank, the first low-income bank in South Africa, with Paul Tucker. So I took that path, and I’m glad I that did because it’s taken me to where I am today.

WHAT DO YOU READ?I like biographies. For relaxation, I like to read crime and detective fictions. I also read a lot about politics and economics and about leadership issues – recently, Reuel Khoza, on servant leadership, and The Fortune at The Bottom of the Pyramid by PJ Prahalad, which talks about the potential and opportunities that people at the bottom of the pyramid present. I think that’s particularly pertinent to some of the financial inclusion issues we’re looking at.

WHAT SOURCES DO YOU USE FOR BUSINESS NEWS? I look at Creamer media quite often, particularly in some of the

58

LIFESTYLE


Meet the bankers

Banking Association South Africa Managing Director, Cas Coovadia, lives in Northcliff with his wife Sabera, a fashion designer, and their 17-year-old daughter, Nabeelah. He also has a 32-year-old son, Bilal, from his previous marriage. Coovadia turns 61 in October.

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Steve Jobs had this term: ‘�e reality distortion eld’. Essentially saying that reality is what you make it. Push hard enough and reality �anges. I found that quite fascinating.

critical areas that banks lend into, mining, engineering and so forth; some material from CNBC, and the daily Banking Genesis email I subscribe to from Genesis Analytics.

DO YOU FOLLOW ANYONE’S BLOGS OR TWEETS?I’m not a blogger, fortunately, so I don’t keep in tou� with bloggers. I keep in tou� with whatever economists are writing in the papers, and with what business and other leaders are saying on the broader socio-economic and political issues facing our country. I go through the newspapers and read what captures my a�ention rather than home in on particular people.

HOW MUCH TIME DO YOU SPEND TRAVELLING?Too mu�. Our banking structure is the second most stable in the world and we rank second in access to nancial services. We have recognition above our weight, so we get quite involved in international structures. All that entails travelling. We also manage the SADC Banking Association, so I do a lot of travelling on the continent as well.

YOUR SPORT / LEISURE ACTIVITIES?My gym bag is in the car, and if I’m in Pretoria with an hour or two

between meetings, I’ll nd a gym. I enjoy movies (Cinema Nouveau) and we do a lot of hiking. Most recently we went to Clarens – we did a lot of good walking there.

YOU’RE KNOWN AS A TECHNOPHILE. WHAT TECH TOOLS DO YOU USE?My iPad, with a keyboard – the iPhone didn’t agree with me. I seldom use a laptop.

ANY RECENT BUSINESS BOOKS YOU’D RECOMMEND TO COLLEAGUES?On business and leadership issues, I really enjoyed a biography on Steve Jobs.

He was quite an arrogant character, but despite that I was quite taken by the way he was able to get people who worked with him to actually go beyond the boundaries they thought they had. Even though people found him to be arrogant and obstreperous in many ways, they allowed him to push their boundaries. I found that interesting. He [ Jobs] had this term: ‘The reality distortion field’. Essentially it says that reality is what you make it. Push hard enough and reality changes. I found that quite fascinating. ■


LIFESTYLE

Their success locally and across the African continent in the secure execution of election-related print requirements, including ballot papers and voter’s rolls, has gained Uniprint

the respect as a trustworthy security printer locally and on the continent. This also includes the supply of non-printed election items such as indelible inks all the way down to stamp-pads and pencils, which in some countries is kitted out to polling station level using the Uniprint proprietary kitting programme.

Their success and integrity in dealings at this level has caught the eye of the banking industry where integrity is paramount. The net result has seen Uniprint experience unprecedented growth in the banking sector over the past few years with successes across a variety of print media, notably the secure PIN market.

In assisting banks to protect their customers, Uniprint applies a high secure message transfer system for PIN numbers known as FISCODE™ to banking card carrier sheets in their Durban Business Forms plant. FISCODE™ is purchased under license from Swiss-based Foilen Fischer and is an internationally recognised brand prominent throughout Europe in PIN and validation code protection.

With banks continually fighting for market share, banking products evolve and new innovative banking packages are continually introduced to high, middle and low-end clients. Traditionally banks had a few standard packages and long print runs were the order of the day. However, thanks to Uniprint pioneering local production of secure PINs, banks now have the flexibility for frequent, quick turn-around artwork changes. Waiting months for an imported product is no longer an inhibitor and cost-efficiency can also be factored into shorter print runs. Since launching FISCODE™ in mid-2010 over 6 million secure-card carriers have been produced by Uniprint with that figure expected to double in the coming year.

Bank Marketing Wars It’s clear that bank marketing wars are ever increasing across all media fronts as they grapple for market share. The visual space includes billboards, various print media, posters, brochures and in-branch branding. Uniprint’s long-standing experience across all of these print mediums has over the past few years moved successfully into the banking sector over and above their traditional retail stronghold. Many of Uniprint’s long-standing retail clients have become authorised financial service and credit providers, evidenced by the many non-banking household retail names now appearing on banking cards.

Day to day running Banks require a host of printed items in order to function efficiently, ranging from head office operational requirements through to branch level. Items such as statements, deposit slips and ATM, rolls are common-place. Forms are conceptualised by the banks operational staff with technical assistance provided by Uniprint. Uniprint then proof, print and deliver directly to the bank or to Uniprint’s finished goods warehouse as part of their stock management offering.

Warehousing and fulfilment For the banking sector, with limited storage space at branches in almost every city and town as well as in neighbouring countries, stock management / fulfilment is a lifeline in ensuring continuity of transactional forms at branch level. With many procurements platforms on offer, Uniprint’s adaptation to a variety of such platforms has ensured that hundreds of deliveries are executed successfully each week.

Growth in the Banking SectorUniprint stands out as one of the foremost print media companies in South Africa.

Contact the Uniprint Business Forms division on 031 560 2300 to arrange for a presentation on how they can tailor a printing / security package to your specific requirements.

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• Financial services sector / insurance / cooperatives / international banks• CEOs, deputy CEOs, CFOs, COOs and middle/junior management

SA Banker is a quarterly publication, published in June, September, December 2012 and March 2013.

• Lobbying • Policy influence • Guiding transformation in the sector • Acting as a catalyst for constructive and sustainable change in the sector • Research and development • Engagement with critical stakeholders

The Banking Association South Africa is the mandated representative of the sector and addresses industry issues through:

• Access to financial services • Accounting and financial reporting standards • Agriculture • Banking sector regulation • Codes of practice • Consumer protection • Direct tax • Housing • Indirect tax • Preferential procurement • Small, medium enterprise finance

The Banking Association South Africa manages numerous committees that advise the executive on issues pertinent to the sector. Such committee areas include:

Target market:

To advertise in SA Banker or for any further information, please contact Warren Daries at [email protected] • Tel: 021 469 2400 switchboard • Direct: 021 469 2408 • Cell: 082 200 6922

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82 Grayston Drive, Benmore, Sandton 2196, South Africa | Tel: 011 685 6600 | Fax: 011 685 6696www.gpf.org.za | [email protected]

Gauteng Partnership Fund is a partner of choice in the mobilisation and facilitation of funding for the delivery of affordable housing.

Leveraging affordable housing fi nance

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