Banker S.A. Edition 1

SA BANKER

Basel III:

A fundamental shift in regulation

A national priority Democratising financial services

SA Edition 1 2012

Magazine of the Banking Association South Africa

EDITION 1

Banking Association MD Cas Coovadia

‘Hold us accountable’ The Code of Banking Practice: A critical tool

PLUS

• Top 10 risks facing banks • The Companies Act

PICASSO HEADLINE

Shaping the future of bank security

The preferred security partner for over 100 years As a partner of the world’s leading banks for over 100 years, Gunnebo has kept pace with the changing risks in the sector and has developed an in-depth understanding of critical infrastructures. Gunnebo provides a wide range of both established and innovative solutions and services to protect people and assets. This enables bank branches and head offices, central banks and cash-in-transit companies to improve security and cash handling processes.

Global experience assures local strength Gunnebo is an international security group with offices in Africa, Middle-East, Europe, AsiaPacific and Americas well equipped to offer advice and support locally as well as globally.

Gunnebo’s range of expertise includes product suitability, project planning, delivery, installation and service to maintain a high and even quality level.

Innovative solutions Gunnebo is committed to driving innovation into solutions and services that create added value for the Banking sector. This includes: � Controlling the flow of people with entrance control systems For more information, visit our website or contact Gail Carew.

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� Integrating safes within larger security networks � Adding automation for tracing and storing values with self-service depositing systems � And securing the cash handling process

CONTENTS 7

38

7 Architects of the Future

Banking Association South Africa MD Cas Coovadia introduces SA Banker – and the challenges facing our industry

8 Basel III

Protecting the South African economy Basel III represents a fundamental shift in how we will be conducting banking regulation. It also incorporates broader system-wide lessons

20 Financial Inclusion

Democratising financial services Financial inclusion is about giving credit where it’s due. It is a national priority

30 Regulation

‘Hold us accountable’ The revised Code of Banking Practice is now in effect, and it’s a critical tool

36 Legal Notes

Getting to grips with the Companies Act A wide range of transactions fall under new financial assistance rules, writes Werksmans Attorneys director Richard Roothman

38 Training

Growing our talent BANKSETA’s executive-level training programmes will help to shape the future of South African banking

42 Risk

Banking Banana Skins 2012 May you live in interesting times, the old saying goes. And the PwC/CSFI annual Banking Banana Skins survey shows that we do. Macro-economic risk and credit losses are at the top of the list of 30 possible risks to banks globally

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Publishers: Picasso Headline (Pty) Ltd 105–107 Hatfield Street, Gardens, Cape Town 8001, South Africa Tel: +27 21 469 2400 Fax: +27 21 462 1124

Head of Editorial and Production Associate Editor Banking Association Editorial Board Copy Editor Production Coordinator

50 CSI

Teaching children to save

The Banking Association’s successful financial literacy campaign is proving that financial literacy is a skill that can be learned

55 Banking Association Member Introducing Capitec Bank Limited

Innovative banking via a paperless, card-driven process in real time

Content Coordinator

Alexis Knipe alexisk@picasso.co.za Charles Boffard charles@mavenmedia.co.za Lawrence Khosa Thenji Nhlapo Sarah Johnston Shamiela Brenner Michéle Jarman michelej@picasso.co.za

Head of Design Studio

Rashied Rahbeeni

Designers

Dalicia du Plessis Junaid Cottle

Head of Sales

Robin Carpenter-Frank robinc@picasso.co.za

Sales Manager

John Dos Santos johnd@picasso.co.za

Project Manager Sales Consultants Financial Accountant

Warren Daries banking@picasso.co.za André Potgieter Basil Jones Lodewyk van der Walt

57 Banking Association Member Introducing Al Baraka Bank Limited

Providing an alternative to conventional interestbased banking

59 Business Life

Senior General Manager: Newspapers and Magazines Mike Tissong Associate Publisher Jocelyne Bayer

Technology

Business isn’t all work and no play. Your business tools shouldn’t be, either

ADVERTISING: WARREN DARIES E-mail: banking@picasso.co.za

Tel: 021 469 2400

60 Banking News: South Africa What – and who – is making news in South African banking

62 Banking News: International

Financial sector news bites from around the world

Copyright: Picasso Headline and The Banking Association South Africa. No portion of this magazine may be reproduced in any form without written consent of the publishers. The publishers are not responsible for unsolicited material. SA Banker is published quarterly by Picasso Headline Reg: 59/01754/07. The opinions expressed are not necessarily those of Picasso Headline. All advertisements/advertorials and promotions have been paid for and therefore do not carry any endorsement by the publishers.

SUBSCRIPTIONS AND DISTRIBUTION Shihaam Adams E-mail: subscriptions@picasso.co.za Tel: 021 469 2400

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SHORT CERTIFICATE PROGRAMME

Neuro-Economics of Stress Resilience All financial and non-financial managers with a need to further their careers by improving their cognitive ability and have a desire to understand how to achieve a balanced scorecard of physiological health.

Programme outline & topics to be covered: ��

Improve financial decision making skills

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How to be an effective leader without having or causing stress

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How the neurological stress response impacts economic decisions

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The development of executive and personal improvement systems

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Stress simulation and business lab tests

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Application of medical technology to measure improvements

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Current theoretical and business applications of economic stress

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Personal plans to improve problem solving skills, working memory and stress resilience

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Defining of the concepts of neuro-economics, cardiac stress, Prospect Theory and Benson’s research at Harvard

This programme can be customized and offered on an in-house basis.

For further information contact Ansie Barnard barnardam@ufs.ac.za at The UFS Centre for Business Dynamics Office: 082 900 1080 T: +27[0]51 401 3204 | barnardam@ufs.ac.za | www.ufs.ac.za/cbd UFSUV | UFSweb | UFSweb

MD’S MESSAGE

Facing interesting times

T

he Banking Association South Africa and Avusa banks are subject to, and regulations being formulated currently (Picasso Headline) have partnered to launch The SA to which they will be subject. There is a plethora of regulations for Banker. This is the first publication launched by The banks to deal with. In addition to this, there is a possibility of Banking Association and I am confident the expertise a significant overhaul of the regulatory environment, as a result brought to the partnership by Avusa, together with of the introduction of the ‘Twin Peaks’ model. the ability of The Banking Association to source relevant, informaWe are engaging National Treasury and the Registrar of Banks tive and controversial articles, will offer an exciting publication extensively on the implementation of the legislation that will flow sought by key decision-makers in the industry and beyond. from this. Even though we remained well-capitalised and liquid The global banking industry has been through a severe crisis, and through the crisis, we will be subject to regulations under Basel III. it is still in the midst of very difficult times in Europe and North These regulations will have serious implications for levels of capital America. The industry has been criticised, sometimes with and particularly will have a serious impact on liquidity. justification, but also unduly so. The period we are in poses The South African banking sector has to balance challenges to the banking industry to demonstrate its the cost of regulation with the imperative, from y m no Our eco d by undoubted relevance to economies, but also to win both a business and social viewpoint, to broaden te contrac the confidence of clients and ordinary folk in many and deepen financial services. We are making parts of the world. I believe we will be the archisignificant progress in this sphere, with innovatects of the future of the banking industry. I also tive products, collaboration in the regulatory t s r o have no doubt its future is a sustainable one. sphere, and ongoing improvements. w e h during t conomic The South African banking industry rode through It is therefore clear that the South African of the e is. the storm of the global financial crisis reasonably well. banking industry is at an interesting, exciting and is r c However, the industry was nonetheless affected. Our challenging juncture. We are also operating during economy contracted by 6.7% during the worst of the ecoa dynamic political phase in our country, with signifinomic crisis. This led to contraction in business activity, individual cant challenges there as well. difficulties in managing debt, and a resultant downturn in banking The SA Banker will address all of these issues and more, through business. Despite these conditions, the South African banking thought-provoking articles and exciting and controversial contriindustry has remained well-capitalised and liquid. There wasn’t butions from economists, social scientists, bankers, politicians and a single bank that required any assistance and all banks remained others. The publication will provide a platform for responsible and profitable, although with lower ROEs and higher defaults than open debate on critical issues relevant to the growth and sustainabefore the crisis. The recent annual financial results announced by bility of the banking sector, the economy and our country. the major banks demonstrate that the industry has turned the corner and the demand for loans is gradually increasing.

The South African banking industry is facing a number of Cas Coovadia challenges. The most critical of these is the volume of regulation Managing Director, Banking Association South Africa

6.7%

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SPECIAL FOCUS

Resilience Basel III: Implications for South African Banking. By Mark Brits, General Manager: Strategic Projects at The Banking Association South Africa

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he average South African doesn’t worry about his or her money once it’s in the bank. Most South Africans worry more about the electricity supply or petrol shortages than whether there will be money at the local ATM. Banks are regularly criticised for their practices, but their value to the economy has often been largely ignored, until now. The recent financial crisis that plagued North America and Europe has finally given us a value for the financial sector. According to the International Monetary Fund in 2009, it was estimated that the financial crisis cost 12 trillion US dollars. Simply put, that is the equivalent of levying a tax of R23 000 on every man, woman and child in the world.

These estimates are compounded by slow recoveries in the major economies, giving further impetus to the political determination to identify the weaknesses that caused the financial crisis and to regulate them.

The task of regulating the banking sector was given to the Bank for International Settlements based in Basel, Switzerland.

This organisation, established after the First World War, is the pre-eminent authority on international banking supervision. In response to the direction given by the Group of Twenty, the Bank for International Settlements published the third revision of banking legislation in December 2010 – Basel III – which has been added to the 2008 implementation of the previous comprehensive revision, Basel II. Basel III is a package of documents, rather than one single publication.

The first of these documents relates to the capital held by banks, where not only the quantum of capital increases but also the quality of that capital. In South Africa we are fortunate that the banks had adequate quality and quantity of capital, but this was not the case with all banks internationally.

Under Basel III, ‘quality loss absorbing’ capital is the standard.

This means that common equity/shares and retained earnings (profits not distributed to shareholders in the form of dividends) become the most important category of capital or common equity: Continued » 8

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CHRIS KIRCHHOFF – MEDIACLUB

ABSA call centre

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20900 BG Banking and Finance ad.indd 1

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SPECIAL FOCUS On top of this capital framework there is now a formal ‘leverage ratio’, designed to limit the reliance on complex risk-based capital calculations.

Tier 1 capital. In order to ensure consistency across jurisdictions, the definitions of what constitutes appropriate capital instruments are being formalised. More complex capital instruments such as redeemable hybrid capital instruments are to be phased out.

Capital must be permanent, and the right to be repaid should be subordinated to the depositor in the event that the bank is to be liquidated, thereby making the capital truly ‘loss absorbing’.

A new capital requirement is the introduction of the ‘conservation buffer’. This has been developed to temper the behaviour of banks where traditionally large dividend payouts and generous compensation practices were deemed necessary to signal strength to the markets, despite an economic downturn. The conservation buffer, when breached, will effectively temper the right to make discretionary payments such as dividends and bonuses, and once it is breached the bank will be expected to rebuild its capital in anticipation of higher defaults and resulting losses.

Banks are also known to respond to economic cycles, aggressively lending in times of general prosperity and adopting a more conservative approach in economic downturns. To address this behaviour, a new ‘countercyclical capital buffer’ has been introduced. This new buffer will be enforced by the regulator when credit growth in the economy is considered excessive. Banks will be forced to hold additional capital during this period, which should reduce their appetite to lend, thus helping to reduce the risk of losses associated with defaults during the correction of the markets that inevitably follows a boom period.

Unlike other industries, the banking sector uses capital as a base from which all lending activity is calculated. Each loan is made up of capital (savings from investors) and a much larger component of deposits from customers. As the economy grows, so does the demand for loans and the corresponding incremental need for capital, and therefore banks are continuously looking for more capital to support their expanding lending activities. On top of this capital framework there is now a formal ‘leverage ratio’, designed to limit the reliance on complex risk-based capital calculations. The leverage ratio will set a simple Tier 1 capital requirement (broader than common equity) of 3% on overall bank lending activity, moving from a risk-based calculation of 8.5%.

The global dominance of certain banks means that their failure would be felt in many countries, and the presumption that a bank is ‘too big to fail’ is now being specifically addressed in additional legislation. This class of bank, referred to as a ‘systemically important financial institution,’ will require an additional layer of capital over

ng Accordi ational tern to the In ry Fund in Moneta s estimated wa 2009, it he financial that t s cost crisi

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Continued »

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Designed by: Indigo Markerting

THE BANKSETA IS DEDICATED TO:

Developing skills in the banking and microfinance sector.

Creating opportunities for work-seekers.

Creating opportunities for retrenched workers to re-enter the market.

Enabling employees in the sector to define and increase their qualifications.

Providing employers in the sector with qualified employees.

THE BANKSETA PROVIDES OPPORTUNITIES

There are numerous BANKSETA initiatives which are available to learners, university graduates and current employees in the banking and microfinance sector. Accredited skills training is provided in the sector to achieve a number of outcomes, including eployment for school leavers, new business opportunities for young enterpreneurs and up-skilling of future executives. The BANKSETA strives to promote the sector as a preferred employer, and provide sector employers with qualified employees.

The BANKSETA also focuses on people with disabilities and those who have not completed their schooling.

The driving force of the BANKSETA is to build skills for tommorow by empowering South Africa’s youth, in order to encourage transformation in the financial services sector.

Some of the projects in which the SETA is involved include: Supporting five Centres of Excellence throughout the country.

FIAS support and implemantation through an e-learning portal.

New venture creation initiatives.

Career awareness to encourage new entrants to the sector.

Adult Basic Education and Training.

Small and micro-enterprise support through various activities.

LETSEMA & KUYASA learnerships for unemployed school leavers and graduates Bridging the Gap programme aimed at people with disabilities.

International Executive Development Programme to accelerate the development of talented managers.

Certificate in Management Development for both the middle and junior levels of management.

Masters and Executive short courses.

Doctoral and postdoctoral programmes by funding industry-related research at higher education & training institutions.

Thornhill Office park, Building 22, 94 Bekker Road, Midrand Tel: +27 (0)11 805 9661 Fax: +27 (0)11 805 8348 Call Centre: +27 (0)86 102 0002 Anti-Fraud Hotline: +27 0800 205 054 www.bankseta.org.za

SPECIAL FOCUS

The presumption that a bank is ‘too big to fail’ is now being specifically addressed in additional legislation.

and above Basel III, which will be applicable to both globally active and local (big) banks.

Another Basel III document addresses the liquidity of banks. With the banks committing to long-term lending, such as home loans, it is not possible for any bank to repay all its depositors on any given day.

The new liquidity proposals address the fundamental characteristic of the banking franchise, namely ‘maturity transformation’. The bank will generally fund short with savings repayable in months, and lend long in, for example, home loans repayable in years. The ability of the banks to absorb financial shocks will be improved through two new parameters, the ‘liquidity coverage ratio’ and the ‘net stable funding ratio’.

The liquidity coverage ratio will now require banks to hold a strategic portfolio of highly liquid assets, such as government bonds, to meet the net obligations of the bank over a rolling 30-day time horizon. Based on the experiences of the financial crisis, the behaviour of various international bank customers has been modelled, and a series of run-off factors developed, to mimic the behaviour of these customers in times of stress. The net result is a complex calculation of the likely behaviour of depositors in a crisis and the amount of deposits that the bank could lose over a 30-day period.

The intention is for the new liquidity requirements to provide sufficient time for the bank, the regulator and the government to determine a course of action during the 30 days’ run on the bank. In South Africa the average deposits under one month are around 60%

of total deposits. The impact that this new ratio will have on South African banks is therefore significant. Not only will the increased requirement for highly liquid assets be acquired by diverting lending away from the economy, but the strict criteria set for the type of asset that will qualify means that the government will have to issue significant debt to meet the demand, thereby affecting its own financial structures.

The second calculation, the ‘net stable funding ratio’, encourages banks to fund their long-term lending with deposits longer than one year. This ratio, designed to increase the component of stable funding, will also be difficult to achieve in South Africa given the short-dated nature of bank deposits. One lesson learned from the financial crisis, however, is that fixed deposits were not withdrawn, thus reducing the need for liquidity.

For South African banks, increasing long-term deposit interest rates is not the only option. Banks can obviously also reduce the size of their balance sheet by reducing long-term lending products, such as mortgages, to achieve the same result.

Basel III (and the many other pieces of legislation that are being developed internationally to address the failure of the financial markets) is likely to make banks more resilient but not necessarily prevent them from failure in the future. However, the lessons learned from the international financial crisis are valuable and cannot be ignored. The new requirements will make South African banks stronger in the long term, despite the proposals not being tailored to emerging markets. ■

A FUNDAMENTAL SHIFT

Basel III represents a fundamental shift in how we will be conducting banking regulation and supervision in the future. It fixes many of the shortcomings of micro-level supervision. But it also incorporates the broader system-wide lessons and introduces a macro-prudential overlay to the existing regulatory framework. Taken together, these measures should make the system more stable over the long run, thus raising economic growth over the cycle.

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Mobile Payments ‘leapfrogging’ banks in a race to offer mobile payments at a lower cost.

Roger Verster Financial Services Industry Leader at Deloitte

“Mobile operators in Africa are taking advantage of their ability to ‘leapfrog’ the expensive switching systems of banks and money transfer organisations to bring their users mobile payments at lower fees,” says Deloitte.

A snapshot analysis of m-payment products in Africa showed that most of the existing m-payments products are presently provided through partnerships or relationships of some form.

“These lower fees are a major driver in the increasing popularity of mobile payments (m-payments), as costs are a major concern to many who earn low incomes,” said Roger Verster, Financial Services Industry Leader at Deloitte.

“Several large mobile network operators have teamed up with major financial institutions to offer mobile payments and have strengthened their positions further by creating coalitions with institutions, trusted brands and digital technology providers. This is most likely due to the regulatory restrictions imposed on network operators as they do not hold banking licenses,” said Verster.

“Presently there are two concepts that are instrumental in changing the game regarding the use of m-payments,” Verster said.

“The first is a fundamental focus on m-payments through the introduction of novel mobile payment systems that will function as card replacements in existing environments.”

To read more download this QR code to access the full article.

“Side-by-side with this drive will be a concentration on new lower-income mobile payment systems that are focused on promoting financial inclusion, viral distribution and personal transactability.”

“Though these concepts may sound similar they are, in fact, very different. They seek to achieve the same goal, but operate across different levels of the social-spectrum.”

“It can therefore be expected that both these systems are likely to co-exist for many years to come. Indeed, the current ecosystem is multifaceted and changes in technology for the near term are likely to add additional levels of complexity to this environment,” said Verster.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. © 2012 Deloitte & Touche. All rights reserved. Member of Deloitte Touche Tohmatsu Limited Designed and produced by Creative Solutions at Deloitte, Johannesburg. (803528/Mar)

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Based on its analysis, Deloitte suggests that there are four possible mobile operating models that may evolve across Africa with varying degrees of financial institution and major network operator involvement.

The first, led by financial institutions, could see one or more institutions launching a mobile payments solution. They would partner with major network operators as required to co-develop products or deploy them jointly to reduce risks and investment costs.

By leveraging RFID sticker technology, financial institutions could also bypass the major network operators by issuing stickers that can be placed directly on, or inside, mobile devices.

“The need to invest in infrastructure and R & D mitigates against this approach. This is required before m-payments technology standards are defined so the technology can reach critical mass and then obtain mass retail acceptance of the technology. The inability to integrate an RFID sticker directly with a mobile phone also limits future functionality, and will result in a model that is vulnerable to more integrated offerings,” Verster said.

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“In the second model, one or more of the major network operators could take the lead. This would create opportunities to earn a percentage of switching revenues, increase cross-selling and retention of customers, while gaining access to valuable customer data.” By leveraging their relationship with handset manufacturers, operators can attempt to ‘disintermediate’ financial institutions by deploying a solution using an embedded chip or SIM card.

“However, due to regulation in Africa, many operators would require a banking license to achieve this. Network operators are also not familiar with the risk and compliance structures required and are not seen as financial handlers by consumers. Potentially a banking license may cease to be a barrier to non-traditional providers,” Verster said.

A close-knit partnership model involving some financial institutions and major network operators working together to offer a mobile solution to their collective client base, could also be a possibility.

“While a collaborative approach can expedite speed-tomarket and adoption, it opens the current interchange model to outside parties. Network operators are also likely to take a percentage of each transaction.”

“While obviously attractive to network operators, financial institutions, card networks, and merchant acquirers would be negatively impacted. These stakeholders would have to weigh the cost of lower margins against the potential for additional and higher value transactions.”

“Time will tell which model is adopted. What is certain, however, is that Africa with its burgeoning mobile phone user base will continue to be a leading adopter of m-payment technologies,” Verster said.

The ‘mobi-payscape’ in Africa Digital technology and payment providers

Financial Institutions

“These partnerships are likely to emerge in the shortterm, as they can provide increased speed-to-market and the development of exclusive offerings for customers.

Depending on the technology selected, network operators could earn a percentage of interchange revenue, or a ‘realestate’ fee for enabling mobile applications on the phone.

The drawbacks of these partnerships include competitors forming their own coalitions to offer their own technology, spurring a standards war. The common ground between a network operator and financial institution could also be small, making the partnership unfeasible due to an inability to reach a critical mass,” Verster said.

A collaborative model, involving cooperation between all financial institutions and major network operators, could see these organisations working with card networks to develop a standard to enable mobile transactions.“Creating an open standard will facilitate acceptance on a retailer level, ultimately facilitating consumer adoption. Developing a common technology infrastructure would reduce development and deployment costs, as these expenses are shared across multiple stakeholders. Standardisation could expedite the development of future mobile payment applications, including the m-wallet, which would allow a user to select from multiple payment products on his or her mobile phone.

The strength of mobile operators in the m-payments space in Africa is growing. They will need to find new areas of growth as the costs of data and voice calls reduce.

Mobile operators

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Mobile Network Operators Financial Institutions Digital technology providers (Including digital security and m-payment technology providers) Trusted and social network brands Mobile switching providers

2012/02/15 10:33 AM

NHBRC: QUALITY is TOP PRIORITY The National Home Builders Registration Council’s (NHBRC) mandate is guided by the Housing Consumers Measures Act, 1998 (Act No. 95 of 1998) whose objectives are to regulate the home building industry, provide protection to housing consumers in respect of the failure of home builders to comply with their obligations in terms of the Act, to provide warranty cover against defined structural defects in new homes, to establish and promote ethical, quality and technical standards in the home building industry and in so doing protect the interests of housing consumers.

the low cost housing (subsidy) sector. In February 2002 the Honourable Minister of Housing announced that the NHBRC Warranty Scheme will apply in the housing subsidy sector.

In the subsidy sector, the NHBRC has initiated remedial works on housing subsidy failures. The organisation enrols new housing builders, conducts geotechnical, civil and structural assessments, inspects the building and materials used and through its builder training programs empowers builders in respect of product and technical knowledge.

HOME BUILDERS NEED TO BE REGISTERED

ALTERNATIVE HOME BUILDING TECHNOLOGIES

In terms of the Act, any person in the business of building homes must register with the NHBRC. Registration with the NHBRC provides a licence and a right to build homes.

To qualify as a registered NHBRC home builder, applicants are assessed on their technical, construction, management and financial capability.

By law all new home builders have to be registered with the NHBRC irrespective of the value of the planned house development. This ensures that the home builder has warranty cover against defined defects and that through the comprehensive NHBRC inspection process, the construction is ensured to be structurally sound and meets NHBRC technical standards.

In instances where builders do not meet their obligations (as stipulated by the Act) and where poor workmanship has been uncovered, the NHBRC has a complaint and remedial procedure to resolve such cases.

SUBSIDY HOUSING

At the onset, the mandate of the NHBRC did not cover

For more information, please contact the NHBRC: 0800 200 824 (Toll free) or your provincial or satellite office nearest to you, or go to www.nhbrc.org.za for more information

The NHBRC has been advocating the use of alternative technology in the home building industry with the aim of providing quick-to-erect, quality and affordable products that would aid in eradicating the housing backlog in the country. The Eric Molobi Housing Innovation Hub was launched in 2007 with the objective of identifying and supporting innovative housing systems developed nationally and internationally, that will provide a wider choice of quality and affordable homes to the housing consumer.

IN PARTNERSHIP WITH THE BUILDING INDUSTRY

Improving the lives of the South African people through the provision of quality homes is a collective responsibility.

The NHBRC is in continuous engagement and consultation with provincial governments to sensitise them on the risks of utilising unregistered builders, and partnerships with the private sector remain crucial to ensure that rules and regulations are followed and standards in the building industry are maintained.

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FINANCIAL INCLUSION

Democratising Financial Services

Financial inclusion is about giving credit where it’s due. It’s a national priority.

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n South Africa, 23.5% of the population is said to be financially excluded. That translates to R12 billion tucked away ‘under mattresses’. Yet, despite this lucrative potential, a wide range of players in the financial sector continue to ignore lower-income groups due to existing socioeconomic biases. The banked population in South Africa is estimated at 63%, with the Minister of Finance’s set target of 70% by 2013. Financial inclusion is a catalytic tool and policy proposition of the South African government to bring about sector transformation in the financial industry.

Financial literacy and product knowledge are critical platforms for financial inclusion. According to the Consultative Group to Assist the Poor (CGAP), financial inclusion needs to be viewed in a holistic manner, taking into account the fundamentals of eradicating poverty, building wealth at a national level and mobilising domestic resources for development. Key to this is considering the needs of this market and marrying them to sound business practice.

Financial inclusion is about ensuring that all South Africans have access to financial services that encourage them to manage their money, save for the future, insure for unforeseen events and, most importantly, access credit. Credit can be viewed as the most pivotal of these four pillars as it empowers individuals to transform their own lives.

Microfinance is driven by the mission to promote financial inclusion. Until recently, microfinance was widely driven by the nonbanking sector, which meant that the majority of the population was excluded from the formal credit market. Lower-income groups are desperate for credit, primarily for housing, health, small businesses and household consumption. Many banking institutions regard the lower-income earners as high risk. In most cases, they are unable to

offer sufficient collateral to meet the commercial lender’s criteria, and this exacerbates the plight of the low-income segment. The language used to sell the services can be another notable exclusionary factor.

Microfinance is seen within the context put forward by the United Nations Capital Development Fund (UNCDF). Inclusive financial sectors are defined by a continuum of financial institutions that together offer appropriate financial products and services to all segments of the population.

Microfinance institutions (MFIs) have the potential to partner with both the private and the public sectors. MFIs are repositories of knowledge, in that they understand the lower end of the market and know how to best serve the segment. Many of them offer their forgotten client base entry points into mainstream banking.

‘Banks can participate in microfinancing in a variety of ways,’ explains Fikile Kuhlase, senior general manager of the Banking Association South Africa. ’One example is wholesale funding, where banks provide funding to microfinance institutions for on-lending (relending) or through ‘downscaling’, which is resizing or converting down – a deliberate strategy of a bank to provide financial services to low-income consumers and entrepreneurs.’

Lessons learned from the Banco de la Empresa experience in Latin America and the Equity Bank of Kenya is that effective microfinance methodologies conflict with the existing culture and operating procedures of typical corporate banks. This suggests a requisite shift in mindset for a bank that opts to downscale.

‘There are a number of advantages banks can bring to the microfinance sector,’ continues Kuhlase. ‘These include physical and human infrastructure; market presence and brand recognition; low cost structure relative to microfinance institutions; access to low-cost funding through to direct access to local and international Continued »

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MARTIN RHODES 2011.07.13 © BUSINESS DAY

Minister of Finance Pravin Gordhan wants 70% of South Africa’s population banked by 2013.

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FINANCIAL INCLUSION

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Microfinance needs to be recognised as a vital part of the financial system, dedicated mainly to meeting the needs of the poor and vulnerable.

TOWARDS A STRATEGY FOR SOUTH AFRICA

South Africa has a range of financial institutions providing financial services to the poor, including both private and public sector institutions. However, there is a gap in the market in terms of the provision of affordable and responsible financial services to low-income earners and the poor, especially in rural areas and specifically for micro enterprises. The overall supply-side situation needs to be studied in depth to understand the barriers to suppliers in providing adequate access to services.

One area is cost-to-serve for suppliers and strategies that can decrease cost-to-serve.

A comprehensive financial inclusion strategy should provide clear objectives and guidelines to both the private and public sector focusing on the policy level, the industry level, supplier and client levels, and a clear and simple monitoring approach to measure progress. Strategies to address the problem can include supply-side measures, such as regulatory enablement, and demand-side interventions, such as education on the benefits of financial product usage.

The Minister of Finance has suggested that the current indication of access of 63% of people banked should improve to 70% by 2013. Thus, the outcome of the NPC process should culminate in a plan that also improves efficient access to financial services for those excluded and those who are forced to make limited use of formal financial services. It should further build on and align closely with the process of the National Treasury towards improved financial inclusion in South Africa. This is embodied in the document A Safer Financial Sector to Serve South Africa Better and, at the international level, is seen in the efforts of the G20 towards improved financial inclusion.

Continued »

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FINANCIAL INCLUSION

financial markets; and an established broad deposit base.’

Banks, however, have to overcome a number of disadvantages, such as market knowledge, a corporate culture and an incompatible credit methodology, to name a few.

‘There is ongoing lobbying for the introduction of deposittaking MFIs. The banking industry, together with the microfinance sector, can be positioned to best serve this entry-level market to facilitate inclusive banking,’ Kuhlase explains.

Microfinance needs to be recognised as a vital part of the financial system, dedicated mainly to meeting the needs of the poor and vulnerable.

‘At the end of the day, microfinance is also banking. Microfinance practitioners are of the opinion that it is the “concept of the future’, which will change the architecture of the financial system to be more inclusive. Success in building inclusive financial systems hinges on the contributions of a wide range of actors and their ability to work together effectively to deliver on inclusive finance,’ Kuhlase emphasises. ■

THE FRAMEWORK

Financial inclusion is about ensuring that individual consumers (particularly low-income consumers) can, on a sustainable basis, access and use financial services that are appropriate to their needs. The financial inclusion framework considers factors that affect the consumer directly (demandside) and factors that affect the financial sector providers (supply-side). These factors ultimately affect the inclusion or exclusion of individuals and groupings.

Financial inclusion policy aims to ensure that users are not excluded from the formal sector, but also that they have the incentive to use formal services and actively do so.

Financial inclusion is defined as having four dimensions: Access – factors excluding individuals from a particular product or service; Usage – factors discouraging individuals from using a particular product or service; Entry – barriers to entry that exclude the low-income market segment; and Expansion – factors discouraging financial sector providers from extending services to the low-income market.

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Quality is the NHBRC’s

priority

stablished in 1999, and functioning under the ambit of the

registration and/or right to enroll homes where it has information

Department of Human Settlements, the National Home Build-

that the builder has failed to rectify reported detects by either the

ers Registration Council (NHBRC) is a statutory body tasked

consumer or the NHBRC inspector, and/or where the NHBRC con-

with regulating the home-building industry and protecting housing

siders that immediate intervention is in the best interest of the

consumers in terms of the Housing Consumer Protection Act (Act No home consumer.

95 of 1998).

Since then, anyone in the business of building homes in South Africa must apply to register with the NHBRC, a registration that is only granted following an in-depth assessment of their technical, construction and financial capability.

Furthermore, it is a legal requirement that all new homes being constructed be registered with the NHBRC, irrespective of the value of the planned development This ensures that new homes have warranty cover against defined defects and that through the comprehensive NHBRC inspection process, the construction is structurally sound and meets the NHBRC's stringent technical standards.

In instances where builders do not meet their obligations and where poor workmanship has been uncovered, the NHBRC has a complaint and remedial procedure to resolve such cases. These include that the NHBRC may suspend a home-builder's

“By law all new home builds have to be registered with the NHBRC irrespective of the value of the planned house development.”

Uniprint_The_Baker_Ad_final_used_pg_3_paths.FH11 Tue Feb 21 10:24:24 2012

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Adding Value to Business Forms UNIPRINT’s involvement with business forms and continuous stationery dates back to the early 1980s, and today the company is one of South Africa’s leaders in the production of business forms, direct mail and security printing products.

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Customers include retailers, distributors, financial institutions, telecoms, logistics companies, government organisations, healthcare companies, electoral commissions, media and multinational brands.

Bank and financial sector print products include FISCODE™ PIN-mailers, barcodes and scratch-off for securing data, ATM and thermal rolls, deposit slips and bank forms, cards for IDs, vouchers and membership, labels for direct mail

campaigns and promotions, and marketing communications such as foldable mailings and posters.

TILL ROLLS Uniprint supplies a comprehensive range of till rolls for use in many different markets across a wide range of applications, including ATMs, tills and credit card machines. A recent substantial investment in latest generation slitter-rewinder machinery has increased capacity and significantly reduced turn-around times. Custom printing on a variety of accredited paper substrates covering all bond and thermal varieties, in single or duplicate, delivers the right rolls to suit all needs.

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FULFILMENT Uniprint manages the development and implementation of retail promotion campaigns, security printing, creative and structural design and technical support. These services include project management and print management and the most advanced track and trace systems, incorporating stock reporting, anti-counterfeiting software, unbreakable sequential numbering and kitting technologies. All of this is backed up by warehousing, fulfilment and distribution capabilities, locally and internationally.

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THE CODE

Hold Us Accountable The revised Code of Banking Practice is in effect. The Code represents a firm commitment by banking institutions to clients and to the country as a whole.

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onsumer protection is an essential element of the dynamic and challenging business environment in which the banking sector operates. A critical tool through which banks fulfil their obligations to customers is the Code of Banking Practice, which sets out the aspirational commitments banks make to their customers, and provides information on the respective rights and obligations of both parties.

The previous Code of Banking Practice was in effect from 2004.

Last year the Banking Association of South Africa completed a significant review of the Code to account for changes in regulation and to respond to recommendations made by the 2008 Competition Commission’s Banking Enquiry – the Jali Banking Enquiry.

This review involved a long and rigorous consultation process with member banks and stakeholders. The revised Code has specific provisions to respond to the Jali Banking Enquiry with regards to certain banking matters, the Consumer Protection Act of 2008 (CPA) and the National Credit Act of 2005 (NCA). The revised Code of Banking Practice became effective from 1 January 2012. ‘The Code provides the platform within which the Ombudsman for Banking Services adjudicates disputes between banks and their customers,’ says Cas Coovadia, managing director of The Banking Association.

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‘It supplements the regulatory and contractual requirements that govern relationships between banks and these customers, committing the banks to do that little bit more in providing good service.

‘Consumer education and information are becoming integral to sustainable banking business and the revised Code enables banks to provide these in an effective manner,’ Coovadia adds.

‘An essential element of consumer education and information is to enable consumers to understand how complex pieces of legislation affect them. An example of this is the Consumer Protection Act, which requires promotional material from banks to be clear, fair, reasonable and not misleading and also allows customers to opt out of a transaction under certain circumstances, as well as telling them their obligations if they choose not to opt out. The revised Code explains rights and obligations like these in a simple way,’ says Coovadia.

The Code also includes the following, in response to relevant recommendations of the Jali Banking Enquiry: • Standardised terminology for transaction services; • More information on debit orders, including the use of debit orders, types of debit orders, stopping debit orders and disputing debit orders; and • Switching of transaction bank accounts.

Continued »

Cas Coovadia, Managing Director: Banking Association South Africa

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THE CODE

Consumer education and information are becoming integral to sustainable banking business, and the revised Code enables banks to provide these in an effective manner.

‘We urge all bank customers to get a copy of the Code of Banking Practice in order for them to hold us accountable to it,’ says Coovadia.

The Code sets standards, responsibilities and procedures for every type of interaction with clients in detail, and commits to them. Run your eye down the contents list and you’ll see sub-headings ranging from charges, fees, and interest rates, to mortgage loans, foreign exchange and switching transaction accounts to another bank (this only applies to transaction accounts, not loan agreements and other services governed by an individual agreement between bank and client). The text under many of these headings begins with the uncompromising phrases ‘We will…’; ‘We undertake to…’; ‘We will provide you…’ and in some cases (several of them under the heading of marketing and advertising) ‘We will not…’.

Most topical among consumers and in the press are the sections on privacy and confidentiality and the sections detailing banks’ commitment to facilitating customers switching transactional accounts to different banks.

Curiously, Section 5, which is of greater interest to civic organisations and to the nation as a whole, seems almost to have slipped under the public’s radar and elicited little sustained discussion in the press. It is headed ‘Access to Banking Services’ and details the industry’s explicit commitment to providing and developing affordable and accessible basic banking services to all South Africans.

Underpinning this commitment are the industry’s principal commitments to our clients, listed in Section 4.

OUR KEY COMMITMENTS We, the members of The Banking Association South Africa, undertake that we will act fairly and reasonably in a consistent and ethical manner toward you.

We undertake to: • Continuously work towards improving the standards of practice, service and effective access to appropriate financial services in the banking industry; • Promote better informed decisions about our banking products and services by providing effective and adequate disclosure of information; explaining to you, when asked, the contents of brochures and other written information about banking services or products; providing information, or where applicable, advice, about banking services or products at your request through our

staff authorised to give such advice. You can approach your bank to obtain summaries of transactions on your account, and if you ask, we will assist you to calculate the costs to you of your transaction behaviour. We will give you information to assist you for purposes of comparing different banks’ transaction products.

Alternatively, we will refer you to appropriate external sources or we may recommend that you seek advice from someone such as your legal or financial adviser; • Provide information to you in plain and understandable language using standardised terminology, and offer assistance with any aspects you do not understand; • Ensure that all products and services comply with relevant laws and regulations and the standards set out in this Code; and • Provide reliable banking and payment systems services and take reasonable care to make these services safe and secure; similarly, you are required to take due and proper care. We are committed to providing you with the highest standards of service.

In order to meet our commitment, we will ensure that: • Our staff is trained to provide friendly and efficient service, so that your transactions, enquiries and feedback will be attended to promptly; • Information on our products and services will be updated and current. It will be made easily available at bank branches, through your bank’s website and through other appropriate channels; • Unless longer periods are specified by applicable legislation, you will be informed 20 business days (or five business days relating to credit agreements) in advance before any changes are implemented to Terms and Conditions, fees and charges, the discontinuation of products and services and the relocation of premises or ATMs; and • Your complaint to your bank will be acknowledged within three business days of receipt and will be investigated within a reasonable period of time.

If banks are to be held to account in terms of the Code, clients need a mechanism by which they can do so. The commitment to dispute resolution through the Ombudsman for Banking Services, and the role banks will play in actively facilitating that process, is crucial.

DISPUTE RESOLUTION If you wish to lodge a complaint, we will inform you how to do

Continued »

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THE CODE

so and what to do if you are not satisfied with the outcome. Our branch, customer care or call centre staff will assist you with any queries. You might also be able to use our website for this purpose.

We will send you an acknowledgement within three business days of receipt of your complaint to the contact details you have provided. We will let you know what the status of the investigation of your complaint is within 14 business days and we will give you an estimated time limit for the complaint to be finalised by us.

When we send you our final response we will also tell you how to take your complaint further, in the event that you are not satisfied with the outcome.

OMBUDSMAN FOR BANKING SERVICES If we do not resolve your dispute or you are not satisfied with the outcome of our dispute handling process, you are welcome to make use of the services of the Ombudsman for Banking Services. We will also, where relevant, give you information on other Ombudsman offices, which might have jurisdiction over your complaint.

An independent Ombudsman for Banking Services Office has been established. The Ombudsman for Banking Services is available at no cost to you to consider any complaint that we have not been able to resolve with you.

The Ombudsman for Banking Services is entitled to mediate, make a determination based on this Code or on the law where the law is reasonably certain, or make a recommendation in other circumstances, including those based on equity. If we decline to accept any recommendation made by the Ombudsman for Banking Services, then the Ombudsman may, at his or her discretion, publish the fact that a recommendation was made and we have refused to accept it. A determination made by the Ombudsman for Banking Services may be made an order of the court.

All banks that are members of the Banking Association South Africa are automatically subject to the jurisdiction of the Ombudsman for Banking Services. We will supply you with the Ombudsman for Banking Service’s brochure, address, telephone and fax numbers on request and we will ensure that the Ombudsman for Banking Service’s contact details are prominently displayed in our branches. If we fail to resolve your dispute with us, or at your request, we will provide you with the documentation required to lodge a complaint with the Ombudsman for Banking Service’s Office.

For more information, you can obtain a copy of the revised Code of Banking Practice. Visit www.banking.org.za where the full document is available for downloading. ■ Edition 1

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LEGAL VIEWPOINT

Getting to grips with the Companies Act A wide range of transactions fall under new financial assistance rules, says Werksmans Attorneys director Richard Roothman.

T

he new Companies Act widens the net over corporate finance transactions that require board approval, shareholder approval and, in certain cases, notice to be given to shareholders.

‘The financial assistance rules in the new Act affect more types of instruments and transactions than before, and also apply to related companies, such as subsidiaries, holding companies and companies under common control,’ says Werksmans Attorneys director Richard Roothman. ‘There is hardly any form of corporate loan structure that does not fall under the new rules.’

If the relevant board approval or the agreement to provide financial assistance does not comply with the requirements of the Act or the relevant company’s memorandum of incorporation, such approval or financial assistance would be void, and a director of the company can be held personally liable for any loss or damage sustained by the company as a direct or indirect consequence of the provision of such financial assistance.

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SA BANKER

Edition 1

Companies won’t be able to get a sizeable corporate loan without complying with these provisions in the Act. Under the old Companies Act, the board only needed to approve transactions when financial assistance was provided by a company in connection with the acquisition or subscription for shares in that company. But, under the new Act, companies issuing any type of security, including bonds or debentures, are governed by the new provisions. Roothman says other types of transactions now affected by the new provisions include the sale of shares in a subsidiary where the parent company provides a guarantee. ‘If a company does provide financial assistance, even for an intercompany loan, the board now needs to approve the transaction,’ he adds.

The board must consider whether the company will be solvent and liquid after the assistance is provided and whether the terms of the transaction are fair and reasonable. ‘If the directors vote in favour of the financial assistance and it is later determined that the terms were not fair, or that it resulted in the company becoming insolvent, they can be held personally liable for losses or damages sustained by the company as a result of the financial assistance provided,’ he says.

Because of the serious consequences of not complying with the Act, most banks and financiers have taken the view that all forms of financial assistance, including inter-company guarantees, must be approved by the board and shareholders, as the case may be, and notice must be given to shareholders. ‘Companies won’t be able to get a sizeable corporate loan without complying with these provisions in the Act.’

One of the challenges for companies will be getting a special resolution passed each time financial assistance is provided. This means calling a shareholders’ meeting, which can be a timeconsuming process. Even when obtaining general approval for a loan, the terms need to be wide enough to meet the changing financing requirements of the company for up to two years. This can be difficult to predict.

In addition, the board must notify shareholders and trade unions within 10 business days of the passing of a resolution to grant any type of financial assistance if the value of the financial assistance exceeds 0.1% of a company’s net worth.

‘The intention of the Act is to improve transparency so that shareholders and unions are better informed of how the company is using its money,’ says Roothman. ‘It’s unlikely that shareholders and trade unions would become too involved in a company’s complex financing arrangements, but depending on when they are told, they may be able to vote on whether a particular transaction should take place or not.’

He warns that companies that regularly transfer money between inter-company accounts should also pay particular attention to the new rules.

‘The legal implications of not complying with the new provisions under the Act are indeed severe,’ says Roothman. ‘It pays to understand which transactions are included under the new Act, and what steps must be followed in each case.’ ■

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TRAINING

Growing Our Talent

BANKSETA’s executive-level training programmes will help to shape the future of South African banking, writes Beth Shirley.

I

t was only after World War II that those working as managers in the banking industry became known as ‘professionals’. In fact, founders of modern western business culture, like Henry Ford, did not believe in ‘executives’ and ‘managers’; Ford felt that the best way to perfect management techniques was to learn on the job.

Fast-forward to the 21st century where, as IBM chairman Sam Palmisano points out, business is more complex than ever: ‘We occupy a world that is connected on multiple dimensions, and at a deep level… successful leaders need to continually identify and develop new market opportunities for growth and innovation.’

It is in this context that the Banking Association South Africa recommends that its members support BANKSETA’s executivelevel training programmes. And the banking institutions should be commended for their support of further training: the sector spends 600% more on training than what is legally required. Of that skills levy, BANKSETA uses 20% on its ‘development programmes’: the International Executive Development Programme (IEDP); bursaries for Masters and Executive Development courses; and doctoral and post-doctoral bursaries.

The IEDP, a fully-funded (and always over-subscribed) initiative is intended to supplement banking organisations’ existing executivelevel training courses, and its six-year existence has seen senior South African retail and investment bankers travel the globe, immersing themselves in different banking environments. In host countries, time is spent with senior financial services executives

and at business schools. ‘The aim of the IEDP is manifold: we want graduates to integrate views of business functioning and to enhance their performance through increased knowledge of best practice.

Importantly, our graduates develop networks across businesses and functions to facilitate collaboration now and in the future,’ says BANKSETA CEO Max Makhubalo.

The IEDP aims to accelerate the development of senior, high potential, historically disadvantaged individuals in the investment banking sector, and places leadership and self-reflection at the heart of its course. ‘We aim to impart the idea that collaborative leaders are personally mature, and so our IEDP candidates present a personal development plan as part of their overall assessment,’ says Makhubalo. ‘We assist our candidates with their personal development plans by providing regular feedback and reflection sessions, and everyone has the chance to spend time with a “coach” in each host country.’

‘The programme combines structured learning together with project work, networking, coaching, business simulations and visits to top-level firms locally and internationally.

‘Last year’s retail banking candidates (who are affiliated with Wits Business School) spent time at the Cass Business School (at the City University London) and studied mergers and acquisitions, economic policy, customer relationships and personal development.

This was combined with other essential components of leadership in the 21st century such as strategy, visioning and change management, explains Makhubalo. The group visited London at a crucial time, Continued »

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BANKSETA

‘We want our candidates to have a broader understanding of the industry from a global perspective.’

– BANKSETA CEO Max Makhubalo

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TRAINING

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‘Our IEDP candidates present a personal development plan as part of their overall assessment,’ says BANKSETA CEO Max Makhubalo.

following the publication of the Vickers’ Report, a government report that proposed changes in the UK banking system.

They then travelled to Dubai – where they learned more about Islamic banking – and then to Kampala, where they looked at banking initiatives helping to develop the very successful small and medium enterprise culture.

The investment banking group (who are affiliated with the Gordon Institute of Business Science) spent time at New York University’s Stern School of Business. ‘Being in New York City, candidates witnessed how prudent management of the banking sector is becoming absolutely critical as more people join formal banking, and financial products become increasingly complex. We wanted our candidates to have a broader understanding of the industry from a global perspective,’ adds Makhubalo.

What is BANKSETA’s ultimate goal with these executive development programmes? ‘I remember listening to the German Minister of Education’s speech about the importance of training and development. Something along the lines of,

when you pick something up and it says “Made in Germany” you want to be damn proud of that product or service. I want to say the same about the South African banking sector.’ ■ For more information, go to www.bankseta.org.za.

If you are interested in furthering your academic qualifications in banking, BANKSETA also provides bursaries for masters, doctoral and post-doctoral work.

BANKSETA’s intention for this programme is to contribute to the body of knowledge that will ultimately inform strategy in the banking and microfinance banking sector.

One BANKSETA bursary recipient, Dr Mmamontso Senosi, recently completed her PhD in Applied Mathematics. Her thesis fcused on the sub-prime mortgage crisis where she sought to understand why this crisis happened despite prevailing regulation. She has subsequently published a book based on her research.

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RISK

Banking Banana

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a Skins 2012 ‘May you live in interesting times,’ the old curse goes. And bankers are certainly living in interesting times – particularly in Europe.

T

he Centre for the Study of Financial Innovation’s (CSFI) annual Banking Banana Skins survey, produced in association with professional services firm PwC, places macro-economic risk and credit losses at the top of the list of 30 possible risks to banks globally.

This survey describes the risks currently facing the global banking industry, as seen by more than 700 bankers, banking regulators and close observers of the banking scene in 58 countries around the world – including seven from South Africa – and ranks 30 risks according to their severity. The questionnaire comprises three parts.

In the first, respondents are asked to describe, in their own words, their main concerns about the financial system over the next two to three years. In the second, they are asked to score a list of potential risks, or Banana Skins, selected by a CSFI/PwC panel. In the third, they are asked to rate the preparedness of financial institutions to handle the risks they have identified.

The main cause of anxiety is the Eurozone debt crisis, which contains the threat of sovereign default by several countries. The first consequence of a default would be large credit losses, which appear at number two on the list, closely followed by a funding crisis whereby banks are cut off from access to liquidity (number three) and fresh capital (number four).

The 2012 annual Banking Banana Skins survey shows that banking executives in emerging markets have a more positive outlook on the financial services sector than those in industrialised countries, as many of the former are currently in better financial health.

Banking executives from regions such as Latin America, Africa, Asia and the Far East rank their prospects more positively than those in North America and Europe – largely due to stronger growth Continued »

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RISK – despite feeling vulnerable to global banking shocks. The report does, however, show some rising concern about the prospects for China as its economy slows and its banks face growing pressures.

‘South Africa’s banking sector has held up well in the face of the global financial crisis of 2008,’ says Tom Winterboer, Financial Services Leader, PwC Southern Africa and Africa. ‘This is largely due to tight regulation, good governance and being well-capitalised.’

Johannes Grosskopf, Banking and Capital Markets Leader, PwC Southern Africa, maintains that while banks in the rest of the world cite the shortage of liquidity and the availability of capital as their prime concerns, South Africa’s banking industry faces different concerns.

The survey reveals that one of the top concerns facing South Africa’s banking industry is the sector’s growing dependence on technology (ranked at number three). This is not surprising, given the rise of electronic and online banking channels, coupled with banks replacing legacy systems. The industry is trying to use technology to become more efficient, but this has to be balanced against their concerns about fraud and the huge costs involved in fighting this crime, says Grosskopf. ‘Dependence on technology in the banking industry is huge, with banks having to invest significant amounts in implementing new systems to defend themselves against fraudulent activity. There has also been a sharp increase in awareness around the potential dangers of cyber crime and hacking, and the huge financial and reputational damage such economic crime can cause,’ he says.

The risks of fraud and criminality are positioned in the fourth and fifth place respectively in South Africa, compared to 27th and 24th globally. ‘A difficult economic climate usually leads to higher incidents of fraud. Criminals are becoming increasingly sophisticated, particularly in the electronic world at a time when more financial business is going digital,’ says Grosskopf. PwC’s Forensic Service Practice carried out research in December last year which shows that a significant percentage of companies (60%) were victims of one or more instances of fraud in the last 12 months. The financial services sector is particularly vulnerable to economic crime, says Grosskopf.

The South African response to liquidity risk is significantly more positive than the survey’s global average, perhaps indicating the sector’s relative distance from the Eurozone debt crisis, says Grosskopf. It is of much less concern here, placed at number 17 on the index, compared to being one of the top concerns ranked by respondents overseas.

Worldwide, regulatory oversight continues to be one of the top concerns facing the sector. The risks include higher costs, management distraction, constraints on profitability and the capacity to lend. Grosskopf says that the most significant change to take place in the South African banking industry will be the introduction of Basel III, which is expected to have an effect on the trading book and funding models of banks. In addition to Basel III, banks will have to come to terms with the provisions of the new Companies Act, compliance with International Financial Reporting Standards, and the proposed Protection of Personal Information Bill. ‘In response, we can expect to see a significant increase in resources,

Banking executives in emerging markets have a more positive outlook on the financial services sector than those in industrialised countries.

BANKING BANANA SKINS 2012 SOUTH AFRICAN PERSPECTIVE 1 Macro-economic risk (1) 2 Credit risk (2) 3 High dependence on technology (18) 4 Criminality (24) 5 Fraud (27) 6 Business continuation (12) 7 Pricing of risk (11) 8 Regulation (6) 9 Human Resources (28) 10 Political interference (5) (Global ranking in brackets)

GLOBAL PERSPECTIVE 1 Macro-economic risk (4) 2 Credit risk (2) 3 Liquidity (5) 4 Capital availability (6) 5 Political interference (1) 6 Regulation (3) 7 Profitability (-) 8 Derivatives (7) 9 Corporate governance (12) 10 Quality of risk management (8) (Previous ranking in brackets)

Continued »

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RISK Intrusion by governments into banking is now a fact of life, be it in the form of nationalisation, tougher regulation, new taxes, or pressure on business decisions. particularly in risk management and compliance. In this regard, South Africa will simply be reflecting the global norm.’

Several ongoing international reforms will also require local banks to reconsider their models. These include the US Foreign Account Tax Compliance Act (FATCA), which is US-based legislation aimed at identifying US citizens with income in foreign jurisdictions, as well as the Financial Stability Board Framework.

Concerns about political interference in South Africa are rated at number 10, though they form one of the top concerns (number five) globally. The report suggests that one reason for this could be that intrusion by governments into banking is now a fact of life, be it in the form of nationalisation, tougher regulation, new taxes, or pressure on business decisions.

Although bankers and regulators agree on the macroeconomic situation, and the credit and liquidity risks affecting the banking system, they have divergent views on the potential risks. The bankers place the perception of regulatory and political risk as very high on their list, while the regulators put this at the bottom. ■

PHOTOGRAPHS: ISTOCKPHOTO

The report can be downloaded from PwC’s website: www.pwc.co.za/en/publications/banana-skins.jhtml

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SPECIAL FEATURE

Recovery and resolution plans for the financial future

S

ince the global financial crisis, financial regulatory authorities have been developing systems and regulations to ensure that key financial institutions remain sound, thereby reducing the need for potential future bailouts. This is required in addition to other regulatory standards like Basel III, aimed at enhancing soundness.

The additional measures aim to prescribe regulations for either restoration to health, or manage financial institutional failure. This provides protection for depositors, and prevents disruption to financial stability. It also aims to limit taxpayer funding of failed institutions.

Critical financial institutions deemed globally systemically important (G-SIFIs) are required by the Financial Stability Board (FSB), to prepare and implement recovery and resolution plans (RRPs). This two-step approach identifies steps financial institutions must take to regain viability when facing severe pressure, (the recovery element).

Additional steps regulators may take if an institution fails form the resolution element.

The FSB has issued guidelines for the implementation of the resolution element of the RRP, aimed at facilitating cross-border resolution and regulatory coordination. However, countries are adopting different approaches to building this element of the RRP. In South Africa, major banks are not categorised as G-SIFIs, despite representing 90% of sector assets. The South African banking sector in turn accounts for 50% of sub-Saharan African banking assets.

Consequently these banks are considered systemically important in South African and African markets. Given the interdependence of global financial markets, and the potential contagion impact of a bank failure, it remains important to critically assess bankers’ RRP plans, despite South African banks managing the GFC relatively well.

In November 2011 the FSB released its ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’, an international standard for introducing resolution regimes. South Africa, as a member of the the FSB and the G20, must comply with this standard. The Registrar of Banks released Guidance Note G3/2012, determining priority issues for discussion with respective bank boards. Recovery and resolution planning (living wills) features prominently on this list.

In October 2011 Ernst & Young surveyed 19 of the 29 G-SIFI banks, and found that 40% of respondents believed that their recovery plan was fully implemented.

The survey found that institutions face difficulties and costs in formulating their plans where they operate across jurisdictions, due to different protocols and differing expectations and information requirements from home and host regulators.

Some of the benefits of RRP’s have been identified as: • Enhanced understanding of the business and operations; and

• Reduced complexity as operations are streamlined; and • More efficient use of capital, as legal structures and funding models are reviewed.

These benefits were offset by concerns relating to: • A mindset of managing failure rather than success; and • Increased public disclosure, which has competitive consequences; and • Competing priorities, notably Basel III and numerous tax requirements.

Some of the key messages emerging from the survey are: • The preparation of an RRP is intellectually stretching, logistically difficult and costly (many banks underestimate the effort, time and expense required); and • There are significant benefits. Institutions critically re-assess strategies, operations, organisation and legal structures.

No one plan is suitable for multiple institutions, given differences in business mix, organisational structure and operating model. As a consequence, bank boards and senior executives must diligently consider their unique risks. Proactive management is critical and appropriate governance structures and senior executive accountability is needed.

A key component for success is data quality, which requires enhanced information systems, to allow for improved analysis and modelling. Financial institutions should leverage already large business continuity resources for development of RRP’s.

In South Africa, RRP requirements should ensure optimal cost-benefits.

Both the resolution regime and the individual financial institutions’ RRPs are still in the early stages of development, and will take several months to design and implement.

Financial institutions should do the following when developing RRPs: • Ensure ongoing dialogue with regulators; • Create plans that avoid taxpayer support; • Pro-actively identify plans to ‘de-risk’ the institution; • Establish a team responsible for communication with internal and external stakeholders; and • Build a dynamic plan that evolves as the business changes.

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�

DEVELOPMENT

Teaching

Children

to Save

A successful financial literacy campaign is investing in our future.

F

inancial literacy – the possession of knowledge and understanding of financial matters – is a skill that can be learned. This is the fundamental principle behind the successful Teach Children to Save South Africa (TCTS SATM) campaign, first piloted in 2008 and now in its fifth annual national roll-out by The Banking Association South Africa – which co-ordinates participation of banks – and the broader financial sector. Knowing how to save is the cornerstone of future financial success, and so primary school children in Grades 4–7 all over the country are being exposed to this campaign, which takes its inspiration from the Zulu saying Ligotshwa lise manzi, meaning ‘best shape a stick while it is still moist’.

The programme’s objective is to teach children to save. It aims to foster a culture of saving among children, create awareness about the value of money, and promote financial literacy, while assisting learners to appreciate the power of choice; and also to promote volunteerism in the financial sector. The programme is integrated within the Economic Management Science (EMS) learning area of the national school curriculum, through support of the Department of Basic Education, and covers the basic concepts of saving: • reasons to save; • budgeting to save; • understanding the difference between needs and wants; and • where to save.

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South Africa’s low savings rate and low levels of financial literacy are well known. Poor savings levels impact not only the financial stability of individual households, but also on the country’s economic growth. The household savings rate has been declining since 1980, and is about 16% of the GDP. ‘Without financial literacy the full and informed participation of individuals in economic life is more challenging,’ explains Fikile Kuhlase, Senior General Manager of The Banking Association South Africa. ‘Developing a culture of saving among children is a critical tool in instilling financial literacy in future generations – and as recent events in the world economy have demonstrated, saving is essential in surviving the fluctuations our economy is subjected to.’

The TCTS SATM is the first collaborative generic financial literacy initiative of the South African banking industry.

For more information, visit www.tcts-sa.org.za, email tcts@banking.org.za or contact the TCTS SATM Programme Co-ordinator on +27 11 645 6721/00.

Developing a culture of saving among children is a critical tool in instilling financial literacy in future generations, as financial literacy is the core platform for financial inclusion.

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PHOTOGRAPHS: ISTOCKPHOTO

DEVELOPMENT

It is estimated that over 65% of South African adults do not save at all – an alarming statistic when one considers the economic instability that many South Africans face at one time or another in their lives.

‘With the Teach Children to Save South Africa programme, our intention is to instil – indeed, popularise – the notion of saving as a smart, savvy choice among children. We are excited to be working with our volunteer bankers and financial sector professionals from various banks and financial institutions, who take time out of their considerably hectic schedules to dedicate an hour to imparting useful and practical saving skills to South Africa’s children,’ adds Kuhlase.

Since 2008, volunteer bankers and financial sector professionals have swapped the boardroom for the classroom to deliver one-hour savings lessons to more than 350 000 learners in over 1 500 schools, with the support of 15 banks and 28 financial sector institutions.

The programme is also endorsed by the SADC Banking Association, and both the Swaziland and Mauritius Bankers Associations have launched TCTS programmes in their countries.

In July 2009, the Islamic Finance Chapter of TCTS SATM was piloted, and it has been rolled out annually since then. ‘With the inclusion of the Islamic Finance chapter of the programme, we’ve customised the lesson plan to include concepts of money in Islam,’ says Kuhlase. It is important to note that Islamic banking is not only for Muslims, but is open to all.

A database of schools in South Africa has been loaded onto the dedicated website, www.tcts-sa.org.za, and upon registering online each bank/financial institution selects a school/s to be visited. The programme encourages participating financial institutions to select schools in their areas of operation, to facilitate accessibility for

volunteers. The volunteer bankers and financial sector professionals visit schools nationwide – urban and rural – and engage faceto-face with learners of varying ages and income brackets. Since 2008 a repeat/veteran cadre of volunteers has been established, and an interactive DVD developed to train volunteers. TCTS SATM has a bias towards the rural and impoverished schools, so it encourages participating institutions to visit schools that would normally not be reached. Special attention is also paid to special needs schools. Programme integration is key for sustainability and institutionalisation of the TCTS SATM. ■

HOW TO PARTICIPATE

• Contact your bank/financial institution’s TCTS SATM programme co-ordinator, in the Consumer Education/CSI or relevant division, to be assigned a participating school.

• If your bank/financial institution would like to participate, kindly request the relevant division to register at www.tcts-sa.org.za or contact the TCTS SATM programme co-ordinator.

• Participating institutions/banks in the TCTS SATM appoint an internal contact person/s.

• Download the TCTS SATM Toolkit on the website for further information.

• Inform identified schools regarding the number of bankers/financial sector professionals participating and grades targeted.

• Volunteer bankers and financial sector professionals select a class (from Grades 4 to 7) and deliver one-hour savings lessons during the dedicated TCTS SATM Weeks, which run from 16 to 27 July 2012.

• The 2012 TCTS SATM national launch takes place on 18 July in the Eastern Cape.

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Changing ���������������� How fast is the speed of change, and who sets the pace? From ledgers to iPads and bank queues to wireless, even the tangibility of currency is rapidly being depleted. In an ���������������������������������������� on consumer demands and environmental ������������������������������������������� ������������������������ �������������������������������������������������������� balancing act of business performance coupled with risk management, and changes in compliance requirements ��������������������������������������������������������� schedule IT systems and you have the scene for consumer product delivery. ������������������������������������������������� demanding, they are informed, armed with choice, and ����������������������������������������������������

���������������������������������������������������� ������������������������������������������������������� �������������������������������������������������������� appeals to consumers, simple bankers are not as endearing a concept.

Add to consumer complexity the speed of technological developments, and it is easy to understand why industries ������������������������������������������������������� has one implemented technological changes, than a new ���������������������������������������������������� ������������������������������������������������������ ��������������������������������������������������������� remain on, and it will only get tougher. ���������������������������������������������������������� ������������ Banks are not machines, and they do not change by themselves. Banks are people, groups of people, and the best banks have the best, most focused teams of intelligent people, delivering new results to new consumers, in the ������������������������������������������������������� In the new banking, more talent means more success.

Cornerstone believes in the new banking professional. ����������������������������������������������������� equipped to learn, adapt, think, remain focused, and solve business problems. That is why we shape people who behave in line with the future, and don’t just replicate past procedures. At Cornerstone, our success lies in our proven ability to shape the behaviour and performance in people �������������������������������������������������������� �������������������������������������������������������� �������������������������������������������������������� �������������������������������������� The success of the banks of the future is in their people.

And the success of the bankers of the future is the quality ����������������������

This QR code barcode links to our website ������������������������������ ������������������������������������������� or tablet, take a picture of the QR barcode and our website will open in your browser ������������������������������������������ QR Code Scanner Pro for BlackBerry® and Barcode Scanner for Android.

LEARNING SOLUTIONS FOR BANKS OF CHANGE

������������������������������ ������������������������������������� �����������(+27) 011 789 1957 / (+27) 086 626 0503 ��������������200 Oak Ave, Randburg, Gauteng

MEMBER BANKS

Introducing Banking Association Member

Capitec Bank Q&A

Name of bank: Capitec Bank Limited Owner: Capitec Bank Holdings Limited Core business: An innovative banking facility offering transactions, savings and credit, which are accessed via a paperless, card-driven process in real-time.

Target market: Individuals in need of simplified, affordable and accessible banking.

Core values or differentiators: Simplicity, affordability, accessibility, personal service, transparency – you know what you get, you know what you pay. (www.capitecbank.co.za/about-us/focus)

Any newsworthy changes in the bank’s structure or business in the near future?

We anticipate launching a credit card in 2013.

Is there a key product or initiative you wish to highlight?

Zero transaction fees on debit card purchases and you can withdraw cash from tills at retailers like Shoprite, Checkers and Pick n Pay at a flat fee of only R1. (www.capitecbank.co.za/personal-banking/transact/fees)

CEO Riaan Stassen

International links: None CSI: Our corporate social investment (CSI) programme focuses on three main areas of support: high-school education, financial literacy sponsorships and donations to community organisations. (www.capitecbank.co.za/about-us/csi) ■

CONTACT DETAILS www.capitecbank.co.za Client care centre: 0860 10 20 43 clientcare@capitecbank.co.za

THE CEO: RIAAN STASSEN BCOMM (HONS), CA (SA)

Riaan Stassen (58) is the CEO of Capitec Bank, one of South Africa’s leading banks in innovation. Since his appointment as Managing Director in June 2000, followed by the CEO appointment in March 2004, Stassen has been instrumental in establishing the bank’s unique positioning, service platform, and Capitec as a serious alternative to the existing traditional four banks.

Prior to his banking career, Stassen gained extensive experience in the liquor industry as Operations Director of Distillers Corporation. His move into banking began when he was appointed Managing Director of Boland PKS, where his innovative insight saw the bank’s offering shift from personal to mass-market banking.

In 2007 Stassen was awarded the Cape Times/KPMG Business Personality of the Year award. Judging criteria for the award included business and entrepreneurial excellence and outstanding company performance.

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Up

FRAUD 53%

Cnr. Booysens and Trump, Selby, Johannesburg 2000 PO Box 606 Bedfordveiw 2008 Tel: +27 11 493 1575 / Fax: +27 11 493 8373 Email: inquiries@renform.co.za / Web: www.renform.co.za

“Ren-Form has obtained the sole

license to manufacture the Hydalam™”

The increase in the need for secure messages and code numbers is proportional to the increase of fraud.

Consequently, security is becoming a more prevalent issue.

is a material that has been developed for excellent toner adhesion, is non-glare so the message cannot be read by holding it to different light angles and has a slitted surface so that it can be used only once.

Ren-Form has obtained the sole license to manufacture the Hydalam™ information security system in subSaharan Africa. Hydalam™ is a laser-printable, tamperevident peel and reveal paper product designed to carry confidential information, such as pin numbers or passwords.

Hydalam™ is a tested, effective tamper-evident system.

What this technology means for the financial industry is that confidential messages can be personalized onto a sheet by laser printers no specialized equipment is required either singularly or in volume. The surface of the message area

For years Ren-Form as been a household name in the security, VDP and Bar-coding industry and with the NEW Hydalam™ technology, Ren-Form is sure to raise the bar in security printing.

MEMBER BANKS

Al Baraka Bank

Introducing Banking Association Member

Al Baraka Bank Q&A

Name and history: Al Baraka Bank Limited was registered in June 1989. The bank was established to provide communities with an alternative to conventional interest-based banking.

Owner: Al Baraka Bank is jointly owned by both local and international investors. Primary shareholders as at 31 December 2011 included the Bahrain-based Al Baraka Banking Group BSC (61.98%), DCD Holdings (SA) (Pty) Ltd (8.61%), DCD London and Mutual plc (4%), Johannesburg-based Timewest Investments (Pty) Ltd (7.67%) and Sedfin (Pty) Ltd (3.33%). The balance of the bank’s shareholding comprised foreign and local shareholders.

Core business: Providing investments, financing products and services that operate in accordance with Islamic Law (Shariah).

Target market: Although the products and services offered by the bank are in accordance with the Shariah, these products are available to all population groups and denominations.

Core values or differentiators: Products and services operate in accordance with Islamic Law – Al Baraka Bank does not indulge in conventional interest-based banking. Islamic Banking is based on profit sharing with an underlying asset.

International links: Al Baraka Bank South Africa is a subsidiary of the Bahrain-based Al Baraka Banking Group (ABG). ABG has an international presence through its 13 subsidiaries, with more than 400 branches globally.

CEO and chairperson The chairperson of Al Baraka Bank Limited is Mr Adnan Ahmed Yousif (Bahraini) Chief Executive: Mr Shabir Chohan CSI: Al Baraka Bank is very active in its Corporate Social Responsibility initiatives. The bank contributes towards or sponsors four primary sectors: education, health, poverty alleviation and safety and security. In the year 2010 more than R11 million was spent. This contribution was made to 368 institutions (such as schools and hospitals), poverty alleviation projects and empowerment programs. In 2011, more than R6 million was channelled via 105 organisations. ■

Any newsworthy changes in the bank’s structure or business in the near future?

Due to the growth of Islamic banking the bank, via its parent group, intends to expand its footprint into other parts of Africa.

Is there a key product or initiative you wish to highlight?

The Al Baraka Visa Debit Card – an electronic banking product that provides clients with immense savings on their transactional charges.

This is also extended to both business and corporate clients.

CONTACT DETAILS www.albaraka.co.za Tel: 031 364 9000 Customer Services: 0860 225 786

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TECH PAGE

Gadgets Business isn’t all work and no play. Your business tools shouldn’t be, either. By Charles Boffard.

ASUS EEE PAD TRANSFORMER PRIME

FROM R5 800 za.asus.com Tablets are best for consuming media, while laptops are best for producing documents. Then there’s the Transformer Prime, an Android touchscreen laptop that becomes a tablet when its keyboard is detached.

The Transformer is a hybrid, but not a compromise: it’s a light-weight (1.1kg in total), well-built machine that succeeds in both roles, with an outstanding 10.1inch/25.7cm screen, a fast 1.3GHz quad-core processor, and a second battery in the keyboard which extends its endurance to 18 hours.

DRAGON NATURALLY SPEAKING 11.5 PREMIUM

Charles Boffard is Deputy Editor of Stuff magazine.

R1 700 nuance.com More bad news for keyboard manufacturers: voice recognition has come of age. Market leader Dragon Naturally Speaking’s latest version (11.5) is a dramatic improvement on the technology of just two years ago.

You can dictate to your computer, iPhone or digital voice recorder and Dragon can transcribe the audio files into most standard Windows or Mac applications faster than you can type. It does this with up to 99% recognition accuracy.

You can also perform some computer tasks by voice command. Medical and legal versions offer specialist vocabularies, but we think the Premium Edition’s business vocabulary should suffice for bankers.

SAMSUNG GALAXY NOTE

FROM R8 000 samsung.co.za At 147x83mm, this gorgeous Android smartphone is not for everybody – and you can forget about fitting it into trouser pocket.

The Note is halfway between phone and tablet, with a very hi-res, 5.3inch/13.5cm touchscreen and a fast 1.4GHz dual-core processor. It offers a fast, slick experience and houses its own stylus, with decent handwriting recognition.

Is it a good business tool? Yes. But for most business users a tablet offers more capability. If you’ve a need for handwritten notes, fine. Otherwise, the Note’s appeal – and it has plenty – isn’t primarily as a business tool.

MUST-HAVE PRODUCTIVITY APPS IF YOU DON’T WORK WITH THESE APPS, IT’S TIME YOU DID DROPBOX FREE dropbox.com Dropbox is a cloud-based file hosting service that allows you to store, sync and share files and folders via the internet. It’s very simple to use – all you have to do is drag and drop the files into a desktop folder.

Premium versions offer more storage space and sophisticated options such as Dropbox for Teams, with administrative control and ‘bankgrade’ encryption.

READ IT LATER FREE readitlaterlist.com Mac OS, Windows, Android, iPhone/ iPad, Win Phone 7, BlackBerry, WebOS, eBook Reader, Twitter The New York Times calls it ‘PVR for the web’. Read It Later lets you bookmark pages, with one click, to read later, downloading offline copies of your pages, including their text, images and video, so you can read them whenever and wherever it suits you, even when offline, on any of your internet devices.

EXPENSIFY FREE expensify.com iPhone/iPad, Android, WebOS, and BlackBerry Keeping track of expenses should be a less taxing experience. With Expensify, you can log, categorise and upload expenses on your mobile as you incur them, adding notes and linked photos of receipts if you wish.

Emailed receipts can be linked subsequently, and you can also import credit card records, producing a complete expense report.

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BRICS Commits to Development Bank LEADERS OF THE FIVE-NATION BRICS bloc have directed their finance ministers to work towards forming a Development Bank aimed at catering for the needs of developing countries.

In a declaration issued in New Delhi after their fourth summit, leaders of Brazil, Russia, India, China, and South Africa said the envisaged bank would mobilise resources for infrastructure and sustainable development projects in BRICS and other emerging economies. The five leaders have mandated their finance ministers to examine the feasibility and viability of such an initiative and report back at the next summit.

A BRICS-led development bank would seek to encourage investment in a more sustainable and productive manner for the financing of infrastructure. The plan is also seen as a potential counter-weight to other multilateral lenders such as the World Bank and Asian Development Bank.

‘We call for further international financial regulatory oversight and reform, strengthening policy co-ordination and financial regulation and supervision co-operation, and promoting the sound development of global financial markets and banking systems,’ reads the declaration.

South African Banks Well-positioned despite Global Uncertainty THE FINANCIAL RESULTS of South Africa’s four major banks (Absa, FirstRand, Nedbank and Standard Bank) for the six months ended 31 December 2011 are a positive reflection of the financial health of the industry, according to professional services firm PwC’s South Africa Major Banks Analysis Report.

‘Although the banks may have experienced tough operating conditions at the start of the global financial crisis when South Africa dipped into the recession, they have since strengthened their positions through a combination of increasing capital levels, changing funding strategies, reducing risk appetite and holding significantly more liquid assets,’ says Tom Winterboer, Financial Services Leader for PwC Southern Africa and Africa.

The effect of new Basel III regulations on product and pricing decisions remains a cause of uncertainty with regard to pricing on longer-term transactions, says Winterboer. The major banks reported an aggregate ROE of 16% for the year ended 31 December 2011, up 10.3% from the previous year. Headline earnings grew to R39.9 billion, an increase of 17.7% from the previous financial year.

The main driver of earnings growth has been containment of costs, up only 2.6% from the previous year, and particularly the reduction in impairment charges of 14.8% for the year, says Johannes Grosskopf, PwC Banking & Capital Markets Leader, South Africa.

It is possible that the reduction in non-performing loans (down 15.2% from the previous year) means that impairment levels have now bottomed out and that the boost to earnings provided by the decline in impairment charges has come to an end, says Grosskopf. ‘This could see an increase in pressure on earnings growth targets for the 2012 financial year and beyond.’

With respect to retail customers, the local market remains focused on widening the net and banking the unbanked, finding innovative ways to reach its clients. All the major banks reported customer gains, increases in access points such as ATMs, non-traditional branches and a continued focus on electronic and mobile channels.

Grosskopf says that containing costs will remain a priority for banks. ‘This will be affected by regulatory reform and continuing core banking IT enhancements.

The focus therefore will be on operational effectiveness, simplifying processes and the rationalising of businesses to achieve more focused strategic objectives.’

This could see an increase in pressure on earnings growth targets for the 2012 financial year and beyond.

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BANKING NEWS DOING IT TOUGH

International News UK SME’S GET THE FINANCE THEY SEEK

The UK’s SME Finance Monitor surveys 5 000 businesses every quarter, and has concluded that for UK SMEs there is a lack of demand for finance rather than a lack of supply.

Its findings show that the majority of businesses seeking loans or overdrafts had their applications approved.

The surveys also identified more than three million businesses (roughly threequarters of all UK SMEs) as currently ‘happy non-seekers’ of finance, i.e. not wanting to apply, and that only half of the 4.5 million SME’s have ever required bank finance.

Only 14% of SMEs had sought new or renewed finance in the previous twelve months, and only around 2% were turned down for an overdraft, and even less (1%) for a loan.

SMEs surveyed said that in both the short term (next three months) and the longer term, the main barrier to running their business was the current economic climate – and they felt that their own trading conditions suggested it was just not the right time to borrow. Two-thirds expressed no intention of applying for finance in the short term.

‘UK banks are working hard to dispel the myth that banks automatically turn down credit applications,’ says the British Banking Association’s David Dobbs. ‘But the approval rates and the independently monitored appeals process should give SMEs confidence that, when seeking finance, they will get a fair hearing from their banks.’

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Australian banks have offered emergency relief packages to assist people affected by the floods in four Australian territories. Individual banks have announced assistance packages to help families, business people, farmers and individuals in the communities adversely affected by the flood waters.

‘The emergency packages provide practical help by giving immediate financial relief to those most in need of assistance, and improving prospects for maintaining viable businesses,’ says Australian Bankers’ Association (ABA) Chief Executive Steven Münchenberg.

‘Banks are also encouraging customers who are having difficulties servicing their loans to make contact. Your home or business may not be flooded out but sometimes customers’ employment or businesses can be disrupted because of the effects of the floods.’ Says Mr Münchenberg: ‘To help ease financial worries, customers should talk to their banks about applying for assistance, which could include deferring home loan repayments for a specified time period, accessing savings early in term deposits without penalties, or getting a temporary credit limit increase.’

‘I would like to encourage people who are doing it tough to contact their bank as soon as they can to discuss how their bank can help.’

The Australian economy is still suffering damage after last year’s catastrophic flooding.

Assistance provided to people will vary according to individual circumstances, but could include: • deferring home loan repayments; • restructuring business loans without incurring fees; • giving credit card holders an emergency credit limit increase; • refinancing personal loans at a discounted fixed rate; • waiving interest rate penalties if term deposits are drawn early; and • deferring repayments on equipment finance facilities.

‘Each and every financial situation will be different, but be assured bank relationship managers will talk to customers about strategies to deal with the floods,’ says Münchenberg.

The ABA also has a website, which has information about hardship arrangements for customers affected by disasters, unemployment, illness and other issues that cause financial difficulties. (www.doingittough.info)

INTERNATIONAL BANKING STABILITY

The British Banking Association Chief Executive Angela Knight says that UK banks have done more in response to the financial crisis than most international banks, but that confidence ultimately depends on political implementation.

‘In the UK the banking industry has collectively done more to improve the stability of the banks than most of our international competitors,’ she writes in the BBA publication Balance. ‘We have regrouped and are rebuilding for the future, but that future also requires stability and confidence to be restored in the Eurozone countries.

The banking industry is determined to work to deserve the trust of our customers – we have an ongoing responsibility to our customers and the wider economy and we will play our part. ‘But there remains a crisis of confidence in the sovereign debt and economic policies of some countries, and questions have been raised about how able some nations are to be competitive and afford what their people have come to expect.

How far the turmoil runs depends on whether the politicians implement their frequently announced proposals and whether the markets consider the actions believable.’

GHANA BANKING REFORMS LIFT ECONOMY

Setting new minimum capital requirements for banks has quadrupled reserves in three years, according to Ghana’s central bank.

Bank of Ghana governor Kwesi Bekoe Amissah-Arthur said the bank’s capitalisation had almost quadrupled to about US$933 million following the measures, according to The Africa Report. Banks in Ghana now have less than six months to raise their minimum capital reserves to US$34 million.

Amissah-Arthur said steps were being taken to further improve the central bank’s regulatory and supervisory responsibilities, to ensure that only strong and wellmanaged banks operate in the country.

He said the security of the banking system hinged on adequate capital and good governance practices, including robust risk management systems.

The central bank is encouraging banks that are finding it difficult to re-capitalise to list on the Ghana Stock Exchange, because of perceived benefits to the wider economy.

‘If the other 20 banks get listed on the Ghana Stock Exchange, the number of listed equities will increase to 56, thus adding momentum to activities on the Exchange,’ Amissah-Arthur said.

‘This calls for a desire to share management and to be subject to serious scrutiny. This understanding is vital to unlocking the potential of our capital markets,’ he added.

He said such banks would have the opportunity to build enduring relationships with international banks and tap into medium- to long-term funds.

‘Thus, in addition to opportunities for attracting additional capital resources and therefore building their capacities for risk taking, such banks stand to attract capital for greater intermediation,’ concluded Amissah-Arthur. ■ Edition 1

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