Banker S.A. Edition 05 by Andrew Green

BANKER SA

BUSINESS AND GOVERNMENT LIVING WITH DEMOCRACY

DR BLADE NZIMANDE ON BANKSETA

SA Edition 5 2013

Magazine of The Banking Association South Africa

EDITION 5

Pravin Gordhan

‘Can we be a winning nation?’ The BRICS bank

Who will set the agenda? PICASSO HEADLINE

Deloitte 2013 Banking Industry Outlook Customer story: home loan denied

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CONTENTS 35

07 MD’s Message

Banking Association South Africa MD Cas Coovadia on the implementation of the National Development Plan

08 Profile

‘Can we be a winning nation?’ Pravin Gordhan and his plan for 2013

14 Summit

The BRICS bank – do we need another development bank?

BRICS member countries are pushing ahead for the establishment of their own development bank

20 Current Affairs

Business and government

31 Banking IT

Retail banking IT spend rockets Focusing – and spending – on customer satisfaction and revenue growth

32 Legal Viewpoint

Project bonds: the future infrastructure finance in South Africa? The time is ripe for the injection of fresh life into South African infrastructure investment

35 Training

Transformation has training at its core Dr Blade Nzimande on BANKSETA’s responsibilities

Too many pointing fingers, writes Prof Steve Friedman

26 Customer Story

Application declined

Why are unsecured loans easier to get than home loans?

38 Industry Survey

The Deloitte 2013 Banking Industry Outlook Financial services has become a technology business

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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 Editor Banking Association Editorial Board

43 Banking Association Member

Introducing Bank of China, Johannesburg Repositioning itself to remain relevant in the everchanging financial services market

Introducing Finbond Mutual Bank Focused on investment and savings and micro-credit products

47 Business Life Technology

BlackBerry’s new hope, the iPad Mini, HTC One and a Sony Vaio

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

51 Banking News: International

Britain’s “electrified fence” and Kenya’s mobile money

Charles Boffard boffardc@timesmedia.co.za Lawrence Khoza Luyanda Tetyana Ndivhuho Mafela Thenji Nhlapo

Contributors

Charles Boffard Prof Steve Fredman Sure Kamhunga Phakamisa Ndzamela

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45 Banking Association Member

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55 Lifestyle

Meet the Bankers

Dr Mathai Vaidyan of the State Bank of India, Johannesburg

56 Product News

New products for the business of finance – and for financial people

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.

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MD’S MESSAGE Moving towards the implementation of the National Development Plan

he Banking Association South Africa, at its last Board meeting in November 2012, agreed the industry would concentrate its efforts this year in promoting the National Development Plan (NDP). This decision was in line with a broader business view that the NDP is the one plan that has a broad base of support, and is the most pragmatic and realisable vision for South Africa. The African National Congress (ANC), at its Mangaung congress, also adopted the NDP as the central instrument against which all policy will be measured and that will guide government in fulfilling its governance responsibilities. The NDP is the product of broad consultation, consideration and analyses of the critical issues we need to address as a country, if we are to fulfil the tremendous potential we have and make real the democracy we achieved in 2004. The NDP offers exciting thinking on, inter alia, the following: • A capable state • Infrastructure development • Governance • Human settlements, including appropriate spatial planning • Education • Building trust • Economic growth and development • Health The NDP stresses the importance of a state that has the capacity and commitment to deliver services efficiently and care for those who are indigent. The plan charts a role for the state that is facilitative of private sector growth, but intervenes where markets do not work. The NDP is very clear that the state, and other sectors of civil society, needs to be ruthless in fighting corruption. The plan also stresses the critical need for collaboration between all sectors of society and government to achieve the outcomes we need to improve the living conditions of all our people and address the growing income gap between a minority and the vast majority. The theoretical adoption of the NDP by a broad spectrum of society and government must translate into real delivery, such that the NDP moves from being a vision to a living strategy for delivery. Government must ensure the Minister of Planning has the necessary capacity and resources to drive the NDP through all facets of government. The President must be emphatic that the Minister of Planning will champion the NDP and will receive the collaboration

of all ministries. Business must now take the initiative in identifying implementable projects cited in the NDP, collaborate on what role business can play in implementing the projects and approaching government to discuss its role. All critical stakeholders will have to make sacrifices and compromises in the national interest. However, such compromises must not result in poor quality, non-delivery or a fracturing in the pact we need to build. We must also be cognisant of the challenging economic times within which we need to implement projects cited on the NDP. The budget deficit for year-end 2013 will be 4,3% of gross domestic product (GDP). We will need to allocate funds to the many social programmes government has instituted. We will need to ensure appropriate allocation of resources, and particularly the efficient use of resources. This entails efficiency in state departments and institutions and a zero-tolerance approach to corruption. The private sector has a critical role to play in assisting in ensuring sound government capacity, although government must satisfy the private sector that it will do the basics to receive capacity in a sustainable way. Our country is, I believe, at a T-junction. We can choose to work together to make the vision in the NDP concrete, or we can choose to destroy all the potential we have and to some extent achieved, but still have a great deal to do! Can we be a winning nation? Do we need the BRICS Bank? How can banks reduce the proportion of unsecured loans? If you have an opinion concerning a Banker SA article, e-mail us at banking@picasso.co.za.

Cas Coovadia Managing Director, The Banking Association South Africa Edition 5

BANKER SA

PROFILE

The pro-business tone of the budget will be welcomed by banks and by all South African businesses.

BANKER SA

Edition 5

‘Can we be

a winning nation?’ Finance Minister Pravin Gordhan crafted the 2013/14 fiscal budget against the backdrop of a tough macro-economic environment, spiralling unemployment and a worrying budget deficit.

ccording to Gordhan, South Africa’s gross domestic product (GDP) growth this year is expected to be 2.7% compared to the 3% the National Treasury estimated in October (2012), rising to 3.8% in 2015 against earlier predictions of a 4.1% growth. This compares with GDP growth rates of over 6% to 10% in some countries in sub-Saharan Africa, even though the growth is off a lower base than that of South Africa, the region’s largest economy by output. On the other hand, the Minister had to send the right message to investors and rating agencies who are still concerned about the downside risks to the economy as a result of labour unrest, the fiscal deficit and tepid economic growth. Gordhan did not disappoint, neither did the budget shoot the lights out of the sky, even though the most noticeable relief was his decision not to increase personal income tax. In the end, economists, bankers and opposition parliamentarians appeared impressed that Gordhan had managed to produce a balanced budget that could lay the foundation for sustained economic growth. Dr Azar Jammine, Director and Chief Economist at Econometrix, a research and analysis organisation states: ‘It is a well-known cliché to suggest that (Gordhan) had very little room to manoeuvre in

drawing up the budget. Economic growth over the past year as well as prospects for the coming year have turned out to be weaker than budgeted for a year ago.’ Banker Sim Tshabalala, who is Joint Group CEO of the Standard Bank Group describes the budget as pro-business, singling out the raft of tax incentives that he says will encourage more cross-border investments by companies, including banks. South Africa’s big four banks are among the most aggressive in pursuing organic and acquisitive growth in sub-Saharan Africa, where Standard [Bank] is the largest by assets and income. Retailers and miners are also jockeying for market share in growth markets in east and west Africa. ‘We think the pro-business tone of the budget will be welcomed by banks and by all South African businesses,’ says Tshabalala. ‘To quote Minister Gordhan, “Growing the economy means expanding business activity.” However, as the Minister also says, this means that the private sector has serious responsibilities to improve our competitiveness and to expand trade, investment and job creation. South Africa’s banks will continue to work hard to embody and support South African competitiveness,’ says Tshabalala. Analysts, however, warn it will not be easy, given the expected drop in revenue collection, low economic output and the impact of the tepid global output on South African economy. Edition 5

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‘We heed the call to put South Africa first - through one giant leap.

Every South African has a patriotic duty to build and promote our country.

“As the voice of the banking industry, The Banking Association South Africa continues to build a better future through competitive, economically responsible and innovative banking while contributing to the socio-economic growth and development of our country through the delivery of financial services.”

The Banking Association South Africa Responsive. Progressive. Accessible. Better Future

PROFILE

Projects follow discussions held between the government and business leaders on how to kickstart growth and showed growing confidence in the business outlook despite difficult conditions. The overriding theme, however, was that Gordhan is aware of the need to create jobs as evidenced by endorsement of the National Development Plan (NDP), which the Minister says is key to economic growth. ‘Of greater importance – from a ratings perspective – is going to be the extent to which the tenets of the NDP show signs of increased implementation in the year ahead,’ says Dr Jammine. In tandem with the NDP, the Minister announced the start of the long-awaited infrastructure spend project of more than R820 billion planned by both the government and state-owned enterprises. This programme, which has been stalled since the end of the last multibillion rand infrastructure projects for the 2010 World Soccer Cup, will not only boost activity in the key construction and building sector, but create thousands of permanent and temporary jobs. Edward Kieswetter, Group Chief Executive of Alexander Forbes Ltd, is enthralled particularly with the announcement of the infrastructure spend projects. ‘The government’s commitment

to the infrastructure development is both necessary and admirable, but unless we have a step change in our capacity to deliver, this programme remains ambitious,’ says Kieswsetter. The private sector has also responded to calls by the government for a joint effort to tackle unemployment and poverty. In the speech, Gordhan announced pledges by companies in sectors such as telecommunications, retail and mining, to embark on billionrand projects worth over R70 billion which are estimated to create thousands of jobs. Gordhan says these projects follow discussions held between the government and business leaders on how to kick-start growth and showed ‘growing confidence in the business outlook despite difficult conditions’. Kieswetter says a private sector partnership with government is a critical success factor, now more than ever. Specific to the financial sector, Gordhan did not spell out additional measures – as had been expected by some bankers – Edition 5

BANKER SA

PROFILE

More competition will be promoted by allowing providers other than life offices to sell living annuities.

of how government will implement the so-called twin-peaks regulatory policy framework. The framework, first announced more than a year ago, is aimed at separating the prudential regulatory functions of the Reserve Bank from market conduct responsibilities which will be assigned to a more strengthened Financial Services Board (FSB). However, the Minister proposed a raft of measures aimed at encouraging savings and strengthening the retirement sector. Among these were proposals to introduce tax-preferred savings and investment accounts in 2015, and to ensure retirement funds identify appropriate preservation funds for exiting members who will be encouraged to preserve when changing jobs. ‘Retirement funds will be required to guide their members through the process of converting savings into a regular income 12

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after retirement, and to choose or establish default annuity products that meet appropriate principles and standards,’ says Gordhan. ‘More competition will be promoted by allowing providers other than life offices to sell living annuities,’ he adds. The Minister says government is also looking at ways of how to encourage all employers to provide appropriate retirement mechanisms for their employees as part of the broader social security reforms. Tshabalala says the announcement that tax-preferred savings and investment accounts will be introduced in 2015 is pleasing for two reasons. Firstly, he says, the economy as a whole will benefit from the higher rate of savings that is likely to induce. Secondly, banks are likely to find it somewhat easier to address the stable liquidity challenge created by Basel III.

Tshabalala is also happy with the proposed reforms of retirement funds, so does chairman of Alexander Forbes, Sello Moloko. ‘At current levels, too many South Africans will retire poor. This further exacerbates an already low national savings culture and an ever-increasing burden on the State to provide necessary, but costly social grants,’ says Moloko. ‘This is an issue that calls for government, the retirement benefits industry and other key stakeholders, such as employers and trade unions, to put our heads together to suggest and implement sustainable and all-encompassing retirement benefits,’ he says. Tshabalala says bankers are keen to engage with National Treasury to discuss how to increase mortgage lending and increase the overall lending book. ‘I think this will lead to valuable discussions about the balance of responsibility between the public and private sectors to offer and guarantee housing finance; and may also enable us to look (as a country) at how best we can respond to the Basel III requirements without unduly restricting long-term lending.’ Bankers say they are also keen to play their part in encouraging responsible lending and recovery of loans, which Gordhan mentioned in the budget. Gordhan has been on a crusade that has become almost personal, to force both banks and non-financial credit providers to adopt more responsible lending practices and discourage overindebted customers to borrow more. Estimates show that of the more than 19.5-million credit active South Africans, as

BRICS countries also plan to pool their combined foreign exchange reserves of $4.5 trillion to support each other at times of balance of payments or currency crisis.

many as 12-million have missed at least one debt instalment, while more than nine million have impaired credit records, meaning they have missed three or more instalments. Even more worrisome is the fact that more than 55% of credit-active people spend more than what they earn. ‘We fully share the Minister’s concern about personal lending and recovery practices that may have left workers without money to live on,’ Tshabalala says. ‘As agreed between the members of The Banking Association South Africa and the National Treasury in November 2012, we will continue to work with the Treasury and the National Credit Regulator to make sure that abusive practices are brought to an end,’ he says. Gordhan also confirmed plans by BRICS member countries to establish a development bank to mobilise savings to fund infrastructure projects and other projects aimed at stimulating intra-BRICS trade and investment. The Minister says BRICS countries also plan to pool their combined foreign exchange reserves of $4.5-trillion to support each other at times of balance of payments or currency crisis. Tshabalala says that the proposed BRICS development bank could well be a useful new source of funds for infrastructure development. ‘The creation of a BRICS foreign exchange pool and a BRICS trade insurance risk pool could be valuable new sources of financial stability for South Africa and our BRICS partners,’ he says. By Sure Kamhunga ■

PRAVIN GORDHAN – A QUIET CRUSADER Amiable, friendly and forthright, Pravin Gordhan (born 12 April, 1949) is the man managing the finances of Africa’s largest economy. He plays an important role as South Africa’s representative at the G20 group of countries and also provides input and influence on the Basel Committee of Banking Supervision, of which South Africa is a member. Gordhan took over as Finance Minister from Trevor Manuel on 11 May 2009, taking charge of state finances that were in surplus, thanks to high tax revenues boosted by a commodity boom not seen in decades. Gordhan joined the Ministry of Finance after a successful stint at the South Africa Revenue Service (SARS), where he was instrumental in ensuring that it was run with operational and management autonomy that is found in the private sector. His ability to steer the economy through stormy water was tested when he joined the National Treasury, when South Africa was in the throes of its first recession in more than a decade as a result of the global credit crisis. Thanks to a strict regulatory regime, the government did not bail out local banks as was the case in the US and Europe. This explains why Gordhan is critical of the wayward practices of bankers in developed economies whom he believes were partly responsible for the credit crisis and its subsequent impact on the global economy. Gordhan, who is married with two children, is a pharmacist by training, having obtained his Bachelor of Pharmacy degree in 1973. Redressing the past social and economic imbalances in South Africa has always been a drive for him, and underlies his current crusade to force banks and non-financial credit providers to introduce more responsible lending practices. This resulted in a landmark agreement in November 2012 between the National Treasury and banks, to impose a self-regulatory mechanism to promote responsible lending. Gordhan wants to extent the agreement to non-banks, such as retail-store credit providers and micro-lenders. Edition 5

BANKER SA

SUMMIT

The BRICS bank â&#x20AC;&#x201C; do we need

another development bank? â&#x20AC;&#x2DC;Emboldened by the growing shift in the balance of economic power between developed and emerging economies, BRICS member countries are pushing ahead for the establishment of their own development bank.

ncouraged by the growing shift in the balance of economic power between developed and emerging economies, BRICS member countries are pushing ahead for the establishment of their own development bank. This is in addition to a planned bailout fund the bloc is considering, which would be supported by foreign reserves of what some estimate are up to US$4-trillion. BRICS members are Brazil, Russia, India, China and South Africa.

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SUMMIT … the development bank is necessary as demand for funding in BRICS countries and other emerging economies will continue to be high, as these countries have pent-up demand to rehabilitate and build new infrastructure, such as roads, power and water utilities. Details of the funding, structure and mandate of the development bank have been sketchy, although its establishment was endorsed by the leaders of the BRICS countries who at their last summit in India, March 2012, mandated that a joint working group be established to study the feasibility of its establishment. The leaders want the institution to mobilise funding for infrastructure and sustainable development projects in the BRICS countries and other emerging economies and developing countries. They also want it to play a key role in promoting intra-BRICS investment, economic growth and intra-BRICS trade, which currently exceeds US$230-billion and is projected to exceed US$500-billion by 2015. The development bank is being seen as a direct challenge to the perceived stranglehold of the World Bank and the International Monetary Fund over the provision of development finance to developing and emerging economies. But a South African-based diplomat downplays the political significance of establishing the bank. ‘I see the bank as more of a realisation of the economic power within the BRICS countries and the potential of their economies to support global economic growth, particularly after what happened after the last credit crisis,’ he says. ‘However, we should not be oblivious to the political rivalry between the United States and some of the BRICS member countries like Russia and China,’ the diplomat says. The BRICS leadership would have to define the relationship between the BRICS Bank, the large banking institutions, development finance instituions and other existing institutions in such areas as focus, model of financing and clients. Analysts and bankers have mixed views about the need and role of a BRICS development bank. First National Bank CEO Michael Jordaan says a BRICS bank will send a strong signal to the rest of the world that there is co-operation between BRICS countries which has been mostly “theoretical” in the past. According to Nedbank CEO Mike Brown, the establishment of a BRICS development bank is being motivated by concerns about the World Bank’s hegemony and the influence of the US and Europe in the World Bank’s operations and decision-making processes.

Brown says BRICS countries may also have felt that developing countries could be more vulnerable during ‘periods of heightened developed country needs,’ such as during the last global and eurozone crises. Benefits will be varied, he says, citing the ability of BRICS countries to tap into new and potentially cheaper sources of funds for development projects when acting together. Jordaan says there are merits in establishing the development bank. This is because of the growing significance of the BRICS bloc in the global economy, based on estimates by economists showing that BRICS economies now account for about 40% of global GDP. ‘In terms of rallying international decision-makers for the benefit of the BRICS nations and channelling foreign direct investment into developing nations in a more focused way, I would be supportive of this move,’ Jordaan says. He says the benefits of a BRICS bank lie in the unity of the governments of Brazil, Russia, India, China and South Africa in coming together and forming a bank that will benefit each participant, and developing countries outside of the BRICS fold. ‘It may be that this kind of sharing is far more effective than each country going [at] it alone. There are likely to be synergies and learning opportunities for us from these large economies, which could be enormously beneficial to the country and to the continent,’ he says. FNB’s support for a BRICS development bank is not surprising. Its holding company – FirstRand – already actively participates in the banking markets in seven African countries, with prospects in Ghana and a merchant banking license in Nigeria. ‘FirstRand also now has a presence in Mumbai, India. The China and India corridor flow of funds is critical in growing these African economies. As a group, we are therefore supportive of the South African government’s involvement in collaboration with the other BRIC countries to form a centre for banking expertise and investment into these developing countries,’ Jordaan says. Jordaan warns of potential drawbacks, citing tensions that can come from the fact that the bank will have five partners with varying strength and purchasing power. He sketches a scenario where hypothetically China and India – because of their large economies relative to those of other BRICS countries – may be required to contribute more on a pro-rata basis if further capital Edition 5

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SUMMIT

The benefits of a BRICS bank lie in the unity of the governments of Brazil, Russia, India, China and South Africa in coming together and forming a bank that will benefit each participant, and developing countries outside of the BRICS fold.

was required. This can potentially shift the decision-making power within the bank to the highest contributors. ‘It will be important for South Africa to play an assertive role and to manage the power and strength of the other partners as they rally international decision-makers for their mutual benefit,’ Jordaan says. ‘The BRICS bank shareholders will need to get their heads around the need to make development of these five nations a priority, over and above being highly profitable. The goal here must be the benefit of each country, rather than purely a profit motive,’ he says. Adrian Cloete, an equity analyst at Cape Town-based Cadiz Asset Management says a BRICS development bank is required because the bloc’s member countries and other emerging economies still require significant amounts of development capital. He notes that global sources of capital, particularly for longterm capital projects, are becoming more difficult to find owing to the impact of the last global financial crisis which has sapped the appetite for lenders to provide funding. This has been worsened by demands by regulators for banks to hold additional capital buffers against loans under Basel III, which became effective from January 2013 and will be implemented in phases until 2019. Cloete says one can argue that the development bank is necessary as demand for funding in BRICS countries and other emerging

economies will continue to be high, as these countries have pent-up demand to rehabilitate and build new infrastructure, such as roads, power and water utilities. ‘BRICS member countries will require development capital for long-term projects like infrastructure projects in the power, water, utilities and transport infrastructure (railways, roads, and so forth),’ says Cloete. ‘A BRICS development bank could be one source of funding for these types of projects. An example would be to develop a railway line to transport iron ore that could be exported to China,’ says Cloete. Cloete says South Africa should benefit from the institution. ‘It would be important to ensure that South Africa and other African projects get their fair share of the BRICS development bank project funding, so that infrastructure development in Africa keeps pace with the rest of the BRICS members,’ Cloete says. Brown adds that benefits for South Africa and Africa would be access to new funds, probably in co-operation with local and regional institutions such as AfDB. ‘Possible drawbacks might be the conditionality attached to loans (using BRICS service providers), as well as the cost and complexity of another institution when all these areas have existing development banks. Much will depend on the final detail of its constitution,’ Brown concluded. By Sure Kamhunga ■ Edition 5

BANKER SA

CURRENT AFFAIRS

Business and government:

too many pointing fingers We have been living in a democracy for nearly two decades, but many in business still seem unfamiliar with what this means.

ointing a finger at others is a right. Pointing it at ourselves is a duty. In a recent panel an economist observed, accurately, that relations between government and business were at their worst since the 1990s. Part of the problem is that too many fingers are pointing outwards at others and not enough are pointing inwards. We are awash with economic recipes which assume that, if one economic actor is allowed to tell the others what to do, our problems will be solved. For some, business must tell government what to do; for others, government or labour must tell business what to do. This fails to grasp a reality â&#x20AC;&#x201C; that none of the actors can impose themselves on the others. Decades ago, a Wits academic, David Yudelman, wrote a book on the relationship between business and government in the early years of the last century, when they were seemingly at each othersâ&#x20AC;&#x2122; throats. His conclusion was that, although they were divided by language and political loyalties, business and government were forced to cooperate because they needed each other. This is still true â&#x20AC;&#x201C; in any market economy, government needs business to produce wealth and business needs government to preserve an environment in which that is possible.

BANKER SA

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The real question for business strategy is not whether some people are saying threatening things – it is whether what is being said is ever likely to become reality.

The announcement in this year’s State of the Nation address that government is reviewing taxes was the cause of new lamentation about “uncertainty”.

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BANKER SA

CURRENT AFFAIRS

Labour must also be part of the conversation: those in business who want a world without unions need to look at research which shows what happens when unions lose their influence on a workplace; the result is chaos, not growth. The same is true for the broader economy – if labour is excluded, the costs will outweigh the benefits. The obstacle to inclusive growth is not business, government or labour alone – it is all three and their failure to talk to one another. One example is the conditions in which many Marikana miners live. Everyone agreed that their shack settlement was a disgrace which may have contributed to conflict – but all the actors blamed the others. The mine said that it had made money available to local government, which did nothing. Government said the mine left workers to fend for themselves after the hostel system ended and labour tended to agree. In reality, all three were responsible but none was willing to acknowledge this. Yelling at the other parties may be emotionally satisfying, but it is a losing strategy because it ensures that no-one gets closer to achieving their goals. Progress will be impossible unless all parties acknowledge a need for new approaches. But, since this is an article on business’s role, it will look purely at business attitudes which are in need of change. Three issues are crucial if business is to protect its interests but also contribute to a more workable society.

LIVING WITH DEMOCRACY We have been living in a democracy for nearly two decades, but many in business still seem unfamiliar with what this means. Democracy is a system in which everyone is allowed a say – it is unrealistic to expect everyone to say what business would like them to say. People will be saying things business would rather not hear as long as we remain democratic. And so the real question for business strategy is not whether some people are saying threatening things – it is whether what is being said is ever likely to become reality. In democracies, policies and laws change all the time. This is why we have parliaments: to provide a platform for changes. And so change is not threatening to business unless concrete government plans are published and are threatening. “Policy uncertainty” is a reasonable concern if there are wild and unexplained swings – not if change happens in a predictable framework. On the first score, for much of last year, business sentiment was negative because some people in the African National Congress (ANC) were talking about nationalisation and it refused to shut them up. And yet there was no sign that the government was shifting its position. On the second, the announcement in this year’s State of the Nation address that government is reviewing taxes was Edition 5

BANKER SA

Cash-based collateral dethroned

n a world scarred by the events of 2008, considerable questions have been raised regarding asset safety, the mitigation of counterparty credit risk, the protection and use of collateral and greater demands on transparency within the financial services arena. New regulations will be enforced to mitigate many of the risks in the greater market regarding capital adequacy. Basel III, Solvency II and Regulation 28 of the Pension Funds Act are examples of these regulations that will place a greater emphasis on the retention of liquid assets on the balance sheet of South African financial institutions. This will increase the need to collateralise financial transactions, forcing banks to retain greater cash reserves and increase capital adequacy ratios. The trend globally in response to regulations such as these has been to rather substitute high-quality liquid securities as collateral for cash as far as possible. Recent published articles have alluded to the likely possibility of a shortage of high-quality eligible collateral, particularly cash, which is the most common form currently utilised in the South African financial markets. Collateral is a key risk-management tool used to manage credit and counterparty risk. It is common to re use collateral received against other financial exposures. However, the current bilateral nature brings with it limitations, such as the incomplete overview of placed and received collateral, as one counterparty can only “see” their collateral as far as their direct counterpart. There is often uncertainty relating to the size of the collateral, where it has been reused and how it can be traced throughout its movements to the final holder. The fungible nature of cash used as collateral also brings with it uncertainty of recovery in the event of financial failure of the counterparty receiving the collateral.

There are complexities when using securities as collateral, such as daily collateral calls, corporate actions, manual collateral substitutions, management of eligibility criteria and collateral valuations. This can be administratively intensive and the build-up of collateral silos across financial products also leads to inefficient use of collateral or over collateralisation. Studies show that in 2007 global defaults on debt were US$8 billion (approximately R54.64 billion), which spiked to over US$400 billion (approximately R3.98 trillion) a year later – when the financial crisis hit. According to Finadium, a specialist research and advisory firm in the securities and investments industry, failure to effectively manage and implement effective and efficient collateral management systems could result in the loss of financial and revenue opportunities. There is a growing demand for more automated solutions, focusing on solutions that streamline processes and improve operational efficiencies. The focus and trend internationally is to adopt a single, centralised market-wide collateral management system that manages the members’ pool of exposures against the members’ pool of collateral placed. The South African financial market is looking at a centralised, market-wide multi-asset class integrated collateral management solution. This complies with local regulations and complements current collateral management functions within financial institutions, and is aimed at improving the tracking and efficient use of collateral management in South Africa. The Tri-Party Collateral Management service, which is being driven by Strate as South Africa’s licenced Central Securities Depository (CSD), will manage eligible dematerialised bonds, equities and money markets in multi-currencies.

CURRENT AFFAIRS the cause of new lamentation about “uncertainty” despite the fact that there is no evidence yet that the changes will harm business. In any event, the record here shows that change is always negotiated so business always has an opportunity to say what it thinks once the details are published. Democracies are environments in which many voices are heard. Politicians in democracies cannot be expected to silence voices. Business needs to judge democratic governments on what they do, not on whether everyone expresses business-friendly sentiments. Business strategy would be more effective if more attention was given to understanding government, making businesses better able to know real threats from the illusions, than to hoping in vain that politicians will say only what businesses want to hear.

pay freeze for a year by government and business leaders is trashed as a drain on the fiscus. This is not an ideological point. In many market economies, business leadership is careful to practice restraint in earnings and consumption to retain society’s confidence. It is hard to see us progressing economically if this does not begin here.

ACCEPTING COMPROMISE These are but two examples of a broader point often lost in our debate: negotiation does not mean getting the other interests to endorse what you want, it means meeting them halfway, and that means looking at our flaws as well as theirs. We are told, repeatedly, that business should protect its interests by being more vocal in its criticism of government (and, presumably, labour). Business, like any other interest, has a right to say what it RECOGNISING REALITY: TAKING POVERTY wants. But that is only half the story. Listening to and understanding AND INEQUALITY SERIOUSLY the other side’s position is equally important. Government, for all its It is difficult to talk seriously about our economic challenges if we flaws, is subject to pressures which business does not face, such as do not take poverty and inequality seriously. the need to retain the support of a constituency. It is not realistic to An outsider looking at our national debate might feel that we are expect unions to rubber stamp business positions. Therefore, a key obsessed with poor people: just about everyone who makes a policy to productive negotiation is understanding the other side proposal insists that it will help the poor. But most of this is and its concerns – which also requires recognising empty sloganeering designed to hide self-interest. One that some criticism of business is justified. example is the mantra that union wage demands t It is noo tell And if other interests take business’s should be curbed because they exclude the poor le t concerns seriously, this needs to be from jobs: there is growing evidence that credib that only a rs acknowledged. When the ANC leadership wages are often used to feed eight or nine worke tried at its December conference to calm mouths and that many unemployed people hen w e business by removing alarming language would be a great deal worse off if wages l b i is poss from resolutions, much of the reaction was were lower. churlish – government was lectured on Among business people, inequality, if it the need to do more despite the fact that is mentioned at all, is often used to point out the politicians had taken risks to send more the difference between the living standards business-friendly messages. of politicians and the poor: private incomes are This failure to acknowledge shifts by the other assumed to be reward for hard work and skills. side may have played a role in creating antagonism But we are still far from a society in which between business and the ANC this year. everyone receives a fair reward. The effects of centuries Compromise remains our surest way forward. But we will not of racial exclusion from education and business opportunities begin to make it work until we do far more to understand the do not disappear in 18 years and the playing field is still far from logic of the other side’s position and the weaknesses in what we, level. The attitudes produced by an order in which people of a ourselves, do and say. By Professor Steven Friedman ■ particular race do all the skilled work while others use only their muscles also do not die quickly, and so there are still glass ceilings which bar talented black people from making a full contribution to the economy. So a key area for business concern is how to ensure that the Professor Steven Friedman private economy recognises and rewards talent. is Director of the Centre for the Study of Democracy at Rhodes It has become trite to point out that executive salaries are often University and the University of a serious obstacle to progress. It is not credible to tell workers that Johannesburg. He is an academic, only a 10% increase is possible when executives have received over columnist, civic activist, and 20%. Nor should we be surprised when unsecured lending grows former trade unionist, and if the message which many in business and government send out now specialises in the study to the rest of society is that the test of human worth is how much of democracy and has written wealth people can flaunt. extensively on the relationship There is much room for moderating top-end salaries without between democracy, social affecting anyone’s standard of living. And yet, a proposed voluntary inequality and economic growth.

rease c n i 10% ves i t u c e ex ived e c e r have r 20% ove

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BANKER SA

CUSTOMER STORY

Application denied South Africans have been raising concerns that local banks appear to grant unsecured credit much more readily than home loans. From some individual customers’ viewpoints this is baffling and seems driven by a selfish interest to generate more income.

nsecured loans, normally offered without the need of property as surety, generally carry more interest than secured loans partly due to the risk. Currently on an unsecured loan, a credit provider can charge interest of up to 31% a year, depending on the credit score of the client. A home loan, which is considered secured, will carry an interest rate of up to 16% at the current repo rate. Another question that baffles customers is why a bank would only qualify a customer for a home loan that covers 90% of the property value, yet approve a high-interest-yielding unsecured loan to cover the outstanding 10%. Is it simply an issue of generating the highest interest possible? One of the South Africans affected by these apprently contradictory policies is Ms Mbiya (not her real name). She informed Banker SA that she was denied a home loan by one of South Africa’s big-four banks, despite her current rent being R3 000 more than her monthly bond repayments would have been. She was told she did not qualify for a home loan although she had records of consistent rental payment. Ms Mbiya concedes that there may be a blemish on her credit record after a dispute over a cellphone bill, but wonders whether this is serious enough to disqualify her for a home loan. The record of that dispute did not stop a bank financing the purchase of her new vehicle. But what astounded her was the fact that, at the time her home loan application was turned down, she was offered an unsolicited personal loan of up to R120 000 from another bank. Underscoring the seriousness of this matter, last year in a joint statement titled ‘Ensuring Responsible Market Conduct for Bank Lending’, the National Treasury and The Banking Association

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South Africa raised concern that certain banks were ‘selling inappropriate credit products to maximise margins,’ including the use of ‘expensive unsecured lending for house renovations instead of cheaper mortgage loans’. Although there is nothing illegal in offering more unsecured loans than home loans, is it moral for banks to behave in this manner, in a developing country where many people do not have homes that can be used as collateral to create more value? Ewald Kellerman, the head of sales at FNB Home Loans, points out that the qualification criteria for different credit agreements differs and the assessment criteria for credit agreements has to comply with the requirements of the National Credit Act. ‘Home Loans, for instance, are assessed on the customer’s affordability – the ability to repay, the credit history, conduct of accounts and on the property,’ Kellerman explains. ‘Because of the large size of these agreements, the term, and the risk that something might happen in the 240 months [20 years] of the agreement, banks are typically more reluctant to grant finance than with credit cards for instance.’ says Kellerman. ‘Lastly, the minimum size of these loans differ substantially, and below a certain income band a customer may not find the right asset to buy. It is therefore likely that a customer may qualify for a personal loan, perhaps even a vehicle, but not a home loan.’ On the issue of Ms Mbiya having a flawless record in meeting her rental payments, Kellerman says that a home loan agreement does not carry the same risk as a rental agreement. ‘With a home loan it is imperative to prove the customer’s ability to repay and continue to meet the obligation, while a rental

Edition 5

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CUSTOMER STORY ‘With a home loan it is imperative to prove the customer’s ability to repay and continue to meet the obligation, while a rental agreement does not require the same assessment.’ agreement does not require the same assessment. As an example, an unemployed person starting his first job away from home can sign a rental agreement and move into the property, paying the monthly rental with pocket money from his parents, but will only be able to qualify for a home loan once he earns a salary and can prove that he can afford the repayments.’ Kellerman says that banks do look at the behaviour of the customer in meeting other credit and revolving commitments, including rent, and the way the customer manages their transactional accounts. However, he notes that owning a home may cost more than rental payments, as the owner may need to pay for maintenance, rates and taxes and in certain instances levies if the customer lives in a complex. On the question of banks selling more unsecured credit at the expense of home loans and due to the high margins, Kellerman says the business case for each credit product has its own merits and FNB is committed to lending responsibly. A senior banking official Banker SA spoke to notes that one of the factors that has led to more unsecured loans being granted in South Africa is the high demand for them. ‘Borrowers have, for various reasons, put themselves in a situation where their risk profile has deteriorated and they are unable to manage long-term debt. Some of these reasons are the impact of a slow economy, increases in administered prices and using secured credit instruments to their maximum. Borrowers are thus moving into the unsecured credit environment because they are able to manage short-term credit,’ adds the official, who asked to remain anonymous.

On the morality of offering more unsecured loans than the ones that are secure, he says: ‘The moral issue to be raised is what we, as a country, are doing about the circumstances that lead to over-indebtedness and a culture of instant gratification, despite consequences of debt.’ Lesiba Mashapa, company secretary of the National Credit Regulator, concurs that there is no requirement in the National Credit Act compelling credit providers to offer a special type of credit. Mashapa says that credit providers are free to offer any type of credit provided in terms of the National Credit Act, but he notes that the National Credit Act empowers the consumer to ask for reasons why credit has been refused. On the question of unsecured lending being easily accessible than secured lending, Mashapa adds: ‘One of the factors may be the lack of deposit requirements for unsecured credit when compared to mortgage agreements. The maximum interest allowed for a home loan is lower than that for an unsecured loan.’ Asked why someone with a good rental repayment history would be denied a home loan that requires lesser repayments than the rental costs, Mashapa responds: ‘In terms of Section 60 (2) of the National Credit Act a credit provider has the right to refuse to enter into a credit agreement with any prospective consumer on reasonable commercial grounds that are consistent with its customary risk management and underwriting practices. On request from a consumer, a credit provider must advice a consumer in writing of the dominant reason for refusing to enter into a credit agreement with that consumer.’ By Phakamisa Ndzamela ■

SECTION 62 OF THE NATIONAL CREDIT ACT STATES: (1) On request from a consumer, a credit provider must advise that consumer in writing of the dominant reason for(a) refusing to enter into a credit agreement with that consumer; (b) offering that consumer a lower credit limit under a credit facility than applied for by the consumer, or reducing the credit limit under an existing credit facility; (c) refusing a request from the consumer to increase a credit limit under an existing credit facility; or (d) refusing to renew an expiring credit card or similar renewable credit facility with that consumer. (2) When responding to a request in terms of subsection (l), a credit provider who has based its decision on an adverse credit report received from a credit bureau must advise the consumer in writing of the name, address and other contact particulars of that credit bureau. (3) On application by a credit provider, the Tribunal may make an order limiting the credit provider’s obligation in terms of this section if the Tribunal is satisfied that the consumer’s requests for information are frivolous or vexatious. How is the interest cap on unsecured and secured loans calculated in accordance with the National Credit Act? Home loans interest cap = repo rate x 2.2 + 5% Unsecured loans interest cap = repo rate x 2.2 + 20% for term loans longer than 6 months. Edition 5

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l a b o l G 2013 nking a retail b d to hit IT spen

6 . 8 1 1 $ ) (US n o i l l bi Moving away from cost cutting, retail banks increase IT spending as they focus on customer satisfaction and revenue growth.

etail banks across the globe will see IT spending grow 3.4%, reaching US$118.6 billion in 2013, as chief information officers (CIO) focus on customer satisfaction and revenue growth. This is according to global industry analysts Ovum. Ovum finds that European banks are lagging behind their North American and Asia-Pacific counterparts, with just 1.8% growth expected, compared to 3.3% and 5.1%, respectively. In a new Business Trends report, Ovum suggests that within Europe, the optimistic shift towards greater IT spending signals a reduction of the cost-cutting measures seen previously by the global banking industry. Instead, a focus on digital channels, such as online and mobile banking, and digital marketing activities, will enable them to improve customer satisfaction and revenue growth strategies and fuel cross-selling and upselling opportunities in the short and mid-term. Among the digital channels, mobile banking is the clear IT investment priority in 2013, as retail banks attempt to capitalise on the features unique to mobile, such as location-based services. Ovum’s forecasts show the Other Channels category, which includes mobile banking, will grow 4% in Europe in 2013, and rise at a compound annual growth rate of 6% between 2013 and 2017. Overall, spending on online channels in this region (including traditional online banking services and mobile-browser-based banking services) is set to grow 4.2% in 2013. In parallel, to compete in the digital world, a number of retail banks will shift their “bricks and mortar” marketing activities online. Elsewhere, Ovum’s Business Trends report reveals that credit risk management and data privacy will become key regulatory compliance drivers of IT spending in 2013, with global investment

into Management Information Systems predicted to reach $6,4 billion over the course of the year, and $2.2 billion of spending in Europe alone over this year. This accounts for 5.5% of overall IT spending by European banks. ‘The optimistic signs on the economic horizon are driving the shift away from cost-cutting and towards investment strategies within the retail banking sector,’ comments Jaroslaw Knapik, senior analyst, Financial Services Technology at Ovum. ‘Whilst regulatory compliance has certainly fuelled a significant amount of the investment predicted in our forecasts, it is by no means the sole driver. The level of investment in digital channels gives a clear indication that banks are fully cognisant of the growing expectations of their customers, as well as the opportunities they present.’ ■

INFOSYS: BANKING TRENDS FOR 2013 Analytics gets real time, and mobility is a priority: banks will combine existing and real-time information of a customer, transaction and product to integrate it with applications like location-based services. The core evolves from transaction to intelligence: Transaction history will emerge as a way to identify new product/service requirements or push contextual offers. Socialising pays off with a new revenue stream: social media goes from customer care to new selling opportunities – powered by peer recommendations, personalised services, and co-creation of products. Banker, retailer, telco, technologist: banks go from collaboration to co-creation, with new services and products that combine offerings from banking and nonbanking entities. Edition 5

BANKER SA

LEGAL NOTES

Project bonds:

the future of infrastructure finance in South Africa? The time is ripe for the injection of fresh life into South African infrastructure investment.

BANKER SA

Edition 5

hroughout the world, governments have embarked on major infrastructure investments following the global financial crisis and the resultant economic downturn. These initiatives are designed to cushion, if not reverse, the rapid slide into economic recession. Governments are also attempting to fill the gaps that have emerged as banks, other financiers and major equity investors turn off the funding tap for many infrastructure projects. ‘Locally, the time is ripe for the injection of fresh life into South African infrastructure investment, but borrowers will have to start looking beyond the banks to alternative sources of funding,’ says Richard Roothman, head of Banking and Finance at Werksmans Attorneys. ‘Project bonds, an asset class that is still untapped in this country, could be a viable alternative means of financing infrastructure projects,’ Roothman suggests. ‘These bonds allow access to large international pockets of non-bank money and could potentially fill some of the gaps being left by international banks scaling down their involvement in the project finance arena.’ One potential benefit of project bonds is that they can enable the finance recipients to have more of a hand in the financing strategy than is often the case, particularly when funds are sourced from the international community. Project bonds are typically debentures used to finance project and infrastructure transactions, and are issued with a long maturity, usually longer than 10 years. This is in contrast to the tenure of five to seven years for corporate bonds and bank loans, the more traditional means of financing projects. Roothman says the tenure of project bonds would not appeal to all investors, specifically to those with an appetite for long-term investments, notably pension funds and insurance firms. PROJECT BONDS ADVANTAGEOUS FOR BORROWERS AND INVESTORS At this particular juncture, project bonds could be advantageous for borrowers and investors alike as the capital markets are not contending with the same cost and regulatory constraints as the banking sector. ‘Banks need to bear higher liquidity and capital holding costs as a result of Basel III, and this has pushed up the cost of lending,’ says Roothman. ‘Additionally, faced with the Eurozone crisis, European banks’ credit committees have less appetite and are taking a much more conservative approach towards long-term lending.’ While the position of South African banks is more positive, local banks have a clear preference for shorter-dated assets, typically of five to seven years’ duration, and so are less likely to step into the funding gap left by international banks. ‘Also, the funding available from local banks may be stretched because of demand for financing from bidders in the renewable energy programme for independent power producers,’ Roothman says. The state-owned Industrial Development Corporation (IDC) may have provided a glimpse of things to come when it raised five billion rand for the funding of renewable-energy projects by selling bonds

in a private placement to the state pension-fund manager. The bonds are to be paid in tranches over 14 years as the projects progress. ‘As an alternative source of funding for capital-intensive projects, project bonds are well worth looking at,’ he says. ‘They have been used successfully in markets such as Europe, Latin America and the Middle East. In South Africa, if transactions are properly structured to address the issue of construction risk, there should be significant potential and appetite for project bonds among investors,’ Roothman adds. Construction risk refers to the initial period in which the project is built or constructed, usually the first three years, when the risk to investors is highest because no cash flows are being generated yet and construction could be delayed for a wide range of reasons or ultimately fail. Roothman says investor concerns about construction risk can be addressed through upfront credit enhancement in the form of subordinated debt, or through guarantees from third parties, whether government or development finance institutions. ACCELERATING GROWTH ‘I think there is a place in South Africa for project bonds. The expertise is available, there must be appetite and there is certainly a need for alternative sources of project finance provided that the bonds are structured in such a way as to minimise investor concerns. Project bonds could supplement existing infrastructure funding and help deliver the growth boost for which politicians and economists are looking at infrastructure investment to deliver,’ states Roothman. ‘The question is: who is going to be first to test the waters?’ he says in conclusion. ■ Edition 5

BANKER SA

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TRAINING

Transformation has

training at its core BANKSETA has a particularly big responsibility, says Minister of Higher Education and Training Dr Blade Nzimande.

he transformation of our country through the creation of a more equitable society and the provision of opportunities for previously-disadvantaged people has training at its core. Providing appropriate education and skills development opportunities to black people, women and the disadvantaged is essential if they participate properly and centrally in the running of the economy in general, particularly in the banking industry. There has obviously been some progress in this regard as the race profile of the sector has shown a significant shift. In 2000, the first Banking Sector Skills Plan recorded 19% Africans, 14% Coloureds, 8% Asians and 59% Whites as employees in the sector. By April 2011, the number of Africans was up to 41%, Whites down to 29%, 12% of employees were Asians and Coloureds comprised 17% of employees. In 2011, the banking sector employed 1 895 people with disabilities which, while still not really impressive, is apparently also a significantly larger number than previously. Of course, these are overall statistics and say nothing about the level of employment of the various groups. Recognise that I could be wrong, but I suspect that overall previously more advantaged groups, especially whites, still dominate senior positions. Nonetheless, the banking industry must be given credit for the progress that has been made. I expect that the BANKSETA has played a role here – I certainly hope so – and that it will continue making a contribution towards making the banking representative of the South African population. SETAs can expand opportunities for initial professional training for youth with academic potential but insufficient funding – or help institutions strengthen their capacity to provide training in key areas where it is difficult to develop scarce and critical skills. A recent, good example of this is provided by the BANKSETA which recently, in partnership with the University of Zululand and the South African Institute of Chartered Accountants (SAICA), embarked on a programme to assist previously-disadvantaged students to enter the Chartered Accountancy profession. Fifty students have been fully funded for the duration of the programme, and will be followed by a further intake of 100 students over the next three years. This programme is providing opportunities to bright but poor,

Dr Blade Nzimande

black youngsters to embark – with financial, social and academic support – on a career in a scarce and critical skill in a part of the country where such training was previously unavailable. In addition, BANKSETA has supported the University of Fort Hare Financial Markets Programme since 2009 by means of bursaries and economics capacity building. These and similar programme contribute importantly to building the skills of our people. Of course, skills need to be built not only for professionals and managers and BANKSETA has a role at all skills levels, from clerks to senior executives. One of the biggest skills shortages in our country is that for mid-level skills and we expect all the SETAs, the colleges and the universities to tackle this challenge with vigour. The BANKSETA has a particularly big responsibility in our country at this time. Banks are at the heart of the financial sector and the financial sector is, for better or for worse, at the centre of the economy. A study commissioned by the World Bank, published in March 2012, notes the extraordinarily rapid expansion of the financial sector in South Africa in the first decade of this century. In 2008, this sector was responsible for 13% of GDP as opposed to 6% only four years earlier, in 2004. This suggests a rapid growth of a demand for skills. Excerpted from Minister Nzimande’s address to BANKSETA’s 5th international conference, 2012. For the full address visit www.bankseta.org.za. ■ Edition 5

BANKER SA

COMPANY FOCUS Bringing momentum to African integration projects Q & A with Hugo Smit, Head of Africa South, SWIFT HOW IS SWIFT’S AFRICA SOUTH REGION STRUCTURED? SWIFT is an international company with a number of regional offices. The objective of establishing regional offices is part of SWIFT’s drive to become more customercentric and to develop an appreciation of market requirements in different regions. The Africa South office is located in Johannesburg, from where we service the majority of sub-Saharan countries. These can broadly be defined as stretching from The Gambia in the West to Kenya in the East, and all countries to the South. The region also includes islands such as the Seychelles, Madagascar and Mauritius. This is a vast region and it does pose a challenge to remain “close to the market”. We have, therefore, allocated every country to a country manager, who is responsible for all customers in that country. We have also appointed a business partner, Trustlink, to support our country managers in the different countries. In addition, the SWIFT communities in different countries have formed their own User Groups and we work closely with these. I believe that this structure enables us to develop close relationships with our customers in different countries and to proactively identify challenges and opportunities so that we can provide the required services to our customers. HOW DOES THE BUSINESS YOU DO IN THE AFRICA SOUTH REGION BREAK DOWN BY TYPE? SWIFT is traditionally known for its secure and reliable financial messaging service, and this remains core to our service offering. But we have always strived to optimise the value that our customers derive from SWIFT by reducing cost of ownership, and providing solutions and services that unlock further value from our traditional services. In this regard, SWIFT continues to develop its products and services. For example, we have recently launched integration solutions to enable straight-through-processing, a sanctions screening service and a suite of business intelligence solutions. We also find an increasing demand for consulting services, both technical and business. These offerings represent a growing share of SWIFT revenues. By end-2012, for example, earnings from these non-network-based products and services had already gained parity with messagingbased revenues. Over time, we expect our non-network portfolio to account for a greater share of our revenues. DO YOU SEE A POTENTIAL FOR FURTHER GROWTH HERE? Absolutely! Africa is widely recognised as the new frontier for economic growth and, as the region’s banks and financial markets grow, we expect message traffic to rise and to see growing demand for our connectivity products. We see particular potential for our 36

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consulting and services offerings. In Africa (as elsewhere), financial institutions need technical and business support around systems integration and to reduce cost and risk through automation. Banks are also looking for data-based business intelligence to support strategy. We can help with all of these requirements, so we are seeing a significant increase in demand for our consultancy and training services. The various regional integration projects also provide opportunities to offer solutions and services that enable greater inter-operability and ensure that the underlying systems and infrastructures meet international standards. Our focus remains to enable communities to unlock optimal value from their existing investment in SWIFT, and I believe that we still have to offer a lot in this regard. DO YOU SEE ANY TRENDS IN FINANCIAL MESSAGING GROWTH? Within SWIFT’s Europe, Middle East and Africa region, Africa is the fastest growing sub-region for payments traffic, with 11.8% growth. But within Africa we are seeing changes. Financial messaging in Africa has traditionally been dominated by South Africa, but growth there is now being outpaced by growth in messaging volumes elsewhere. In the year to November 2012, for example, total South African traffic (payments and securities) grew by 3.1%, versus 20.5% in Ghana, 19.5% in Uganda, 16.9% in Tanzania, 17.1% in Zambia and 13.2% in Nigeria. We expect these higher growth trends across other parts of Africa to continue. HOW DO YOU DO THINGS DIFFERENTLY TO COMPETITORS? Being a member-owned cooperative has defined SWIFT’s unique community approach, which provides a global forum for the banking industry and seeks solutions for the industry’s common challenges. In addition, we work closely with communities in the local markets through SWIFT’s regional conferences and operational forums. We also collaborate with communities around projects such as the regionalisation efforts mentioned already. As a result, we offer community-based solutions or services that enable us to tailor our offerings to a community’s specific requirements. Another example of our community approach is the Sanctions project in Ghana, where almost all banks have subscribed to SWIFT’s Sanction Screening services. In this case, working with the community provided significant benefits in terms of implementation time frame and costs. WHAT ARE THE NEW CHALLENGES FACING THE BANKING INDUSTRY? Technology is a major challenge for the industry. It is changing faster than ever before. There is also the unprecedented pressure

on profitability and costs that our customers are facing. Across the industry, financial institutions face growing competition in mobile payments, are seeing margins shrink, and have to comply with ever more complex regulation. More and more of our customers – and the industry – are looking to SWIFT to help them address these pressures. ANY MAJOR PROJECTS IN THE PIPELINE FOR THE BANKING INDUSTRY IN THE REGION? Ghana’s community-based Sanction Screening project was initiated in 2012 and full implementation will be completed in 2013. This is a very exciting project and I think that, upon completion, it would make an interesting case study of what benefits can be derived from a community-based approach to regulatory compliance. There are also a number of RTGS systems to be implemented in the West African Monetary Zone region during the course of 2013, including Nigeria, where a lot of progress has been made in the

implementation of SWIFT for the country’s messaging system. We will collaborate with the central bank and its service providers in order to meet the project’s challenging deadlines, but we are looking forward to this. SWIFT is involved in three of Africa’s regionalisation projects, namely WAMZ, EAC and SADC. Whilst not detracting from WAMZ and EAC, I am especially excited about the SADC project. Over the past two years, huge strides have been made in this project and a pilot implementation involving five countries is planned for 2013. What I find interesting is that the project team has not only considered the systems requirements for the regional RTGS system, but has also taken an holistic view of services to be offered to participants in order to optimise the value that they would derive from this project. In addition, the project team has succeeded in maintaining a high-level of commitment from participants, which is a prerequisite for a project of this nature.

SWIFT APPOINTS TRUSTLINK BUSINESS PARTNER FOR WEST, CENTRAL AND SOUTHERN AFRICA As extension of the SWIFT Johannesburg office, Trustlink will deliver the full range of SWIFT’s products and services. ON 18 MARCH, SWIFT, the financial messaging provider for more than 10 000 financial institutions and corporations in 212 countries and territories, announced the appointment of Trustlink a Business Partner for West, Central and Southern Africa. Commenting on the appointment of Trustlink, Hugo Smit, Head of Africa South, SWIFT, says, Business Partners play an important role as SWIFT grows rapidly across the African continent: ‘SWIFT has seen significant business growth throughout West, Central and Southern Africa over the last few years, with traffic growth from this region consistently outperforming global traffic growth. Traffic from this region, excluding South African figures, has grown by more than 30% since 2009. We are also experiencing a growing need for SWIFT products and services, with revenue from these sources making up 50% of total revenue. We remain committed to grow our footprint in this region, but we recognise that offering new products and services is not sufficient: we also need to maintain close customer relationships. Partners are essential to complement our reach and to ensure we maintain a high standard of customer service.’ Denis Kruger, SWIFT Channel Manager for the region, comments: ‘SWIFT and Trustlink already have a close working relationship that has been developed over a number of years. We have always appreciated the high standard of services, commitment and professionalism of Trustlink and I look forward to strengthening our relationship even further.’ Tertius Vermeulen, CEO at Trustlink, adds: ‘Trustlink is delighted to be appointed as a Business Partner for SWIFT covering the subSaharan Africa region. The appointment as Business Partner extends

the portfolio of SWIFT products and services that we can offer to customers and also extends our reach into West Africa. This creates exciting opportunities for both parties and we remain committed to work closely with SWIFT in order to provide a high quality of services to SWIFT customers.’ ABOUT SWIFT

SWIFT is a member-owned co-=operative that provides the communications platform, products and services to connect more than 10 000 financial institutions and corporations in 212 countries and territories. SWIFT enables its users to exchange automated, standardised financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest. ABOUT TRUSTLINK

Trustlink provides innovative solutions and services that enable our customers to enhance information exchange and business process integration beyond the borders of the enterprise. Trustlink is the exclusive representative in subSaharan Africa for select suppliers that are all recognised global leaders in their respective fields. Using the products of our partners as well as our own in-house solutions, Trustlink develops and tailors integrated STP, B2B and EAI solutions. Trustlink also operates the leading SWIFT service bureau in Africa.

For more information, please contact SWIFT via Atmosphere PR on (+27) 82 825 3262, or e-mail annemie@atmosphere.co.za / visit www.swift.com. Edition 5

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INDUSTRY SURVEY

The Deloitte 2013 Banking Industry Outlook

International banks, beset by a myriad of new regulations and the negative impacts of the financial crisis, are finding it increasingly challenging to provide improved returns for shareholders. What is of concern is that this scenario is having a similar effect on South Africa’s banks.

eflecting on the release of the Deloitte 2013 Banking Industry Outlook, Roger Verster Financial Services Industry country leader at Deloitte noted that banks were presently coping with the introduction of the most comprehensive set of regulations that the global financial services industry has seen in 70 years. ‘Even though our banks were not responsible for, nor directly involved in the challenges that enveloped the global economy, they are caught by the fact that they are active players in a regulated global market. They therefore have to contend with the regulatory and economic aftermath that has resulted,’ says Verster, adding that current trends in the banking industry have implications for South Africa. ‘A common element that comes across in trying to achieve the quest of meeting regulatory demand, providing a better customer experience and uncovering growth opportunities is that of data says Verster. It is now essential that the long-held goal of structuring and putting to use the huge amounts of data generated by South African banking is effectively resolved,’ he says. ‘The financial services industry has become a technology business and the effective and creative utilisation and analysis of the massive amounts of data they have access to, will be one of the key characteristics that will differentiate the future winners from the losers in banking. Although cost containment will continue to be an area of focus, especially given the relatively high cost to income ratios in South African banks, there is a point at which it becomes difficult to drive costs down sustainably.’ ‘In common with their global counterparts local banks must continue to focus on driving differentiation and excellence in serving their customers. These initiatives will support them as they

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In common with their global counterparts local banks must continue to focus on driving differentiation and excellence in serving their customers.

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INDUSTRY SURVEY move to comply with existing and impending consumer protection regulations while at the same time helping to retain and grow their customer base, in an increasingly well-informed and demanddriven market,’ says Verster. There is a need, he says, to limit the spiralling cost of compliance by creating opportunities for efficiencies and alignment within the business. He adds, however, that given the prevailing regulatory climate, it is unrealistic to expect the cost of compliance to significantly reduce any time soon – if ever. ‘The focus must therefore move from cost reduction to better management of compliance risk without further increasing the spend. Compliance, therefore, must be embedded as a “business as usual” activity throughout the bank, rather than being a series of reactive regulatory responses. We are, for example, starting to see compliance being used as an opportunity to gather more direct customer feedback and using that to redesign processes to improve the customer experience,’ says Verster. There will be continued disruption in the payments business with new products and players entering the market. Even if only for defensive reasons, banks need to actively seek alliances and possibly forge partnerships with a new kind of third party. This is something quite different from the traditional outsourcers banks have become used to dealing with. ‘Banks should identify links with mobile network operators, innovators and technology companies. Each bank providing its own unique solution is not feasible. We should not forget the

technological impact of trying to meet this particular challenge – existing systems in use simply do not easily support the kind of front office digital solutions bank’s customers are going to be increasingly demanding of them.’ Banks should also begin effectively leveraging alliances and intelligently rationalising technology and therefore the costs associated with it. ‘The objective should be on progressively building the bank of the future, while maintaining a viable bank for today. The institutional response to these issues requires new thinking and innovation. This is simply not the time for banks to be re-visiting old strategies that they have turned to in previous economic downturns,’ Verster warns. The market appears to reward and put a market premium on innovation. ‘We recently saw one of South Africa’s banks being voted the world’s most innovative bank. Technology and data will play an increasingly pivotal role in maintaining a competitive edge. South African bank branches are increasingly looking like havens for the modern, tech-savvy consumer. If data is in fact the ‘new oil’, banks sit on a well of information that can enable them to drive innovation and not only keep up with change, but lead it.’ As stated in the Outlook by the Deloitte global banking and securities leader, Jim Reichbach, who was recently in South Africa: ‘I think banks have to decide, is this trend cyclical or is it structural? If they think that it is structural based on their unique business mix, then they must act like it. Do something, be more dramatic.’ Professional Services Firm, Deloitte. ■

THE BOTTOM LINE

KEY POINTS FROM THE SURVEY

Making hard decisions about where to compete, Banks should consider the strategic repositioning of their organisations. It’s one thing to say that focus has returned, and that leadership has charted a new path to growth. But without complete execution of restructuring initiatives, these efforts may result in nothing more than window-dressing. BUILDING THE DATA-CENTRIC ORGANISATION

The financial services industry is becoming a technology business, whether leaders care to admit it or not. As such, the effective and creative utilisation of the massive amounts of data that banks have, could become a characteristic of future winners and losers in the industry. EARNING BACK THE TRUST

Banking executives should deal with the current reality that their product set is commoditised, and most of the low-hanging fruit related to cost containment has been captured. As such, bank leaders should focus on driving differentiation – and excellence – in servicing clients in 2013. This will not only support bankers’ need to comply with consumer protection regulations, but also can help retain and grow their customer base on a zero-sum market. INVESTING IN IMPROVED OPERATIONS AT REDUCED COST

Irate customers, aggressive regulators, and the realities of 40

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their own bottom line could likely drive bank executives to reenergise efforts around performance improvement. Investments will be required to meet compliance mandates, repair damaged reputations, and intelligently restructure. SECURING THE FOUNDATION TO MOVE FORWARD

Bank leadership should take appropriate steps to embed and operationalise a more risk-intelligent culture throughout their organisations. ‘In light of everything that’s happened, most organisations now, at least culturally, understand that risk management is not solely the responsibility of the risk management function, it is a bank-wide responsibility,’ says Scott Baret, partner at Deloitte & Touche LLP. DEALING WITH DISRUPTORS IN THE PAYMENTS BUSINESS

Mobile payments have the potential to disrupt the traditional triumvirate of card issuers, payment networks, and merchant acquirers that has long been dominated by the banks. This should increase the need for banks to forge partnerships with a new kind of third party, quite different from the traditional outsourcers with whom they have become used to dealing. CREATING THE DIGITAL BANK

Bankers should think about how to intelligently rationalise their technology costs so that they can build the bank of the future while maintaining an efficient bank of the present.

Executive Recruitment in Africa CA Global has placed over 600 executives and specialist skills in Africa.

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Transactional Banking Head: Opportunities available in Lesotho, Mozambique, Angola, Botswana Submit CV for a confidential discussion: Danelle@caglobalint.com

Managing Director roles: 1. Microfinance Company in Ghana 2. Microfinance Company in DRC 120 – 200 000 USD per annum, negotiable DRC-based candidate must speak French Both roles expat vacancies Kai@caglobalint.com / Danelle@caglobalint.com

Executive, Management and Scarce Skills Recruitment across all African Countries. 600 placements in Africa 48 Specialist Headhunters Language Support in French, Portuguese Chinese and English Contact: Hugo Lambrecht on +27 (0) 21 659 9200 hugo@caglobalint.com Visit our website to view our current 89 executive opportunities in Africa www.ca-finance.com “We find trustworthy and exceptional executives to lead our clients’ organisations in Africa.”

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2012/11/29 1:22 PM

MEMBER BANKS Introducing Banking Association Member Bank of China

Branch, as the first bank from mainland China in South Africa, has consistently dedicated itself to enhancing the influence of BOC in Africa. Based in South Africa with business expansion Q&A to more than 20 African countries, BOCJHB has witnessed and Name of bank: Bank of China Limited Johannesburg Branch participated into the rapid development of the economic and (BOCJHB) trade exchanges between China and South Africa, as well as Owner: BOCJHB is a branch of Bank of China Limited China and other African countries. It is continuously providing Core business: Bank of China mainly operates the commercial financial services of high quality and efficiency to clients, and banking business including corporate banking, personal banking also making significant contribution to the South African local and financial market business. It also conducts businesses such as social and economic development. investment banking, insurance services, fund management services, Any newsworthy changes in the bank’s structure or business in direct investment and investment management, and aircraft leasing the near future: BOCJHB was authorised by Bank of China to act as via its subsidiary, subordinate and associate companies. regional headquarter in sub-Saharan Africa, In South Africa, Bank of China Johanwhich covers the Bank’s existing affiliated nesburg Branch can provide business institutions in South Africa, Zambia, Kenya, services in all categories which comAngola, Ghana and Uganda. Other institutions mercial banks offer, including corporate in countries such as Nigeria, Cameron and banking, personal banking and financial Mauritius. BOC Durban Branch will come into market services. operation in the near future. Target market: With commercial bankIs there a key product or initiative you wish ing business as the core and foundato highlight? Due to the continuous economic tion of Bank of China’s development, growth of China, the huge scale of internathe client base of BOCJHB consists of tional trade and the relative stability of Rencustomers from industries such as minminbi* (RMB, the official currency of People’s ing, financial institutions, importing Republic of China) value, RMB is increasingand exporting, media, manufacturing, ly accepted across the world, offering a new property development, infrastructure, choice for national governments and enterenergy, and so forth. Through providing prises in risk mitigation. Bank of China seizes financial and credit services with good the historic opportunity to vigorously promote competitiveness to clients from local its cross-border RMB business and ranked first enterprises, Chinese “going global” in the market in terms of cross-border RMB enterprises, financial institutions and settlement volume and number of accounts overseas Chinese people, Johannesburg opened. Branch has been playing a vigorous and Bank of China Johannesburg Branch is proactive role in the economic developthe leader in providing RMB services in ment and financial exchanges between Zhikun Qiu, CEO, Bank of China South Africa and other African countries. China and African countries. RMB services consist of all financial products and services of a Core values or differentiators: Established in 1912, Bank of commercial bank. China has upheld the spirit of “pursuing excellence” throughout International links: As the most internationalised and diversified its century-long history. By enhancing the values of integrity, bank in China, Bank of China provides full range of financial serperformance, responsibility, innovation and harmony, the Bank has vices in China’s mainland, Hong Kong, Macau, Taiwan and other 36 built up an excellent brand image which is widely recognised within countries. The Bank leverages its overall advantages to improve its the industry and by its customers. global service capabilities for customers and accelerates the deploySince its establishment in 2000, Bank of China Johannesburg ment of its overseas networks by establishing outlets, representative offices and “China Desks” and so forth, to extend the overseas networks and enhance its global service capability. ■

THE CEO: ZHIKUN QIU

For further information contact Bank of China, Johannesburg branch on 011 520 9600 or visit www.boc.co.za

Prior to his current role, Mr Qiu served as Deputy General Manager in Overseas Institution Management Department of Bank of China Head Office, Beijing, China. Edition 5

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MEMBER BANKS Introducing Banking Association Member Finbond Mutual Bank Q&A Name of bank: Finbond Mutual Bank Who owns the bank: The fundamental “Mutual Bank” principle is that a “Mutual Bank” is owned by its depositors and managed for the benefit of its depositors. Finbond Group Limited (FGL) which was Finbond Mutual Bank’s first depositor, capitalising the bank with the required regulatory capital through the acquisition of permanent Class A shares, is Finbond Mutual Bank’s majority shareholder. Core business and target market: Finbond Mutual Bank conducts its business through two divisions focused on, Investment and Savings Products and Micro Credit Products. Investment and Savings products, which offer an above-average rate of return, are offered nationally to investors and pensioners looking for guaranteed, higher fixed-income in the current environment of depressed yields. Finbond’s strategy is to stimulate savings through offering superior investment and saving solutions by providing client shareholders with better interest rates, better products and better service. Micro Credit Products are offered nationally through Finbond’s 170 branches in South Africa to the underbanked and underserved market of more than 40% of the adult population in South Africa actively seeking credit solutions but remaining largely unattended and underserviced. Vision: To be the leading Mutual and Savings Bank in South Africa, improving the quality of life of our clients through their participation in saving together, growing together and ownership of their own community bank. Core values: Finbond Mutual Bank exists to improve and transform the lives and livelihoods of our clients by availing them of modern, inclusive banking products and services that benefit and empower them. These are: • Integrity – To maintain social and ethical norms in all activities. • Human Dignity – To at all times treat people with respect and consideration for their unique needs, feelings and opinions. • Excellence – To be excellent in everything at all levels, at all times. • Accountability – To accept responsibility for the work delegated and execute it with excellence. • Teamwork – To strive for the greater benefit of the organisation through an appreciation of the role that each employee plays in achieving the overall goals.

Dr Willie van Aardt, CEO, Finbond

CSI: Finbond contributes to and is proud to be associated with Tshwane Place of Safety Association (TPOSA), which focuses on providing orphaned and abandoned babies and babies infected with HIV with good homes, frail care and shelter. For further info see www.placeofsafety.org.za. ■

THE CEO: DR WILLIE VAN AARDT

For further information contact Finbond Mutual Bank on 012 460 7288 or visit www.finbondmutualbank.co.za

Previously the co-founder and an executive director of Thuthukani Group Limited, a JSE listed micro-finance and debt collection company, van Aardt has held the positions of Legal Consultant to Sanlam and Executive Director of Thuthukani Group Limited. Van Aardt obtained a B. Proc (Cum Laude), LLM at the University of Pretoria (UP), LLD at Potchefstroom University for Christian Higher Education (PUCHE) and has 15 years experience in financial services and micro-lending sectors. Edition 5

BANKER SA

SOUTH AFRICAN MOBILE ENABLEMENT GIANT TARGETS AFRICAN CELLPHONE BANKING AND TRANSACTIONAL SERVICES BUSINESS

South African mobile enablement giant has become one of the first and biggest service providers in Africa covering over 1000 networks in more than 220 territories and countries. What was once a local South African start-up company is now growing its business by targeting the development of Africa’s fast-growing mobile banking and financial services sector. Clickatell has extensive reach into the African mobile communications market, which enables it to deliver financial transactions alongside its traditional messaging business. They already operate in Nigeria and Rwanda, with Kenya and Ghana to follow shortly. They differentiate themselves by enabling banks to reach and transact with their clients securely through cost-effective channels, thus reducing the bank’s cost to serve. Simultaneously, they can also drive the bank’s cost to serve down further by building additional revenue streams into their offerings, such as the convenience of selling prepaid airtime and other value-added services. Clickatell sees the mobile market as the number one area for growth in the banking and retail sectors, especially in Africa where not everyone has access to a computer or to a local bank branch. The growth of mobile networks across Africa has been exponential. A recent study showed that by 2015 more people in Africa will have access to a mobile network than will have electricity in their homes. An independent study by ABI Research expects mobile phone subscriber penetration levels to pass 80% in the first quarter of 2013, up from 76.4% or 821 million subscribers in the last quarter of 2012. ‘Clickatell is primarily a mobile enablement company. It helps businesses connect, interact and transact with their customers on mobile devices. We can deliver our services reliably, efficiently and over a wide geographic footprint. That’s our competitive advantage,’ says Pieter De Villiers CEO and founder of Clickatell. Clickatell is already in partnership with several banking and financial

institutions where they deliver their preferred mobile solution. They work with these banks to address their channel cost to serve needs, while functioning as a preferred mobile enabler. The company has direct access to all the major mobile networks in South Africa and the majority of networks across the continent. Clickatell’s approach is unique in that their channels do not replace each other but rather complement each other. In one case study, which demonstrates their ability, they can deliver 98.9% of their transaction services and messages in less than a second. Pieter can be proud of what the company has achieved since he cofounded it in South Africa with three others, including his brother Casper, in 2000. Initially they wanted to start their own dot-com business to inform customers by SMS about last-minute discounted airfare deals. In their search for a mechanism that would enable them to do this they spotted a gap in the market. Clickatell was launched to provide an interface between the internet and telecommunications services. With an initial startup capital of R180 000 in Cape Town, they grew via acquisition and venture capital backing from Sequoia Capital (one of the early investors in Apple and Google amongst others) to become an international mobile enablement company, head quartered in Redwood City, California. Clickatell has high hopes for its push into Africa, where it already generates about half its revenues. It hopes to increase revenues beyond $100 million in the next three years and is ramping up its mobile enablement services to be the driving force behind this. ‘We are very excited about the prospects for growth in Africa,’ says Pieter. ‘The African continent presents a wonderful opportunity and we are happy that we can be a part of this continents progress.’ For more information:Please visit www.clickatell.com or contact Clickatell Enterprise on +27 21 910 7700 or alternatively via email at enterprise.sales@clickatell.com

TECHNOLOGY

Gadgets

Changing times require faster and more reliable gadgets for exceptional results.

By Charles Boffard PEDIGREE HYBRID

Sony Vaio Duo 11 R15 700 sony.co.za There’s a market for convertible tablets, even if none of the twisting/flipping hybrid creatures by Acer, Lenovo and others have cracked it yet. Alas, neither has Sony. The Duo’s always-exposed touchscreen makes it a slate, which is basically a 1.3kg tablet. As a Windows 8 notebook, its specs are good, as Vaios always are, with a choice of Core i5 or Core i7 processors, 6GB of RAM, 128GB solid-state drive and a 29.5cm, Full HD display. But because the raised screen covers about a third of the base, the Duo’s keys are small and there’s no trackpad. We also found it inconvenient to have only one screen position. All in all, if you’re looking for flexibility, you may find the Duo 11 frustrating.

THE NEW BLACK

BlackBerry Z10 R7 000 blackberry.co.za Blackberry loyalists can breathe a sigh of relief. The Z10 looks like it means business; slightly bigger than an iPhone, with a 10.7cm screen and no physical buttons on its face. And no keyboard, either. Blackberry have committed to an excellent virtual keyboard with the best predictive text we’ve ever seen. You’ll be typing only one or two letters of most words. The gesture-based BB10 (currently with over 70 000 apps) matches up to the competition pretty well, and it’s a relief to gesture your way from calendar to contacts to browser without having to go via a home screen. Blackberry’s killer app, uncapped internet service, is absent (though it’ll be available for older Blackberry devices for a while). The Z10 is definitely good enough to keep loyalists within the fold.

GOD OF SMALL THINGS

iPad mini From R3 400 core.co.za We’d made up our minds about the iPad Mini in December [2012], before we’d even seen one. We use our iPads for so many things that scaling down from that expansive screen to something Huawei-sized just wasn’t an option. And the specs! Its screen resolution and processor are more iPad 2 than new iPad. So forget it. Then, one day, we actually picked one up and held it. And bought it. You’ll understand this when you hold a Mini in your own hands. It’s not a scaled-down iPad, it’s a refined iPad. Light and sliver-thin (7.2mm), it fits so naturally into one hand that gripping a full-sized tablet afterwards feels like carrying a suitcase. The screen is just big enough for reading, working and media; and it’s so much more portable that you’ll take it with you more often. Like its big brother, it’s available with 16/32/64GB storage, Wi-Fi only and Wi-Fi/3G.

ANDROID LEADER

HTC One Rtba htc.co.za HTC has finally revealed its flagship model for 2013, the HTC One. It’s a real musclephone, with a 4.7inch/12cm 1080p display and 1.7GHz quad-core Snapdragon 600 processor with 2GB of RAM growling under its bonnet. At only 143g, its aluminium unibody sits snugly in the hand. The only disappointing spec is the primary camera’s 4 megapixels, though it’ll shoot HD video and its advanced features give it good low-light capability. HTC’s Sense Android skin has been upgraded. The immediately apparent addition is BlinkFeed, which aggregates social media, news feeds and video on the homescreen. And one more thing: the One functions as an infra-red remote for your home entertainment system.

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BANKING NEWS South African News

A survey released by Ernst & Young indicates that banking confidence remained strong through the fourth quarter of 2012, with confidence particularly robust in the retail segment.

Bank confidence strong despite economy

THIS IS THE 44TH QUARTERLY survey conducted to measure confidence in the banking industry. Emilio Pera, lead financial services director at Ernst & Young comments: ‘Confidence levels remain strong, despite very weak economic prospects. Local and global uncertainty with weak growth prospects in the Euro zone, and uncertainty in the USA in the run-up to presidential elections, all contributed to very weak economic activity in South Africa in the fourth quarter of 2012. GDP growth slowed to 1.2% in the third quarter of 2012, considerably below its long-term average rate of 3.2%, and substantially down from the second quarter’s 3.4%. In such a low-growth environment, both retail and investment banks struggled to grow revenue streams. The slower growth environment resulted in weak demand from the corporate segment, whilst retail banks faced slower lending growth off an already weak base.’ Both interest and fee income growth slowed in the last quarter of 2012 for retail banks. For investment banks, income growth rose somewhat, despite weaker business volumes. ‘Corporate demand for investment banking services remains weak, as evidenced by weaker activity across the core investment banking business lines,’ Pera comments. ‘This resulted in shrinking fee income, and in addition to this, investment income also shrank for the third consecutive quarter. As a result, overall earnings shrunk for investment banks in the fourth quarter. Nevertheless they remain confident about their prospects.’ 48

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OTHER SURVEY FINDINGS

Retail banks sharply increased tightening of credit, in line with an uptake in credit impairments. The credit policy tightening was confined to the household segment, while business banking credit standards remained unchanged. Both retail and investment banks reported a net decline in employee numbers. In the case of retail banks, this was the first time since third quarter of 2011 that banks reduced overall numbers. Cost growth remained strong albeit softer for retail banks than in the previous quarter, while investment banks faced much more modest cost increases. Pera further remarks on the credit tightening, ‘Investment banks have had a relatively benign credit impairment environment for a while, and this continued into the fourth quarter. Retail banks, on the other hand, have had less than two years of improving credit losses, and are again facing a deteriorating credit quality scenario. We think this is at least partially linked to concerns regarding recent rapid growth in the unsecured lending market. In addition, the mortgage market has not fully recovered, and banks remain cautious following the losses they recently incurred in this segment. Given these issues, banks are understandably cautious about the terms and conditions under which they are willing to approve advances. ‘The banks expect the new year to remain tough, with revenue growth anticipated to slow even more than it did in the fourth quarter in both retail and investment banking.’

Fitch downgrades SA banks

FOLLOWING ITS DOWNGRADE of South Africa’s sovereign rating, Fitch Ratings downgraded the viability ratings of South Africa’s major banks in January. Absa, FirstRand, Investec, Nedbank, Standard Bank and their respective rated holding companies had their ratings reduced by one notch. ‘The sovereign rating is now effectively acting as a cap on these banks’ viability ratings,’ Fitch stated. FirstRand, Nedbank and Standard Bank had their viability ratings and long-term issuer default ratings downgraded from BBB+ to BBB, while Investec’s issuer default rating and viability rating were both downgraded from BBB to BBB-. Fitch said that the downgrade reflected the banks’ concentration in South Africa, a high proportion of liquid assets invested in government securities, and a weakening operating environment. In December, Moody’s credit rating agency lowered its outlook for South African banks ‘from “stable” to negative’, citing their overexposure to government debt, a deteriorating economic outlook and liquidity challenges. Moody’s described the operating environment for South Africa’s banks as “challenging”.

New mobile banking platform for low-end phones STANDARD BANK HAS PARTNERED with global business management software leader SAP to launch a platform that will enable users of low-end mobile phones in South Africa to open accounts using their devices. The AccessAccount platform aims to allow the unbanked to easily open accounts and monitor their balances. ‘This innovative banking project is radically affecting the lives of thousands people for the better,’ said Pfungwa Serima, CEO of SAP Africa. ‘We look forward to seeing the continued success of the implementation across the continent.’ Mobile banking agents will sign up users through a portable device that takes ‘only a few minutes’ to open accounts. Customers can then perform person-to-person transfers, purchase prepaid electricity and airtime through their phones and deposit and withdraw money from informal traders signed up with Standard Bank. ‘We have built an entirely new IT system and platform that spans across all the bank’s offerings in our “Inclusive Banking” business,’ said Peter Wharton Hood, deputy chief executive of Standard Bank Group. Standard Bank is one of the first banks in the world to run SAP Mobile Platform. The bank is currently opening up to 7000 new accounts a day via SMS technology, in less than six minutes per transaction. Over 14 million South Africans are without access to bank accounts, creating a significant target market for the new AccessAccount product.

Edition 5

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BANKING NEWS INTERNATIONAL

UK and Germany:

tougher banking rules Chancellor Angela Merkel’s coalition government has drafted new banking regulations intended to isolate excessive risk-taking by banks, protect customer deposits and limit the spread of financial trouble within the banking system. The regulations also propose stiffer penalties, including fines and prison sentences of up to five years, for executives engaging in reckless investment. Banks running high-risk trading operations valued at either 20% of their balance sheets or €100 billion ($135 billion) will be required to transfer those assets into legally and financially separate units. The aim is to shield customer deposits from the banks’ riskier trading activities. Banks would also be required to submit their own plans for restructuring and liquidation in case of financial trouble. The regulations will have to be approved by the German legislature. Deutsche Welle reports that parliamentary leaders said they will reject the egulations ‘because they don’t go far enough to curb systemic risk in the banking sector’. BRITAIN’S “ELECTRIFIED FENCE”

Britain’s new Banking Reform Bill will “ring fence” the High Street activities of UK banks, requiring separate subsidiaries for their dealing floors in the City. Investment and High Street banks will also have different chief executives, and the ring fence is to be “electrified” – regulators will be empowered to split up a bank, subject to conditions, if the regulator deems it to be undermining the purpose of the ring-fence. Regulators will also review the entire UK banking industry each year to determine whether the ringfence is proving effective.

‘2013 is the year we reset our banking system, so the banks work for their customers – and not the other way round,’ Chancellor of the Exchequer George Osborne told bankers in a speech at JP Morgan in February. ‘No more rewards for failure. No more too big to fail.’ From April, the UK’s Financial Services Authority is to be abolished and the Bank of England will be in charge of keeping the UK’s financial system safe. ‘The Bank of England will be the super cop of our financial system,’ Osborne said. The new measures have received mixed reactions from the financial sector. ‘It’s important that individual banks are in control of their own destiny on the question of structure,’ the Chamber of British Industry commented. PwC UK’s Kevin Burrowes described the electrified retail ring-fence as “curious”. ‘The regulators have more than enough weaponry available to make banks comply regardless,’ he says. ‘Electrifying the fence will be time consuming as the Chancellor makes the ultimate decision on whether to flick the switch and force separation. The Chancellor is sending a strong signal to banks and the markets that he expects them to take this matter very seriously and not abuse the system on ringfencing. Few could argue that sending this message is not necessary given the sector’s current reputation.’ By Deutsche Welle Edition 5

BANKER SA

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Capco Johannesburg 23 Wellington Road, Parktown, 2193, South Africa +27 (11) 486 9541 CAPCO.COM Bruce.Gordon@capco.com

BANKING NEWS INTERNATIONAL

Kenya mobile money transactions

grow by over

50% NAIROBI The amount of money transacted by Kenyans using their mobile phones grew by over 50% to hit Sh1.4 trillion (US$16.027 million) in the financial year ended 30 June, 2012, Kenyan Central Bank data shows. The rapid growth of the mobile phone money transfer service usage from the Sh919 billion mark in 2011 was helped by a 39.51% growth in the number of transactions. The number of transactions increased from 364.06 million in a year (30 June, 2011) to 507.90 million transactions (30 June, 2012). In the period, the customer base of persons using services such as M-pesa, Airtel Money, Orange Money and Yu Money increased by 10.06% from 17.99 million customers to 19.8 million customers. The number of agents increased by 31.61% from 46 588 to 61 313 in the same period, with M-Pesa accounting for 76.42%, Zap 19% and Yu 2.8%. These statistics are contained in the Central Bank of Kenya 2012 annual report. The number and value of transactions are expected to go up this year based on the growth of number of mobile phone users. According to the Communication Commission of Kenya (CCK), between June and September 2012, the total number of mobile subscriptions was recorded as 30.4 million up from 29.7 million posted in the previous quarter. This represents an increase of 2.5% during the period and 15.0% when compared to the same period of the previous year. ‘The continued growth in mobile subscriptions indicates that there is still opportunity for growth in the mobile telephony services,’ says the CCK in a different survey. However, the rate of growth in the subscriber base is flattening as the sector progressively tends towards maturity, CCK notes. ‘The use of mobile money transfer service has continued to transform the way of doing business and enhanced financial inclusion, particularly for the unbanked,’ Kenya’s communication sector regulator notes. ‘This growth indicates that the mobile money transfer service has become a key payments and transaction tool, mainly due to its easy use of applications, convenience and low cost value propositions.’ I-Net Bridge Edition 5

BANKER SA

Overview

Xantium offers a complete service relating to the manufacturing and personalisation of cards. Our products and services range from consulting to the complete management of any one of the following aspects: • • • • •

Card design & manufacturing Personalisation Stationery/packaging design and sourcing Pin mailer printing Card distribution and reporting

Detailed production information for all cards is provided in real time through Xantium’s web-based Track & Trace system [see Track & Trace]. This system is secured and accessible only by authorised employees. All reports generated on this system are PCI –DSS compliant.

Chip & EMV

A chip card is a credit or debit banking card that has a microchip embedded in it.The chip provides enhanced security and greater convenience to banks and cardholders. In order to enhance their service and security offerings, many ﬁnancial institutions, in line with Visa and MasterCard requirements, are opting to issue chip cards. Xantium with its products, technical support and services, can assist companies to move towards utilising and installing this new technology. Xantium is also able to carry out large-scale EMV conversions and implementations as well as daily ongoing card renewal and replacement services.

Telecommunications

Xantium offers secure data ﬁle processing, production, full packaging and fulﬁlment.

Our clients are assured of accurate, affordable SIM cards that are timeously delivered. Xantium provides GSM, CDMA and UMTS product lines in telecommunications.

Track & Trace

Xantium has developed a Track and Trace system that is used not only as an internal personalisation production management tool, but also gives customers the level of comfort that the card personalisation will be completed in the required time frame. Xantium has developed a web-based front-end to the Track and Trace system to allow clients to track the progress of their orders through the personalisation bureau, giving them complete transparency. One beneﬁt of this is for feedback for call centres, allowing for accurate information in real time, making it possible for the call centre agent to identify where in the system a card is, and to manage customers’expectations on the ﬁrst call. Some of Xantium’s larger customers have Card Operation Departments which are responsible for the on time delivery of over half a million personalised cards per month. The Track and Trace system has proven to be an effective tool in the management of the supply chain, from cards being ordered through to dispatch. Stock management is also available through the system and allows clients to monitor and re-order stock timeously.

Black Economic Empowerment

Xantium Integrated Solutions has a Level 5 - Broad Based Black Economic Empowerment (B.B.B.E.E.) scorecard. Our Black owned Equity Company comprises several industry stalwarts who bring a wealth of experience and relationships to our collaboration.

Contacts

Complete Card Solutions Provider

For any card related product enquiries please contact Xantium Integrated Solutions. Tel: +27 (0) 11 472 9330 or E-mail: sales@xantiumis.co.za www.xantiumis.co.za

LIFESTYLE

Meet the bankers

Dr Mathai Vaidyan, a banker since 1979, is General Manager of the State Bank of India, the largest bank in the South Asian country, with 23 000 branches and 232 000 employees. He also serves as Regional Head for Africa and CEO of the bank’s operations in South Africa.

In his banking career, Dr Vaidyan helped establish the State Bank of India’s life insurance division, SBI Life Insurance and SBI Gilts, a primary dealer in government bonds. In the early 1980s he was posted to Los Angeles as Credit Officer of the bank. In his time in the US he managed to complete a Doctorate in Business Administration by the age of 30. WHERE WERE YOU BORN? I was born in the province of Kerala in India, in 1956. Kerala is known worldwide as God’s own country because it is very beautiful. It is where St Thomas, the disciple of Jesus Christ, came and started Christianity in India. HOW DID YOU BECOME A BANKER? I did a Bachelor of Commerce and Masters of Commerce at the University of Kerala, India. As a student I wanted to do an internship at the State Bank of India as it paid better. [The] State Bank of India is the largest bank in India and a job in the bank is highly respected. Before I joined the bank I wrote an examination as part of the recruitment process, and I qualified. On average one in 100 000 are selected for the programme. I was appointed in 1979 as an executive trainee and I did a two-year training programme in various areas of the bank.

I believe that yoga is much more useful for the development of the physique as well as the mind. WHAT’S YOUR HIGHEST ACADEMIC QUALIFICATION? I completed a Doctorate in Business Administration at the age of 30 in the United States. WHAT HAS BEEN YOUR BEST MEMORABLE MOMENT AND ACHIEVEMENT IN BANKING? I was the first in India to bank those who could not read and write. In 2006, I launched the biometric identification to bank customers who could not read and write. I moved to South Africa four years ago, and I have managed to expand the bank’s operations to a retail bank with online banking, debit cards, ATMs and a full bouquet of products for wholesale and retail. WHAT IS YOUR BEST HOLIDAY DESTINATION? I just like to travel. I don’t have a favourite place. I like going to the mountains and the ocean. WHAT DO YOU THINK DIFFERENTIATES INDIAN AND SOUTH AFRICAN BANKS? In India, about 40% of loans are given to priority sectors like agriculture and small businesses, which create employment. This means that banks really support the creation of employment and rural development. In South Africa I don’t think it’s like that. WHAT ADVICE WOULD YOU GIVE TO ASPIRING BANKERS? It’s a very exciting career and there are opportunities for tremendous exposure in various fields. WHAT ARE YOU READING? I read books on management, leadership and autobiographies. Right now I am reading Conversation with Myself by Nelson Mandela. I have just completed reading The State of Africa by Martin Meredith. WHO INSPIRES YOU? One of the people [who inspire me] is a person whom India inherited from South Africa – Mahatma Ghandi. He came to India and said, ‘If India is to grow, we need to grow rural India.’ I also like Jawaharlal Nehru – he helped build up many educational institutions in India. He was a visionary. In Conversations with Myself, Mandela mentions Nehru as his hero. WHAT OTHER ACTIVITIES DO YOU ENJOY? I do a lot of yoga and meditation. I believe that yoga is much more useful for the development of the physique as well as the mind. At college I used to play soccer, but now, once in a while, I play golf. ■ Edition 5

BANKER SA

PRODUCT NEWS AUCTION OPERATION – SA`S TOP VEHICLE AUCTIONEERS Auction Operation is a national auction company recognised countrywide as the leader in the auction sale of motor vehicles, whether repossessed, end-of-term fleet vehicles or insurance salvage. Auction Operation understands that a successful auction is a result of a carefully planned event with well-executed marketing and preparation. The company prides itself in offering the finest auctioning services available today. The firm is fully staffed with 17 auction facilities countrywide, with a house call centre and a fleet of 50 rollbacks and car carriers for the transportation of vehicles countrywide, combined with the experience necessary to professionally conduct auctions. For further information on upcoming vehicles sales, contact Auction Operation on 0861114665 or visit www.auctionoperation.co.za to see the different brands and models of cars put up for auction.

SENTINEL BRINGS YOU INNOVATIVE AND TAILOR-MADE SECURITY SERVICES With a track record of 30 years in security paper, Sappi has an in-depth understanding of the need for security paper solutions which guard against fraud, forgery, counterfeiting and other security risks. Sappi offers innovative, customisable security solutions suited to litho, web, laser and intaglio printing. With the wide range of overt, covert and forensic security features, which are embedded in the paper during the manufacturing process, counterfeiting becomes more difficult. Sentinel security paper is suitable for a myriad of applications such as passports, ballots, cheques, traveller’s cheques, security labels, vouchers and many more. Sappi’s manufacturing processes comply with and often exceed a number of international accreditations including Cheque and MiCR Standards Authority of South Africa and Clearing Bank Standard 1 and 2. Sappi’s strategic partnership offers a flexible, end-to-end solution, tailor-made to your specifications, providing customers with consistent quality backed by international accreditations.

CASH HANDLING – NEW WAYS OF WORKING Cash in circulation is ever growing and the trend looks set to continue. Handling cash still costs money. The costs associated with cash are linked to robbery risks, time involved in managing cash, shrinkage losses, manual preparation and reconciliation and information. Reducing these costs, optimising cash operations along the whole length of the cash chain – from the store all the way up to head office – as well as streamlining the processes for retailers, banks and CIT (cash-in-transit) involved in the cash cycle, all call for a whole new approach to cash handling. The Gunnebo product portfolio offers a combination of hardware, software and global services, ranging from entrylevel systems to complete closed cash-handling solutions – from cash deposit to front-office security and back-office automation. For further information, contact Gail Carew on 011 878 2300 or email gail.carew@gunnebo.com or visit www.gunnebo.com.

VCS INTRODUCES IMPROVED SYSTEMS Virtual Card Services was established in 1996 to offer a solution to the mail order market that found conventional methods of securing large volumes of credit card payments cumbersome and costly. With more than 50 years’ collective experience in developing and implementing credit, debit and smart card processing systems for a major card issuer in South Africa, VCS was quick to identify the niche presented in providing a solution that exactly meets these needs. The “Virtual Vendor” system, which was developed out of this need, interacts with a bank’s existing legacy systems, while meeting the vendor’s demand for an automated, electronic transaction system. The company’s client list today boasts a cross-section of businesses that have realised the benefits of automating their credit card transactions. For further information, visit www.vcs.co.za.

BANKER SA

Edition 5

The financial services landscape. We can help you navigate it.

We know in today’s world, you face unprecedented challenges and responsibilities. According to our At Ernst and Young, latest Global Consumer Banking to we’ll give you opportunities work for the leading survey, customers areworld’s switching businesses an environment banks, a changing theirinbehaviour and that we know you’ll find a demanding improvements. At challenging and stimulating. Ernst &aYoung, we help respond Welcome to thebanks world of seeing a to this by assisting them more. To find outwith more, go to a. ey.com/careers reconfiguring their business models around customer needs. Find out how See More | Opportunities our financial services teams can help you find a resolution at www.ey.com/za.

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