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SOUTH AFRICAN BANKING SECTOR OVERVIEW

TABLE OF CONTENTS

Sections Page

1 Background 1 2. sector‘s contribution to the economy 2 3. Total Assets 2 4. Total liabilities 4 5. Profitability 5 6. Shareholding structure 5 7. Branches ,ATMs, POS 6 8. Usage of payment systems 6 9. Employment 8 10. Number of customers 8 11. Repo and Prime rate movements 8 12. Regulation 9 13. The Financial Sector Charter 10 14. Conclusion 11

Figures

1. Number of in SA 2 2. Total banking sector assets 3 3. and advances (September 2011) 3 4. Market share of major four banks 4 5. Total liabilities of the banking sector 4 6. Composition of deposits 5 7. Shareholding in the banking sector 6

Tables

1. List of banks in SA 1 2. Number of ATMs, branches and POS 6 3. Usage of payment systems 7 4 Employment profile of banking sector (2009) 8 5. Repo and Prime rate movements (2005 to 2010) 9

Enquiries: Nwabisa Matoti ([email protected])

Last updated: November 2011 1

SOUTH AFRICAN BANKING SECTOR OVERVIEW

1. Background has a developed and well regulated banking system which compares favourably with those of industrialised countries. The sector has undergone a lot of changes in the past 20 years, with the early 1990s being characterised by a process of consolidation resulting from mergers of a number of banks including Allied, and United to form ABSA and the proposed merger between Nedcor and Stanbic which failed eventually.

The promulgation of the Banks Act of 1990 led to a number of banking licenses being issued and by the end of 2001 there were 43 registered banks in South Africa. The announcement of Saambou‘s financial troubles in 2002, however, resulted in a run on BOE and other smaller banks which led to a number of banks not renewing their banking licenses and others seeking financial assistance from foreign shareholders. Other banks such as Regal also experienced financial difficulties during that period and were placed under curatorship.

Although the South African banking sector has been through a process of volatility and change in the past, it has attracted a lot of interest from abroad with a number of foreign banks establishing presence in the country and others acquiring stakes in major banks, for example, the Barclays œ ABSA and Industrial and of China œ deals.

There have been a number of changes in respect of the regulatory environment, product offerings, and number of participants resulting in a greater level of competition on the market from smaller banks such as and African Bank, which have targeted the low- income and the previously unbanked market.

The SA banking industry is currently made up of 17 registered banks, 2 mutual banks, 12 local branches of foreign banks, and 41 foreign banks with approved local representative offices. The banks are listed in Table 1 below. 1.1 Table 1- List of banks in SA Category Bank Registered banks œ ; African Bank Limited; Limited; Capitec Bank Limited; locally controlled FirstRand Bank Limited; Limited; Bank Limited; Limited; Regal Treasury Private Bank Limited (In liquidation); Limited; Limited; The Standard Bank of South Africa Limited. Registered banks œ Albaraka Bank Limited; Habib Overseas Bank Limited; HBZ Bank Limited; foreign controlled Islamic Bank Limited (In Final Liquidation); Mercantile Bank Limited; The South African Bank of Athens Limited. Mutual banks GBS Mutual Bank; VBS Mutual Bank Local branches of Bank of Baroda; Bank Of China Limited Branch (trading as Bank Of China foreign banks Johannesburg Branch); Bank of Taiwan South Africa Branch; China Construction Bank Corporation - Johannesburg Branch; Citibank N.A.; Deutsche Bank AG; JPMorgan Chase Bank N.A. (Johannesburg Branch); Société Générale; Standard Chartered Bank - Johannesburg Branch; State Bank of ; The Hongkong and Shanghai Banking Corporation. Foreign banks with AfrAsia Bank Limited; Banco BPI, SA; Banco Espirito Santo e Comercial de Lisboa; Banco approved local Privado Português, S.A.; Banco Santander Totta S.A.; Bank Leumi Le-Israel BM; Bank of representative Cyprus Group; Bank of India; Barclays Bank Plc; Barclays Private Clients International offices Limited; BNP Paribas Johannesburg; Commerzbank AG Johannesburg; Credit Suisse AG; Credit Suisse Securities (Europe) Limited; Ecobank; Export-Import Bank of India; Fairbairn Private Bank (Isle of Man) Limited; Fairbairn Private Bank (Jersey) Limited; First Bank of

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Nigeria; Fortis Bank (Nederland) N.V.; Hellenic Bank Public Company Limited; HSBC Bank International Limited; Icici Bank Limited; KfW Ipex-Bank GmbH; Lloyds TSB Offshore Limited; Millenium BCP; National Bank of Egypt; NATIXIS Southern Africa Representative Office; Royal Bank of Scotland International Limited; Société Générale Representative Office for Southern Africa; Sumitomo Mitsui Banking Corporation; The Bank of New York Mellon; The Bank of Tokyo-Mitsubishi UFJ, Ltd; The Commercial Bank Limited; The Rep. Off. for Southern and Eastern Africa of The Export-Import Bank of China; UBS AG; Unicredit Bank AG; Union Bank of Plc; Vnesheconombank,; Wells Fargo Bank, National Association; Zenith Bank Plc

Source: SA Reserve Bank

1.2 Figure 1 - Number of banks in SA

Number of banks in SA

Number 60 56 52

50 47 44 43 43 46 43 41 42 41 40 30 30 22 20 19 19 19 19 18 20 17 15 15 15 14 14 14 15 14 13 13 10

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Registered banks Banks Mutual banks Branches of international banks Representative offices

2. Financial services sector‘s contribution to the economy The financial services sector contributes about 10,5 percent to gross domestic product (GDP), with assets to the value of over R6 trillion. Taxes amount to over 15 percent of GDP, whilst employment represents about 4 percent. The banking sector assets represent just over 50 percent of total financial services sector assets.

3. Total Assets The assets of the banking sector improved to a level of R3,4 trillion after some moderate increases between December 2008 and June 2011 (Figure 2). There was a 9 percent increase in the total value of assets during the quarter ended September 2011.

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3.1 Figure 2 œ Total banking sector assets

Figure 3 below depicts the composition of loans and advances as at end September 2011. Home loans represented the largest component at 34 percent, followed by term loans at 16 percent. 3.2 Figure 3 œ Loans and advances (September 2011)

Composition of loans and advances (Sep 2011)

23%

34%

16%

10% 5% 10% 2% Homeloans Commercial mortgages Credit cards Lease and instalment debtors Overdrafts Term loans Other

Source: SA Reserve Bank

Figure 4 below illustrates the market share of the four major banks as at end September 2011. The four major banks represented about 84 percent of total banking assets. Standard Bank, the largest bank in terms of assets, had a market share of 31 percent, followed by

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ABSA with 25 percent. FirstRand and Nedbank had a market share of about 24 percent and 20 percent respectively. 3.3 Figure 4 œ Market share of the major four banks (Sep 2011)

Source: SA Reserve Bank

4. Total liabilities After a sharp decline in the first quarter of 2011, total liabilities of the banking sector increased by 3 percent between the second and third quarters of 2011 reaching a level of about R2,6 trillion (Figure 5).

4.1 Figure 5 œ Total liabilities of the banking sector

Total liabilities

R'bn Percent 3 500 10% 3 131 2 996 2 964 2 904 3 000 2 885 8% 2 768 2 834 2 809 2 769 2 821 2 801 2 848 6% 2 500 4% 2 000 2% 1 500 0% 1 000 -2%

500 -4%

0 -6% Sep Dec Mar Jun Sep Dec Mar Jun Dec Mar Jun Sep 2008 2008 2009 2009 2009 2009 2010 2010 2010 2011 2011 2011

Liabilities (LHS) Growth (RHS)

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Deposits represented about 77 percent of total liabilities at the end of September 2011. The composition of deposits is illustrated in Figure 6 below. Fixed and notice deposits constituted the largest part at 32 percent, followed by current and call deposits both at 17 percent. 4.2 Figure 6 œ Composition of deposits

Composition of deposits (Sep 2011)

10% 17% 4%

5% 15%

17%

32%

Current Savings Call Fixed and notice NCDs Repos Other

Source: SA Reserve Bank

5. Profitability The Return on Equity (RoE) and the Return on Assets (RoA) for the banking sector improved to 15,9 percent and 1,12 percent respectively in September 2011 (September 2010: 15,2 percent and 0,99 percent respectively). The efficiency of the banking sector, however, deteriorated as the cost-to-income ratio increased from 54,6 percent in September 2010 to 55,9 percent in September 2011. Operating expenses increased from R83,8 billion in September 2010 to R93,1 billion in September 2011.

6. Shareholding in the banking sector

By end of December 2010, shareholding by foreigners in the sector represented about 43 percent of total nominal banking shares in issue, whilst domestic and minority (those with a shareholding less than 1 percent) represented about 27 percent and 30 percent respectively (Figure 7). The large portion of foreign shareholding can be mainly attributed to the large stake that Barclays Plc has in ABSA.

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6.1 Figure 7 œ Shareholding in the banking sector

7. Branches, ATMs, and Points of Sale By the end of December 2010, the total number of ATMs and branches of banks stood at 26 439 and when points of sale were included, this number increased to (179 319) (Table 2).

7.1 Table 2 œ Number of ATMs, branches and points of sale (Dec 2010)

Category Value

Number of branches (major four banks) 2 927 Number of branches (all banks*) 6 303 Number of ATMs, branches (major four banks) 26 439 Number of ATMs, branches, POS (major four banks) 175 839 Number of ATMs, branches, POS (All banks) 179 319 * Major four banks, African Bank, Capitec, Ithala,Ubank, and SAPO.

8. Usage of payment systems The usage of payment systems for the period 2005 to the first half of 2010 is illustrated in Table 3 below. These statistics, however, only represent domestic transactions. There appears to be a common trend in the figures listed below œ slow rate of transaction growth in all categories from 2007. This could also be possibly due to changes in economic conditions which negatively affected the consumer (lower disposable income, higher levels of indebtedness therefore changed spending patterns).

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8.1 Table 3 œ Usage of payment system

ATM Transactions % % Period Volume Change Value (Rands) Change

2005 166 891 507 6.1% 40 554 418 390 8.4%

2006 192 734 194 15.5% 47 463 298 261 17.0%

2007 234 322 151 21.6% 59 058 301 908 24.4%

2008 268 438 678 14.6% 71 370 586 351 20.8%

2009 276 211 771 2.9% 77 182 864 413 8.1% June 2010 145 189 138 42 126 129 369

Credit Card Clearing & Settlement (POS) Transactions % % Period Volume Change Value (Rands) Change

2005 121 392 698* - 41 792 537 747* -

2006 257 008 611 - 93 223 327 767 -

2007 278 539 563 8.4% 105 372 094 855 13.0% 2008 265 480 842 -4.7% 108 087 430 784 2.6%

2009 260 834 540 -1.8% 109 262 373 476 1.1%

June 2010 146 727 622 64 470 320 277

Debit Card (POS) Transactions % % Period Volume Change Value (Rands) Change

2005 68 769 674 77.0% 15 319 086 087 97.6% 2006 112 274 366 63.3% 26 982 144 785 76.1%

2007 147 800 549 31.6% 36 491 074 579 35.2%

2008 193 637 674 31.0% 48 744 246 683 33.6%

2009 225 855 348 16.6% 56 877 976 287 16.7%

June 2010 128 822 461 32 488 456 325 EFT Total Transactions % % Period Volume Change Value (Rands) Change

2005 515 535 477 9.6% 2 925 646 354 523 16.6%

2006 572 166 154 11.0% 3 520 882 895 027 20.3% 2007 627 449 606 9.7% 4 142 740 609 760 17.7%

2008 663 052 101 5.7% 4 872 121 613 920 17.6% 2009 698 078 054 5.3% 4 896 464 564 124 0.5%

June 2010 357 831 347 2 548 728 819 900

Source: Payment Association SA (PASA)

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9. Employment According to the Labour Force Survey (third quarter of 2011), the financial services industry was the third largest employer in the country, representing about 13,3 percent of total employment. By the end of December 2010, there were just over 155 000 people employed in the banking sector. The major four banks represented about 82 percent of this amount Table 4 depicts the employment figures by some of the banks operating in SA. 9.1 Table 4 œ Employment profile of banking sector (2010)

Bank Number of employees ABSA 38 000 Standard Bank 30 000 FirstRand Bank 32 000 Nedbank 28 000 Investec Bank 3 700 Citibank N.A. 300 African Bank 15 000 Duetsche Bank 200 JP Morgan Chase 500 Standard Chartered Bank 230 Societe Generale 51 Capitec Bank 5 331 China Construction Bank 50 Mercantile Bank 430 Bank of China 56 State Bank of India 45 Bidvest Bank 1058 Sasfin 560 The SA Bank of Athens 170 Total 155 681 Source: PWC Banking Survey 2011

10. Number of retail accounts According to the PriceWaterhouseCoopers (PWC) 2011 SA Banking Survey, the number of retail accounts by the major four banks amounted to 34,5 million in 2010 and this number is expected to increase to 40 million accounts by 2014.

11. Repo and Prime rate movements Table 5 below illustrates changes in the SA Reserve Bank repo rate and the prime rate charged by banks. The difference between the two rates is 3,5 percentage points. The SA Reserve Bank increased its repo rate 9 times between June 2006 and June 2008 due to the economic developments at the time, resulting in the subsequent increase in the prime rate which had huge impact on the disposable income. However, interest rates started to decline from December 2008 as conditions improved.