Bankers think regulators did too little too late

South Africa`s banking regulators did too little too late, thereby failing the nation`s A2 banks, which had provided tangible benefit to the sectors.

This was one of the criticisms raised in the eighth PricewaterhouseCoopers survey on banking in South Africa, which was researched by Brian Metcalfe, associate professor in the Business School at Brock University, Ontario, Canada. The survey, based on interviews conducted during February and March 2003 cumulates the views of managing directors and senior executives of 22 banks, 13 of which are foreign owned and nine of which are domestically owned.

Tom Winterboer, PricewaterhouseCoopers` lead banking partner, considers the responses provided by the 22 banks interviewed to represent a sound and comprehensive overview of developments in the South African banking industry. The most important developments highlighted by the survey include:

* The altering of the financial services landscape following the disappearance of the A2 banking sector;

* Increased market concentration, resulting in the market no longer being perceived as being overcrowded;

* The development of a Financial Services Charter;

* The reduction in the level of foreign bank participation as a result of certain banks either downsizing or leaving the market

In criticising the financial system, the respondents highlighted:

* A lack of success in dealing with the previously unbanked market;

* Over-regulation of the foreign banking sector;

* Onerous endowment capital requirements on foreign banks.

The survey revealed that merchant and investment banking is the industry`s most competitive segment, while the retail market has increased in competitive intensity, with 83% of participants viewing it as intensely competitive.

Technology continues to drive change. Even so, expected IT expenditure this year has been reduced to $382 million. New foreign entrants are no longer considered to be effective as a force for change with more players now seeking economies of scale.

Profit performance and improving revenue growth are pressing issues for all banks. In this context, two foreign banks anticipate growth rates of 100% or more this year, while three domestic banks anticipate growth of 20% or more.

Of interest is that "Return on capital" has replaced "image" and "reputation" as the most important measure of success. Whilst the number of banks using customer relationship management systems has increased from 65% in 2002 to 86% this year, only four banks record satisfaction with these systems.

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The most profitable areas for the industry as a whole are:

* Treasury;

* Corporate banking;

* Private banking;

* Merchant and investment banking.

The most disappointing areas over the past year were:

* Listings and privatisations;

* Micro-lending;

* Structured finance (tax).

The banks have been slow in preparing for Basel II. The Big Four are best prepared for credit risk management and least prepared for market discipline. Most banks believe that the topic of mergers should not be revisited before 2006.

On balance, the domestic banks are not in favour of deposit insurance. The foreign banks are more supportive of such insurance.

Each year, PricewaterhouseCoopers asks the respondents to rank their peers in 16 different banking activity categories, based upon performance, presence and momentum as opposed to mere size.

This time round, two groups - Standard and FirstRand Bank - scored highest, with top rankings of five categories each. Last year, Standard led with seven top rankings, followed by FirstRand Bank with four.

Deutsche and ABSA were each voted first in two categories being Corporate finance and listings for Deutsche and retail lending, deposits and internet banking for ABSA, with the remaining positions being filled by Investec, Allan Gray and Coronation.