South African banks might improve their cost-to-income ratio through an increased, focused investment in infrastructure, says consulting group Accenture.
Accenture SA director Simon Russell says a recent study of the banking industry in the European Union has some lessons for local banks.
The study has shown that, contrary to what might be expected in the Internet era, physical retail branches continue to play a major role in the context of a multi-channel strategy.
"Fifty percent of customers still visit a branch every month," says Russell. "And Spain has the best branch/inhabitant ratio of any country in Europe. Spain has one branch for every 1 000 inhabitants (38 931 branches), where a country like Germany has one branch for every 2 000 inhabitants (41 139 branches).
"SA, on the other hand, has just one branch for every 12 000 inhabitants (approximately 3 400 branches)." Despite this, Spain has the lowest cost to income (55%) of all European countries, which average 65%.
"This is a clear indication that a reduction in physical branch infrastructure does not necessarily improve the cost-to-income ratio." Russell says SA`s current ratio is about 60%.
He says the key difference between local and EU retail banking branches seems to be that branches in SA are staffed with 20 to 40 people. In Spain the average branch size is between eight and 10 with no back-office functions taking place in the branch.
Russell says the South African banking industry is under pressure to change. Political pressure to accommodate a largely unbanked population, pressure to grow volumes and retain market share in the affluent portion of the market, decreasing interest rates placing pressure on profit margins and a global banking market changing to comply with the new Basel Capital Accord.
Concepts like efficiency and risk management are paramount and, collectively, these pressures can only be endured by making fundamental changes to operating models. This requires sweeping changes to the business and IT architecture supporting these models.
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