South Africa still has a very concentrated banking sector with dominance by five large banks which collectively hold 90.5% of the total banking sector assets as of 31st March 2019.
This according to the recently released 2018-19 Prudential Authority Annual report, in Rosebank, Johannesburg.
Local branches of international banks accounted for 5.6% of banking sector assets while other banks represented 4%.
There have been calls by unions, some political parties and and the Black Business Council for the establishment of more banks, especially a black bank.
The Prudential Authority is responsible for regulating banks, co-operatives, insurance companies and other financial institutions.
Chief Executive Officer of the Prudential Authority Kuben Naido says he is hopeful that the banking sector will become more competitive over the next 10 years.
The sector is currently dominated by five big banks.
“I’m pretty optimistic that if you look forward, the next 10 years, that big five banks having market share will probably come down. I’m confident that newer players with right conditions of economic growth and the right regulatory environment will begin to gain market share and we will begin to see a more competitive sector. I don’t think we are going to get down to 60% market share for the big five banks.”
2002 banking crisis
The governor says in 2002 they had to exit about 50 banks from the system as a result of that crisis because they couldn’t cope.
“Unlike other countries we had not experienced the banking crisis and that has provided for other players to enter. If you are Swiss, you have moved from having three pillars to two pillars in the banking system. I don’t think there has been a new bank license in the US in the past 10 years. We are, in the meanwhile, processing new banking applications and that is very positive from our perspective.”
Establishment of a black bank
Earlier, in 2019 the Black Business Council said it had written to National Treasury seeking to buy a stake at African Bank. Its president Sandile Zungu also called for the establishment of a black bank.
“We have written to Treasury about their ownership of the African Bank. The African Bank was established more than 30 years ago by the likes of Facos. We have written to National Treasury to buy that equity that is owned by National Treasury, as well as equity owned by the commercial banks. We think we can help to reposition the African Bank more to the needs of the SMME sector, and the opportunity of multiplicity of banks owned by the previously marginalised has a reason. We think that the environment is very much suited for that kind of posture.”
Zungu adds, “Banking license is taking place between the joint Prudential Authority and the Financial Sector Conduct Authority. So, if you want to apply for a banking license then the place to go to is the regulator and not the politicians. The power and the strength of the supervisor lie in the ability to issue or withdraw the license. That is why it has taken from a political process and located with the supervisor.”
However, Naido says that several of the new banks licensed had significant black ownership.
“We are part of the financial sector council and we do use the financial sector charter as a benchmark to asses how the banks are making progress in transformation. Transformation is not only about ownership. It’s about staff. Its about training. Its about management; the value chains; and how they are integrating small and black businesses into those. So, its part of the things we look at, even though it’s not our primary mandate in that regard.”
Prudential Authority is part of Reserve Bank Regulator. The report showed that most of the banks had met the Authority’s minimum safety and soundness requirements.
Most banks also remained well capitalised despite a decrease in the repayment of loans and advances.