The 2019 Transformation in Banking Report reflects the progress the industry has made towards achieving the targets set out in the Financial Sector Code (FSC) and its contribution to the social and economic development of South Africa and all its people.
In summary, despite difficult economic conditions and increased competition, the report demonstrates with hard data – provided by the banks and compiled and analysed by an independent research agency, Intellidex – that the industry has gone beyond what is required by the FSC and the Black Economic Empowerment (BEE) Codes of Good Practice. But, it must be acknowledged that the performance of the industry as a whole, across some key measurements, is uneven and it must simply do better. Highlights of the report include:
Black ownership measures – like voting rights – have declined over the last three years, but on aggregate remains above the FSC targets of 25%, with the exception of black economic interest. The decline in black economic interest is mostly due to the exit of shareholders from bank empowerment schemes, to realise the value of their shares.
Ownership measures are likely to continue to drift down in the coming years, as black investors realise value and diversify their portfolios. While this leads to a reduction in black ownership of banks, it adds value to the economy as shareholders apply their realised value in other sectors. Because of these changes in ownership, the Financial Sector Transformation Council included black business growth funding as a new element of the code that came into effect in December 2017. This funding will contribute to transformation by supporting the growth of black business across the economy.
In 2018 large banks’ balance sheet exposure to black small and medium enterprises (SMEs) increased by 13% to R28.8 billion; black agricultural financing increased by 41% to R4.5 billion; and spending on supplier development almost doubled to R795m.
The increase in financing for SMEs, black agricultural enterprises and supplier development is more transformational and better for the economy and job creation, than many ownership schemes. Large banks are capital intensive and all around the world their ownership is almost entirely institutional, with low levels of direct individual ownership.
The proportion of black board directors increased from 40% to 45% in 2018, approaching the 50% industry target. In addition, junior management in banks is now 85% black. This is important as it means there is a pipeline of young black talent and experience who will transform the management and executive ranks of the industry in coming years. Opportunities for advancement in the industry remain, despite a reduction in headcount in some operations. The South African Reserve Bank has issued new banking licenses, increasing competition and expanding the banking industry.
The industry continues to provide affordable, accessible and appropriate transactional services to an estimated 80% of adult South Africans across income groups and geographical locations.
The report shows that banks have made measurable progress in their efforts to transform their industry and the economy, and where more work needs to be done in the coming year. Financial inclusion and transformation is now at the core of the business of banking in South Africa, without eroding the critical responsibility of the industry to safeguard the deposits entrusted to them by all South Africans.