SA banking system gets the nod
THE Reserve Bank is in favour of the country’s highly concentrated banking system‚ a top banking official said yesterday.
The bank took steps to mitigate the risks of this concentration‚ especially the potentially adverse effects on competition‚ Kuben Naidoo said.
Naidoo‚ the registrar of banks and deputy Reserve Bank governor‚ made a presentation during public hearings held by parliament’s finance and trade and industry committees on transformation of the financial services sector.
One round of hearings has already taken place and a third is scheduled for May 3.
South Africa’s six largest banks – Nedbank‚ Absa‚ Standard Bank‚ First National Bank‚ Investec and Capitec – represent more than 91% of the total banking sector.
The growth of Capitec over a short period and its aggressive pricing policies had helped introduce more competition into the market‚ Naidoo noted.
He said there was a conflict between stability and market concentration, but the bank favoured stability and took measures to mitigate the risks of concentration by imposing rigorous licence conditions.
The creation of a dedicated market conduct regulator under the twin peaks model of financial regulation would strengthen the regulation of market conduct.
He said there were significant advantages to having a few‚ well-capitalised banks‚ which were more resilient to crises and shocks than smaller banks.
Fewer banks entailed less risk but potentially diminished competition‚ the dilemma of the big banks being “too big to fail” and contagion.
He said the Reserve Bank had multiple objectives in regulating the banking sector‚ namely financial inclusion and access‚ competition‚ financial stability and transformation.
He noted that there had been a marked increase of concentration in the banking sector between 1998 and 2002‚ when 22 small and mediumsized banks left the sector.
In 1994, there were 35 registered banks, and 16 last year.
Naidoo said there was a global trend towards the consolidation of banking institutions. – BDlive