SA banking sector is concentrated, says Coovadia

Banking Association of South Africa MD Cas Coovadia. (Photo: Matthew le Cordeur)
Banking Association of South Africa MD Cas Coovadia. (Photo: Matthew le Cordeur)

Johannesburg – Having a concentrated banking sector is not necessarily a weakness, according to Cas Coovadia, managing director of Banking Association of South Africa (BASA).

Coovadia was speaking at a briefing about the Financial Intelligence Centre Act (FICA) on Monday. The briefing also looked at the need for diversity in the banking sector.

Having four strong banks dominate in the sector, adds weight to the “soundness of the sector” explained Coovadia. He acknowledged the industry was concentrated. Similarly, countries like Canada, Australia and the UK are also concentrated in this way. Coovadia said that the industry needs to consider diversifying to bring in new entrants and new types of institutions.

Responsible operations

Regardless of the kind of bank, whether a state bank or a commercial bank, ultimately banking involves taking deposits and making sure these deposits are safe, said Coovadia. He added that banks need to lend money in a way to ensure they will get the money back. “Whether a state bank or any other bank, that must be done.”

On that note, Coovadia said that BASA would welcome a Postbank, as there are geographic areas they would be better able to service, through collaborations. “At the end of the day if they reach more people than we are reaching now and can do it sustainable, then that’s what it is all about.”

But Coovadia warned that if the state bank were to dish out loans irrespective of risk and whether the money will be returned, then it will require on-going fiscal bailouts, which is not sustainable.

Promoting financial inclusion

Khulekani Mathe senior general manager of financial inclusion spoke on the levels of financial exclusion. Of the seven billion people in the world, two billion are excluded from the financial system. In many of the countries, women are more disadvantaged than men. In South Africa, the level of exclusion does not have a gender dimension, said Mathe.

“It is recognised that financial inclusion critical to the performance of the economies,” explained Mathe. “Countries of high levels of inclusion tend to do well economically.”

In South Africa, there are high levels of financial inclusion presented on paper, but this does not match the performance of the economy, he said. Financial inclusion is measured by the number of people who have bank accounts, these masks a number of factors that exclude people from the financial system and the economy’s real performance.  

The industry needs to consider promoting access to appropriate products for under-serviced segments of the population, he said.

People mostly operate in cash-based economies. Those living in informal settlements need cash to buy what they need. This shows innovation in payments is needed to allow people to transact.

An element of inclusion requires education, said Mathe. People need to be aware of the services on offer and must be informed to make the right choices.

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