The government has signalled a new relationship with the country’s major banks, with Pravin Gordhan, the finance minister, this week calling for customer activism, putting new pressure on banks to cut fees and to make it easier for customers to move from one bank to another.
Gordhan, in a meeting this week with banking leaders, put new energy into banking reform. He acknowledged progress in reducing penalty fees but saw room for further reductions and called for greater transparency in pricing and fairer ATM charges.
He said bankers in South Africa had to be cognisant of major reforms now being implemented by developed nations after the financial meltdown in late 2008. This included executive salaries, which were being clipped globally.
Recently Standard Bank found itself at the centre of a storm following a decision to give exiting chairperson Derek Cooper a R7,5-million golden handshake.
A small majority of shareholders voted in favour of the decision, which the bank maintains was justified in its annual report — that the payout was extraordinary because of Cooper’s years of exceptional service. But the argument was not bought by the 40,66% of shareholders who voted against it and the 1,76% who abstained.
Gordhan’s meeting with the banks was the culmination of a process that started with the commission of inquiry into the banking sector in 2006 and the release of its full report in 2008.
Following the change of administration in 2009, President Jacob Zuma’s government could well have left these recommendations un-reviewed and the task of their implementation entirely up to the banks themselves. But in his budget speech in February Gordhan promised to take the matter up with the banks to try to obtain firm deadlines for responding to the recommendations of the inquiry.
This week’s meeting served to check up on the banks and to facilitate the implementation of the 28 recommendations stemming from the inquiry, a number of which require action by the treasury and Reserve Bank rather than the companies to be rolled out.
To be fair, many banks have begun to implement a number of the recommendations unilaterally. The recommendation that high penalty fees on dishonoured debit orders be reduced is one such example.
Standard Bank had and Nedbank revealed that they reduced penalty fees — Standard Bank reduced penalties on low-income Mzanzi accounts from R31,50 to R7 and Nedbank reduced penalties for low-income customers to between R0 and R10. Absa has dropped its penalties on its mass-market accounts to R5.
But critics have pointed out that penalties on middle- to higher-income customers remain severe.
The treasury noted that more could be done to reduce these costs, with greater competition and more empowered customers who were better able to compare the cost of services between banks.
Important issue
The idea of a more active consumer base was an important issue for Gordhan. He reportedly called for greater activism, and the statement released by the treasury called for independent consumer groups who actively compared bank service charges.
Ultimately, much of what the banks are committed to involves making it easier for customers to switch banks, greater transparency about bank charges, such as ATM fees, and the creation of a more educated customer base.
Bank-customer conduct recommendations by the inquiry included standardised terminology for customers, the development of a switching code and the creation of a Fica (Financial Intelligence Centre Act) hub, all of which the treasury has supported.
The meeting was held against the backdrop of global financial-sector reform, following the recession, and the continuing problems in Europe, which has prompted the G20 to call for better compensation practices for executives in the finance sector.
In its statement the treasury said that local banks were “in a position to comply with the coming global standards on remuneration and incentives”.
“While it was noted that South African banking remuneration was lower than that of international banks in advanced countries and many non-banking companies listed on the JSE, it was acknowledged that all companies needed to take note of domestic social conditions, the inequality of income and the shortage of skills when determining their remuneration structure.”
Fica a stumbling block
The treasury’s statement on the meeting says that Fica is one of the biggest hindrances to customers switching from one bank to another.
But banks have committed themselves to developing criteria for a switching code and to discuss a cost-effective way to screen customers, which will ease movement between banks. This could include the creation of a central Fica hub to make the process faster and simpler.
The development of a switching code is due at the end of November this year.