The banking industry was more stable in 2003 after the turbulence of the previous two years, the South African Reserve Bank’s supervision department said on Wednesday.
”Whereas the latter part of 2001 was characterised by significant depreciation of the South African currency, and the main feature of 2002 was consolidation in the country’s banking sector, following a liquidity crisis among small and mid-sized banks, 2003 was marked by greater stability,” said registrar of banks Errol Kruger.
Kruger was speaking at the release of the bank supervision department’s 2003 annual report in Johannesburg.
Kruger took over from Christo Wiese who retired in October 2003.
The report looks at issues of corporate governance among banks, the financial sector charter on black economic empowerment and the Basel II accord, which sets a framework of minimum capital requirements for banks to ensure they can absorb the impact of a major default, and recommends measures to tighten up risk management.
In its review of corporate governance, the department found banks were committed to adhering to and applying ”high standards of corporate governance”.
However, the department needs to be vigilant to ensure this continues.
This is necessary, Kruger explained, because governance is a cost to the banks, not a profit-making exercise, so it has to be constantly worked at.
Kruger said it is important that his department monitor the funding of the ownership and control as set out by the Financial Sector Charter.
The charter calls for the a minimum shareholding target of 25% black ownership by 2010. The funding of these shares could expose banks to risk if not carefully managed.
South African banks remained well capitalised above the statutory required level of 10%.
Total funds of banks — comprising capital, reserves, deposits and loans — increased by 25,2% over 2003 to R1 377,6-billion.
The five largest banks made up 87% of the banking sector, while foreign banks increased from 6,9% in 2002 to 8,7% of the sector’s assets by the end of 2003.
The banks also held adequate levels of liquidity during 2003, said Kruger.
In the next year, the department will focus on the ability of banks’ technology to keep up with product innovation.
”This is a very key issue in the risk management process,” Kruger said.
It will also keep a close eye on bank’s succession plans, which in terms of corporate governance should be formalised.
The bank will also closely monitor the bank’s credit risk.
Kruger said: ”Bad loans are made in good times, and we are probably in good times now.”
This is why it is important that bankers are prudent in their valuation of security. — Sapa