Michael Jordaan, CEO of First National Bank, was in an upbeat mood when we met for lunch. The latest GDP figures had just been released and bode well for the economy. They also proved that the bank’s position on the economy was correct and that it had not been overly optimistic in its business plans.
“We have made our business case based on 5% average growth until 2010,” says Jordaan, who admitted to occasionally being nervous about these projections. Latest GDP came in higher than expected with third-quarter growth at 4,7% and revised figures for last year coming in at 5,1%.
A booming economy is good news for banks, but it puts staff and resources under pressure. One of the greatest challenges for any bank CEO is that you employ tens of thousands of people, and no matter how good you think you are, customers’ perceptions are based on the person they are dealing with. “We employ 23 000 people and whether a customer thinks FNB is the worst bank or the best bank depends on the one person out of 23 000 they dealt with.” Add to this the fact that FNB has an annual staff turnover of 10%, turning the problem into a nightmare.
In a booming economy skills start becoming in short supply. “It is not only about engineering skills, for example, but the skills to provide good customer service,” says Jordaan. The boom has seen a rapid increase in new accounts, with 200 000 opened at FNB every month. So, Jordaan says, it is understandable that when a front-line staff member resigns, a branch manager’s hiring criteria are based on, “How soon can you start?” For this reason FNB recently introduced a pre-recruitment academy that trains potential staff for three months based on expected turnover and increasing staff demands. “You need a bullish view on the economy to do this,” explains Jordaan.
Although times are good, Jordaan says he is very tired. “It has been a busy year,” he says. Apart from increased demands, he has also been warding off attacks about bank fees. Jordaan says he is feeling a bit like a punching bag caught in the middle of various stakeholders, from customers to unions to shareholders. “On one side we are facing pressure not to raise bank fees but then we have pressure from unions for higher wage increases.”
While Jordaan welcomes the changes in the banking industry and believes there is always an opportunity to improve operations, he says consumers also need to play their part. “In some way we have taken the onus away from consumers to shop around. We should not be a paternalistic society and there should be some balance in the responsibility towards banking costs.” He has a point: the more consumers shop with their feet the more the banks will have to compete.
The changes brought about by the National Credit Act also bring challenges for the bank. One of the unforeseen consequences is that as the Act will be replacing the existing Usury Act, the usury limits have not been increased despite the 150 basis point increase in the prime lending rate. The Act stipulates that the maximum interest rate a bank can charge on loans is 17%. This is putting pressure on the bank’s margins. Jordaan says, however, that the problem is even greater than just banking margins. Apart from mortgage bond holders, consumers have been protected from the interest rate hikes, limiting the ability of the Reserve Bank to put brakes on consumer credit extension.
If the banks are under such pressure from lending products, why then are they on a massive credit extension campaign? Apart from its own brand, FNB is behind the Discovery Card and other newly launched cards such as Kulula, Clicks and Vodacom.
“You could argue that because we are being squeezed so much we are trying to make it up in volume,” laughs Jordaan. He does, however, argue that FNB’s decision to expand its credit-card base is not just about the window of opportunity provided before the National Credit Act comes into effect.
FNB has 5,6-million customers. Clicks has two million club card members and Vodacom has 20-million subscribers. Discounting the fact that FNB already has a 20% market share, this provides the bank with access to 17-million more customers.
Jordaan says that while the Act has provided incentives, the creation of lifestyle credit cards has been a phenomenon in the United States and the United Kingdom for many years and their arrival has been the result of these skills and ideas coming to South Africa.
Three years ago FNB brought in international experts to see how it could further develop its credit-card base. “It has taken a mental shift as we have effectively relegated ourselves to being a commodity player.” Jordaan points out that a credit card is just a credit card but it is the product loyalty and added value that attracts new customers. Kulula will appeal to people who want to fly and the Clicks card to people who shop at Clicks regularly.
While the National Credit Act brings its headaches, ultimately Jordaan believes that it offers opportunity by legitimising the microlending industry, making it more attractive. Jordaan believes consumers will benefit from larger players, who have reputations to protect, moving into the industry.
“Consumers will benefit from banks that don’t have bad business practices and who can offer better rates.” Jordaan also points out that as credit extension will become increasingly more difficult, it will be harder for another bank to offer loans to an existing customer base. “We will own the customers’ credit,” he explains. Perhaps another reason for the current credit boom?
While Jordaan has an overwhelmingly positive attitude about South Africa and the banking industry, he believes that the biggest challenge of all is crime. Earlier in the day he had received yet another SMS informing him of a bank robbery. “Every time we have a robbery I am notified by SMS. I personally write to the staff members. The thing is that the numbers are increasing, I am getting the SMSs all the time.” This results in an enormous financial impact — for example if branches did not carry cash they would drop their costs by 70% — but by far the greater impact on staff. Despite counselling and other measures that FNB provides for affected staff, they often don’t return to work. In a recent incident a pregnant staff member lost her baby during a hostage situation.
Jordaan is visibly upset and says it only gets worse as the festive season picks up. Despite the statistics the government may roll out, Jordaan says, the group’s insurance arm Outsurance has shown a substantial increase in crime. “We [the banks] are working together and intelligence is shared. Often it is secretive but it has helped to infiltrate some of the heists.” Jordaan says he is considering offering rewards for the capture of the perpetrators.
But ending on a more positive note, Jordaan is optimistic about the prospects for South Africa and the bank and is looking forward to another good year.