SA banks worried about costs of economic crime

South Africa’s banking executives are highly concerned about costs of fighting fraud and economic crime but less so about liquidity and political interference, the latest banking Banana Skins survey has shown.

Every two years the Centre for the Study of Financial Innovation’s (CSFI) produce the survey in association with PricewaterhouseCoopers (PwC). The study is based on responses from more than 700 bankers, banking regulators and close observers of the banking industry in 58 countries, including seven from South Africa, and ranks 30 risks according to their severity.

Johannes Grosskopf, banking and capital markets leader at PwC Southern Africa, said while banks in the rest of the world cite the shortage of liquidity and the availability of capital as their prime concerns, South Africa’s banking industry faces different problems.

The study showed that risks of fraud and criminality are placed in fourth and fifth places respectively in South Africa, compared to 27th and 24th globally. The sector’s growing dependence on technology is a major local concern.

“The industry is trying to use technology to become more efficient, but this has to be balanced against their concerns about fraud and the huge costs involved in fighting this crime, says Grosskopf.”

“A difficult economic climate usually leads to higher incidents of fraud.
Criminals are becoming increasingly sophisticated, particularly in the electronic world at a time when more financial business is going digital,” says Grosskopf.

And fears have not been allayed by recent incidents such as the R42-million cyberheist from the Post Bank on New Year’s Day. The bank had, three years prior, reportedly spent R15-million on upgrading its fraud detection system.

Top concerns
On December 24 2010, staff at Absa were able to stop a heist when they noted a number of suspicious transfers from the Land Bank and froze the accounts.

Globally and locally, macroeconomic risk and credit risk were reported to be the top two concerns in the industry. The main concern for banks is the eurozone debt crisis, which contains the threat of sovereign default by several countries. “As this issue of Banana Skins makes clear, risk in the financial system is now at a 13-year high, and anxiety levels are unprecedented,” the report said.

But South Africa’s response to liquidity risk is significantly more positive than the survey average, perhaps indicating the sector’s relative distance from the eurozone debt crisis, says Grosskopf. It is of a much lower concern, placed at number 17 on the index, compared to being one of the top concerns ranked by respondents overseas.

Concerns about political interference in South Africa is rated tenth and is quite low compared to global concerns, where it ranks fifth.

“As this issue of Banana Skins makes clear, risk in the financial system is now at a 13-year high, and anxiety levels are unprecedented,” the report said.

But it also found that banking executives in emerging markets, like South Africa, are more positive in their outlook about the financial services sector. “South Africa’s banking sector has held up well in the face of the global financial crisis of 2008,” said Tom Winterboer, financial services leader for PwC Southern Africa and Africa. “This is largely due to tight regulation, good governance and being well capitalised.”

Grosskopf said the most significant change taking place in the South African banking industry will be the introduction of Basel 3, which is expected to have an effect on the trading book and funding models of banks. Banks will have to come to terms with the provisions of the new Companies Act, compliance with International Financial Reporting Standards and the proposed Protection of Personal Information Bill.

Several ongoing international reforms will also require local banks to reconsider their models.

Lisa Steyn

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen. Read more from Lisa Steyn

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