of 26
8/2/2019 Banking Review 2011
1/26
Banking review: Seeing beyond 2011Getting the balance back
8/2/2019 Banking Review 2011
2/26
Contents
True stability results when presumed order andpresumed disorder are balanced. A truly stablesystem expects the unexpected, is prepared to be
disrupted, waits to be transormedTom Robbins (American Novelist. b.1936)
Foreword ...............................................................................................................................1Executive summary ...............................................................................................................2
Adapting to new regulations ................................................................................................4
Rise o the value driven bank ................................................................................................12
Data management the starting point and golden thread ...................................................13
Mobile payments at the tipping point ...................................................................................16
Expanding into growing Arican markets..............................................................................18
Prepared or 2012? ...............................................................................................................21
Contacts and acknowledgments ........................................................................................... 22
8/2/2019 Banking Review 2011
3/26
1 Banking review Getting the balance back
Foreword
It is somewhat axiomatic to observe that the banking industry locally and globally is undergoing a period o great
change. The expectation or SA banks is a continued period o low returns with a ocus on cost reduction and
meeting the ongoing requirements or new and ever more rigorous regulatory change.
We believe that the current business climate in South Arica, though still tough, is also showing signs o recovery.
So whilst we should not expect miracles and growth or local banks this year might not be at the levels seenprior to the economic crisis, Deloitte is o the view that 2011 is a year or banks to regain balance. They certainly
cannot go into hibernation until the dicult times are over, nor can they aord to allow the current environment
to orce them into an overly internal ocus. For example, it would be short-sighted to ocus attention only on cost
cutting without gearing up to be able to take advantage o opportunities when the markets shit.
Banks need to use this time to reassess and change the way in which they manage their data in order to truly
understand all their stakeholders and to use their data to build a competitive advantage. Attention should also
be ocused on balancing their eorts between cost optimisation, complying with regulation and identiying
uture growth opportunities in 2011. All this in an eort to bridge the gap between their response to the current
environment and where they need to be by 2012.
In the ollowing pages, Deloitte SA has identied several key areas o ocus that banks may wish to consider
in 2011. I should like to thank my colleagues who have contributed to this publication and whose names and
contact details are listed on the last page.
Kind Regards
Roger Verster
Partner | Financial Services Industry Country Leader
8/2/2019 Banking Review 2011
4/26
2
Executive summary
As South Arican banks nd themselves in a more
regulated global economy with a higher emphasis
on risk consciousness and increased stakeholder
interest, they need to prepare or these conditions and
like leading institutions around the world, respond
proactively to these market shits.
We perceive 2011 to be the year or banks to regain
balance. In an eort to bridge the gap between what
local banks are currently acing and where they need
to be heading by 2012, Deloitte has set out its view o
the key imperatives banks need to tackle in order or
them to remain competitive and prepared or 2012.
Some o the primary considerations include:
Adaptingtonewregulations
In the past it was possible to view many o the
regulatory requirements as a box-ticking exercise
that was oten let as an ater-thought once key
business decisions had been made. However, that has
changed and the impact o the regulatory changes
are now central to a banks strategy as they will
potentially inorm decisions about products, clients
and even countries in which the banks may wish
to operate. Currently there is signicant regulatoryactivity underway, which will aect banks, including
the revision o the Basel Accord (commonly known
as Basel III), accounting standards relating to nancial
instruments (IFRS 9) and the risk and capital standards
or insurers (Solvency II), which will aect any
bancassurance groups. New proposed regulations
in the orm o carbon tax, executive remuneration
and new labour legislation are also on the horizon.
Banks will need to understand the business impact o
these new regulations quickly in order to realign their
strategy and operations where required.
Riseofthevaluedrivenbank
There has been much written around value based
management and the need or a ramework
to acilitate value based decision making has
perhaps never been greater. A proper value based
management ramework should uniy businessneeds or constant improvement and growth
with the ability to manage risk and stress a banks
portolio. A risk reward culture needs to be deeply
embedded at all levels and this can only be achieved
through extensive consultation and training.
Datamanagementthestartingpointandthe
golden thread
Despite an increased ocus on systems and data,
it is our view that by and large inormation anddata systems are still not suciently aligned.
Consequently banks are still aced with the challenge
o redundant (and even conficting) data housed in
still largely separate data environments. In addition,
the available data may lack sucient granularity and
its quality may be uncertain. A recent global Deloitte
risk management survey ound that almost hal the
nancial services executives surveyed, cited a lack o
alignment among inormation systems as a majorconcern. We believe this is also a valid concern in
South Arica. These concerns over the ragmented
nature o bank systems and the availability and
quality o data obtained rom these systems is not
new and banks will need to ocus on resolving this
in 2011.
8/2/2019 Banking Review 2011
5/26
3 Banking review Getting the balance back
Mobilepaymentsatthetippingpoint
Mobile banking gives banks the potential to expand
beyond their geographical ootprint as well as the
ability to cross sell and up-sell products to existing
customers. Banks that harness these additional
mobile nancial services capabilities can see aproound impact on the nature o the banking
relationship. Unlike supermarkets, department stores
and other businesses that see only one dimension o
consumers spending habits, banks have a broader
view o what their customers buy and where they
like to shop. This puts banks in a prime position to
develop a new line o business ocused on bundling
data analytics or retailers and other entities vying
or customer intelligence while maintaining
the privacy o individual customers inormation.Banks could also use the knowledge o their core
customers to strengthen their own abilities to acquire
new customers, cross-sell to existing customers,
improve decisioning capabilities and provide better
customer service resulting in signicant value
streams or banks.
ExpandingintogrowingAfricanmarkets
Given the expected GDP growth and signicantchange in consumer expenditure patterns o other
Arican economies (in addition to the well publicised
corporate, resource and trade related opportunities),
bank subsidiaries in Arica are increasingly likely
to oer greater returns on new investments than
local operations. In this ast changing environment,
managing the investment decision-making process
eectively, as well as maximising delivery capabilities
and eciencies, will position banks well or the
opportunities to come.
8/2/2019 Banking Review 2011
6/26
4
Adapting to new
regulationsWhere banks are at and where they are heading
The nancial crisis has provided the impetus or a
undamental re-look at regulation across the nancial
services industry and at accounting standards.
Currently there is signicant regulatory activityunderway, which will aect banks, primarily:
TherevisionoftheBaselAccord(commonlyknown
as Basel III)
Therevisionofaccountingstandardsrelatingto
nancial instruments (IFRS 9)
Therevisionoftheriskandcapitalstandards
or insurers (Solvency II), which will aect any
bancassurance groups
ExpecteddiscussionpapersfromNationalTreasury
and the eventual promulgation o the nancialMarkets Bill.
Although none o the changes stemming rom these
regulatory initiatives are due to take ull eect in 2011,
it is important to consider that:
The proposals are a moving target
Standard-settingbodiesintheUSandEurope
are currently debating the principles o theproposed reorms. Thereore, banks should be
vigilant or urther changes proposed during the
course o 2011 and should consider their operating
model consequences
The associated timelines are short
CertainelementsofBaselIIIgo-livein2012and
IFRS 9 must be implemented rom 2013. In order
to have implemented the required models and
operating model changes and to have ully tested
these changes, banks will have to begin their
implementation programmes in 2011.
Apart rom the existing regulations currently being
imposed, banks are in or another turbulent ride as
they begin to consider new proposed regulations in the
orm o carbon tax, executive remuneration and new
labour legislation.
What actions must banks take with regards to
regulation in 2011?
Key areas of Basel III (and related regulation) that
banks should be focusing on.
The 1 January 2012 implementation or the revised
market risk requirements puts pressure on banks
to ully test their models, processes and data and
understand the impacts that signicant increases in
market risk capital will have on nancial markets.Thereore, banks unding desks should ormulate a
strategy now or taking advantage o the relaxation o
Regulation 28 relating to the spread requirements or
pension und assets to enable banks to extend their
unding well beore the 2018 implementation o the
Net Stable Funding Ratio.
The 1 January 2012 implementation o the Financial
Stability Boards Principles o Sound CompensationPractice may require banks to renegotiate key senior
management compensation arrangements during
2011, ocusing particularly on increasing the risk-
sensitivity o compensation or all risk types, and
incorporating compensation deerral and claw-back
arrangements.
8/2/2019 Banking Review 2011
7/26
5 Banking review Getting the balance back
As inputs into the Liquidity Coverage Ratio and the
countercyclical capital buer calculations, banks
sectoral and geographic data will assume a new
prominence. Banks need to thereore begin to examine
the quality o this data, how it is managed and used
(reer also to data management the starting pointand the golden thread on page 13).
There are some areas o Basel III where the impact on
South Arica is only likely to become evident during
2011 but may require rapid reaction by the banks.
Banks need to watch and be aware o the ollowing:
AsaG20country,SouthAfricaispartytotheG20s
commitment to trade standardised over-the-counter
derivatives contracts through exchanges or electronictrading platorms and clear them through centralised
counterparties by the end o 2012. Although there
will be a capital saving or our banks, the economics
o the inrastructure development is unknown and its
operational impact signicant
Newlegislationisexpectedtoregulatehedgefunds
in South Arica
AttheendofFebruary2011NationalTreasuryissued
a policy document called A saer nancial sector toserve South Arica better which sets out governments
proposals to ensure a stable nancial services sector.
This document deals with issues such as:
Financialstability
Consumerprotectionandnancialinclusionand,
amongst other recommendations, makes provision
or a new Financial Stability Oversight Committee,
as well as a Council o Financial Regulators
ThisbroadensthestructureoftheFSBtoincludea
banking services market conduct regulator. These
and other proposals will be the subject o new
legislation during 2011
Similarly,theactivitiesofcreditratingsagencies
and use o their ratings is likely to be impacted bythe Credit Rating Services Bill.
The Consumer Protection Act could impact
Basel III compliance
The Consumer Protection Act (CPA) becomes eectiveon 1 April 2011. It applies to the provision o bankingservices to any natural person, or juristic persons withan asset value or turnover under a threshold which isstill to be determined by the Regulator. Retail deposit-
taking activities naturally all within the ambit obanking services unless the bank can prove that theyare subject to the Financial Advisory and IntermediaryServices Act, 2002 (FAIS). This may be dicult toprove, as FAIS covers the giving o advice, rather thanthe provision o the deposit itsel.
Should the CPA apply to retail deposit-taking, it entitleseither the bank or the depositor to terminate any xeddeposit contract with 20 days notice, at any stage
rom origination until the contractual terminationdate. Under Basel IIIs Liquidity Coverage Ratio, xeddeposits subject to the CPA are likely to be deemed tomature within the prescribed 30 day stress scenariobecause o the embedded option. As a result theywill attract more onerous withdrawal assumptionsunder Basel III, requiring banks to hold more liquidassets. This exacerbates the diculty already acedby local banks to signicantly increase their statutoryliquid asset portolios (up to a 35% increase is likely
to be required under Basel III), with knock-on adverseimpacts on protability.
Under Basel IIIs Liquidity Coverage Ratio, xed deposits subjectto the CPA are likely to be deemed to mature within the prescribed
30 day stress scenario because o the embedded option
8/2/2019 Banking Review 2011
8/26
6
Preparation will be required for banks to position
themselves for the anticipated implementation of
IFRS 9
A number o impairment models are currently being
discussed in anticipation o the release o the revised
exposure drat in the 1
st
quarter o 2011. The revisionis expected to address operational challenges raised
on the initial exposure drat. However, the expected
implications o the revision will possibly require banks to
separately manage the good and bad portions o
their loan books. Practically, the movement to expected
loss impairment will necessitate a re-calibration o
existing impairment models which will require system
changes, to cater or a orward looking assessment
o asset perormance. This is likely to create great
implementation complexities and data implications inachieving compliance with the requirements o the new
pronouncement when it becomes eective.
The intention behind the revision o hedge accounting
is to relax the stringent rule-based requirements
and to allow or a more principle-based application.
The suggested changes are designed with a view
to enhancing reporting transparency through
an alignment o hedge accounting with the riskmanagement policies and practices o the business.
The eectiveness o the hedging relationship will
thereore be determined by a qualitative assessment
o the hedging instruments ability to mitigate the
risk exposure or which it was entered into, in terms
o the management practices o the business. The
complexities that are likely to arise will relate to the
ability o management to provide well structured
justication or its decision to enter into a particular
hedging transaction. Thereore, in anticipation oadopting the new requirements, an assessment o all
hedging relationships will be required in the next year.
8/2/2019 Banking Review 2011
9/26
7 Banking review Getting the balance back
Thorough understanding of what is expected
of bancassurance groups as a result of the
implementation of Solvency II is needed
With the implementation date or Solvency Assessment
and Management (the South Arican adaptation o
Solvency II) expected to be 1 January 2014, SouthArican banks involved in bancassurance activities
should be preparing or compliance over the
forthcomingmonths.BasedontheEUsexperience
with Solvency II some o the key areas likely to be
impacted as a result o Solvency II include:
Industry proftability and returns
It is anticipated that quality o earnings will
improve due to:
MoreaccuratepricingofriskacrossproductsWithdrawaloramendmentofundulyrisky
products
Although companies might not be required to raise
additional capital to address Solvency II requirements,
there is an expectation o higher capital buers since
balance sheets will tend to be more volatile under
Solvency II.
Consequences on valuations o insurers (i.e. how
the investment community regards them)
Increased quality o earnings and a ocus on Capital
lite products will likely be oset by companies
maintaining higher capital buers than beore. It
is expected that improved risk management within
companies could lower their risk premium and this
might impact positively on their share price.
Industry structures
Solvency II encourages diversication o risk. As such,
we expect to see accelerating corporate action once
the nal rules become clearer. We see this taking
several orms:
Smallercompaniesjoiningforces
Biginsurerstakingoversmalleronesthatareata
competitive disadvantage due to disproportionate
capital needs
Insurerslookingtodisposeofnon-core,capital-
intensive back-books
Wecouldalsoseecompaniesdiversifyingtheir
risks through internal product or geographical
growth o their businesses.
Assets held by insurersWe anticipate that insurers will continue to own risk
assets, though we would not oresee an increase in risk
appetite rom current levels.
8/2/2019 Banking Review 2011
10/26
8
Government lobbying and a company-wide strategy
relating to sustainability and climate change
legislation needs to be devised and implemented
The South Arican National Treasury has been
considering placing a price on carbon or some time.
One o the mechanisms to put a price on carbon is
to use either a carbon tax or a market mechanism
such as a cap and trade (carbon credit) system. In
December 2010, they released a discussion paper on
carbon tax. I government chooses to implement a
carbon tax, more than R300 million per annum will
be collected rom the banking and insurance sector
directly (Calculated using inormation rom the Carbon
Disclosure Project 2010).
The impact o carbon tax on the economy will besignicant and, as a result, a lower rate may be used.
A carbon tax would either be implemented on carbon
emissions directly or on ossil uel prices. I levied on
ossil uels, a tax rate o R165 per ton CO2 would have
the ollowing eect:
ThepriceofelectricitycouldincreasebyR165per
MWh and Government could collect R34 billion per
annumfrombusinesses(BasedonEskoms2010Annual Report)
ThepriceofdieselcouldincreasebyR434perkland
Government could collect R1 billion per annum rom
dieselsales(BasedonEconexdieselconsumption
gures or 2009)
ThepriceofpetrolcouldincreasebyR381perkl
and Government could collect R955 million per
annumfrompetrolsales(BasedonEconexpetrol
consumption gures or 2009).
Apart rom the direct impacts o a carbon tax on the
sector itsel due to its own carbon emissions, the
banking and insurance sector needs to be concerned
with the exposure to a carbon tax on its investment
and nance portolios. It will have to be actored into
business case assessments going orward and also the
impact on the viability o businesses currently nanced.
This tax would have to be built into uture risk analysis
o new and existing investments. With these large
numbers in mind, it is important that the industry
understands the implications o a carbon tax with
National Treasury.
How much carbon tax will banks be expected to pay?
Assumptions:
- An initial carbon tax o R165 was assumed. This is based on the tax rate given in the IntegratedResource Plan 2010.
- The South Arican emissions o the companies are rom the Carbon Disclosure Project 2010.
- Scope 1 emissions are direct emissions released primarily as a result o the combustion o ossil
uels on site. For example the combustion o d iesel on site generators or the combustion o
coal in boilers on site.
- Scope 2 emissions are energy indirect emissions and are emissions associated with the use o
purchased grid electricity.
-Thescope1emissionsofEskomareeffectivelythescope2emissionsofthecompanies.Including
thescope2emissionsofcompaniesandthescope1emissionsofEskomislikedoublecounting
FinancialInstitution
Scope 1(Rand per annum)
Scope 2(Rand per annum)
Total(Rand per annum)
Nedbank 70,785 27,679,410 27,750,195
Standard Bank 1,696,860 22,917,510 24,614,370
First National Bank 4,135,395 61,250,970 65,386,365
ABSA 3,952,905 60,208,665 64,161,570
Investec 204,105 5,260,365 5,464,470
8/2/2019 Banking Review 2011
11/26
9 Banking review Getting the balance back
Banks will need to get a handle on new executive
remuneration practices
2010 witnessed governance in banking remuneration
gathering urther momentum rom that which was
initiated in the atermath o the global nancial crisis.
This was particularly evident in the work undertaken
through the Basel Committee on banking supervision
which published a number o guidelines and working
papers on issues o risk management, supervisory
oversight and executive remuneration. In South
Arica this resulted in a number o submissions by
South Arican banking institutions in order or the
South Arican Reserve Bank (SARB) to assess the
level o compliance with these guidelines and
governance rameworks.
We anticipate that during 2011 this trend will continue
as regulators around the world seek to ensure that
the guidelines are implemented with greater levels o
compliance. We urther anticipate that the SARB will
need to provide guidance on the standards which will
beapplicableinaSouthAfricancontext.TheEuropean
Union has stipulated certain ranges and guidelines or
awardsanddeferralwhichmanyEuropeancountries
will seek to enorce, but translation o these into a SouthArican context has yet to occur. South Arican banks
have not required the bailouts witnessed in USA and UK
and thus we anticipate, in the light o the very dierent
banking landscape in South Arica, that many o the
Europeanstandardsregardingexecutiveremunerationwill
need to be modied to suit South Arica.
Finally, we expect that shareholder activism regarding
executive remuneration will continue to increase and
that the ollowing issues will be hot topics which
will require attention rom not only the leading
banking institutions in South Arica but all major listed
corporates during 2011:
Theneedforevergreaterandclearerdisclosure
on executive remuneration in line with the
recommendations o the King III principles and the
disclosurewitnessedinEuropean,particularlytheUK,
major nancial institutions
Theneedforgreatertransparencyonthedrivers
behind all orms o variable remuneration awards
(both cash and share based) with shareholders
wanting to be assured o a clear link between
perormance and the award o remunerationInbankinginparticular,theneedforindependent
and prudent risk metrics to be incorporated in a clear
and transparent manner into the award o bonuses
Thatovertimeshareholdersseeclearevidence
o clawbacks or oreiture occurring as intended
through the deerral mechanisms
Thatprudenceinexecutiveremunerationneedsto
be demonstrated i the recovery in banking ortunes
begins to gather momentum during 2011 andbusiness results are thus anticipated to improve rom
2011 onwards, particularly with what transpires
regarding employment and wage increases or
unionised employees during 2011.
8/2/2019 Banking Review 2011
12/26
10
Labour amendments on atypical employment in
South Africa will have consequences
Many employers including employers in the banking
institutions make use o atypical employment. Some
businesses have been employing employees on xed
term contracts or using the services o a labour broker
so as to avoid the risks associated with employing
employees on a permanent basis. Drat amendments
to the Labour Relations Act (LRA), the basic conditions
ofEmploymentActandtheEmploymentEquity
Act, and a new piece o proposed legislation - the
PublicEmploymentServicesBillwerepublishedinthe
Government Gazette on 17 December 2010. Final
comments were provided on the amendments and the
new bill by all stakeholders by 17 February 2011. It is
clear that the amendments are meant to respond to thegrowth o atypical employment in South Arica. The
most signicant eect o these amendments relates to
labour broking arrangements and xed term contracts
which may have some impact on banking institutions.
The repeal o section 198 o the LRA will see that labour
broker clients (employers) have to directly employ
workers, thereby incurring administrative and other
costs. The labour broker will also now be liable or anyunair dismissal or unair labour practice claim that an
employee may bring, while in the past, the employee
could only hold the labour broker liable or these types
o claims and not the client company. As a consequence
o the proposed changes, the risk is that employers will
not be willing to incur the costs and risks o directly
employing an employee and thereore those employed
through labour brokers will lose their jobs.
Furthermore, i these proposed amendments do
become law, all employers including employers in the
banking institutions who use xed term contracts,
will have to be extremely cautious and wary when
employing employees on xed-term or short-term
contracts. Unless the employer has a reasonable
justication or employing the employee on a xed
term contract, it should not, as the employee may
well have an expectation or permanent employment
against the employer. This will be one o the
consequences i the proposed amendments are passed
into law. Another consequence o the proposed
amendments relates to section 32 (5) o the Basic
ConditionsofEmploymentAct,whicheffectivelystates
that employers must contribute benets o similar
or equal value to employees employed on a xedterm contract as the benets aorded to permanent
employees. However, it is important to note that
benets are not dened in the Act so we are not
clear as to what benets this proposed amendment
reers to. The proposed amendments especially in
relation to labour broking in South Arica seem to be
going too ar and may aggravate rather than alleviate
unemployment. The consequences or both employees
and employers will be ar reaching and will necessitatea huge change in the way employers contract with
employees, i these amendments are to become law.
The proposed amendments especially in relation to labour brokingin South Arica seem to be going too ar and may aggravate rather
than alleviate unemployment
8/2/2019 Banking Review 2011
13/26
11 Banking review Getting the balance back
8/2/2019 Banking Review 2011
14/26
12
Rise o the value driven bank
Banks have a growing need or value based
management
There has been much written around value based
management in terms o the need or a ramework
to acilitate value based decision making, which has
largely been driven by:
Customeraffordability,particularlyinthemortgage
sector, is at an all time low, negatively impacting on
new business volumes
Regulatoryconcernsregardingglobalnancialstability
have resulted in an increased cost o capital (Basel III)
and higher administrative burdens on banks
Politiciansandconsumerjournalistsregularly
question the sources o bank margin, the size o
the net interest margin, bank charges and other
non-interest incomeWithincreasingnancialeducationandtheageof
the internet, it has never been easier or customers
to obtain comparative pricing placing pressure on
relationship bankers
Banksareavictimoftheirownsuccesswithmaturity
in many markets, resulting in increased competition
and limited growth opportunities.
Indeed, increased regulation and access to internaland external inormation, are both driving increased
transparency. This increased transparency will aid in
identiying the undamental risk actors aecting a
business so that they can be managed more eectively.
Financial institutions will have to adapt in order to stay
relevant to an ever more demanding set o stakeholders.
However, increased transparency and risk reporting
creates a need or key cultural and technological
changes in an organisation to take place. With this in
mind, value based management has never been morerelevant, but the matter o how such a concept can be
implemented comes into play.
Moving towards a unifed ramework
In our opinion a value based management ramework
should uniy business need or constant improvement
and growth with the ability to manage risk and stress a
banks portolio. While this may sound utopian, practical
steps are possible. As with most initiatives, stakeholder
buy-in is imperative at inception. A risk-reward culture
needs to be deeply imbedded at all levels and this
can only be achieved through extensive consultation
and training. Any attempt to ast-track or bypass this
process increases the risk that business units develop
independent strategies resulting in the classic patchwork
o systems that do not easily integrate.
Only once conceptual buy-in or a unied ramework
has been obtained, can work on the detailedimplementation begin. The rst step is to dene
business and risk requirements. Items such as nancial
orecasting and reporting requirements, regulatory
risk reporting and marketing strategy requirements are
generally known, just not consolidated in a single place.
It is typically in this phase that banks will determine their
required single views o customers, including both risk
and value measures. It is critical at design stage that
consideration is given as to how metrics can link directlyinto management strategy and targeted action.
Banks are a victim o their own successwith maturity in many markets,
resulting in increased competition andlimited growth opportunities
8/2/2019 Banking Review 2011
15/26
13 Banking review Getting the balance back
Data management the starting
point and golden threadStill connecting the dots when it comes to
data management
Elsewherewecommentonthecontinuedregulatory
requirements acing South Arican banks and theimperatives to sustainably reduce their cost base andmaximise their revenues. The level o success achieved
in dealing with these challenges is heavily dependent onthe quality and availability o the relevant data the bankshave at their disposal.
Despite an increased ocus on systems and data, it is ourview that by and large, inormation and data systemsare still not suciently aligned. Consequently banks arestill aced with the challenge o redundant (and evenconficting) data housed in still largely separate dataenvironments. In addition, the available data may lack
sucient granularity and its quality may be uncertain.A recent global Deloitte risk management surveyound that almost hal the nancial services executivessurveyed cited a lack o alignment among inormationsystems as a major concern. We believe this is also avalid concern in South Arica. These concerns over theragmented nature o bank systems and the availabilityand quality o data obtained rom these systems is notnew and banks will continue to grapple with resolvingthis in 2011.
Regulators, boards and shareholders have signicantlyincreased their demands or inormation. Regulation isorcing the better alignment o risk and nance dataand a much larger ocus on r isk data. Key though is orbanks to go beyond merely replacing platorms, butthinking strategically how they deploy data throughouttheir organisations, recognising that the integrity odata is critical to the eective management o risk.
Banks also need to understand that d ierent parts othe organisation have dierent uses or the same data.In the end, a bank may only be as eective as the datait uses to manage itsel.
What are the ocus areas with regards to data
management in 2011?
Aligning systems while reducing costs
Central to this is the requirement or banks to store,
access and use their data more quickly and more
eciently across all o their d ivisions, businesses and
products eectively to become more ecient in
their core operations. Conversely, getting their systems
in a position to do this will, in most cases, require
continued signicant technology spend and this will
not be an area where costs will be easy to manage
in the years ahead. Although common business
operations have three dimensions: People, process
and technology, many organisations, when they
embark on transormation and require one view o
the business, choose to lead with the implementationoftechnology,suchasanewEnterpriseResource
Planning(ERP)system.Inanefforttominimisecosts,
Deloitte recommends that banks should not try to lead
transormation through technology. The right way to
transorm an organisation is to:
Beginwithpeopleandprocess
Makesurethattechnologyissetuptofollowthe
people and process rollout in an aligned manner.
In our experience, a pure technology-led eort oten
poses the threat o becoming overly technology
centred, resulting in low acceptance and a less than
expected positive business impact. This should be seen
in contrast to a signicant number o organisations
which preer to lead the transormation o their
business with structured and well thought through
process- and -people-related eorts to gain early
benets. These are then embedded and expanded
through a relatively low-key technology entrenchment.
8/2/2019 Banking Review 2011
16/26
14
From the concept o single view o the customer
to customer intelligence systems
Original research conducted by Gartner in 2006
identied that many organisations oten had
ragmented inormation on customers due to
operating separate systems between divisions. This
made it dicult or organisations to truly understand
the value o customers. This research mentioned
that without a single view o those customers,
organisations would nd it dicult to eectively
retain, cross-sell, deliver eective customer experiences
or manage the risk associated with its customers.
As we ast-orward to 2011 where customers are
demanding seamless, multi-channel sales and service
experiences and not consistently receiving them, it is
clear that the traditional retail bank is at an infectionpoint. Many customers get contacted or products
and services they already have or products that dont
meet their preerences due to a lack o data synergy
regarding their records, within a banking institution.
Simultaneously, other nancial institutions and
non-traditional players are looking or opportunities to
invade this space or to redene it through disruptive
innovation. The result is orcing banks to examine a
more balanced, aligned approach to the customer
experience and growth.
It is key or banks to accept that merely pooling all
the inormation they have on a particular customer is
not enough. Obtaining and sustaining customer trust
and loyalty requires that their interactions with the
bank are timely and applicable to their needs. This
involves banks having up-to-date accurate inormation
collated rom every touch point with the customer.
IT planning and eectiveness is critical, as banks seek
to minimise costs and maximise value. Knowledge o
how customers behave and interact with the bank
can aid in uelling the uture strategy o how banks
do business. Deloitte believes South Arican banks
need to have customer intelligent systems that will aid
banks in unlocking the true value sitting in their data.
Banks should ocus on us ing inormation inrastructure
to be better positioned to serve their customers andunderstand customer and product protability better in
order to maximise their revenue. In order or this to be
achieved, banks need to apply sophisticated analytics
and employ timely, accurate data, which ultimately aid
it in maximising revenue and minimising risk.
...it is clear that the traditionalretail bank is at an infectionpoint
8/2/2019 Banking Review 2011
17/26
15 Banking review Getting the balance back
Ensuring data is secure
Control o inormation continues to be critical to an
organisation, its employees, vendors and business
partners. Yet never has it been more dicult.
Unauthorised system access leading to compromised
data and inormation causes anxiety on the part o
executive ocers and security consultants, o almost
every organisation across the globe. Current business
trends only exacerbate the problem. Complicating the
issue is an intricate web o regulations and guidelines
that have been enacted by government and industry
watchdogs in an attempt to create a ramework or the
access to and dissemination o sensitive inormation,
particularly personally identiable inormation. In the
massively interconnected world in which business
is conducted today, organisations ace the burdeno managing complex inormation systems that are
accessed by thousands, i not hundreds o thousands,
o people daily.
The rapidly increasing number o users who require
access means that even seemingly simple activities
such as resetting passwords can become time-
consuming and costly. Passwords themselves represent
a notorious weakness within systems, applications,
and sites. Overwhelmed users, let to their own
devices, all back on simple, repetitive devices that
hackers and cyber-criminals have no diculty cracking.
Untangling this mix o disparate approaches to access
management and control, requires a strategy that
centralises access to corporate systems and programs
and draws on issues o identity recognition and
permissions, such as provisioning or deprovisioning,
that control access to corporate systems and programs.
Handled eectively, access control and managementcan lead to cost savings through operational eciency
and improved productivity.
8/2/2019 Banking Review 2011
18/26
16
Mobile payments banks have been whistling
the tune...Bankers have been talking about using cell phonesas a channel or consumer banking almost as longas energy companies have been trying to make solarpower aordable. However, it has taken a confuence o
actors to make mobile banking a reality, these includegeneration Y leading the charge on all things mobile,the increasing adoption o smartphones, product andservice innovations and consumer preerences shitingto the possibilities o banking wherever and whenever.Most banks have made substantial investments inmobile banking capabilities and smaller nancialinstitutions are not ar behind. As mobile bankinggrows, so too, will opportunities or banks to increaserevenues and gain operating eciencies.
Mobile banking is on the cusp o transormation roma niche service or the technologically elite to a mass-market service demanded by all customer segments.South Aricas online presence is increasingly beingdominated by cellphones and this trend is likely to growMobile technology allows banks to gain cost ecientaccess to the unbanked market pockets o not only theSouth Arican but the Arican economy, smaller bankingcompetitors in South Arica are already realising thegains o this market. Banks must prepare to deend
their ranchises against threats rom not only othernancial institutions, but also mobile carriers, credit cardprocessors and other nonbank competitors that want tohelp consumers conduct nancial transactions whereverthey and their mobile devices are.
As banks develop their strategies or giving customersaccess to their accounts or various uses through cellphones and other mobile devices, they should alsoregard this emerging platorm as a potential catalyst or
generating operational eciencies and as a vehicle ornew revenue sources (see transactions on cell phoneplatorms 2009 on page 17).
Transactions on cellphone platorms - 2009
Mobile payments at the
tipping pointQuick facts concerning mobile in Africa
In the third quarter o 2010 Inorma Telcoms and Media reported there are:
Morethan500millionactivemobilesubscriptionsinAfrica
By2015,therewillbe265millionmobilebroadbandsubscriptionsinAfrica
By2014therewillbemorethan360millionusersofmobile-moneyservicesonthecontinent
0%
Balan
ceenquiry
Increasing sophistication
2011?
Buyin
gairtim
e
Paya
ccou
nts
Buyp
re-paid
electrici
ty
Addb
enef
ciarie
s
Investin
g
Transeru
ndsb
etwee
nacc
ounts
Stateme
nt/M
ini-st
ateme
nt
10%
20%
30%
40%
50%
60%
70%
80%
8/2/2019 Banking Review 2011
19/26
17 Banking review Getting the balance back
...but need to start moving to the beat
Mobile banking gives banks the potential to expand
beyond their geographical ootprint as well as
ability to cross sell and up-sell products to existing
customers. Banks that harness these additional
mobile nancial services capabilities should see
a proound impact on the nature o the banking
relationship. Unlike supermarkets, department stores
and other businesses that see only one dimension o
consumers spending habits, banks have a broader
view o what their customers buy and where they
like to shop. This puts banks in a prime position to
develop a new line o business ocused on bundling
data analytics or retailers and other entities vying
or customer intelligence while maintaining
the privacy o individual customers inormation.Merchants could employ such aggregated inormation
to target customers more eectively than they might
through other means. Banks could also use the
knowledge o their core customers to strengthen their
own abilities to acquire new customers, cross-sell
existing customers, improve decisioning capabilities
and provide better customer service resulting in
signicant value streams or banks.
Ater a ew years o relative neglect, M-payments
are once again a hot topic in the payments market.
Much o this resurgence is down to the growing role
o contactless payments. The tap and go that is
synonymous with the UKs Oyster card payments is
now nding its way into mobile handsets as near-eld
communication (NFC), making the dream o paying or
retail goods with a wave o a mobile phone a viable
proposition. Banks cannot ignore this technology i
they want to protect their current market share and
maintain a competitive advantage in the uture. There
are a number o reasons why a bank might be tempted
to invest in mobile NFC technology, including lower
handling costs relative to cash and cheques, as well as
the potential to generate incremental customer and
merchant revenues. Contactless cards however, havemost o the speed and convenience o NFC mobile,
and the replacement cycle or bank-issued cards is
at least as ast and more easily controlled than the
mass replacement o handsets. More importantly,
establishing the mobile phone as a core payment
device may result in mobile operators demanding,
at a minimum, a ee or the use o their SIM real
estate, which would dilute banking returns. Though
contactless cards add the same upside as mobile,
banks cannot aord to ignore these technologies.
Failure to plan or new mobile technologies will
leave banks at risk o losing business and market
share to other players in the retail, technology and
telecommunication industries who are proactive and
possibly more willing to implement such technologies
given South Aricas saturated cellular market.
8/2/2019 Banking Review 2011
20/26
18
Set or growth
ArnoldEkpe,ChiefExecutiveofEcobank,commentedin
The Banker magazine that there are several challenges
associated with banking in Arica including geographic,
technological and inrastructural limitations that cause
banking in Arica to have higher costs in comparison to
other more developed nancial markets. A low savingsculture and lack o nancial education, particularly
amongst Aricas unbanked market, urther contribute
to these diculties resulting in lower levels o deposit
accumulation and asset growth. However, the growth
appeal o Arican markets ar outstrips the challenges.
According to the IMF, Aricas emerging market
countries have good prospects or 2011. Foreign direct
investment, particularly rom Aricas new trading
partners in Asia, is expected to strengthen and demandor Arican bonds is set to increase.
Sources: The Economist; IMF
I we consider the worlds ten astest-growing
economies according to the IMF, it important to note
that hal o them between 2001-2010 were Arican
countries and it is expected that between 2011-2015,
seven out o the ten astest-growing economies will be
Arican countries. Furthermore, we analysed household
consumption expenditure in West Arica and identiedthat it is expected to be higher than South Aricas.
This is being driven largely by higher growth rates than
South Aricas orecast rates.
Expanding into growing Arican
markets
11.1
10.5
10.3
8.9
8.4
8.2
7.9
7.9
7.7
7.6
Angola
China
Myanmar
Nigeria
Ethiopia
Kazakhstan
Chad
Mozambique
Cambodia
Rwanda
AnnualaverageGDP,%(20012010)
9.5
8.2
8.1
7.7
7.2
7.2
7.0
7.0
6.9
6.8
China
India
Ethiopia
Mozambique
Tanzania
Vietnam
Congo
Ghana
Zambia
Nigeria
AnnualaverageGDP,%(20112015)
8/2/2019 Banking Review 2011
21/26
19 Banking review Getting the balance back
Household consumption expenditure (WDI, IMF, EIU, 2010)
These values are estimated rom macroeconomic data which does not take into account incomes or household sizes. These values showaggregatedemandratherthananestimatedmarketsize(asthePovcCal.netandIESestimatesdo).
156
125
94
32 3120
3
219205
155
5850
32
10
281
324
248
94
75
48
24
$ 0
$ 50
$ 100
$ 150
$ 200
$ 250
$ 300
$ 350
South Africa West Africa Nigeria East Africa West A Excl. Nig. Southern Africa Angola
Billions
2005
2010
2015
8/2/2019 Banking Review 2011
22/26
20
Real Household Consumption growth percentage (IMF, WDI, EIU, 2010)
South Arica,0
,5
,2.2
,9.7
,4.2
,8.2
,9.6
,8.7
,10.4,9.6
,10.6,9.9
,12.6
,10.1
,24.6
,19.2
,10
,15
,20
,25
SouthernArica
West Arica(excl Nigeria)
West Arica Nigeria EastAfrica Angola
Key points
ForecastHouseholdConsumptionis
expected to decline slightly or the next
ve years
However,theratesarestillhighincomparison to South Arica which is
expected to be less than hal o these rates
Thedeclineintherate,coincidingwith
accelerating growth, refects the increasing
importance o the business sector in driving
growth going orward, which has positive
long-term consequences or growth.
2005-10
2011-15
Ripe or exploration
Management are increasingly called upon to
allocate limited resources between local and
international operations, identiy operating synergies
with current and new operations and picking the
biggest opportunities or their investment spend
going orward. Given the expected GDP growth
and signicant change in consumer expenditure
patterns o other Arican economies, (in addition to
the well publicised corporate, resource and trade
related opportunities), bank subsidiaries in Arica are
increasingly likely to oer greater returns on new
investments than local operations. In this ast changing
environment, managing the investment decision-
making process eectively, as well as maximising
delivery capabilities and eciencies will position banks
well or the opportunities to come.
8/2/2019 Banking Review 2011
23/26
21 Banking review Getting the balance back
Prepared or 2012?
A season o regulatory change will alter the ace o
banking as it has always been known, pushing banks
into a new, more regulated era that embraces a wide
range o stringent regulations as central considerations
to eective and sustainable business operations.
Banks need to be seen to proactively and eectively
manage their risk, minimise costs and maximise value.In this review Deloitte has ocused on the undamental
activities that should be considered by banks to help
them regain balance during 2011 and to eectively
prepare or 2012.
By placing these challenges prominently on their
agendas and tackling them proactively and creatively,
leading banking institutions can ensure they are
prepared as the economy resets and new consumerand regulatory demands emerge. Innovative and
holistically orientated banking heavy weights constantly
reassess the status quo, are prepared to experiment,
achieve total command over their data and are open to
investments in new systems and new markets.
8/2/2019 Banking Review 2011
24/26
22
Contacts and acknowledgments
Roger Verster
Deloitte Capital Markets: PartnerEmail:[email protected]
Murray Dicks
Deloitte Legal: DirectorEmail:[email protected]
Catherine Stretton
Deloitte Capital Markets: PartnerEmail:[email protected]
Pravin Burra
Deloitte Capital Markets: DirectorEmail:[email protected]
Duane Newman
Deloitte Tax Consulting: DirectorEmail:[email protected]
Ben Davis
Deloitte Strategy and Innovation Consulting: LeadEmail:[email protected]
Alethia Chetty
Deloitte Capital Markets: Senior Manager
Email:[email protected]
Candice Burin
Deloitte Markets: Market Insights Analyst
Email:[email protected]
8/2/2019 Banking Review 2011
25/26
1. Determine, on each engagement, who our clientsare and directly ascertain their expectationsor our perormance. Clients may include theboard o directors, the audit committee, andmanagement, all o whom are representatives oshareholder interests.
2. Analyse our clients needs and proessional servicerequirements.
3. Develop client service objectives that will enable
us to ull our proessional responsibilities, satisyour clients needs, and aim to exceed theirexpectations. Prepare an appropriate client serviceplan to achieve these client service objectives.
4. Executetheclientserviceplaninamannerthat
has earned us our reputation or quality andendeavours to ensure that commitments are met,potential problems are anticipated, and surprisesare avoided.
5. Establisheffectivecommunications,bothinternaland external, to enhance our clients recognitiono the value and quality o our service.
6. Provide our clients with insights on the conditiono their businesses and with meaningulsuggestions or their improvement.
7. Continually broaden and strengthen ourrelationships with our clients to acilitate eectivecommunication and enhance client condence,
while maintaining proessional objectivity.
8. Ensurethatanyprofessional,technical,orclient
service problem is resolved promptly with t imelyconsultation in an environment o mutual respect.
9. Obtain rom our clients, either ormallyor inormally, a regular assessment o ourperormance.
10. Receive ees that refect the value o services
provided and responsibilities assumed, and thatare considered air and reasonable.
Client Service Standards
Deloitte reers to one or more o Deloitte Touche Tohmatsu Limited, a UK private company limited by
guarantee, and its network o member rms, each o which is a legally separate and independent entity.
Please see www.deloitte.com/about or a detailed description o the legal structure o Deloitte Touche
Tohmatsu Limited and its member rms.
Deloitte is the brand under which tens o thousands o dedicated proessionals in independent rms
throughout the world collaborate to provide audit, consulting, nancial advisory, risk management, and
tax services to selected clients. These rms are members o Deloitte Touche Tohmatsu Limited (DTTL), a UK
privatecompanylimitedbyguarantee.Eachmemberrmprovidesservicesinaparticulargeographicarea
and is subject to the laws and proessional regulations o the particular country or countries in which it
operates. DTTL does not itsel provide services to clients. DTTL and each DTTL member rm are separate and
distinct legal entities, which cannot obligate each other. DTTL and each DTTL member rm are liable only
fortheirownactsoromissionsandnotthoseofeachother.EachDTTLmemberrmisstructureddifferently
in accordance with national laws, regulations, customary practice, and other actors, and may secure the
provision o proessional services in its territory through subsidiaries, aliates, and/or other entities.
2011 Deloitte & Touche. All rights reserved. Member o Deloitte Touche Tohmatsu Limited
Designed and produced by Creative Solutions at Deloitte, Johannesburg. (801921/ryd)
8/2/2019 Banking Review 2011
26/26