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South African Savings South African Savings InitiativeInitiative

Macro view of bank assets and liabilitiesMacro view of bank assets and liabilities

Round table discussionRound table discussion

Nkosana MashiyaNkosana Mashiya

National TreasuryNational Treasury

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OutlineOutline

1.1. Macroeconomic successesMacroeconomic successes2.2. Financial StabilityFinancial Stability3.3. Bank StabilityBank Stability4.4. LiquidityLiquidity5.5. Capital AdequacyCapital Adequacy6.6. Bank Assets and liabilitiesBank Assets and liabilities7.7. Efficiency RatiosEfficiency Ratios8.8. ChallengesChallenges9.9. National Treasury initiatives on financial inclusionNational Treasury initiatives on financial inclusion

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Macroeconomic successesMacroeconomic successes

South Africa’s Macro Economic South Africa’s Macro Economic SuccessesSuccesses

Economic GrowthEconomic Growth– Economy has proved fairly resilient to Economy has proved fairly resilient to

2005 oil price shocks2005 oil price shocks– Growth rate is expected to average 4,9% Growth rate is expected to average 4,9%

this year, rising to 5,2% in 2008 (NT this year, rising to 5,2% in 2008 (NT estimates)estimates)

– Financial sector growth:8,3%Financial sector growth:8,3%

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Financial StabilityFinancial Stability

Financial StabilityFinancial Stability Stable Stable

– investment environmentinvestment environment– exchange ratesexchange rates

ReservesReserves

– Interest ratesInterest rates– Growth in banking sectorGrowth in banking sector

Effective monetary policyEffective monetary policy

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Bank StabilityBank Stability

Banking SectorBanking Sector• World Class banking systemWorld Class banking system• Compliant to international bank Compliant to international bank

standards (Baslle II)standards (Baslle II)• Sophisticated corporate Sophisticated corporate

governance structuresgovernance structures• Internationally compliant risk-Internationally compliant risk-

management systemsmanagement systems

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Capital adequacyCapital adequacy

Capital AdequacyCapital Adequacy• International benchmark: International benchmark: 8% of RWA8% of RWA

• SA Benchmark:10% of RWASA Benchmark:10% of RWA• SA Banks voluntary capital SA Banks voluntary capital

• 2003 – 12,2%2003 – 12,2%• 2004 – 13,5%2004 – 13,5%

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LiquidityLiquidity

LiquidityLiquidity• Statutory liquid assets Statutory liquid assets

requirement (SLAR) is 20%requirement (SLAR) is 20%• Average daily amount of liquid Average daily amount of liquid

assets held by bank exceeds the assets held by bank exceeds the SLARSLAR

• Slight drop between 2003 and Slight drop between 2003 and 2004, but still above the SLAR2004, but still above the SLAR

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Total Bank Assets & Total Bank Assets & LiabilitiesLiabilities

Total Bank Assets:Total Bank Assets:

– R1 498bn (’04) (8% increase since ‘03)R1 498bn (’04) (8% increase since ‘03)

Big 4 own 83,7%Big 4 own 83,7%

– Domestic Deposits R910bn (60% of Domestic Deposits R910bn (60% of total deposits)(Main source of funding)total deposits)(Main source of funding)

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Total Bank LiabilitiesTotal Bank Liabilities

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Composition of bank Composition of bank liabilitiesliabilities

Fixed & notice deposits decreased by 3,8 % points during 2004.

Demand deposits as a percentage of total non-bank deposits decreased from 52 % to 47,1 %. – Low interest environment

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Composition of bank Composition of bank liabilitiesliabilities

Negotiable certificates of deposit (NCDs) as a percentage of non-deposits increased significantly, from 3 % in 2003 to 12,1 % in 2004. – (stamp duties on NCDs removed in

2004)

.

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Composition of bank Composition of bank liabilitiesliabilities

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Short-term depositsShort-term deposits

Short term deposits = largest component of total non-bank funding (67,4 % of total non-bank funding at 31 December 2004)

73 % at the end of December 2003 and 69,6 per cent at the end of December 2002.

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Medium-term depositsMedium-term deposits

Growth in medium-term deposits, decreased from 10,6 per cent in January 2004 to 0,2 per cent in June 2004. – due to the deregistration of an A-2 rated

bank. By November 2004, growth in medium-

term deposits had increased to 54,3 %, before moderating slightly to 47,4 per cent in December 2004.

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Medium-term depositsMedium-term deposits

Medium-term deposits accounted for 22,9 % as at 31 December 2004,

18,7 % and 19,6 % at the end of 2003 and the end of 2002, respectively.

Long-term deposits remained smallest component of total non-bank funding

9,7 % of total non-bank funding at 2004, compared to 8,3 % and 10,8 % at the end of 2003 and 2002, respectively.

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Long-term depositsLong-term deposits

Growth in long-term deposits increased markedly from March 2004 (see figure5). – Increased by 40,9 % by the end of December

2004. Attributed to the low interest-rate

environment since 2003.

Significant decrease in interest rates in 2003 resulted from a relaxation in South Africa’s monetary policy during that year.

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Long-term depositsLong-term deposits

From June 2003, repurchase rate was reduced by 450 basis points.

Currently, big five banks hold more than 89,6 per cent of long-term deposits.– Market Confidence

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Short to long termShort to long term

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Other Major LiabilitiesOther Major Liabilities

Other major liabilities:foreign funding R45,8bn – (increased by 18 % when compared

to the December 2003 level of R38,8 bn),

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Bank AssetsBank Assets

The banking sector's assets increased by R118,3 billion (8,6 per cent) during 2004, to a total of R1 498,1 billion at the end of December 2004.

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Growth in bank assetsGrowth in bank assets

Factors contributing to asset growth :– Monetary assets grew by 12 %, from

R28,8bn as at 31 December 2003 to R32,3bn as at 31 December 2004.

– Non-bank advances grew by 15,8 %, from R876 bn at the end of December 2003 to R1 014,1 bn at the end of December 2004.

– Loans granted under resale agreements decreased by 37,2 per cent, from R46,4 bn at the end of December 2003 to R29,2 bn at the end of December 2004.

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Growth in bank assetsGrowth in bank assets

– Trading and investment assets grew by 0,9 %, from R328,1bn at the end of December 2003 to R330,9bn as at 31 December 2004.

– Non-financial assets decreased by 5,1%, from R12,3bn at the end of December 2003 to R11,6bn at the end of December 2004.

– Other assets decreased by 5,9 %, from R26,7bn at the end of December 2003 to R25,1bn at the end of December 2004.

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Composition of bank assetsComposition of bank assets

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Aggregate Balance Sheet Aggregate Balance Sheet structurestructure

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Efficiency Ratios=Operating Efficiency Ratios=Operating expenses to total incomeexpenses to total income

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ChallengesChallenges

International standardsInternational standards– Basle Capital AccordBasle Capital Accord– Anti-money laundering & terrorism financingAnti-money laundering & terrorism financing

Broad-Based Black Economic Broad-Based Black Economic EmpowermentEmpowerment

Access to financial servicesAccess to financial services– Half of adult = no access to financial services Half of adult = no access to financial services

(Finscope)(Finscope)

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National Treasury InitiativesNational Treasury Initiativeson financial inclusionon financial inclusion

Cooperative Banks BillCooperative Banks Bill Dedicated Banks BillDedicated Banks Bill National Payment System reformNational Payment System reform Deposit Insurance SchemeDeposit Insurance Scheme Broader microfinance policyBroader microfinance policy

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SummarySummary

Stable and growing financial sector Stable and growing financial sector - 8,3% (above national average)- 8,3% (above national average)

High levels of financial exclusionHigh levels of financial exclusion

Financial Sector ReformFinancial Sector Reform– Bank legislationBank legislation

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THANK YOU!THANK YOU!

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Key Findings financial diariesKey Findings financial diaries

Substantial financial portfolio Substantial financial portfolio managed by low-income peoplemanaged by low-income people

Enough budgeting power to saveEnough budgeting power to save– Cash flow analysisCash flow analysis

Rapid growth in liquid financial Rapid growth in liquid financial assets leads to increase in net assets leads to increase in net worthworth

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Key Findings financial diariesKey Findings financial diaries

Growth in financial assets Growth in financial assets improves financial status of low-improves financial status of low-income peopleincome people

Missing – effective mechanism for Missing – effective mechanism for building sustainable financial building sustainable financial assetsassets

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Key Findings financial diariesKey Findings financial diaries

Smoothen spending patternsSmoothen spending patterns

SafetySafety– Risk of theftRisk of theft