Combined Annual Report of Combined Annual Report of the Supervisors of the the Supervisors of the

Co-operative Banks Co-operative Banks Development Agency and the Development Agency and the South African Reserve BankSouth African Reserve Bank

2010/112010/11

Select Committee on FinanceSelect Committee on Finance

Outline

IntroductionIntroduction

Application of the Act – types and serviceApplication of the Act – types and service

Legislative frameworkLegislative framework

History of the Act 2002-2008History of the Act 2002-2008

Preparation 2008-2010Preparation 2008-2010

Implementation from 2010/2011Implementation from 2010/2011

Primary reason for failure to registerPrimary reason for failure to register

Co-operation and co-ordination agreementCo-operation and co-ordination agreement

Issues requiring attention 2011/2012Issues requiring attention 2011/2012

Introduction

Section 52 of Co-operative Banks Act 2007 requires Section 52 of Co-operative Banks Act 2007 requires the Supervisor in the CBDA and Supervisor in the the Supervisor in the CBDA and Supervisor in the SARB submit to the Minister of Finance annual report SARB submit to the Minister of Finance annual report on the exercise and performance of their powers and on the exercise and performance of their powers and functions in terms of the Act and report on the functions in terms of the Act and report on the implementation of their co-operation and co-implementation of their co-operation and co-ordination plan.ordination plan.

Powers and functions include:Powers and functions include:– Register and de-register co-op banksRegister and de-register co-op banks– Issues rules, guidance notes and directivesIssues rules, guidance notes and directives– PenaltiesPenalties– Carry out inspectionsCarry out inspections– Take any steps necessary to protect publics fundsTake any steps necessary to protect publics funds

Application of the Act

Application of Act: S 3:Application of Act: S 3:

(1) This Act applies to all co-operative banks registered under (1) This Act applies to all co-operative banks registered under this Act and to any—this Act and to any—

(a) (a) primary co-operative registered under the Co-operatives primary co-operative registered under the Co-operatives Act that takes deposits and has 200 or more members and Act that takes deposits and has 200 or more members and holds deposits of members to the value of one million rand holds deposits of members to the value of one million rand or more andor more and

(b) (b) secondary or tertiary co-operative registered under the Co-secondary or tertiary co-operative registered under the Co-operatives Act, whose members consist of at least—operatives Act, whose members consist of at least—

(i) two or more co-operative banks;(i) two or more co-operative banks;

(ii) two or more financial services co-operatives that take (ii) two or more financial services co-operatives that take deposits;deposits;

(iii) one co-operative bank and one financial services co-(iii) one co-operative bank and one financial services co-operative that take deposits.operative that take deposits.

Types

Types of Co-operative Banks:Types of Co-operative Banks:

Primary savings banksPrimary savings banks Primary savings and loans banksPrimary savings and loans banks Secondary co-operative banksSecondary co-operative banks Tertiary co-operative banksTertiary co-operative banks

Services (Primary Savings)

May May onlyonly provide, participate in or undertake the following provide, participate in or undertake the following banking services:banking services:

(a) (a) deposits from its members;deposits from its members;

(b) (b) open savings accounts for its members;open savings accounts for its members;

(c) (c) borrow money from the Agency and members (subject borrow money from the Agency and members (subject % by MoF); % by MoF);

(d) (d) open a savings/cheque account in the name of co-open a savings/cheque account in the name of co-operative bank;operative bank;

(e) (e) make, draw, accept, endorse, or negotiate negotiable make, draw, accept, endorse, or negotiate negotiable instruments;instruments;

(f) (f) trust or custody services;trust or custody services;

(g) (g) additional banking services prescribed by MoF andadditional banking services prescribed by MoF and

(h) (h) invest money in investments prescribed by the Minister. invest money in investments prescribed by the Minister. (See regulations)(See regulations)

Services (Primary Savings and Loans)

A primary savings and loans co-operative bank may A primary savings and loans co-operative bank may onlyonly provide the following banking services:provide the following banking services:

(a) (a) Any of the banking services referred to previously;Any of the banking services referred to previously;

(b) (b) grant secured and unsecured loans to members to a grant secured and unsecured loans to members to a maximum aggregate valuemaximum aggregate value prescribed by the Minister prescribed by the Minister (see regulations) and(see regulations) and

(c) (c) conduct any additional banking services and invest money conduct any additional banking services and invest money deposited with it in any investments prescribed by the deposited with it in any investments prescribed by the Minister.Minister.

Services: Secondary and Tertiary

A A secondarysecondary co-operative bank may co-operative bank may onlyonly provide the following provide the following banking services:banking services:

(a) (a) Any of the banking services referred to previously;Any of the banking services referred to previously;

(b) (b) trading financial instruments on behalf of its members;trading financial instruments on behalf of its members;

(c) (c) open an account with a bank registered under the Banks Act to open an account with a bank registered under the Banks Act to facilitate foreign currency transactions;facilitate foreign currency transactions;

(d) (d) conduct such additional banking services and invest money conduct such additional banking services and invest money deposited with it in any investments prescribed by the Minister.deposited with it in any investments prescribed by the Minister.

A A tertiarytertiary co-operative bank may provide the following banking co-operative bank may provide the following banking services:services:

(a) (a) Any of the banking services referred to previously;Any of the banking services referred to previously;

(b) (b) conduct such additional banking services and invest money conduct such additional banking services and invest money deposited with it in any investments prescribed by the Ministerdeposited with it in any investments prescribed by the Minister

Co-operative Banks Act

Financial servicesHousingWorker Social

AgriculturalBurial society

ConsumerMarketing/Supply

ServiceCo-Operatives

Act

dti

R 1 000 000 and 200 members

> 20 million SARB

SARB

< 20 million CBDA

History 2002 -2008

Fin Sector Summit- (NEDLAC principles to Fin Sector Summit- (NEDLAC principles to reform sector, including access to finance reform sector, including access to finance 2002)2002)

Pres. Growth Summit-(support to co-ops as Pres. Growth Summit-(support to co-ops as part of strategy to create work opportunities part of strategy to create work opportunities 2003)2003)

Co-op Act replaced 2005Co-op Act replaced 2005 Responsibility transferred to CIPROResponsibility transferred to CIPRO Payout process (following collapse of FSCs Payout process (following collapse of FSCs

2004)2004) 2004 Co-op Banks Bill (2004) 2004 Co-op Banks Bill (2004) Exempt. Notices (2006 & 2008)Exempt. Notices (2006 & 2008)

Preparation 2008-2010

Preparation 2008-2010Preparation 2008-2010 Act (August 2008)Act (August 2008) Draft Regulations. (August 2008)Draft Regulations. (August 2008) CBDA Board (August 2008)CBDA Board (August 2008) MD CBDA appointed (March 2009)MD CBDA appointed (March 2009) CBDA Supervisor appointed (May 2009)CBDA Supervisor appointed (May 2009) SARB Supervisor appointed (July 2009)SARB Supervisor appointed (July 2009) Regulations (July 2009)Regulations (July 2009) SARB CBSU (August 2010)SARB CBSU (August 2010) Roodevallei Consultative Conf. (Dec 2009)Roodevallei Consultative Conf. (Dec 2009)

Implementation from 2010/2011

Rules (Jan 2010)Rules (Jan 2010) GN1/2010 (Jan 2010)GN1/2010 (Jan 2010) 17 eligible applicants17 eligible applicants Assessment Assessment

• 13 by CBDA 13 by CBDA • 4 by SARB (Including 1 secondary)4 by SARB (Including 1 secondary)• Total deposits: R 160 millionTotal deposits: R 160 million• Total members: 28,034Total members: 28,034

11 completed applications11 completed applications Ditsobotla Savings and Credit Co-operative Bank Ditsobotla Savings and Credit Co-operative Bank

Ltd first to be registered 17 Feb 2011Ltd first to be registered 17 Feb 2011 Approval given to second co-op bank by SARB. Approval given to second co-op bank by SARB.

Awaiting registrationAwaiting registration

Primary Reasons for failure to register

Inadequate capital levelsInadequate capital levels Regulations require 6% CARRegulations require 6% CAR Most have Most have been operating at losses and not been operating at losses and not

making (adequate) provisionsmaking (adequate) provisions

Weak governance and operational capacityWeak governance and operational capacity Committees not meetingCommittees not meeting No AGMsNo AGMs Poor systems in place Poor systems in place

Poor accounting and MIS Poor accounting and MIS Few qualified accounting staffFew qualified accounting staff Few computerisedFew computerised

CBDA and SARB

Co-operation and co-ordination agreement sent Co-operation and co-ordination agreement sent to Minister of Finance include:to Minister of Finance include:

Co-ordination of supervisors’ approach in exercising Co-ordination of supervisors’ approach in exercising their powers and functions in terms of the Acttheir powers and functions in terms of the Act

Engaging with each other in activities of research, Engaging with each other in activities of research, publication, education, staff development and training publication, education, staff development and training

Engaging with each other in staff exchanges or Engaging with each other in staff exchanges or secondmentssecondments

Provide technical assistance or expertise to each Provide technical assistance or expertise to each otherother

Activities engaged in 2010/2011

Activities included Activities included Weekly co-ordination meetingsWeekly co-ordination meetingsJointly meeting stakeholders (i.e NCR, FIC, samaf, Jointly meeting stakeholders (i.e NCR, FIC, samaf, SACCOLSACCOLInput into regulationsInput into regulationsJoint publication of rulesJoint publication of rulesCommenting on relevant financial and co-op billsCommenting on relevant financial and co-op billsIssuing of guidance notesIssuing of guidance notesCommenting on discussion documentsCommenting on discussion documentsAssessment of applicationsAssessment of applicationsCo-ordination of manuals and administrative systemsCo-ordination of manuals and administrative systemsPresentation to international and local seminars Presentation to international and local seminars

Issues requiring attention 2011/12

Banks ABanks Act exemption noticesct exemption notices Deposit insurance fundDeposit insurance fund Potential abuse of the ActPotential abuse of the Act Appeals boardAppeals board Submission of prudential returnsSubmission of prudential returns ““Twin Peaks” model for financial regulationTwin Peaks” model for financial regulation Application of Basel Core Principles on banking Application of Basel Core Principles on banking

supervision for deposit taking Microfinance supervision for deposit taking Microfinance activitiesactivities

Questions

THANK YOU !

Supporting slides

Limited Liability

Deposit Insurance

Agency assistance

Co-ops ActCOB Act

CBDA

Co-operative Bank

R 1 mil < R 20 mil

Co-ops ActExemption Notice

SACCOL/NASSASA/SAMAF

Limited liability

May receive Agency assistance

Financial Services Co-operative

< R 1 mil

Co-operative Bank

Limited Liability

Deposit Insurance

NPS

Co-ops ActCOB Act

SARB

> R 20 mil

Secondary and Tertiary

Regulations: Investments

Only in followingOnly in following deposits with a bankdeposits with a bank deposits with secondary or tertiary co-operative banks deposits with secondary or tertiary co-operative banks government co-operative retail savings bonds government co-operative retail savings bonds participatory interests in portfolios of collective investment schemes participatory interests in portfolios of collective investment schemes

approved by the Registrar of Collective Schemes as determined by approved by the Registrar of Collective Schemes as determined by the supervisor by notice on its official websitethe supervisor by notice on its official website

bonds and debentures determined by the supervisorbonds and debentures determined by the supervisor

Minimum Capital Adequacy

Only the following qualify as capital –Only the following qualify as capital – membership sharesmembership shares indivisible reservesindivisible reserves non-distributable reserves (excluding provisioning) andnon-distributable reserves (excluding provisioning) and non-distributable funds of a permanent nature approved by non-distributable funds of a permanent nature approved by

the supervisor in writingthe supervisor in writing

Must be at least 6 percent of total assets held by co-Must be at least 6 percent of total assets held by co-operative bankoperative bank

Liquidity

Max 5 percent of total assets may be held in fixed and non-Max 5 percent of total assets may be held in fixed and non-earning assetsearning assets

Minimum 10 percent of total deposits must be held in “prescribed Minimum 10 percent of total deposits must be held in “prescribed investments” with a tenure not exceeding 32 days and convertible investments” with a tenure not exceeding 32 days and convertible into cash at any timeinto cash at any time

In addition, minimum of 2,5 % of total deposits must be deposited In addition, minimum of 2,5 % of total deposits must be deposited with the Agency or a higher tier co-operative bank with the Agency or a higher tier co-operative bank

balancebalance of deposits must be held in prescribed investments of deposits must be held in prescribed investments

or (for savings and loans)or (for savings and loans)

balancebalance granted as loans up to a maximum of 80 percent of total granted as loans up to a maximum of 80 percent of total assetsassets

(loans granted to members that are sourced from cash donations (loans granted to members that are sourced from cash donations may not exceed 15% of total deposits.)may not exceed 15% of total deposits.)

Large exposures

Hold no deposit from any one member or related person, Hold no deposit from any one member or related person, exceeds the lesser of 10 percent of the total assets held by exceeds the lesser of 10 percent of the total assets held by or 25 percent of the capital of the co-operative bankor 25 percent of the capital of the co-operative bank

AA co-operative bank may not make an investment with any co-operative bank may not make an investment with any one person or related person or grant a loan to any one one person or related person or grant a loan to any one member or related person, which exceeds the lesser of 10 member or related person, which exceeds the lesser of 10 percent of the total assets held by or 25 percent of the percent of the total assets held by or 25 percent of the capital of the co-operative bank capital of the co-operative bank