strategic and emerging issues in south african banking · • december 2001 quarterly di 900...

Strategic and Emerging Issues inSouth African Banking

2002 Edition

Contents

Foreword 1

Executive summary 3

Market environment 9

Performance 25

Competition and positioning 29

Ongoing issues in banking 41

Basel II 47

Peer review 53

Appendices 61

• Methodology 63

• Bank groups 64

• Participants 65

• Background comments on participants 66

• December 2001 Quarterly DI 900 Analysis of South African Banks 73

Partners in success 75

PricewaterhouseCoopers has taken all reasonable steps to ensure that the information contained herein has been obtained from reliable sources and that this publication is accurate and authoritative in all respects. However, this publication is not intended to give legal, tax, accounting or other professional advice. No reader should act on the basis of any information contained in this publication without considering and, if necessary, taking appropriate advice upon their own particular circumstances. If such advice or other expert assistance is required, the services of a competent professional person should be sought.

Strategic and Emerging Issues in South African Banking 2002 1

Foreword

This is the seventh PricewaterhouseCoopers survey on banking in South Africa. Three previous surveys focused on Foreign Banking and one on Investment and Merchant Banking. As in the previous two years, we have once again decided to continue our survey “Strategic and Emerging Issues in South African Banking” this year.

This survey has been developed by PricewaterhouseCoopers and Dr Brian Metcalfe and builds on the previous surveys in a number of areas. New areas covered deal with banks’ readiness for Basel II, specifi c criticisms of banks on the South African banking system, micro-lending, and comments on the Myburg Commission investigation, of which the report had not yet been published at the date of preparing this report.

The key objectives of this survey remain to:

• Raise awareness of strategic and emerging issues in banking in South Africa.

• Establish data on certain industry trends.

• Understand the thinking of Chief Executive Offi cers in the banking industry.

• Provoke timely discussions and debate on the best options for capitalising on trends to enhance and improve performance of the various banks.

• Provide perspectives on how banking in South Africa may evolve over the next three years.

Findings of particular interest in this year’s survey include observations on:

• Further consolidation in the banking industry.

• Instability of the Rand.

• Micro-lending.

• Corporate governance.

• New capital requirements.

• Effects of Internet banking.

• Realignment of foreign banks.

• Reserve Bank behaviour.

Bankers and other readers have in the past indicated that they have found the material useful and we trust that, with the new areas included in this survey, this remains the case in this industry-wide survey.

I would like to thank the Chief Executive Offi cers and Senior Executives who once again participated in this survey for their time and efforts in making this publication possible. I would also like to thank Brian Metcalfe again for his research and producing this report. As in the past, we look forward to feedback on this survey and on topics to be included in future surveys on the South African banking industry.

Tom WinterboerLead Banking PartnerPricewaterhouseCoopers Inc. Johannesburg

26 April 2002

2

Dr. Brian Metcalfe is an Associate Professor in the Business School at Brock University, Ontario, Canada. He has a doctorate in Banking Marketing and is the author of seven reports on foreign banks in Australia and three reports on foreign banks in Canada. In 2001 he prepared, on behalf of PricewaterhouseCoopers, “Tokyo, Today and Tomorrow, A survey of foreign banks and securities companies in Japan”, and he is currently working on “Private Banking/Wealth Management in Canada”.

This is his seventh survey of banking in South Africa. The fi rst three surveys focused on the foreign banking sector, the 1999 survey on investment and merchant banking, and the 2000 and 2001 surveys, like this one, on strategic issues.

He has also published a variety of articles on international banking and fi nancial marketplace dynamics. He is co-author of “Consumer Bank Marketing”, a textbook published for the Institute of Canadian Bankers’ Fellowship Programme. His specialist university courses are Financial Services Marketing, e-Business Strategy, International Marketing and International Business. He has been employed by the merchant banking subsidiaries of National Westminster Bank and Bank of Ireland and has worked in the marketing department of Connecticut Bank and Trust Co.

He has consulted for a wide range of organisations, including Royal Bank of Canada, Bank of Nova Scotia, Barclays Bank, Clarica Life Insurance Company, Equitable Life of Canada, and several major consulting fi rms.

In 1999 he taught an executive management course entitled “Financial Services Marketing” at the Graduate School of Business, University of Cape Town.

This report was researched and written by Brian Metcalfe, Ph.D. Information presented herein, while

obtained from sources believed reliable, is not guaranteed as to accuracy or completeness. This report

has been commissioned and distributed through PricewaterhouseCoopers Inc., Johannesburg.

Additional copies of this report can be obtained from Tom Winterboer, Lead Banking

Partner: Financial Services Practice – PricewaterhouseCoopers Inc., 2 Eglin Road, Sunninghill, 2157

Telephone: +27 11 797 5407 Fax: +27 11 209 5407 E-mail: [email protected]

©2002 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member fi rms of

the worldwide PricewaterhouseCoopers organisation. All rights reserved.

About the Author

executivesummary

Strategic and Emerging Issues in South African Banking 20024

This is the seventh PricewaterhouseCoopers survey of banking in South Africa. Three previous surveys have focused on foreign banking, one on investment and merchant banking and in 2000 and 2001 on strategic and emerging issues in South African banking.

This survey has been developed by PricewaterhouseCoopers and Dr Brian Metcalfe and builds on the two preceding reports by focusing on strategic and emerging issues. As before, participants are a combination of domestic and foreign banks; they range from domestic niche players to branches of global banks to the Big Four domestic banks.

The survey attempts to synthesise diverse viewpoints, protect confi dentiality and offer insights into the ever changing fi nancial services environment.

It is based on interviews with managing directors and senior executives of 32 banks, 19 of whom are foreign-owned and 13 of whom are domestically-owned.

The interviews were approximately one hour in length and were conducted in Johannesburg during February 2002.

The domestic participants include ABSA, African Merchant Bank, BoE Bank, Brait, FirstRand Bank, Gensec Bank, Investec Bank, Mercantile Bank, Nedcor Bank, African Bank, PSG Investment Bank, Sasfi n and The Standard Bank of South Africa. The foreign participants were ABN AMRO Bank NV, American Express Bank, Banca di Roma, Bank of America, Barclays Bank Plc, China Construction Bank, Citibank NA, Commerzbank AG, Crédit Agricole Indosuez, Crédit Lyonnais, Deutsche Bank AG, Dresdner Bank AG, HSBC, ING Bank NV, JP Morgan Chase, RBC Financial, Société Générale, The South African Bank of Athens and UBS Warburg.

Background


The following fi ndings are based on personal interviews with 32 banks who are judged to represent a sound and comprehensive overview of the banking industry. The main fi ndings are summarised below:

Drivers and hinderers of change• Increased sophistication of bank clients

and new information technology are major drivers of change. The level of spending on new technology appears to have declined when compared to 2001 and the millennium year.

• A shortage of skills continues to be the major hinderer of change, while the ‘brain drain’ ranks fi rst in a group of 14 different threats to banking. The banks are concerned about the threat of an economic downturn and this threat ranks ahead of AIDS, which is in turn, ahead of crime.

Competition• The banking market continues to

be viewed as intensely competitive and further rationalisation in the domestic and foreign sectors is broadly anticipated.

• The most competitive area remains investment and merchant banking (92% view it as intensely competitive). Internet banking, despite enjoying signifi cant growth in numbers, has failed to open a new competitive frontier. Retail banking remains the domain of the Big Four and future growth in accounts predicts concentration exceeding 90% of the market in three years.

Most important developments• The most important developments in the

South African banking markets this year have been summarised as Consolidation, Instability of the Rand, Micro-lending,

Corporate Governance, Capital Requirements and a Realignment of the Foreign Banks.

Bankers’ criticisms of the banking system• The bankers directed a broad range of

criticisms at the current banking system. These criticisms included references to the problems in the micro-lending sector, increasing concentration, Reserve Bank behaviour, and the need for improved corporate governance.

• The majority of both foreign and domestic banks were opposed to the establishment of the Myburg Commission’s investigation into the Rand.

Pressing issues• Profi t performance, service quality and

client focus are pressing issues for banks again in 2002, but revenue growth is seen as more challenging than before. Six domestic banks and fi ve foreign banks expect revenue growth to fall below 20% this year and seven in each group anticipate annual revenue growth below 20% in the next three years. In contrast, two foreign banks anticipate 100% growth in 2002.

• Both outsourcing and collaboration are expected to become more important. Domestic banks believe collaboration will help generate new customers, retain existing ones and assist by providing greater fl exibility on costs and operations. Foreign branches in future will tend to focus on sales and servicing and more fl exible formats are envisaged.

• The Big Four banks believe affi rmative action is a major issue, while both domestic and foreign banks continue to be challenged in recruiting good personnel.

Main fi ndings


Measures of success• Image and Reputation, perhaps because

of market uncertainties, is now considered the prime measure of success. This is followed closely by Return on Capital and Revenue Growth.

Profi tability and importance of business segments• The most profi table business segments

are Treasury, Investment and Merchant Banking, and Corporate Banking. Asset Management and Brokerage are extremely profi table to a handful of banks.

• As a group the banks feel they have been successful in Treasury, Foreign Exchange, Structured Products, and Mergers and Acquisitions. The less attractive segments include Listings, Retail Lending, Credit Cards, Brokerage and Insurance.

• Looking forward three years, the segments in which banks have enjoyed greatest success will continue to be very important.

• Wireless technology is forecast to change banking radically by 2005. Biometrics will offer new opportunities in the previously unbanked market.

ValueReportingTM

• The concept of ValueReportingTM is more readily accepted by the foreign banks than the domestic banks. Traditional areas of reporting such as fi nancial performance and position are universally accepted, but areas of the value platform such as innovation or brands are gaining recognition.

Basel II• The New Capital Accord or Basel II will

lead to many changes in the banking industry worldwide. Participants commented on their perceived level of preparedness towards these changes. At present most banks are only beginning to recognise the challenges ahead although the foreign banks seemed relatively more prepared than their domestic counterparts.


The top ranked bank/fi nancial institution in each category based on peer ranking is shown in the table below. Comparisons with the rankings for the 2001 and 2000 Strategic Issues reports and the 1999 Investment and Merchant Banking report are also included.

2002 2001 2000 1999

Corporate LendingStandard Bank (SCMB)

Standard Bank (SCMB)


Standard Bank(SCMB)

Corporate Finance – Listings FirstRand (RMB) Merrill Lynch FirstRand (RMB) FirstRand (RMB)

Mergers and Acquisitions UBS Warburg FirstRand (RMB) FirstRand (RMB) FirstRand (RMB)

Capital Markets – Foreign Exchange


Standard Bank(SCMB

Standard Bank(SCMB


Capital Markets – BondsStandard Bank (SCMB)


JP Morgan JP Morgan

Money MarketsStandard Bank(SCMB)

Standard Bank(SCMB)

Standard Bank(SCMB)


Structured Finance FirstRand (RMB) FirstRand (RMB) FirstRand (RMB)FirstRand (RMB) – Tax Standard Bank (SCMB) – Project

Brokerage – Institutional Deutsche Bank Merrill Lynch Merrill Lynch DMG

Asset Management – Institutional Allan Gray Investec Investec Investec

Brokerage – Retail Barnard Jacobs MelletMerrill Lynch/Barnard Jacobs Mellet

Sasfi n HSBC

Internet Banking Standard Bank Standard Bank Standard Bank –

Retail Lending and Deposits Standard Bank Standard Bank ABSA/Standard Bank* –

Retail Mortgages Standard Bank ABSA ABSA –

Vehicle Financing FirstRand (Wesbank) FirstRand (Wesbank) FirstRand (Wesbank) –

Unit Trusts Old Mutual Old Mutual Coronation/Investec –

Private Banking Investec Investec Investec –

Private Equity Investments FirstRand (Ethos) FirstRand (Ethos) FirstRand (Ethos) –

Micro-lending African Bank – – –

Insurance Business

Insurance - Life Old Mutual – – –

Insurance - Short term Mutual & Federal – – –

Peer ranking

* ABSA/Standard Bank fi rst for Retail Deposit Taking in 2000 and Standard Bank fi rst

for Retail Lending in 2000. Three new categories in 2002 are shown at the bottom.

marketenvironment


Number of retail accounts

The number of retail accounts held by eight banks was calculated at 25.3 million. This is expected to increase by 20% over the next three years to 30 million accounts.

Within the 2002 calculation, two banks’ fi gures are estimates and Saambou Bank, which was included in last year’s number, has been omitted.

The eight banks included this year are the Big Four, BoE, Investec, Mercantile Bank and Bank of Athens.

The Big Four banks account for 94% of the total or 23.9 million retail accounts.

Internet customers

Internet bank customer data covered the eight banks mentioned above.

There appears to have been signifi cant growth in the number of Internet customers over the last year. In 2001 it was estimated that 582,000 customers had signed up for Internet bank access.

The group is now estimated to be 1.1 million and is expected to almost double by 2005 to 1.96 million. The Big Four account for about one million Internet users.

Employees

Thirty banks were used to calculate the employee base. Last year participants accounted for 123,326 employees. This year the number has grown to 130,559, despite the exclusion of Saambou Bank.

This increase is partly accounted for by growth in one of the Big Four banks.

But the past growth is not expected to continue.

By 2005 the group total is predicted to be 130,959. Furthermore this total masks forecasted reductions at four domestic banks and fi ve foreign banks.

Four foreign banks anticipate reductions of 50 employees or more over the next three years. This is the fi rst time in the seven years of surveys that we have seen this degree of contraction.

Background profi le


Q What are the major drivers of change in the banking industry?

Q What are the major threats banking in South Africa is currently facing?

The greatest threat to banking continues to be the ‘brain drain’.

In joint second position are compliance and regulatory constraints and economic downturn. Economic downturn was just ahead of AIDS, which was cited by 16 banks and now ranks ahead of crime.

Despite the problems experienced in micro-lending, only eight banks perceived the previously unbanked market as a threat.

The most important driver of change is technology, followed by mergers and consolidation, and globalisation. These three factors also ranked as most important in 2001.

Economies of scale and disintermediation have grown in importance but foreign bank entry as a driver of change has receded in importance.

New domestic entrants are not deemed to be advocates of change.

0

20

40

60

80

100

2001

2002

Other

NewDom

estic

Entra

nts

Secu

ritisa

tion

Conve

rgenc

e

Commod

itisati

on

Capita

l Mark

ets

Forei

gnEn

trants

Disinte

rmed

iation

Econ

omies

ofsc

ale

Globali

satio

n

Merg

ers/C

onso

lidati

on

Tech

nolog

y

Score

Based on responses from 30 banks (26 in 2001)

0

5

10

15

Lega

l Con

strain

ts

Other

Pace

ofTe

chno

logica

l Cha

nge

NewEn

trants

- Finan

cial S

ervice

s Indus

try

Curren

t Com

petiti

on

Labo

urLa

ws

Prev

iously

unba

nked

market

Fee an

d Servi

ceCha

rgeEro

sion

Exch

ange

Contro

ls

Crime

AIDS

Econ

omic

Downtu

rn

Compli

ance

&Reg

ulator

y Constr

aints

Brain Drai

n

Number ofbanks


Q Which factors are hindering change?

Q Which factors are enabling change?

Both foreign and domestic banks believe there is a shortage of available skills and that this hinders change.

Exchange controls are felt to be the second most important hinderer of change.

The third factor recorded by 16 banks is domestic legislation. Existing or legacy technology was recorded by just two domestic banks.

The most important enabler of change for both foreign and domestic banks is increased client sophistication.

Although participants believe that new information technology enables change, only the foreign banks cited the Internet as a positive force for change.

Growth of wealth is also enabling change.

0

5

10

15

20

25

Foreign

Domestic

Other

Exch

ange

contr

ols

Exist

ingInf

ormati

onTe

chno

logy

Availa

bility

ofSk

ills

Domes

ticLe

gislat

ion

Numberof banks

0

5

10

15

20

25

Foreign

Domestic

Other

Intern

et

Increa

sed Clie

ntSo

phist

icatio

n

NewInf

ormati

onTe

chno

logy

Growth

ofW

ealth

Numberof banks


Q What are the most pressing issues you face? Can you rate them 1 to 5?

The issues which participants were asked to rank were further expanded this year to include 30 different factors (24 in 2001). Participants were required to score each issue on a scale of 1 to 5, where 5 was most pressing. The 0 centre axis therefore represents 3 in the 1 to 5 scale and those to the right side are ‘most pressing’ and range from 3 to 5.

The top three are the same as in 2001 but Profi t Performance has replaced Service Quality in the ‘most pressing’ position.

Factors which have moved upward this year include Addressing New Compliance and Regulations (11 to 7), Economic Downturn (14 to 8), Quality of Loan Books (17 to 9), and Liquidity of Banks (22 to 16).

Basel II is not viewed as a pressing issue and the threat of a Rogue Trader seems remote to most bankers. The impact of the Foreign Bank Invasion has also been further downgraded, dropping from 20 in 2001 to 26 in 2002.

-0.5 0.0 0.5 1.0 1.5 2.0

Insurance

Internet Security Risks

Increasing Competition from Non Banks

Rogue Trader

Increasing Competition from Foreign Banks

Legal RisksGlobalisation

Basel II

High Dependence on New Technology

Lack of Adequate Financial Disclosure (eg Enron)

Increasing Competition from Domestic Banks

Consolidation of Financial Services IndustryRecruiting/Training Front Office Staff

Understanding Complex Products

Liquidity of banks

Business Continuation

Increased Competition

Appropriate Staff Incentive Schemes

Operational Risk Management

Market Volatility

Building a Customer Base

Quality of Loan Books (Credit Risk)

Economic Downturn

Addressing New Compliance & Regulations

Introducing New Information Technology

Retaining Existing Clients

Improving Revenue Growth

Client Focus

Service Quality

Profit Performance

Based on responses from 30 banks


There are many similarities across the various domestic and foreign banks. The more active lending exposure of the domestic banks shows up in the Quality of Loan Book Factor, and domestic banks fi nd Market Volatility more of an issue.

All banks are worried about an economic downturn. The foreign banks have little or no interest in insurance and fi nd it more of an issue to recruit and train front offi ce staff and understand complex products than their domestic counterparts.

Pressing issuesDomestic versus foreign banks

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Foreign (18)

Domestic (12)

Increasing Competition from Foreign BanksInternet security risks

Rogue TraderLegal Risks

InsuranceUnderstanding Complex Products

Lack of Adequate Financial Disclosure (eg Enron)Recruiting/Training Front Office Staff

Basel IIIncreasing Competition from Domestic Banks

Business ContinuationHigh Dependence on New Technology

GlobalisationBuilding a Customer Base

Increasing Competition from Non BanksIncreased Competition

Appropriate Staff Incentive SchemesConsolidation of Financial Services Industry

Economic DownturnOperational Risk Management

Liquidity of BanksRetaining Existing Clients

Addressing New Compliance & RegulationsIntroducing New Information Technology

Market VolatilityClient Focus

Quality of loan books (Credit Risk)Improving Revenue Growth

Service QualityProfit Performance

Increasing Importance



Competition in the marketplace

Note: Based on responses from 24 banks

CorporateIn 2001, 78% of banks believed that the corporate market was intensely competitive. This year 88% of participants consider the corporate market to be intensively competitive.

In response, 58% of banks have made fundamental or signifi cant changes.

Over 40% of the banks have made minor or no change to their strategies in the last year, suggesting that many participants have already adjusted to the intense competition.

Corporate

Intensive

Moderate

Light

None

Minor change

Signifi cant operational and organisational change

Fundamental change in strategy and positioning

No change

Response

Com

peti

tion

8% 30% 42% 8%

4% 0% 4% 4%

0% 0% 0% 0%

0% 0% 0% 0%

RetailThe retail market has increased in intensity. Three quarters of participants placed it in this category versus half in 2001.

However, while 71% answered that they had made fundamental changes in 2001, only 17% responded this way in 2002.

In 2002, over 40% recorded minor or no change.

Retail


Intensive

Moderate

Light

None

Minor change



No change

Response

Com

peti

tion

17% 17% 25% 17%

7% 0% 17% 0%

0% 0% 0% 0%

0% 0% 0% 0%


Investment and Merchant BankingAgain investment and merchant banking was identifi ed as the most competitive part of the banking industry. Of the banks interviewed only two banks thought competition was moderate or light. In response to this intensive competition 19% said they had made fundamental changes versus 30% last year, and 46% said they had made signifi cant changes.

Banks are therefore continually overhauling strategies in this area. Some foreign banks have made radical changes and downsized their operations.

Internet BankingInternet banking has failed to ignite new levels of competition. Only 26% view it to be intensely competitive while most, 66%, view the sector as moderately competitive.

Two thirds of the banks have made minor or no change to strategies, suggesting that it is important to be positioned in this area, but not necessary to make any new signifi cant or fundamental changes.

Competition in the marketplace

Investment and Merchant Banking


Intensive

Moderate

Light

None

Minor change



No change

Response

Com

peti

tion

4% 23% 46% 19%

4% 0% 0% 0%

4% 0% 0% 0%

0% 0% 0% 0%

Internet Banking


Intensive

Moderate

Light

None

Minor change



No change

Response

Com

peti

tion

0% 18% 8% 0%

8% 33% 25% 0%

8% 0% 0% 0%

0% 0% 0% 0%


Q Can you describe the major developments taking place in the South African fi nancial markets?

The 32 participating banks provided insights into the major areas of change in South African banking in 2002. Areas that have featured in previous surveys include e-commerce, globalisation and technology. However, this year no mention was made of these past major changes.

There were six common themes in 2002:

Consolidation

This factor was mentioned last year and this year 18 banks, nine foreign and nine domestic, particularly highlighted consolidation and the problems surrounding the small bank ‘contagion’.

Instability of the Rand

Just less than half of the group, eight foreign and fi ve domestic banks, cited currency instability as a concern.

Micro-lending

Eleven banks, six domestic and fi ve foreign, mentioned problems surrounding micro-lending. One banker commented that the problem of banking the ‘previously unbanked’ had not yet been solved.

Corporate governance

Two CEOs of Big Four banks cited the new rules surrounding corporate governance. Several senior bankers commented that the proposed changes to Section 60 of the Banks Act, relating to directors of banks, could not be practically implemented.

Realignment of the foreign banks

Four foreign banks commented on the rethinking process underway among foreign banks regarding their role in South Africa. A European banker commented that some foreign banks were ‘losing interest’ and a domestic bank said that there was ‘re-focusing and downscaling’ underway. In contrast, several banks predicted that one particular foreign bank was ‘gearing up’ and was the foreign bank to watch over thenext year.

Capital requirements

Several domestic banks mentioned the new capital requirements (i.e. the increase in the capital requirement of 8% to 10% and the primary capital increase from 50% to 75% of capital). One Big Four bank CEO referred to a ‘dramatic hike in capital requirements’.


Q Can you identify three major criticisms of South African banking at present?

There was a substantial degree of overlap between the major developments cited by the banks and the criticisms of the South African banking system.

Much of the criticism focused on the domestic banking market and in particular the Big Four banks.

Areas of criticisms covered six inter-related topics:

Micro-lending

Several banks commented that this market had been driven by political considerations and was an ‘accident waiting to happen’.

The Big Four

The foreign banks had criticism of the Big Four in respect of the costs of their services. Personal banking services in South Africa were also regarded as expensive.

Infrastructure/Systemic factors

Clearly related to the Big Four banks was reference to the ‘closed’ infrastructure. Some bankers said that there had been a lack of progress in the small business sector and that the local debt market had taken too long to develop.

Government

Government was criticised by the bankers for not doing enough to stimulate foreign investment.

Reserve Bank

The Reserve Bank attracted strong criticism from second-tier domestic banks and the foreign banks. A domestic bank commented that the Reserve Bank was not viewed as being proactive on current banking issues.

Other comments referred to concern at the Registrar of Banks’ wide range of power; a perceived lack of direction, probably following the Saambou curatorship; and certain banks’ impression that the Registrar wanted to reduce the number of A2 banks.

The foreign banks in particular were critical of the handling of the Rand’s decline.

Corporate governance

Corporate governance at second-tier banks, probably following the events at Regal Treasury Bank, was considered by participants to be a weakness in the system.


Q Do you believe it is appropriate to have the Myburg Commission investigate speculation in the Rand?

A majority of both foreign and domestic banks believed that it was not appropriate to appoint the Myburg Commission to investigate speculation in the Rand.

Within the group of 13 domestic banks, eight were against the Commission and fi ve in favour.

The foreign banks were strongly against the Commission – three of the 19 banks believed it was appropriate and three declined to comment.

On the positive side the feeling was that if it put ‘facts on the table’ it had the potential to ‘clear the air’.

One domestic banker said if there was illegal activity then it should be highlighted. However, if it was unethical or immoral that was another issue.

One domestic banker went as far as to hypothesise that its main fi nding would be that some banks did not act within the ‘spirit of the law’.

On the negative side a domestic banker commented that it did not address the

key structural issues, it was expensive and infringed confi dentiality.

Smaller domestic banks were particularly critical. They commented that the Reserve Bank was out of touch, that in any market one expects speculation and that any witch-hunt will frighten the players.

A European bank said that any increase in restrictions would lead to more business moving offshore. Another said that over 50% of Rand trading occurs in London.

Some foreign banks felt it was a witch-hunt of the foreign banks by the domestic banks.

A larger European bank believed that the Reserve Bank should have opted for dialogue rather than a formal investigation.

At the time of preparing this report, the Commission has not yet reported its fi ndings.

No Comment

No

Yes


66%

25%

9%

No

Yes


62% 38%

All Banks

Domestic Banks


Q Collaboration, domestic and foreign banks

High


Medium

Low

High


Medium

Low

High


Medium

Low

High


Medium

Low

High


Medium

Low

High


Medium

Low

High


Medium

LowHigh


Medium

Low

Achieving Cost Flexibility

Customer Acquisition

Customer Retention

Flexible Operating Model

The participants were asked how important they believed collaboration with partners both inside and outside the fi nancial sector would be in the future. Domestic banks are shown on the left column and foreign banks on the right.

Domestic banks believe that collaboration would be vital in securing new customers. For example, they suggested that collaborating with a mobile phone company could help acquire new customers.

The foreign banks’ responses suggest that they view collaboration as less important when compared to the domestic banks in each scenario.

Over half the domestic banks see collaboration as helping retain customers. The majority of foreign bankers also perceive benefi ts in this area.

Finally, the domestic banks envisage greater fl exibility through collaboration, both in terms of cost and their operating models. The foreign bankers are generally open minded but at least a third see little added fl exibility.

Areas of collaboration suggested by participants include:

• Cheque processing.

• Credit card processing.

• Retailers (customer acquisition).

• Structured fi nance.

• Project fi nance.

• International asset management.

• Equipment suppliers.

• Umbono (Eskom).

• Black empowerment fi rms.

Domestic Banks Foreign Banks





Q How important is outsourcing at present, and will it be in 2005?

Q What will the role of branches be in 2005?

The trend toward more outsourcing predicted in the 2000 report was reversed last year, but seems to be gaining ground again in 2002.

Ten banks predict signifi cant outsourcing by 2005 and four record very signifi cant levels.

However, today outsourcing continues to be either minor or moderate or non-existent.

IT still ranks as the most common area of outsourcing. This is followed by a range of other services including: property managment, personnel issues, call centre managment, credit cards, debt collection, marketing, security, logistics and legal services.

This question was commented on by the domestic banks and only three foreign banks.

The Big Four banks all responded to the question in similar ways.

They stressed that they would be more involved in sales and servicing of customers. One commented that their branches would have to be more strategically located, they would be smaller in size and that costs per branch would be lower.

Another Big Four bank said that individual branches would need to be positioned differently for different parts of the market. In some cases transaction-orientated for the mass market, in others more targeted with mobile sales experts visiting branches.

A smaller domestic bank acknowledged that to service new customers a physical presence would be required.

0

3

6

9

12

15

2005

2002

VerySignificant

SignificantModerateMinorNone

Numberof banks


Participants were asked to examine 21 different issues and score them according to importance. The number of banks responding to the question is refl ected in parentheses. These issues have been scored in the two previous surveys and changes in ranking are considered useful pointers on operational priorities.

The fi rst two places continue to be held by Recruitment of Good Personnel and Foreign Exchange Control.

Stability of Central Government, which was in fi rst place in 2000, is now in seventh position, and Crime Levels has dropped from fourth to sixth position. Affi rmative Action remains in eighth position while Black Empowerment moved up six places to 10th position.

Capital Management has moved up from 10th to third position and the Relevance of Regulatory Reporting moved from 17th to ninth position, indicating the burden of new regulations.

Q Can you score the following issues in terms of signifi cance to your bank’s operation in South Africa?

2002 2001 2000

Recruitment of Good Personnel (30) 1 1 2

Foreign Exchange Control (30) 2 2 10

Capital Management and Allocation (28) 3 10 na

Reserve Bank Independence (30) 4 3 3

Emerging Markets Rating (30) 5 5 5

Crime Levels (30) 6 7 4

Stability of Central Government (30) 7 4 1

Affi rmative Action/Employment Equity (30) 8 8 6

Relevance of Regulatory Reporting (30) 9 17 13

Black Empowerment (30) 10 16 na

Data Security (29) 11 6 7

Increase in Qualifying Capital from 8-10% (26) 12 19 na

Fraud (30) 13 11 na

Globalisation (30) 14 9 9

Money Laundering (29) 15 12 14

Convergence of Financial Markets (30) 16 13 11

Tax Legislation (29) 17 14 8

Internationalisation of Bank Operations (26) 18 15 na

Securitisations (29) 19 18 na

Increase in Primary Capital from 50% to 75% of Qualifying Capital (23)

20 20 na

Opportunities in Sub-Saharan Africa (30) 21 21 12


The different bank groups portrayed interesting contrasts in relation to the operational issues.

The Big Four banks consider Affi rmative Action to be most important (seventh position in 2001) while the foreign banks ranked it in 14th position and Black Empowerment in 15th position. Tax

Legislation continues to be very important to the Big Four.

Reserve Bank Independence was considered the most important issue for the foreign banks. Last year it was ranked in third position. The banks as a whole attribute little signifi cance to opportunities in Sub-Saharan Africa.

All Foreign Domestic Big Four

Recruitment of Good Personnel (30) 1 2 1 4

Foreign Exchange Control (30) 2 3 3 8

Capital Management and Allocation (28) 3 6 2 7

Reserve Bank Independence (30) 4 1 6 14

Emerging Markets Rating (30) 5 4 7 3

Crime Levels (30) 6 8 8 16

Stability of Central Government (30) 7 5 19 21

Affi rmative Action/Employment Equity (30) 8 14 4 1

Relevance of Regulatory Reporting (30) 9 13 10 20

Black Empowerment (30) 10 15 9 9

Data Security (29) 11 9 18 13

Increase in Qualifying Capital from 8-10% (26) 12 7 20 5

Fraud (30) 13 16 12 12

Globalisation (30) 14 11 14 15

Money Laundering (29) 15 10 17 17

Convergence of Financial Markets (30) 16 12 15 19

Tax Legislation (29) 17 18 11 2

Internationalisation of Bank Operations (26) 18 21 5 11

Securitisation (29) 19 19 13 10

Increase in Primary Capital from 50% to 75% of Qualifying Capital (23)

20 17 16 6

Opportunities in Sub-Saharan Africa (30) 21 20 21 18

Differences between the domestic and foreign banks

performance


The chart indicates the rate of revenue growth anticipated by 25 respondents. On the right side of the axis are the projected growth rates for 2002 and on the left side are the annual rates for 2005.

The chart shows that six domestic and fi ve foreign banks expect revenues to grow by less than 20% this year and seven in each group anticipate less than 20% growth annually for the next three years.

Two foreign banks expect to grow by 100% in 2002, and the same two expect around 30% annual growth for the next three years.

Four foreign banks anticipate zero growth in 2002 versus only one domestic bank.

Q What is your estimate of the annual growth in revenues of your business for 2002 and over the next three years?

100 80 60 40 20 0 20 40 60 80 100

2005 2002

Domestic banks

Foreign banks

Annual growthrates for the nextthree years

Revenue growth

Annual growthrates current year

Don't Know


The participants ranked factors used to measure success in their banks’ operations in South Africa.

Return on Capital has been surpassed by Image and Reputation, while Revenue Growth remains in third position.

Client Retention has moved up the scale while the Cost-to-Income Ratio has slipped from fourth to sixth position.

A Big Four bank mentioned that important measures of success for them were profi tability per employee, whether planned strategies had been accomplished and the quality of earnings.

Another Big Four bank cited other soft measures surrounding the ‘quality’ of people and strategy implementation.

How the Big Four banks rate the importance of the measures

The Big Four banks recorded an increased importance in Image and Reputation versus last year, while both the Cost-to-Income Ratio and Absolute Profi t Before Tax had reduced scores.

Share Price is ranked in 13th position.

Q Factors used to measure success in the banks’ operations

0

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To ascertain which bank segments have recorded contrasting levels of profi tability, the banks were asked to select return categories in sectors in which they were active. Not all banks answered this question and they only responded for sectors in which they are active. Contrasting colours are used to distinguish between foreign and domestic participants.

The most profi table areas of South African banking continue to be Treasury, where fi ve banks said they were extremely profi table and a further six said they were very profi table. Three of these 11 banks were foreign. Of the 13 banks recording very profi table or extremely profi table for

Investment and Merchant Banking, six were foreign.

The highest number of banks in the ‘loss’ category for all the sectors relates to Internet Banking, where four domestic banks acknowledge losses and two more say they are only marginally profi table.

Corporate Banking produces solid returns for most banks, whether foreign or domestic. Only two record losses.

Asset Management and Brokerage are extremely profi table for a few banks, but the majority fall into the marginally or profi table categories.

Bank profi tability in a number of different segments over the last year

Retail Banking

Loss <0% Marginallyprofitable0-10%

Profitable10-20%

VeryProfitable20-30%

ExtremelyProfitable>30%

Corporate Banking

Investment & MerchantBanking

Private Banking

Treasury

Internet Banking

Credit cards

Asset Management& Unit Trusts

Life Insurance

Brokerage

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competitionand positioning


Q Do you believe the banking market continues to be overcrowded?

No

Yes

12%

88%

Q What is your bank’s cross-sell ratio?

An overwhelming number of bankers still believe the banking market to be overcrowded. The shakeout forecast in previous reports has gained momentum this year.

The smaller domestic or A2 banks have been exposed to increasing pressure, as evidenced by the curatorship of Saambou Bank and the government guarantee for BoE.

Further developments are predicted in this sector. Foreign banks have also suffered from an overcrowded market and strategic adjustments continue in this area.

A contrary view was expressed by several participants, who contended that in the top-end or Big Four sector the market was not overcrowded and did not exhibit suffi cient competition.

Only six banks within the group of 32 were able to answer this question. Three of the Big Four answered but couched their responses to warn that the number was far from exact.

One suggested that the cross-sell ratio ranged from 5.5 at the top end, to 3 in the middle, and just 1.5 at the bottom.

Another suggested 1.8 to 2.0, while a third said it was 1.2. A smaller domestic bank suggested it was between 2 and 3.

The two foreign banks answered 2 and 2.5 respectively.


Research conducted by PricewaterhouseCoopers has found that banks move across three distinct stages of evolution and propel their growth with information-driven, strategic marketing and processing, and structures and systems that are aligned with customer and prospect defi nitions of value.

These stages are illustrated in the model below.

As in previous years, the banks responded to this model by selecting the stage that best represented their current position. The results are shown on the next page.

Stages of customer acquisition and management

Stage threeVirtual intimacy withindividuals achieved

Stage twoCustomer needs,behaviours andvalues clarified

Stage oneBroad customer

segments identified

• Profitability-basedsegmentation andhouseholding for currentcustomers is the primaryweapon

• Unrefined analysis ofcustomers has some influenceon the product, channel,pricing, retention, cross-selling and service mixoffered

• Generally, the organisation isinternally focused

• Proactive prospect andcustomer managementenabled by combiningprofitability and behaviouralsegmentation and analysis

• Information is delivered tocustomer touch points (egbranches or call centres) toinfluence customer activityand workflow management

• Intensive internal conflictserupt due to traditional "silo"organisational structure

• Major transformation ofstrategies, processes,systems and structures

• Advanced predictivecapability used forcustomer acquisition andcross-selling

• Financial institution gainsinfluence over competitorstrategies

• Testing, measuring and"retooling" of strategy andtactics are automatic;learning is continuous


As noted on the previous page the model forms the basis of a question asking participants to identify the stage to which their bank belonged.

In the 2001 report three of the 25 participants selected Stage One. This year three of the 27 respondents chose this stage.

Most banks continue to fall into Stage Two (14 banks) but a further six believe they are between Stages Two and Three. Again only one bank chose to elevate itself to Stage Three.

The Big Four banks recorded the same positioning analysis as in last year’s report. These results indicate that the banks have stalled in their transition towards greater customer intimacy. For the group of 27 participants, no tangible progress was evident.

Stage Three represents the ultimate evolution, where the bank chooses the customers it wants and has undergone a major transformation of its strategies, systems and structures.

Clearly banks in South Africa, by their own admission, still have a considerable way to go on this path.

Q To which stage in the three-stage model do you believe your bank currently belongs?

2001 All banks Domestic banks Big Four Foreign banks

Stage One 3 2 0 1

Between One and Two 1 0 0 1

Stage Two 12 5 3 7

Between Two and Three 8 2 1 6

Stage Three 1 1 0 0

§ Based on 25 banks


Stage One 11 9 3 2

Stage Two 15 3 1 12

Stage Three 2 1 0 1

NA 2 1 0 1



Stage One 3 3 0 0

Between One and Two 3 3 0 0

Stage Two 14 6 3 8

Between Two and Three 6 1 1 5

Stage Three 1 1 0 1



Twenty four different markets were identifi ed, covering both retail and investment and merchant banking. If the participating banks were deemed to be active in a particular market, they scored their perceived levels of success on a scale of one to fi ve where one was ‘very unsuccessful’ and fi ve was ‘very successful’.

Since three is perceived as neutral, to suggest a degree of measurable success it is important that the average scores for the

participants in that market exceed three. Figures in parentheses indicate the number of participants providing a score in that particular market. In the radar diagrams appearing on the following pages, a 24-sided frame based on the value of three has been drawn. If the line pierces the frame, success has been achieved in that respective market.

Q How successful has your bank been in penetrating the following markets in the last year?

On an industry-wide level, the most successful markets were (in a clockwise direction) Treasury, Foreign Exchange, Structured Products and Corporate Finance - Mergers and Acquisitions.

The sectors which languished were Listings, Retail Lending, Credit Cards, Brokerage and Insurance. Many banks noted that new listings had been virtually non-existent over the last year.

All banks – Levels of success

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Micro Lending (10)Vehicle Financing (10)

Structured Products (20)

Insurance - Short Term (8)

Insurance - Life (8)

Stock Brokerage (14)

ForeignExchange (22)

Private Banking (15)

Asset Management (15)

Capital Markets (23)e Banking (14) Unit

Trusts (13)

Mortgages (10)

Retail Deposit Taking (13)

Credit Cards (10)

RetailLending (10)

CommercialLending (21)

Treasury (25)

PropertyFinance (16)

Structured Finance- Projects (20)

Structured Finance- Tax (19)

Corporate Finance- Privatisations (19)

Corporate Finance - Listings (18)

Corporate Finance- M & A (22)


Domestic banks – Levels of success The domestic banks, as expected, record broader levels of success. Areas include: Structured Finance, Treasury and Foreign

Exchange. Good success levels were also found in Mortgages and e-Banking.

0.5

1.0

1.5

2.0

2.5

3.0

3.5



Insurance- Short Term (7)


Stock Brokerage (9)

ForeignExchange (9)

Private Banking (7)



Trusts (8)

Mortgages (7)


Credit Cards (7)

Retail Lending (7)


Treasury (11)

PropertyFinance (9)


Structured Finance -Tax (10)




The Big Four banks break ‘out of the box’ with very strong scores in Structured Finance - Projects, Property Finance, Treasury, Mortgages, e-Banking, Capital

Markets, Foreign Exchange and Vehicle Financing. They also display good scores for Credit Cards and Retail Deposits.

Big Four banks – Levels of success

1

2

3

4

5Micro Lending (4)Vehicle Financing (4)

Structured products (4)

Insurance- Short Term (4)


Stock Brokerage (4)

ForeignExchange (4)

Private Banking (4)



Trusts (4)

Mortgages (4)


Credit Cards (4)

Retail Lending (4)


Treasury (4)

PropertyFinance (4)







Foreign banks – Levels of success The foreign banks enjoyed success in Mergers and Acquisitions, Treasury, Corporate/Commercial Lending, Capital Markets, Foreign Exchange and Structured

Products. Brokerage has retreated to a modest success for the group of reporting banks.

0.5

1.0

1.5

2.0

2.5

3.0

3.5





Stock Brokerage (5)


Private Banking (8)



Trusts (5)

Mortgages (3)


Credit Cards (3)

Retail Lending (3)


Treasury (14)

PropertyFinance (7)







Q How important are the following markets for your bank over the next three years?

The most important markets over the next three years closely match the areas in which the banks have enjoyed past success.

They include Structured Finance, Treasury, Capital Markets, Foreign Exchange and Mergers and Acquisitions.

To identify the markets that the banks believe will be of greatest importance over the next three years, the 30 participants ranked the following 25 (including Trust Services) markets on a scale of one to fi ve.

Once again, one indicates little or no importance while fi ve can be considered very important.

Since three is perceived as neutral, average scores for the group should exceed three, and therefore markets viewed as important project beyond that line.

Future importance – All banks

1

2

3

4

5Structured Products (25)


Insurance -Life (10)

Stock Brokerage (16)


Trust Services (15)

Private Banking (16)

AssetManagement (22)

Capital Markets (26)

Unit Trusts (15)

Mortgages (9)

Retail DepositTaking (14) e-Banking (14)

Micro-Lending (10)

Vehicle Financing (10)

Credit Cards (10)

Retail Lending (9)


Treasury (27)

Property Finance (18)


Structured Finance - Tax (24)

Corporate Finance - Privatisations (23)

Corporate Finance- Listings (22)


Figures in parentheses record the number of banks that recorded a scorefor each market. In total 30 banks answered this question.


The domestic banks recorded high scores for Treasury, Structured Products, Structured Finance, Capital Markets, Credit Cards and Retail Deposit Taking. E-banking, which

scored almost four in the 2001 survey, has fallen back inside the critical importance circle.

The strong scores recorded in the domestic bank group above are even more apparent in relation to the Big Four (which are included in the broader group).

Retail sectors such as Lending, Credit Cards, Vehicle Financing, Deposit Taking and Mortgages all score positively. Interest in e-Banking has been reduced.

Future importance – Domestic banks

Future importance – Big Four banks

1

2

3

4

5Structured Products (10)Insurance - Short Term (7)

Insurance -Life (9)

Stock Brokerage (9)

Foreign Exchange (10)

Trust Services (9)

Private Banking (8)



Unit Trusts (10)

Mortgages (7)


e-Banking (9)

Micro-Lending (9)


Credit Cards (7)

Retail Lending (7)

Commercial Lending (11)

Treasury (11)


Structured Finance - Projects (11)


Corporate Finance - Privatisations (11)Corporate Finance - Listings (11)


In total 12 banks answered this question.

1

2

3

4

5Structured Products (4)Insurance - Short Term (4)

Insurance -Life (4)

Stock Brokerage (3)

Foreign Exchange (4)

Trust Services (4)

Private Banking (4)


Capital Markets (4)

Unit Trusts (4)

Mortgages (4)


e-Banking (4)

Micro-Lending (4)


Credit Cards (4)

Retail Lending (4)

Commercial Lending (4)

Treasury (4)


Structured Finance - Projects (4)


Corporate Finance - Privatisations (4)Corporate Finance - Listings (4)

Corporate Finance - M & A (4)


Mergers and Acquisitions, Treasury and Foreign Exchange are important to a large number of foreign banks.

Stock Brokerage is important to the seven reporting banks, while two foreign banks record that Retail Lending is important.

Future importance – Foreign banks

1

2

3

4

5Structured Products (15)


Insurance -Life (1)

Stock Brokerage (7)


Trust Services (6)

Private Banking (8)

AssetManagement (11)


Unit Trusts (5)

Mortgages (2)

Retail DepositTaking (4) e-Banking (5)

Micro-Lending (1)


Credit Cards (3)

Retail Lending (2)


Treasury (16)




Corporate Finance - Privatisations (12)

Corporate Finance- Listings (11)


Figures in parentheses record the number of banks that recorded a scorefor each market. In total 18 banks answered this question.


The following table contrasts the scores rating importance on a level of 4 or 5 for the Big Four banks. Six sectors have increased in importance, while fi ve have declined in importance since last year.

2001 Score 2002 Score Change4 5 4 5

Corporate Finance - M & A 2 0 0 1

Corporate Finance - Listings 1 0 1 0

Corporate Finance - Privatisations 0 1 0 1

Structured Finance - Tax 0 3 2 0

Structured Finance - Projects 0 3 1 3

Property Finance 2 1 1 1

Treasury 0 3 1 3

Commercial Lending 2 1 3 1

Retail Lending 2 2 1 2

Credit Cards 1 3 2 1

Retail Deposit Taking 4 0 0 3

Vehicle Financing na na 2 1

Mortgages 0 4 0 4

Unit Trusts 2 0 1 0

Internet Banking 0 3 0 3

Capital Markets 1 1 3 1

Asset Management 2 0 2 0

Private Banking 0 1 2 1

Foreign Exchange 2 2 2 2

Stock Brokerage 0 0 0 0

Insurance 2 2 na na

Insurance - Life na na 2 1

Insurance - Short-term na na 2 0

Structured Products 1 3 2 1

Micro-Lending na na 0 0

e-banking na na 3 0

Key:

Increase in importance

Little or no change

Decrease in importance

Big Four banks – A comparison between 2001 and 2002

Ongoing issues in banking


Q Is your use of the Internet to reduce costs, generate revenue or both?

Foreign Banks

A contrast exists between foreign and domestic banks in the deployment of the Internet.

While the domestic banks unanimously believe it can be used to both reduce costs and generate revenue, the majority of foreign banks believe its primary use is to reduce costs.

BothBased on responses from 6 banks

Both

Both

Generate revenue

Reduce costs


Domestic Banks

In the 2001 report IT expenditure was estimated to be around $600 million. This year only rough estimates of the fi gure are possible for the domestic banks. One of the Big Four banks responded that it would be impossible to answer. However, 10 domestic banks were able to provide fi gures and the domestic bank budget can be estimated to be around $500 million. This represents a sizeable reduction from last year.

In 2001 the foreign banks recorded a $49 million expenditure on IT. Although one large foreign bank is missing from this year’s estimate, the total (based on input from nine banks) is only $12 million.

A number of foreign banks spend around $1 million locally and receive major support from their parents.

Nevertheless, the IT spend estimates suggest that there has been a major scaling back in this area.

Q Can you quantify your bank’s IT development spend in the South African market?


Q Do you currently use a CRM system? Yes/No

Almost two thirds of the group maintain that they use customer relationship management systems.

These systems are used in both the retail and corporate segments.

Q On a scale of 1 to 5, where 5 is very satisfi ed, how satisfi ed are you with the system?

The level of satisfaction with CRM appears to be highest among the foreign banks.

However, just one bank claims to be very satisfi ed.

Most banks are neutral, although four domestic banks say they are unsatisfi ed with their existing systems.

No

Yes

36% 64%

0

1

2

3

4

5

6

7

Domestic banks

Foreign banks

Verysa

tisfie

d

Satis

fied

Neutra

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Unsati

sfied

Veryun

satis

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Number ofbanks


Background to ValueReportingTM The concept of ValueReportingTM was introduced in last year’s report. This page simply reminds the reader of the PricewaterhouseCoopers ValueReportingTM model, while the following two pages update its perceived usefulness in relation to banks in South Africa

The model has four principal elements, which deal with the information that should be covered in any report, presentation and other communication.

The fi rst element, Market Overview, should cover industry dynamics, current and anticipated future economic, regulatory and competitive conditions.

The second element, Value Strategy, articulates the company’s growth strategy and how it plans to create value for its stakeholders. It must be forward-looking, focused and tailored to the company.

The third element is Managing for Value, which communicates clearly how a company’s strategy is being executed through day-to-day management activities. Here management needs to disclose the metrics it uses to measure overall fi nancial performance and risk and the value created by individual segments and group operations.

The ValueReporting™ model emphasises the importance of communicating shareholder value-orientated measures, such as EVA (Economic Value Added) and RAROC (Risk Adjusted Return on Capital).

Finally, the fourth element describes the action taken by management to execute the strategy and invest in activities that underpin long-term value growth. This requires a clear focus on the components of the Value Platform, namely Innovation, Brands, Customers, Supply Chain, People, and Corporate Reputation.

CompetitiveenvironmentRegulatoryenvironmentMacro-economicenvironment

ValueStrategy

ValuePlatform

GoalsObjectivesGovernanceOrganisation

Financial performanceFinancial positionRisk managementSegmental reporting

InnovationBrandsCustomersSupply chainPeopleReputation

-Social-Environmental-Ethical

MarketOverview

Internal External

ValueReporting™ Best practice model

Managing forValue


The participants rated each of the 19 components of the ValueReporting TM

model on a scale of 1 to 5, where 5 was considered to be most important. The banks gave their views on the relevance of each factor within the four subgroups.

In general the foreign banks tended to record more positive scores.

Managing for Value, which includes traditional measures such as fi nancial

performance and fi nancial position generate the highest level of acceptance. The foreign banks seem more convinced on reporting on the competitive, regulatory and economic environments.

They also attribute higher scores to areas of the value platform including innovation and brands. The supply chain is portrayed as having limited relevance to banking.

ValueReportingTM

-2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Domestic (13)

Foreign (18)

Ethical

Environmental

Reputation - Social

People

Supply chain

Customers

Brands

Innovation

Segmental reporting

Risk management

Financial position

Financial performance

Organisation

Governance

Objectives

Goals

Macro-economic environment

Regulatory environment

Competitive environment

Increasing Importance



ValueReportingTM and the Big Four banks

The Big Four banks as a group attributed a maximum score to only one factor in the model – fi nancial performance.

However, in only three areas did they attribute a less than important rating:

competitive environment, macro economic environment and the supply chain.

The Big Four banks attached most importance in the value platform area to brands, people and social reputation.

ValueReportingTM Factor NA Very unimportant Very important 0 1 2 3 4 5

Market Overview

Competitive environment 0 0 2 1 1 0

Regulatory environment 0 0 0 0 3 1

Macro-economic environment 0 0 1 1 2 0

Value Strategy

Goals 0 0 0 1 3 0

Objectives 0 0 0 1 2 1

Governance 0 0 0 1 1 2

Organisation 0 0 0 2 0 2

Managing for Value

Financial performance 0 0 0 0 0 4

Financial position 0 0 0 0 1 3

Risk management 0 0 0 0 1 3

Segmental reporting 0 0 0 0 2 2

Value Platform

Innovation 0 0 0 2 1 1

Brands 0 0 0 0 2 2

Customers 0 0 0 2 2 0

Supply chain 0 1 1 2 0 0

People 0 0 0 0 1 3

Reputation - Social 0 0 0 0 2 2

Reputation - Environmental 0 0 1 3 0 0

Reputation - Ethical 0 0 0 1 2 1

Basel II

South African readiness


The proposed new Capital Accord of the Basel Committee, fi rst issued for public comment in January 2001, was a radical reform of the previous Capital Accord.*

The new Capital Accord will apply to all major banks in the G10 countries from 2005 and it is likely that bank supervisors in other countries will also embrace its conditions. As a result it is predicted that the new disclosures will become ‘de facto’ required practice.

The implementation of the Accord in three years’ time means that immediate attention must be given to systems and process changes. As a result, this annual survey took the opportunity to ask participants how well prepared their organisation was in relation to fi ve key areas:

• Strategic issues.• Credit risk management.• Operational risk management.• Regulatory requirements.• Market discipline.

These key areas are broadly indicative of issues that require management attention. The new Capital Accord proposals are detailed and complex and this report in no way attempts to provide insight or guidance on the issues. Instead we have attempted to document the participants’ perception of the readiness of their banks to implement the new requirements.

Before describing the responses of participants it is useful to provide some further insight into the fi ve key areas contained in the question.

Strategic issues

Boards and senior management will need to prioritise a range of issues, which include regulatory capital, credit and operational risk, data requirements, the impact of greater public disclosures on the market, and investor perceptions. Changes to the capital structure of bank groups will also probably have signifi cant tax implications and this will need to be reviewed.

Credit risk management

Many regulators may expect or require institutions to use the Foundation and Advanced Internal Ratings Based Approaches to credit risk management. The proposals require this approach to be consistently applied on a global basis. The scale and complexity of data requirements in this area will be very substantial.

Background to the New Capital Accord

* Challenges of the new Basel Accord - Actions for senior management, PricewaterhouseCoopers, April 2001

The relationship between banking supervisors and banks’ external auditors, Bank for International Settlements, January 2002


Operational risk management

Large or complex institutions will be expected by their regulators to meet all the conditions for the intermediate or advanced approaches to operational risk capital.

Most institutions will have to make further investment in operational risk management functions, techniques and policies to qualify for the intermediate approach. Institutions will need to assess the relevance to them of operational risk mitigation techniques such as insurance and outsourcing.

Regulatory requirements

Institutions need to ensure they have a demonstrably robust process for:

• Assessing their overall capital under the new basis in relation to their risk profi le, as well as allocating economic capital;

• Maintaining their capital levels;• Monitoring compliance under the new requirement; and• Assessing likely returns on individual businesses against the capital used.

These processes will be subject to regulatory scrutiny and institutions should expect supervisors to be a lot more probing in areas such as:

• Internal processes used to assess capital adequacy/allocation of economic capital; and

• Compliance with minimum qualifying standards for internal measurement methodologies, credit risk mitigation and securitisation.

Market discipline

The proposals signifi cantly increase the level of disclosure for all institutions. Many institutions will fi nd the half yearly (and potentially quarterly) disclosures particularly demanding. The resultant data implications and investor relations will be a major issue.

The banks were asked to score on a scale of 1 to 5, where 5 was very prepared, their readiness for implementation of the new Capital Accord in 2005.

These results should only be interpreted as a general indicator of preparedness based on very subjective opinions. They do, however, provide a rough guide to the level of awareness and focus of the participants on the fi ve important issues described on the preceding pages.

Level of preparedness by banks in South Africa - both domestic and foreign


Thirteen domestic banks provided insight. No one issue stands out as an area where some serious work has already been undertaken. Most participants opted for a two or three rating on the scale, which was unconvincing in terms of the banks’ level of preparation.

Only one “very prepared” response was found for credit risk management and market discipline, and these responses did not originate from the same bank.

Domestic banks

Foreign banks

Strategic issues

VeryUnprepared

Prepared VeryPrepared

Credit riskmanagement

Operational riskmanagement

Regulatoryrequirements

Market discipline

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Overall the foreign banks recorded more positive scores in their level of preparation. Twelve banks responded and the table shows how many more foreign banks rated themselves 4 or 5 on the scale.

Often this optimistic assumption was accompanied by ‘head offi ce’ is working on this at the moment.


Strategic issues

VeryUnprepared





Market discipline

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Finally, to highlight the responses of the Big Four domestic banks, the table below addresses the responses of this group. In concert with the domestic banks as a whole, the responses are weighted towards the less than prepared side.

The chart indicates that much work is needed in the operational risk management area and in regulatory requirements and market discipline.

Big Four banks

peerreview


Q Can you name the top three banks in terms of success (performance, presence, momentum, etc.) across a variety of different markets?

Listings

As in previous years, the participants ranged from retail banks to merchant and investment banks to universal banks. All participants, where they felt competent, were permitted to rank banks, excluding their own bank, across each activity. Often banks would choose just fi rst or second-ranked banks.

A simple scoring method awarded 3 points to fi rst place, 2 points to second and 1

point to third place. This allowed the banks to be ranked based on a total score.

The arrow in the right-hand column portrays a change in ranking from last year’s report.

Three new areas are added this year namely Micro-lending, Insurance - Life and Insurance - Short-term.

Corporate banking Ranking 1 2 3 Score Change

Standard Bank (SCMB) 15 3 1 52

FirstRand Bank (FNB Corporate) 4 10 2 34

Nedcor 4 2 12 28

ABSA 4 2 10

Citibank 1 4 6

Investec 1 1 5

§ Based on 24 Banks

Ranking 1 2 3 Score Change

FirstRand Bank (RMB) 4 3 2 20

Standard Bank (SCMB) 4 3 18

Investec 4 1 2 16

Deutsche Bank 2 3 12

Merrill Lynch 2 6

UBS 1 1 5

Nedcor 1 2

JP Morgan Chase 1 1

§ Based on 17 Banks


Mergers and acquisitions

Foreign exchange trading

Capital markets bonds and derivatives




JP Morgan Chase 5 1 16


Investec 2 1 5

UBS 2 4

Decillion 1 3

Mettle 1 2

Nedcor 2 2

ABSA 2 2

BoE 2 2

Merrill Lynch 1 1

Societe Generale 1 1

Morgan Stanley 1 1



UBS Warburg 6 1 20

FirstRand Bank (RMB) 4 2 16

Investec 4 1 1 15


Merrill Lynch 1 5 1 14

Deutsche Bank 1 5 1 14

JP Morgan Chase 1 2 2 9



Standard Bank (SCMB) 17 1 53

ABSA 1 4 3 14

Nedcor 5 4 14

FirstRand Bank (RMB) 5 3 13

Deutsche Bank 2 1 5

JP Morgan Chase 1 1 3

Decillion 1 3

Barclays Bank 1 3

Citibank 1 1



Money markets

Structured fi nance

Institutional brokerage

1 2 3 Score Change



ABSA 3 4 3 20

Nedcor 1 3 7 16


1 2 3 Score Change



Investec 3 4 2 19

Mettle 1 1 5

Nedcor 1 2 4

Deutsche Bank 1 3

Cadiz 1 3

ABSA 1 1

Decillion 1 1

Coronation 1 1


1 2 3 Score Change


Merrill Lynch 5 1 5 22

UBS 6 1 13

Investec 1 1 5

JP Morgan Equities 1 1 3

Standard Bank (SCMB) 1 2

SSSB (Citibank) 1 2

HSBC 2 2

FirstRand Bank (RMB) 1 1

Barnard Jacobs Mellet 1 1



Retail brokerage

Retail asset management unit trusts

Asset management – Institutional

1 2 3 Score Change

Barnard Jacobs Mellet 9 2 31

Investec 7 21

Standard Bank (SCMB) 3 6

BoE 1 1 3

HSBC 1 1 3

Appleton 2 2

PSG 1 1

ABSA 1 1


1 2 3 Score Change

Allan Gray 5 1 16

Investec 2 2 2 12

Old Mutual 3 1 11

FirstRand Bank 3 1 10

Standard Bank/Liberty 4 2 10

Sanlam 2 4

Coronation 1 2 4

BoE 1 1


1 2 3 Score Change

Old Mutual 5 1 16

Investec 3 1 3 14

Standard Bank/Liberty 2 1 1 9

Coronation 3 6

Sanlam 3 6

FirstRand Bank 1 1 5

Allan Gray 1 3

BoE 3 3



Retail lending and deposits

Vehicle fi nancing

Retail mortgages

1 2 3 Score Change

Standard Bank 6 4 4 30

ABSA 6 3 24

FirstRand Bank (FNB) 1 7 4 21

Nedcor 3 1 6 17


1 2 3 Score Change


ABSA 8 1 1 27

Nedcor 2 4 7 21

FirstRand Bank (FNB) 1 5 1 14

BoE 1 1

SA Home Loans 1 1


1 2 3 Score Change

FirstRand Bank (Wesbank) 11 1 35

Standard Bank (Stannic) 1 7 3 20

ABSA (Bankfi n) 3 3 1 16

Nedcor/Imperial 1 2 6 13



Internet banking

Private banking

Private equity investments

1 2 3 Score Change


FirstRand Bank 2 5 3 19

ABSA 3 3 2 17

Nedcor 3 2 3 16

Investec 1 2


1 2 3 Score Change

Investec 14 3 48

FirstRand (Origin/Ansbacher) 3 4 1 18

Nedcor (Syfrets) 3 2 4 17

Standard Bank 2 6 10

BoE 4 1 9

ABSA 1 3 5

Barclays 1 2

Merrill Lynch 1 1


1 2 3 Score

FirstRand (Ethos) 12 1 2 40

Brait 3 8 2 27

Standard Bank 3 2 8

ABSA 1 1 5

Nedcor 2 1 5

Praxis Capital 1 3

Mettle 1 2

Investec 1 1

CDC Capital Partners 1 1

Gensec 1 1



1 2 3 Score

African Bank 15 45

Nedcor (Peoples) 1 2 7

ABSA (Unifer) 3 6

Standard Bank 1 3

Sanlam 1 2

BoE (PEP Bank) 2 2

FirstRand Bank (FNB) 2 2

PSG 2 2


1 2 3 Score

Old Mutual 8 4 1 33

Standard (Liberty) 4 4 1 21

Sanlam 1 4 4 15

FirstRand (Momentum) 1 1 3 8

Nedcor 1 1


1 2 3 Score

Mutual & Federal 9 7 1 42

Santam 1 2 1 8

Stanbic 1 1 5

FirstRand Bank (Outsurance) 1 3

Hollard 1 3

Eagle 2 2

CU 2 2

Glenrand 1 1


Micro-lending

Insurance - Life

Insurance - Short-term

appendices


Methodology

Bank groups

Participants

Background comments on participants

December 2001 Quarterly DI 900 Analysis of South African Banks

Appendices


Methodology

Previous experience has shown that personal interviews with senior bankers using a standard questionnaire offers the best research approach. The questionnaire contained 32 questions and was administered during interviews of approximately one hour. The author conducted all interviews during February 2002 in Johannesburg.

Responses have not been attributed to individual banks but rather collectively within two groups: Foreign banks (19) and Domestic banks (13). Included within the Domestic bank group are the Big Four banks (ABSA, FirstRand Bank, Nedcor and Standard) and, on occasion, their results are shown alongside the overall domestic bank group.

At times, individual banks declined to answer particular questions or were unable to provide suffi ciently accurate data. This is noted where applicable.

The time commitment and support by all banks in this survey was outstanding. Once again they provided interpretation and direction on how South African banking may unfold over the next three years.


Bank groups

Bank GroupsThe information provided has been considered proprietary and remains confi dential. Results are therefore presented in a “disguised” group format, in the form of foreign or domestic banks. The members of the bank groups are as follows:

• Domestic banks: ABSA Bank

African Bank

African Merchant Bank

BoE Bank

Brait Merchant Bank

FirstRand Bank

Gensec Bank

Investec Bank

Mercantile Bank

Nedcor Bank

PSG Investment Bank

Sasfi n Bank

The Standard Bank of South Africa

• Big Four banks: ABSA Bank

FirstRand Bank

Nedcor Bank


• Foreign banks: ABN AMRO Bank NV

American Express Bank

Banca di Roma

Bank of America

Barclays Bank Plc

Citibank NA

China Construction Bank

Commerzbank AG

Crédit Agricole Indosuez

Crédit Lyonnais

Deutsche Bank AG

Dresdner Bank AG

HSBC

ING Bank NV

JP Morgan Chase Bank

RBC Financial

Société Générale

The South African Bank of Athens

UBS

• Foreign banks classifi cation:

• Registered branches

ABN AMRO Bank NV

Barclays Bank Plc

Citibank NA


Commerzbank AG

Crédit Agricole Indosuez

Deutsche Bank AG

ING Bank NV

JP Morgan Chase Bank


• Registered banks – Foreign controlled


• Foreign banks – Representative offi ces

American Express Bank

Banca di Roma

Bank of America

Crédit Lyonnais

Dresdner Bank AG

HSBC Equator Bank

RBC Financial

UBS


Participants

Nallie Bosman Group Chief Executive ABSA Bank

Frans J. du Toit Group Executive Director ABSA Bank

David Porteous Strategy Executive African Bank

Johan de Ridder Strategy and Development Director African Bank

Zenzo Lusengo Joint MD, AMB Private Equity Partners African Merchant Bank

John Maxwell Group Chief Operating Offi cer BoE Bank

Nigel Griffi th Finance Director Brait Merchant Bank

Paul Harris Managing Director FirstRand Bank

Marius Ferreira Managing Director Gensec Bank

Rayanne Jacobson Strategic Projects Investec Bank

Johnny Symmonds Managing Director Mercantile Bank

Derek Muller Managing Director Nedcor Bank

Graham Dempster General Manager, Corporate Nedcor Bank

Martin Slabbert Shareholder’s Funds Nedcor Investment Bank

André la Grange Managing Director PSG Investment Bank

Ron Sassoon Managing Director Sasfi n Bank

Geoff Rothschild Executive Director Sasfi n Bank

Jacko Maree Chief Executive Offi cer The Standard Bank of South Africa

Loet Kniphorst Chief Executive Offi cer ABN AMRO Bank NV

Jaap van Luijk Country Offi cer American Express Bank

Roberto Lagana Representative Banca di Roma

Fiks Dlamini Vice President Bank of America

Philip Howell Managing Director, Country Offi cer Barclays Bank Plc

Vaughan Heberden Director, International Banking Barclays Private Bank

Donna Nemer Oosthuyse Head of Strategic Planning Citibank NA

J.X.J. Yan Chief Executive Offi cer China Construction Bank

Gotz Hagemann General Manager Commerzbank AG

Phillippe Pellegrin Chief Executive Offi cer Crédit Agricole Indosuez

Himmat Kalsia Country Offi cer Crédit Lyonnais

Neil Morrison Managing Director Deutsche Bank AG

Glen Manning Director, Global Markets Deutsche Bank AG

Gunther Steffens Country Offi cer Dresdner Bank AG

Frank Kennedy Country Head HSBC

Richard Derman Managing Director ING Bank NV

J.J. Coulter Managing Director JP Morgan Chase

Tony Phillips Country Head RBC Financial

GJM Ferent Managing Director Société Générale

Nigel Palmer Managing Director The South African Bank of Athens

Nicholas Wood Chief Representative UBS AG


Background comments on participants

Big Four bank group

Tier 1 Assets Tier 1

Big Four Banks World Country Background Comments Ranking Ranking * The Banker, July 2001

ABSA Bank

35,000 employees

250 238 3 The group was formed in 1991 with the merger of Allied Bank, Trust Bank, United Bank and Volkskas Bank.

FirstRand Bank

34,720 employees

300 244 4 FirstRand was created in April 1998 through the merger of the fi nancial services interests of Anglo American Corporation (“AAC”) and RMB Holdings (“RMBH”). The major companies involved at the time were the listed entities, First National Bank Holdings of Southern Africa Limited and Southern Life Association Limited, which were controlled by AAC and Momentum Life Assurers Limited, the holding company of Discovery Health and Rand Merchant Bank, which were controlled by RMBH.

Nedcor Bank

17,000 employees

158 260 2 Nedcor is marketing itself as “the convergent bank” with the expectation that telecommunications, media, IT, retail and banking will converge.


27,000 employees

146 211 1 Standard Bank Group’s holding company is Standard Bank Investment Corporation Limited (Stanbic). Stanbic is the largest South African banking group ranked by assets and earnings. At 30 June 2001, the group had assets of R309 billion and employed more than 30 000 people worldwide.


Domestic bank group


Other Domestic Banks World Country Background Comments Ranking Ranking

African Bank

1,700 employees

NA NA NA African Bank is a wholly-owned subsidiary of ABIL. African Bank provides unsecured term fi nance to the formally employed mass market. It operates through its own branded distribution network of more than 180 branches. African Bank has joint ventures with both Standard Bank and an alliance with the Edcon Group.

African Merchant Bank

140 employees

NA NA NA AMB is a merchant and investment banking group listed on the JSE with shareholder funds of R1.2 billion (US$150 million).

BoE Bank

7,100 employees

455 512 6 Originally established as a trust company in Cape Town, South Africa, in 1838. BoE (formerly the Board of Executors) has been in operation for more than 163 years. BoE was listed on the JSE Securities Exchange in 1987. In 1998 BoE merged with NBS and Boland PKS to establish the core of the current Group. NBS was established as a building society in 1882 and Boland as a regional general bank in 1900. In 2002 BoE sold its retail mortgage book to FNB HomeLoans, a division of FirstRand, for R12 billion.

Brait Merchant Bank

250 employees

NA NA NA Brait S.A is an international investment and merchant banking group listed on the Luxembourg, London and Johannesburg stock exchanges, with shareholders funds of R1.2 billion (approximately US$150 million). The Brait group has six units covering Advisory Services, Banking, Interest Rate Trading, Private Equity, Investment Banking and Treasury. Brait also has joint venture partnerships with ipac Securities, a leading international fi nancial planning group, and African Alliance, a fi nancial services company that focuses on selected niche merchant banking activities in Africa.


Domestic bank group


Domestic Banks World Country Background Comments

Ranking Ranking

Gensec Bank

220 employees

NA NA NA Gensec Bank is a leading South African investment bank, specialising as a wholesale provider of derivative-based risk management products to the savings industry. It is also a prominent arranger of debt and equity fi nance for corporates and is a manager of private equity funds. Through its proprietary trading desk the bank acts as a market maker in most South African fi nancial instruments. Gensec Bank, which is wholly owned by Sanlam, has a primary and dedicated capital base of over R1 billion.

Investec Bank

4,300 employees

NA NA NA Investec’s banking operations focus on four key areas: Investment Banking, Treasury and Finance, Private Client Activities and Asset Management. Investec is one of the 25 largest companies listed on the JSE Securities Exchange.

Mercantile Bank

500 employees

133* 115 N/A As a result of the recent recapitalisation of Mercantile Bank, Caixa Geral de Depositos SA of Portugal will become the majority shareholder in Mercantile with 64%.

PSG Investment Bank

140 employees

NA NA N/A To date PSGBH has participated in the rationalisation of New Republic Bank, FBC Fidelity, The Business Bank and more recently Real Africa Durolink.

Sasfi n Bank

200 employees*NA NA NA

Established in 1951, and listed on the JSE Securities Exchange in 1987, Sasfi n Holdings Limited is a bank-controlling company. Sasfi n Holdings provides a comprehensive, modular range of banking products and fi nancial services focused on the needs of corporate, commercial and individual clients.

* Group employees 540


Foreign bank group


Home Foreign Banks World Country Background Comments

Ranking Ranking

ABN AMRO Bank

96 employees

17 13 1 ABN AMRO is ranked eighth in Europe and seventeenth in the world on tier 1 capital, with over 3,500 branches, a staff of 111,000 and total assets of EUR 597.7 billion.

AMEX 404* 389 65 American Express is the world’s largest travel management company with over 1 700 offi ces in 130 countries and one of the top ten recognised brands in the world. The American Express Card is operated as a franchise of Nedcor Bank Limited. Nedcor has exclusive rights to issue American Express cards in South Africa.

* Refers to American Express Bank

Bank of America

3 Employees

3 10 2 Bank of America has the largest network in the U.S. with 4,400 domestic offi ces and 13,000 ATMs, as well as 38 international offi ces serving clients in 190 countries, and an Internet Web site that provides online access for more than 3 million active users.

Banca di Roma 78 67 4 Banca di Roma, Italy’s fourth largest bank, offers banking services and life insurance through subsidiary Roma Vita. The bank’s control of subsidiaries Mediocredito Centrale and Banco di Sicilia are jewels in its crown. ABN AMRO owns 10% of Banca di Roma.

Barclays Bank

120 Employees

23 18 4 Barclays has been involved in banking for over 300 years and operates in over 60 countries. Group staff numbers world-wide, at 31 December 2001 were 78,600.


Foreign bank group


Home Foreign Banks World Country Background Comments Ranking Ranking


29 31 4 China Construction Bank was incorporated in China in 1954. CCB is a state-owned bank operating in a commercial capacity. CCB retains leadership roles in key market segments such as corporate banking, retail banking and investment banking services. CCB has an extensive network in China, with more than 25,700 branches.

Citibank

450 Employees

1 2 1 Citigroup is the fi rst fi nancial services company in the U.S. to bring together banking, insurance, and investments under one umbrella. It has 270,000 employees and 190 million customer accounts in more than 100 countries.

Commerzbank

56 Employees

35 20 3 Commerzbank, based in Frankfurt am Main has 40,000 employees, 7,700 of whom are active outside Germany, looking after 5.7 million customers. In Germany, Commerzbank’s operations include a nationwide network of roughly 800 branches.

Credit Agricole Indosuez

70 employees

6 14 1 Crédit Agricole Indosuez joined Crédit Agricole Group in 1995. Crédit Agricole is made up of 48 regional banks and has 7,679 branches and over 16 million customers. It is present in over 50 countries.

Credit Lyonnais

5 employees51 55 6

Founded in 1863, the Crédit Lyonnais Group is one of France’s leading fi nancial institutions. It holds more than 6 million customer accounts and provides an array of services, including retail fi nancial services, investment, corporate and private banking and asset management.


Foreign bank group



Deutsche Bank

200 employees

8 3 1 Deutsche Bank is one of the leading international fi nancial service providers. With more than 95,000 employees, the bank serves more than 12 million customers in more than 70 countries worldwide.

Dresdner Bank

9 employees

37 19 4 The Dresdner Bank Group is active worldwide with more than 1,100 branches and over 50,000 employees in more than 70 countries, including all the major fi nancial centres. Ranked by total assets, market capitalisation and size of customer base, Dresdner Bank is one of Europe’s leading banking groups.

HSBC

350 Employees

5 6 1 HSBC Holdings plc is one of the largest banking and fi nancial services organisations in the world. The HSBC Group’s network comprises 7,000 offi ces in 81 countries and territories in Europe, the Asia-Pacifi c region, the Americas, the Middle East and Africa. With listings in London, Hong Kong, New York and Paris, HSBC has 190,000 shareholders in 100 countries.

ING Barings

70 employees

27 25 2 ING Group originated in 1990 from the merger between Nationale-Nederlanden and NMB Postbank Groep. ING has made a variety of acquisitions, notably Barings in 1995, the American insurer Equitable of Iowa Companies in 1997, Bank Brussels Lambert in January 1998, the German BHF-Bank in 1999. It has 50 million clients in 65 countries and a workforce of over 110,000 people.

JP Morgan Chase

200 employees

4 4 3 J.P. Morgan Chase & Co. is a leading global fi nancial services fi rm with assets of $694 billion headquartered in New York with 30 million consumer customers. Has relationships with over 99% of the Fortune1000 companies, and the fi rm is a leader in investment banking, asset management, private banking, private equity, custody and transaction services, and retail and middle market fi nancial services.


Foreign bank group



RBC Financial

5 employees

44 53 1 RBC Financial Group is the brand name for Royal Bank of Canada. Royal Bank is Canada’s largest bank as measured by market capitalisation and assets, and is one of North America’s leading diversifi ed fi nancial services companies. The company employs more than 58,000 people who serve 12 million customers in 30 countries.


200 employees

30 22 3 Sociéte Générale is the 4th ranking investment banking in the euro zone and the 13th largest market capitalisation in the Paris marketplace. It has 86,500 employees and 500 offi ces in 75 countriesSocGen has over 13 million customers in France and throughout the world.It operates 2,600 agencies in France.

UBS Warburg

225 employees

13 8 1 UBS AG was founded on 29 June 1998 after the merger of Union Bank of Switzerland and Swiss Bank Corporation.


225 employees

150* 142 1 The National Bank of Greece, the country’s largest bank, has more than 600 branches in Greece and operates in nearly 20 other countries. The National Bank of Greece once served as the Greek central bank, and the government controls more than a third of the bank.

* National Bank of Greece


Quarterly DI-900 Analysis of Individual Banks – December 2001

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Quarterly DI-900 Analysis of Individual Banks – December 2001

No.

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AboutPricewaterhouseCoopers

PricewaterhouseCoopers is the pre-eminent professional services organisation in the world, with phenomenal global and local resources. Our global network operates in 150 countries, with 165 000 partners and staff. We have a signifi cant presence in every major market, both established and emerging, which makes the fi rm a global powerhouse with an unmatched ability to serve global, national and local clients.

PricewaterhouseCoopers is the major player in South Africa, and our diverse client base covers the full spectrum of economic activities. We bring appropriate local knowledge and experience to bear and use the depth of our resources to bring clients

a professional service, specifi cally tailored to meet their requirements. In providing these services we are constantly aware of the importance of our social responsibility to the communities in which we operate, and are committed to the successful implementation thereof throughout the fi rm and in our dealings with clients.

PricewaterhouseCoopers is the leading professional services provider to the world’s top fi nancial services organisations. We have an industry-focused practice dedicated exclusively to the investment management, capital markets, private banking/wealth management, mutual fund, insurance and brokerage communities.


The ongoing transformation of the fi nancial services industry, through the key drivers of technology and capital markets, is dramatic and complex. As legal barriers fall between the various components in the industry, the fi nancial services sector is being shaped by megatrends such as convergence, consolidation and globalisation. Each of these megatrends has a signifi cant impact on the way our clients manage and think about their businesses.

We have the largest specialist fi nancial services practice in Southern Africa, managed by a multidisciplinary team of auditors, management consultants and tax advisers. Our strategy is to bring signifi cant business advantage to our clients through combining our global multidisciplinary teams, integrated across industry sectors, geographies and functional skills to bring our global best practices and creative problem-solving to bear.

Our banking practice has taken the lead in presenting signifi cant research on the local banking industry in order to complement

our substantial international research projects. The PricewaterhouseCoopers “Foreign Banking in South Africa” surveys done in 1996, 1997 and 1998 have been supplemented in 1999, by our survey, “Investment and Merchant Banking in South Africa”, and in 2000, 2001 and 2002 by “Strategic and Emerging Issues in South African Banking”.

Furthermore, at an international level, research includes two global surveys titled “Tomorrow’s Leading Investment Bank” and the more recently released “Tomorrow’s Leading Retail Bank” which were carried out in cooperation with the Economist’s Intelligence Unit. The fi fth European Private Banking Survey, for 2000/2001, was published earlier this year whilst the fi rst North American Private Banking Survey was released in 2000.

We act as auditors to more banks, life insurance companies and short-term insurance companies in South Africa than any other professional services fi rm.

Contact:Financial Services Barry Stott +27 11 797 4321Banking Tom Winterboer +27 11 797 5407Life Insurance Herman Wessels +27 21 529 2000Short-Term Insurance Barry Stott +27 11 797 4321Asset Management Deon Viljoen +27 11 797 4346

Financial Services


Assurance and Business Advisory Services (ABAS)The ABAS service line comprises four core services namely:

Assurance ServicesCentral to our work in this area is the audit or attest function. Our audit work includes statutory and regulatory audit and treasury services. Our Assurance Services are undertaken with precise service commitments, which underpin every aspect of the way in which we manage our audits, enabling us to utilise our resources in the most effi cient way, to provide an exceptional service.

Global Risk Management Solutions (GRMS)Enormous pressures confront management today, and issues such as risk, complexity, and uncertainty defi ne the business environment. Intense competition, globalisation, changing customer expectations, workplace pressures, new technologies, regulatory compliance requirements, fi nancial volatility, and countless other factors compel organisations to drive, as well as manage change in order to fulfi l shareholder demands for maximum returns and enhanced value.

Organisations worldwide are realising that risk is no longer a liability but, properly managed, a powerful asset that can bestow competitive advantage. At PricewaterhouseCoopers, risk management services are integrated through our Global Risk Management Solutions (GRMS) division, and our professionals are trained to take an enterprise-wide view of clients’ risks.

The evolution of risk management into complex fi nancial risk models and processes over the past few years has resulted from changing credit, operational and market risk environments. Our Financial Risk Services Division, The Riskhouse, provides consulting services using fi nancial architecture to address these issues faced by our clients. Our services include identifi cation, assessment and quantifi cation of all fi nancial risk elements. We also focus on specifi cation, selection and implementation of risk management and treasury systems.

The comprehensive capital adequacy requirements in terms of the new Basel Accord presents additional challenges to management of fi nancial institutions. Our specialists are trained to assist clients with Basel II diagnostic procedures and implementation.

Transaction ServicesPricewaterhouseCoopers Transaction Services is involved in more deals around the world than any other professional services fi rm. This involvement could be anything from assisting a buyer in price negotiations to advising on the most effective tax structure for a newly acquired business. We serve clients in domestic, cross-border and global transactions.

Transaction Services’ main product is due diligence reviews of varying scope. These reviews are focused to cater for the needs of different stakeholders and to ensure that critical issues are addressed, including uncovering potential fi nancial and strategic risks and rewards, and helping our clients use the due diligence fi ndings to their full advantage during the deal negotiation.

Services we offer


Forensic ServicesForensic Services brings to bear a broad spectrum of accounting and fi nancial analysis techniques to reconstruct the history of a transaction and determine the true facts. Our specialists are expert witnesses accustomed to challenge and seasoned in the presentation of facts in the face of vigorous cross-examination. Products and services include dispute resolution, insurance claims services, construction dispute services, IT and legal systems support, intellectual property, commercial crime investigations, asset recovery, fraud risk management, anti-money laundering services and business ethics advisory services.Contact: Malcolm Dunn Tel: +27 11 797 4317

Tax and Legal ServicesTaxation is one of the biggest cost items in any business, yet it is one of the most manageable. Using state-of-the-art methodologies and technology, coupled with specialist skills, our national team of advisers can assist you to control and minimise your tax burden by providing innovative and practical tax and business solutions. Our advice covers all aspects of South African direct and indirect taxes, exchange control regulations and labour law. Through our extensive network of international offi ces we are also able to provide you with current and specialist advice on structuring your international business operations and investments.Contact: Paul de Chalain Tel: +27 11 797 4280

Corporate FinancePricewaterhouseCoopers’ Corporate Finance practice provides comprehensive fi nancial, economic and strategic advice to companies facing complex business challenges. Our Corporate Finance team

has developed a reputation for excellent advice, strong relationships and unique levels of independence. These attributes, coupled with a vast range of experience, have made PricewaterhouseCoopers Corporate Finance a key corporate adviser in the South African market. Our position has been reinforced through the completion of key local and cross-border deals.Contact: Pieter van Huyssteen

Tel: +27 11 797 5068

PwC Consulting Today’s business climate is volatile. Globalisation, the advancing speed of technology and market convergence are all shaping the future. Organisations that want to survive and thrive are increasingly fi nding that they need to transform the way they do business.

For PwC Consulting, business transformation is both our mission and our methodology. We help the world’s leading organisations defi ne where they want to go. And we help them get there. Focusing on partnership, our teams work closely with our clients to turn innovative ideas into bold, meaningful actions. We create the future of business, together.

PwC Consulting integrates its service offerings to provide maximum value to companies in helping them meet their business objectives. Contact: Alfons Meyer Tel: +27 11 797 4133

E-businessThe commercial world is being turned upside down. E-business is the biggest opportunity for business since the Industrial Revolution, presenting limitless opportunity and boundless potential. It’s the e-


revolution. There’ll be winners, survivors and losers. New leaders will emerge and PricewaterhouseCoopers can help them to do so.

Advances in technology that once took years now occur in months or even weeks. New virtual businesses are created every day, and previously unlikely competitors now vie for market share in places never before possible.

E-business is a driving force of this phenomenon, and technology provides its backbone and infrastructure. At PricewaterhouseCoopers, we have the technological knowledge and business experience to help our clients strengthen and grow their businesses. This will help them to gain the e-business edge in this new information economy. E-business is a common thread that runs through all of our service lines and industry groups, and permeates every aspect of our businessContact: Doug Franke Tel: +27 11 797 5170


Contacts for Banking Services

Durban

PO Box 1049

Durban

4000

Tel [27](31)250-3700

Fax [27](31)202-8220

Contact: Steve Ashforth

Namibia

Windhoek

PO Box 1571

Windhoek

Tel [264](61)284-1000

Fax [264](61)284-1001

Contact: Dawie Fourie

Swaziland

Mbabane

PO Box 569

Mbabane

Tel [268]404-3143

Fax [268]404-5015

Contact: Paul Lewis

Botswana

Gaborone

PO Box 1453

Gaborone

Tel [267]35-2011

Fax [267]35-3901

Contact: Uttum Corea

Malawi

Blantyre

PO Box 1147/1064

Blantyre

Tel [265]620-322

Fax [265]621-215

Contact: Kevin Carpenter

Zimbabwe

Harare

PO Box 453

Harare

Tel [263](4)307-213

Fax [263](4)332-495

Contact: Gerard Barabich

Mocambique

Maputo

PO Box 2583

Maputo

Tel [258](1)307-620

Fax [258](2)307-621

Contact: Rob Walker

Southern Africa

South Africa

Johannesburg

Private Bag X36

Sunninghill

2157

Tel [27](11)797-5819

Fax [27](11)209-5819

Contact: Tom Winterboer

Cape Town

PO Box 2799

Cape Town

8000

Tel [27](21)529-2000

Fax [27](21)529-3300

Contact: Herman Wessels

Pretoria

PO Box 1093

Pretoria

0001

Tel [27](12)429-0000

Fax [27](12)429-0100

Contact: Johan Cloete


Notes

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strategic and emerging issues in south african banking · • december 2001 quarterly di 900...

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