Johannesburg - Foreign banks operating in SA have voiced criticisms regarding capital adequacy and reserve requirements.
This was one of the findings of the PricewaterhouseCoopers (PwC) survey on banking in South Africa - Strategic and Emerging Issues in South African Banking, released on Tuesday.
Tom Winterboer, PwC Banking and Capital Markets Leader said: "These players are concerned about their ability to generate adequate profits. The foreign participants have also expressed a view that they believe the large domestic banks are using high margins in their retail operations to cross-subsidise their corporate banking divisions.
"Foreign banks are expecting to continue their gains in market share in the merchant and investment banking sectors, but are less confident on making progress in retail banking. They have indicated that they may leave certain sectors of the banking market if the returns are not satisfactory."
Changing perceptions
Winterboer said an interesting contrast between the 2007 survey and the previous survey of 2005, is that banks now make no mention of the perceived cartel-like approach adopted by the big four retail banks in South Africa - Absa, FNB, Nedbank and Standard.
"The number of banks finding the SA banking market as overcrowded continues to decline. This time round, there was some focus on the perceived poor service levels in the retail banking sector.
"Banks are far more aware of widening demands from informed and sophisticated retail customers. They can see a rising tide of consumerism and their strategies now include differentiating themselves on customer service.
"Favourable growth in retail is expected until at least 2010, but foreign banks have indicated they have had disappointing or negligible success from this sector."
Winterboer said out of the six different market sectors surveyed in terms of competitiveness, the home mortgage market has now replaced the corporate banking sector (now in second place) as being the most competitive banking space.
Crime tops list of concerns
Winterboer said: "A new priority, from a list of macro issues affecting bank's operations, coming out of this year's survey is that banks are now placing the issue of crime, followed by recruitment of good personnel, at the top of their lists.
"Banks reported that emigration and inhibiting immigration policies are constraining the availability of quality staff and at the same time they have to address the requirements of affirmative action and employment equity."
Foreign and local banks have different areas of focus, with foreign banks intent on driving revenue growth. They also indicate a far greater commitment to South Africa from their parent companies than a few years ago, but foreign exchange controls in the country remain a concern to them.
In contrast, local banks are placing emphasis on client retention, capital and risk management, and banking the unbanked through the presence of more physical branches and ATMs.
Banks are looking to sub-Saharan expansion, are addressing the opportunities coming from the growth of the black middle market and a resurgence in corporate credit demand, and note the recent growth trends in private equity and non-BEE leveraged buy-outs.
Standard Bank was rated first in several categories by its peers and competitors: Corporate banking, listings, foreign exchange trading, bonds and derivatives, money market, internet banking (joint first) and trade finance.
It is significant though to note that Investec was rated first for private banking and commercial property and finance while Absa was first for mortgage and retail lending, which comprises 60% of its assets.
Winterboer said the PwC survey hopes to raise awareness of strategic issues facing banks in SA, establish data on SA trends, encourage debate on how to capitalise on these developments, and improve performance in the banking sector.