Johannesburg - Executives in the financial services industry will go into the festive season break contemplating how to further insulate their firms from the economic downturn which for the better part of the year has put businesses and consumers in a precarious position.
Retail banks will close the year battling a spike in bad debts. Insurance firms are dealing with poor underwriting conditions and an increase in policy terminations. And asset managers are reeling from volatile financial markets, triggered by the collapse of the US housing market and colossal subprime mortgage losses.
Many economic indicators now point to a South African economy under siege.
Retail sales, especially those of new vehicles, are in free-fall, house prices are falling unabatedly, household debt is at historic levels and inflation has stayed above the 3% to 6% target range. In addition interest rates, food and transport costs are at unbearably high levels.
"All of these have proved to be a lethal cocktail for consumers this year. The consumers are struggling to keep up with high living costs and as a result bad debts have been rising," says Simpiwe Tshabalala, chief executive of Standard Bank.
The nature and severity of the economic slowdown has pushed black economic empowerment off the agendas of corporate boardrooms as chief executives became engrossed in prioritising profit retention and cash conservation.
From an employment equity point of view, Tshabalala was the only noticeable senior black executive to scale new heights this year. About R1 trillion of the bank's R1.4 trillion assets are in South Africa and Tshabalala has the responsibility of growing them.
Another BEE blight this year was the financial services industry's failure to gazette its empowerment charter into a BEE code to comply with the department of trade and industry's (DTI) BEE legislation.
Labour and civil society have stalled the process by rejecting the sector's bid to gazette the charter into a code because it did not comply with the DTI's black direct ownership target of 15%.
The charter, signed in 2003, set black direct ownership at 10%. Its opponents are not backing off and want financial services firms to raise their black direct ownership to 15%. There will be no new BEE deals in the sector until the stand-off is resolved.
And while senior government officials, trade union leaders and industry captains attempted to resolve the impasse, another bitter dispute erupted. Banking giant Absa made a R35.7m bid to acquire the whole of Eastern Cape lender Meeg Bank and integrate it into its empire.
The Black Management Forum (BMF) and the National African Federated Chamber of Commerce and Industry (Nafcoc) viewed the move as an anti-BEE raid on one of the last two black-controlled banks in South Africa.
Meeg Bank investor Zinzile Nkonki, with the backing of the BMF and Nafcoc, approached the Grahamstown High Court to prevent it from sanctioning the purchase of a 26% stake of Meeg by Absa.
The dispute finally ended when the court ruled in favour of Absa, paving the way for Meeg to be amalgamated into it. However, the banking giant has indicated that it was willing to sell Meeg to an interested black-owned buyer.
Going into the new year, the insurance sector will have its work cut out. It has failed to roll-out its affordable Zimele products in poor households with a monthly income of less than R3 500.
According to the Financial Sector Charter Council's yearly transformation report, the sector failed to meet the 23% target of people in the LSM 1 to 5 category by the end of last year. It only reached 13%. Next year the council, which monitors transformation in the financial services industry, has set the insurance sector a target of 33%.
The failure of the insurance industry is in stark contrast to the success of the banking sector, which extended banking to about 80% of people in the LSM 1 to 5 category through its Mzansi account.
Executives can, however, expect an improved inflation outlook next year.
"I expect inflation and interest rates to come down next year. This will have a beneficial effect on consumers in terms of reduced living costs. But I think we will still have a difficult year in terms of job cuts, lower economic growth, and lower house prices," says Rob Shuter, the managing director of Nedbank's retail unit.
However, Shuter does not expect job cuts at his bank, in contrast to Absa which is planning to retrench up to 500 of its staff.
Standard Bank's Tshabalala, whose company reported bad debt provisions of around R4.5bn in its half-year results, believes careful credit granting is crucial for future business.
- City Press