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Johannesburg - An increasingly complex and onerous global regulatory environment, combined with difficult market conditions, is compelling banks to make tough strategic decisions that could reshape the industry, according to Roger Verster, FSI consulting leader at Deloitte.
He said the South African financial services sector will not be able to avoid being impacted by regulatory changes such as the Basel III.
While yet to be fully implemented, these higher capital requirements and more stringent risk-weighting rules have forced banks to make choices about areas in which they compete.
Globally, these and other regulations have led to banks shrinking balance sheets, re-evaluating existing and potential foreign operations and even closing business units.
The result has been that many financial institutions have become increasingly specialised, concentrating on reducing their number of product offerings and divesting from certain classes of assets.
South African banks are presently all things financial to all people, with broad client bases and offering products and services that extend from day-to-day banking products through to short and long-term insurance needs, explained Dirk Kotze, banking industry advisory lead at Deloitte,
The benefit of this approach is that multi-product, multi-segment banks can generally ride downturns in specific sectors.
Socia-political impact
Darren Shipp, banking industry advisory lead at Deloitte said the potential specialisation of banks caused by the regulatory environment would seem to be in conflict with the socio-political role played by the South African banks in providing access to financial services to all the people of South Africa.
Consequently South African banks would have to balance the objectives of profitability and their social responsibility.
The danger of specialisation is that as soon as products are withdrawn the concentrated exposure within a specific area increases markedly - with potentially serious consequences if that market becomes volatile.
Within an African and South African context, one of the major dangers of regulation induced specialisation is the size of market segments.
This has to be carefully considered by financial institutions that turn to specialisation as part of a push to provide higher levels of service and delivery within defined segments as part of a customer-centric strategy.
“Regional African banks and those with a Pan-African presence can therefore be expected to continue in their present multi-product, multi-service format for many years to come as this model meets the demands of a diverse customer base,” said Verster.
He warned that Africa and South Africa must be guarded against the unintended consequences of regulations and legislation.
Being forced by regulation to reconsider the positioning of products and services could, for example, see institutions restricting product offerings designed to ease the entry of unbanked people into the formal banking sector.
He said the South African financial services sector will not be able to avoid being impacted by regulatory changes such as the Basel III.
While yet to be fully implemented, these higher capital requirements and more stringent risk-weighting rules have forced banks to make choices about areas in which they compete.
Globally, these and other regulations have led to banks shrinking balance sheets, re-evaluating existing and potential foreign operations and even closing business units.
The result has been that many financial institutions have become increasingly specialised, concentrating on reducing their number of product offerings and divesting from certain classes of assets.
South African banks are presently all things financial to all people, with broad client bases and offering products and services that extend from day-to-day banking products through to short and long-term insurance needs, explained Dirk Kotze, banking industry advisory lead at Deloitte,
The benefit of this approach is that multi-product, multi-segment banks can generally ride downturns in specific sectors.
Socia-political impact
Darren Shipp, banking industry advisory lead at Deloitte said the potential specialisation of banks caused by the regulatory environment would seem to be in conflict with the socio-political role played by the South African banks in providing access to financial services to all the people of South Africa.
Consequently South African banks would have to balance the objectives of profitability and their social responsibility.
The danger of specialisation is that as soon as products are withdrawn the concentrated exposure within a specific area increases markedly - with potentially serious consequences if that market becomes volatile.
Within an African and South African context, one of the major dangers of regulation induced specialisation is the size of market segments.
This has to be carefully considered by financial institutions that turn to specialisation as part of a push to provide higher levels of service and delivery within defined segments as part of a customer-centric strategy.
“Regional African banks and those with a Pan-African presence can therefore be expected to continue in their present multi-product, multi-service format for many years to come as this model meets the demands of a diverse customer base,” said Verster.
He warned that Africa and South Africa must be guarded against the unintended consequences of regulations and legislation.
Being forced by regulation to reconsider the positioning of products and services could, for example, see institutions restricting product offerings designed to ease the entry of unbanked people into the formal banking sector.
