SA BANKING NEWS
of policy and whether there is a level playing field between bank
debt and bonds.
• Project-specific credit support. The degree of credit support for
infrastructure projects varies substantially by market. Not all markets
have a certain class of investors seeking highly rated infrastructure
debt. For many markets, project credit enhancement is not relevant.
In these markets, a significant amount of infrastructure is either built
by government directly or funded by state-owned banks. Where
infrastructure is privately financed, it is usually done so through
corporate guaranteed loans or bonds.
These four areas represent clear priorities for governments looking to
establish a private infrastructure project bond market in order to get
infrastructure ventures financed.
With these four prerequisites in mind, the PwC study analyses
the current conditions in markets around the world to determine the
feasibility and attractiveness of financing infrastructure projects. The
study shows that African countries need to look at alternative forms
of financing infrastructure. Across most of the continent reforms have
been focused on getting sovereign funds issued, usually to finance
infrastructure development.
PwC maintains that it is important for African issuers to appeal to
investors by focusing on the “basics” of increasing transparency in the
financial markets and co-ordinating more effectively across borders.
According to the report, commonly needed reforms include deregulation,
a lifting of capital controls, and stronger governance and disclosure.
‘Given the regulatory pressure on banks, it is difficult to see them
continue financing at pre-global financial crisis volumes or terms should
investment levels recover. This gap will need to be filled by capital market
products – directly or indirectly – continuing the recent evolution of the
project finance market.
‘It is evident that infrastructure bonds hold clear appeal for
institutional investors, project sponsors, and governments seeking to
get projects funded,’ concludes Gibbs.
Rivalry in retail banking
The retail banking industry in South Africa is a highly competitive
market. The depressed credit market coming out of the financial crisis
of 2009 has resulted, according to KPMG South Africa, in local banks
‘embarking on a more focused undertaking to increase revenue. This
is either through increased growth into the “high-risk, high-return”
market of unsecured lending, or supplementing the low growth in
interest income with other fee income’.
The unsecured lending market, KPMG said in a statement in
January 2014, has been shrouded with allegations of reckless lending
practices that are non-compliant with the National Credit Act
(NCA). ‘Not surprisingly, the major banks are moving away from
this market. Amendments to the NCA are expected to further curtail
growth as fixed-cost structures and credit amnesty are introduced.
‘Banks are striving to grow customer volumes and to generate feeincome through services (card fees, administration fees, transaction
fees). One of the big four local banks is one case in point – through a
digital media strategy, including social network marketing or above
the line marketing. The bank is clearly on an aggressive customer
campaign. On the other hand, another local bank has taken a
different approach with the recent introduction of a new bank
loyalty programme, offering attractive incentives to clients.
‘These two banks have identified that customers are no longer
only focused on traditional banking products, but on the value-add
that they receive hassle-free.’
The flow of customers from one bank to another is also dependent
on the ease with which a customer can open a new account or
switch an existing account. The banking industry in the UK recently
launched new switching rules aimed at making their retail banking
sector more competitive by allowing customers to switch more
easily between banks.
The latest rules aim to cut the transfer time from up to a month,
down to seven days, and oblige the bank to oversee all incoming and
outgoing payments. Ahead of the launch, UK banks have started to
roll out new incentives to woo customers.
This trend will increase focus on the affordability and competitive
nature of banking fees in South Africa. ‘While the country has a
mature financial services industry, the relative monopoly that the
four big local banks operate has not allowed or made it viable for
foreign branches to open retail banking operations on our shores,’
KPMG stated. ‘While some of the smaller local banks have started to
eat into the customer base of these four, based on simple bankingfee structures catering to the lower end of the market, banking fees
are still considered relatively high compared to those in developed
markets. Time will tell whether or not the banks will start a price
war to gain clients. Although with the value-add that banks are
marketing to customers, banking costs may still remain low on the
customers’ radar.’
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2014/04/07 9:02 AM