SA’s banking regulator is looking at how it could create further ‘tiers’ of commercial banking licence, which could make it easier for smaller banks with less capital to enter the market.
This comes at a time when the Prudential Authority (PA), which regulates SA’s banks and insurers, is seeing increased interest in applications for the various types of “deposit-taking” licence, which include mutual banks and co-operative financial institutions along with commercial banks.
Relatively few new banks have been allowed into the industry over the past two decades since SA’s 2002/23 small banks crisis, with the banking regulator treading a careful line between safeguarding South Africans’ deposits and the stability and soundness of the banking system while creating space for more competition in the sector.
The licence approvals for new banks — such as Discovery, Tyme and Bank Zero — a few years ago came after a long drought. But PA CEO Fundi Tshazibana said this week that the regulator had seen a lot more interest in banking licences than in the recent past.
The PA, which is housed in the Reserve Bank, granted one new licence during its financial year to end-March, approving the graduation of the Young Women in Business Network from being a co-operative financial institution to a mutual bank.
It received five other applications. It has since approved one of these, for Old Mutual, which unbundled its controlling stake in Nedbank in 2018 but is now going back into banking in its own right. The new bank has yet to be named but Old Mutual has indicated it will target the mass market.
For a full commercial banking licence, a bank needs at least R250m in capital and must comply with the full suite of banking rules and regulations in line with the global Basel regime.
However, SA’s legislation also provides for the licensing of mutual banks and co-operative financial institutions which are subject to somewhat less onerous requirements and supervision — though the PA emphasises they are not less regulated.
The PA’s Olaotse Matshane said the regulator was getting a lot of pressure for more tiering in the commercial banking space, and was talking about how it could further tier the commercial bank licence. The PA is also doing work, with the Treasury, on the concept of “mutuality” and how it is being applied in the mutual banks space.
“We think having a banking system that has got banks that cater for different needs makes sense. But there is work that has to be done by the Treasury as the policymaker,” Tshazibana said.
The debacle of VBS Mutual Bank, which was licensed as a mutual bank and collapsed in 2018 amid extensive fraud, has raised questions about mutual banks. Tshazibana said lessons had been learnt, including the need for banking regulators to intervene earlier.
But SA did need different types of deposit-taking institutions. This was important for financial inclusion. “And you also need to have regulation and supervision that’s proportionate — so that you don’t make everyone a Standard Bank Group,” she told journalists.
The PA’s latest annual report shows SA’s banking sector is still dominated by the five largest banks, which collectively held 89.7% of total banking sector assets of R7.8-trillion at end-March, up from 89.5% a year ago.
Local branches of international banks hold a further 5.95% with other locally registered banks accounting for 4.36%. Though there are only a handful of mutual banks, with total assets of R3.4bn, the report said the mutual banking sector was profitable after a prolonged period of losses.
The co-operative financial sector comprises six co-operative banks, with total assets of R529m, as well as 24 other co-operative institutions.
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