Basel 3 ‘could choke’ banks that do not adapt
THE most comprehensive set of regulations imposed on local and global banks in 70 years could potentially choke the life out of them, unless they innovate, adopt new revenue streams and do business in a smarter way, advisory services firm Deloitte said on Thursday.
The regulations threatened revenue growth at a time when costs were increasing and demand for credit in South Africa was soft, owing to high consumer debt and large corporate cash deposits of more than R540bn. The worst part for local banks was that they appeared to be unjustly punished for problems that affected global peers, which have led to regulators imposing tougher rules, said Deloitte financial services industry country leader Roger Verster.
Local and global banks have been told by the Basel Committee on Banking Supervision to raise capital levels, as a buffer against losses and unexpected shocks to their business, under rules known as Basel 3.
Standard Bank Group deputy CEO Sim Tshabalala said on Thursday that over the past two years, local banks had faced nearly 100 new proposed policies, laws or regulations. "Every new regulatory requirement creates complexity, and therefore adds to the cost of doing business for South Africa’s banks and our customers," said Mr Tshabalala.
First National Bank CEO Michael Jordaan said on Thursday that in addition to regulations, local banks would be affected by the continued unemployment crisis and the "significant" slowdown in South Africa’s gross domestic product growth.
Mr Verster said local banks could not escape the regulatory onslaught even though they had some of the world’s strongest capital ratios.
"Even though our banks were not responsible for, nor directly involved in the challenges that enveloped the global economy, they are caught by the fact that they are active players in a regulated global market.
"They therefore have to contend with the regulatory and economic aftermath that has resulted," he said after the release of a new report by Deloitte on the global banking outlook for next year.
Among other findings, the report said bankers would be confronted with a number of challenges on how to overcome regulatory pressure, grow revenue and respond to fast-changing technology.
"A careful assessment of the impact of regulation, combined with strategic repositioning, may drive a variety of mergers and divestitures across the banking asset scale," the report said.
Mr Verster said rather than complain about regulatory and other challenges, banks had to realise life has to go on. They need initiatives such as improving service, differentiating their product offerings, embracing technological developments such as mobile banking and cutting costs to improve efficiencies.
The big four banks admit they need to further cut costs as their cost-to-income ratios of more than 51% are still too high.