South African Savings Initiative Macro view of bank assets and liabilities Round table discussion Nkosana Mashiya National Treasury

Outline Macroeconomic successes Financial Stability Bank Stability Liquidity Capital Adequacy Bank Assets and liabilities Efficiency Ratios Challenges National Treasury initiatives on financial inclusion

Macroeconomic successes South Africa’s Macro Economic Successes Economic Growth Economy has proved fairly resilient to 2005 oil price shocks Growth rate is expected to average 4,9% this year, rising to 5,2% in 2008 (NT estimates) Financial sector growth:8,3%

Financial Stability Financial Stability Stable investment environment exchange rates Reserves Interest rates Growth in banking sector Effective monetary policy

Bank Stability Banking Sector World Class banking system Compliant to international bank standards (Baslle II) Sophisticated corporate governance structures Internationally compliant risk-management systems

Capital Adequacy Capital adequacy International benchmark: 8% of RWA SA Benchmark:10% of RWA SA Banks voluntary capital 2003 – 12,2% 2004 – 13,5%

Liquidity Liquidity Statutory liquid assets requirement (SLAR) is 20% Average daily amount of liquid assets held by bank exceeds the SLAR Slight drop between 2003 and 2004, but still above the SLAR

Total Bank Assets & Liabilities R1 498bn (’04) (8% increase since ‘03) Big 4 own 83,7% Domestic Deposits R910bn (60% of total deposits)(Main source of funding)

Total Bank Liabilities

Composition of bank liabilities Fixed & notice deposits decreased by 3,8 % points during 2004. Demand deposits as a percentage of total non-bank deposits decreased from 52 % to 47,1 %. Low interest environment

Composition of bank liabilities Negotiable certificates of deposit (NCDs) as a percentage of non-deposits increased significantly, from 3 % in 2003 to 12,1 % in 2004. (stamp duties on NCDs removed in 2004) .

Composition of bank liabilities

Short-term deposits Short term deposits = largest component of total non-bank funding (67,4 % of total non-bank funding at 31 December 2004) 73 % at the end of December 2003 and 69,6 per cent at the end of December 2002.

Medium-term deposits Growth in medium-term deposits, decreased from 10,6 per cent in January 2004 to 0,2 per cent in June 2004. due to the deregistration of an A-2 rated bank. By November 2004, growth in medium-term deposits had increased to 54,3 %, before moderating slightly to 47,4 per cent in December 2004.

Medium-term deposits Medium-term deposits accounted for 22,9 % as at 31 December 2004, 18,7 % and 19,6 % at the end of 2003 and the end of 2002, respectively. Long-term deposits remained smallest component of total non-bank funding 9,7 % of total non-bank funding at 2004, compared to 8,3 % and 10,8 % at the end of 2003 and 2002, respectively.

Long-term deposits Growth in long-term deposits increased markedly from March 2004 (see figure5). Increased by 40,9 % by the end of December 2004. Attributed to the low interest-rate environment since 2003. Significant decrease in interest rates in 2003 resulted from a relaxation in South Africa’s monetary policy during that year.

Long-term deposits From June 2003, repurchase rate was reduced by 450 basis points. Currently, big five banks hold more than 89,6 per cent of long-term deposits. Market Confidence

Short to long term

Other Major Liabilities Other major liabilities:foreign funding R45,8bn (increased by 18 % when compared to the December 2003 level of R38,8 bn),

Bank Assets The banking sector's assets increased by R118,3 billion (8,6 per cent) during 2004, to a total of R1 498,1 billion at the end of December 2004.

Growth in bank assets Factors contributing to asset growth : Monetary assets grew by 12 %, from R28,8bn as at 31 December 2003 to R32,3bn as at 31 December 2004. Non-bank advances grew by 15,8 %, from R876 bn at the end of December 2003 to R1 014,1 bn at the end of December 2004. Loans granted under resale agreements decreased by 37,2 per cent, from R46,4 bn at the end of December 2003 to R29,2 bn at the end of December 2004.

Growth in bank assets Trading and investment assets grew by 0,9 %, from R328,1bn at the end of December 2003 to R330,9bn as at 31 December 2004. Non-financial assets decreased by 5,1%, from R12,3bn at the end of December 2003 to R11,6bn at the end of December 2004. Other assets decreased by 5,9 %, from R26,7bn at the end of December 2003 to R25,1bn at the end of December 2004.

Composition of bank assets

Aggregate Balance Sheet structure

Efficiency Ratios=Operating expenses to total income

Challenges International standards Basle Capital Accord Anti-money laundering & terrorism financing Broad-Based Black Economic Empowerment Access to financial services Half of adult = no access to financial services (Finscope)

National Treasury Initiatives on financial inclusion Cooperative Banks Bill Dedicated Banks Bill National Payment System reform Deposit Insurance Scheme Broader microfinance policy

Summary Stable and growing financial sector - 8,3% (above national average) High levels of financial exclusion Financial Sector Reform Bank legislation

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Key Findings financial diaries Substantial financial portfolio managed by low-income people Enough budgeting power to save Cash flow analysis Rapid growth in liquid financial assets leads to increase in net worth

Key Findings financial diaries Growth in financial assets improves financial status of low-income people Missing – effective mechanism for building sustainable financial assets

Key Findings financial diaries Smoothen spending patterns Safety Risk of theft