In a new, post-recession world marked by what will certainly be more stringent regulation, lower returns and enhanced competition, financial services is concentrating hard on information technology to run leaner and meaner – as well as smarter – in terms of the ability to align itself with what “is coming down the line”.
This is according Warren Knott, sales and marketing manager at Data-Afrique, the Cape-based IT solutions company focused on the financial services sector.
Knott says the financial services sector – and the banking sector – are increasingly focusing their attention on adopting smarter technology to stay ahead of competitors and continually refine competitive edges in what has become hyper-competitive business sectors. They are also looking to acquire, or upgrade, technology at “competitive prices”.
“South Africa is not going to be excluded from this trend – and it is a trend that will play out during the next two years. Those players that don’t harness the latest technology – and use it smartly – are going to find it tough going.
“Everyone – from analysts, the consumer, to watchdogs – are watching what is going on in the banking and financial services sector. They are watching with dubious eyes, knowing that reckless lending ultimately led to what was the worst recession since the Great Depression of the 1930s.”
Luckily, due to the timeous introduction of the National Credit Act (NCA), the South African bank and financial services industries were not as badly affected as their overseas counterparts. While their profits were maybe not shining, they at least were not haemorrhaging red ink like many of the overseas banks, many of whom had to be bailed out by their governments.
However, while South African banks have emerged relatively unscathed from the global financial crisis – and are ahead of most international peers – a number of challenges remain.
Data rating agency Standard & Poor believes local banks survived the downturn due to their sound risk management practices and adequate regulation, which, to a large extent, shielded them from “toxic US-structured products and foreign debt”.
Knott says regulatory capital ratios for banks are higher on average for developed economies.
“In my opinion this went a long way towards boosting investor confidence in the sector throughout the domestic downturn. But, more than that, the National Credit Regulator enforced its affordability tests and interest rate caps for consumer loans – and this helped the local market to stay in far better shape.
“We witnessed far less reckless spending and this held the expansion of credit at bay. But, it must be noted that the SA banking sector is not completely immune to risks to its stability and growth – and this is still having a bearing on the creditworthiness of its institutions.
“Additionally, South African banks are struggling to improve their asset quality because non-performing loans (NPL) are remaining on the books longer then originally anticipated. The percentage of total loans classed as NPL is currently reducing very slowly, reflecting the slow recovery of the real estate market and the wider economy – plus the lengthy debt recovery process.”
Revenue, he adds, is being further restrained by difficulties in growing the loan book and the long term interest rates. As a result, banks are attempting to rigorously control costs – and this, to a large extent, is where leveraging technology cleverly can help.