The Recent Performance of the Banking Sector in South Africa - Case Study Example

South Africa’s banking sector South Africa has several banking s, some which are regional /national while the rest are international companies. This work focuses on the banking business in South Africa and business analysis to determine the feasibility in the country. Personal banks are the most established financial institutions in the country. This is because of subsidized charges among other benefits. A recent study conducted by the Solidarity Research Institute on the South Africa’s banking business indicates that Capitec is the least expensive personal bank in the country. The research compared banking charges for the biggest five South Africa’s banks namely; Standard bank, First National bank, Ned bank, Absa bank and Capitec bank. The study used each bank’s personal transaction record to reach the verdict. Capitec has several customers due its low charges on withdrawals, monthly banking charges and reduced loan interest rates. This tends to attract businessmen, who depend on banking loan as their main source of debit capital. South Africa’s economy is based on banking institutions Monasa, 2008). However, not all is well with the banking institution in the country and the entire Africa as a continent. The financial sector in the country is greatly concentrated; this has limited the smooth flow of credit. Furthermore, high operations costs have discouraged most South Africans from enjoying the banking services. The banks are facing stiff business competitions from insurance companies as well as asset management companies. However, the top national economists lament that high concentration of the banking facilities may lead to an increased rate of national liquidity. This means that a big percentage of the national assets would be in monetary value. This is economic suicidal incase of economical disasters like that of global financial disaster of 2008. This would mean that the country may suffer from fluctuated global stock market rates (Morr, 2009). Chief economists advice that the economic stability of a country is well determined by its infrastructure, contributions to the global stock exchange markets, minerals and regional and international trade among other factors. Hence the minister for finance, Pravin Gordhan feared for the increased concentration of the personal banking sector in the nation. It is estimated that the biggest three banks in the continent hold about 75% of the market share. The deputy registrar of South Africa bank praised the banking sector for registering an increase in profit by about 35%, and bad debt increased by over 2.5 U.S billion dollars. They lamented that such increase in national debts pose a great threat to the national economy. Bad debts are those likely to be written off upon declaration by the top political leaders like the president and the ministers among others. The annual report also indicated that South Africa’s banking sector recorded a significant increase in its liquidity. To rectify the situation, some financial regulations named ‘Basel III financial regulations’ were established to prevent the government from keeping a bigger percentage of its assets in monetary form. These regulations were first implemented at the beginning of the year 2013, but full implementation is expected to be in the year 2018. The regulations guide the banking sector during financial stress to reduce the national liquidity ratio. The success of South Africa’s banking sector is based on major banks namely; Absa, FirstRand, Nedbank and Standard bank among others. The banks registered a combined profit increase of 18% and a return on equity (RoE) by 16%. However, it is thought that the sector can still do much better with the implementation of Basel III regulations among other positive changes in the banking sector (Sharma, 2011). The current Minister for finance announced that South Africa’s banking sector success is a subject of the sector’s efficiency. Bank’s efficiency can be defined as the measure of bank’s overhead against its revenue. For the past 3 years, the Country’s banking sector has recorded a continuous drop in its efficiency, which is a good indication of the sectors’ growth. There are several factors contributing to the banks increase in revenue hence reduced efficiency. The country has played a great role in advocating for its banking services. This is through adverts in the internet, broadcasting TV and radio channels, which increased the number of clients or customers in the banking sector. Banking companies have also taken their own initiatives on the importance of banking. This is through banking tents in any national or regional occasions like sports and entertainment among others. Employers have also boosted banking activities by paying their employees through personal bank accounts. Several institutions like schools, hospitals, hotels, travel agents and real estates insist on reputable bank accounts for their transactions. The recent world cup and the Africa cup of nations have also boosted South Africa’s banking sector. Spectators came from all regions of the world to watch the most esteemed tournaments in the universe. Major transactions were carried through banking agencies. The visitors paid their travel fees, accommodation and entertainment through recognized bank accounts. This leads to greater revenue compared to the banking operational costs, hence an increase in profit but a decrease in efficiency. South Africa’s bank loaned several companies huge amounts to renovate existing sport facilities and construct new ones (Morris, 2004). Physical planning companies also got their capital (debit capital) from the banking companies like Standard bank among others. The loans were offered at favorable interest rates to increase the companies’ turn over. Real estate companies also sought reasonable amounts to construct more residential facilities to accommodate visitors who came to enjoy the soccer tournaments. The loan payment adheres to the Central bank’s interest rates which has never been stable. Financial reports lament that the banks are like to make a huge kill out of the loans for the preparations of the world cup and the African cup of nations among other major national events. Business in the country has also boosted the banking sector. The banks resolved in current accounts to suit majority of business men. The huge secret in the banking sector is having the numbers. International banks like Standard bank also created current accounts to attract more customers or students who would wish to make regular deposits or withdrawals. However, they stilled maintained traditional fixed accounts for multibillion companies like BP South Africa among other companies. The banking companies have collaborated with some governmental institutions to undertake some business projects and attract the more clients. For instance, South Africa’s famous or greatest markets are initiatives of the regional banking companies in collaborations with the governmental organizations like ministries among others. Another factor that boosted the banking business in the country is the advantage of first move. The banking company took advantage of emerging first in the market before other financial institutions like micro-finance and insurance companies among others. Some banking companies also purchased huge shares of Country’s companies like BP Africa among others. Both regional and international banking companies must conduct comprehensive business research before buying such huge shares. The banking sector has well observed the principle of deployment to reach more customers. Deployment implies establishing several branches in major parts of the country to make banking services accessible by majority of South Africans. Furthermore, the companies have banking agents in several remote regions whose population is not big enough to make the establishment of a banking hall feasible (Goyal, 2007). The companies also conducted proper or comprehensive market research before strategically locating the banking facilities. South Africa has at least ten or above banking facilities in major towns, around major learning institutions, major markets, major hotels and entertainment sites among other locations. South Africa’s Banking sector employs several analysis methods to ascertain the current situation with regards to its branding and marketing strategies. It considers both the internal as well as external environmental analyses in its business operations. Pestel analysis forms abbreviations for Political, Economic, Social, Technological, Environmental and Legal analysis. The banking sector obeys tax policies, labor legislations and environmental requirements among other political requirements. Economically, the sector has enjoyed the advantage of favorable global exchange, interest and economic growth rates. Furthermore, it enjoys the advantage of the first move, since banking institutions came first in the market before other financial institutions like micro-finance companies among others. The current banking rates depend on the first regional and international banking facilities (Liaw, 2000). The banking sector’s capital is always on a growing trend since it renders loans to regional and international companies at profitable interest rates (Proctor, 2008). The sector has used the acquired capital/ debit capital to expand its territories/ in the northern and central part of Africa. There are several South Africa’s banking companies in other parts of the continent .The social aspect is observed when the banking companies establish employment regulations that require it to acquire workers or specialists from different ethnicities, races or academic background and be treated equally to promote workplace diversity within the companies, their regional branches and associates. There is a banking board which ensures there is no bias with regard to handling of workers as well as clients or customers. In terms of technology, the sector has incorporated advanced and environmentally friendly technology in accounting, Human resource management, financial management, property management, loaning management and customer care technologies to beat its competitors. (Morr, 2009). The companies through their safety and environmental department have enhanced their quality management system by going ISO, so that their banking services are accepted not only in the country but the globe as a whole. Going ISO implies that a company is beyond doubt in terms of its products and services. Every one would wish to be associated with such companies due to their reputations and quality service delivery. ISO certified companies also adhere to some international regulations to attract clients from any part of the globe. The legality of the banking sector is at par since it has never been involved in a serious legal pursuit with its internal and external stakeholders. Furthermore, the government of South Africa has a banking board comprising of chief accountants, bankers, financial managers and lawyers among other professionals to represent the sector in matters pertaining smooth operations of the banking sector. Porter’s five forces is another important business evaluation method in business strategic management and prosperity. This method acknowledges the fact that a certain business sector or company is like to face five major oppositions or challenges. These challenges must be comprehensively handled to avoid a certain business being outwitted by its competitors (Marks, 2007). The South Africa’s banking sector handles the threat of new entrants/ competitors by providing quality banking services to its customers at a pocket friendly charges or interest rates to disadvantage new entrants like mobile banking, micro finance and insurance companies, among other financial companies. The banking sector has a remarkable brand name being the first to venture into the market before other financial institutions. (Bowie, 2004). Banking companies offer free financial consultant services to its clients to attract and retain more customers. The sector also recruits the best financial brains to offer more quality services compared to its competitors (Morr, 2009). The threat of substitute services or alternative companies are handled by the banking sector establishing internet or online banking (e-banking) to beat the modern mobile banking companies. Furthermore, specific banking companies have collaborated with mobile phone providers like MTN to save and transfer money at subsidized charges. Such mobile companies have more clients since we live in a generation where almost every adult owns at least a mobile phone, tablets, laptops and smart phones among other gadgets that enhance mobile banking. There are other financial companies like micro-finance companies which offer their services at much more subsidized rates to attract the low class who are the majority in the country (Joseph, 2001). Micro-finance offer loans to small business men at a comfortable interest rate. This has seen banking companies lose customers to them (Cravens, 2009). Marketing mix analysis uses the 4p’s principle to ascertain the feasibility or suitability of the banking business. The south Africa’s banking sector has a remarkable quality banking services which include banking, loaning and financial management consultancies among others to attract more regional and international customers and other external stakeholders like shareholders and consultants. The sector has a good distribution sector in terms of accessibility to all major parts of the country (Schmenner, 2004). To conclude, South Africa’s banking sector has indicated a continuous growth. The sector has registered a steady growth in annual profit and a reduction in its efficiency, meaning an increase in its revenue and reduction in its operational costs. The sector has been boosted by the last world cup and the Africa cup of nation hosted in the country. Increase of visitors and tourists boosted the banking sector. Most South Africa’s banks are ISO certified to attract more customers or shareholders among other external stakeholders from the country and all parts of the world (Proctor, 2000). The sector also enjoys the advantage of first move and deployment among other business advantages. Advantage of the first move is a result of banking business venturing into the market before other financial institutions like mobile banking among others. However, the main challenges facing the sector is the introduction of micro finance, asset management and insurance companies that tend to offer stiff completion. It would be better if banking companies collaborate with insurance companies so that all premiums are made through bank accounts and not cash. Collaborating with mobile phone providers like MTN to offer mobile banking, that is using mobile phone networks to receive, save and send money at a certain rate would boost the banking industry (Heffernan, 2005). Bibliography Bowie, D., Buttle, F. 2004. 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