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Financial Sector Overview

Economic Landscape

Ranked in the upper-middle-income category, South Africa is Africa's only BRICS and G20 member country and the continent's third-largest economy after Nigeria and Egypt. The country’s strengths include a sophisticated financial system (Africa’s first financial economy where financial services amount to 21% of Gross Domestic Product (GDP)); efficient democratic institutions; and significant natural resources (coal, platinum, gold, diamond, etc.).Between 2010 and 2017, the country registered an average GDP growth of 2% that was lower than that for sub-Saharan Africa (3.87%).The country is still dependent on the mining sector, which accounts for half of its export earnings. With one of the world’s highest Gini coefficients, at 0.65 in 2016, South Africa has a high income inequality disparity. The highly asymmetrical distribution of wealth reveals the deep duality of an economy where only 10% of the population owns 95% of the wealth. The country enjoys a favourable business environment despite the decline observed in the World Bank's Doing Business rankings. South Africa is ranked 82nd out of 190 countries in 2018 (82nd in 2017) compared to 34th in 2010, i.e. down 48 spots in less than a decade. According to the World Economic Forum's global competitiveness rating, South Africa ranked 67th in 2017 out of 140 economies, compared to 54th in 2010, i.e. a drop of 12 spots.

Financial Sector Overview

South Africa has a deep and sophisticated financial sector, which as of 2017, comprised of 34 banks, including 15 foreign bank subsidiaries. The sector had 5,158 pension funds, 176 companies (79 life insurance and 95 non-life insurance companies) and 5,591 credit providers (including 37,608 agencies). Financial market infrastructure has systemically important payment systems, central securities depositories, securities settlement systems and stock exchanges. In 2017, bank assets accounted for 108.1% of GDP. Bank credit stood at 79.6% of GDP, well above the sub-Saharan  average (21.3%). Pension fund and insurance company assets accounted for 89.3% and 64.3% of GDP respectively.

A new Financial Sector Regulation Act (Act No. 9 of 2017) was enacted on 21 August 2017. It initiated several major reforms in the financial sector: (i) South African Reserve Bank (SARB) was mandated to maintain and improve financial stability; (ii) SARB required to establish Prudential Authority responsible for regulating banks, insurance companies, cooperative financial institutions, financial conglomerates and certain market infrastructures; and (iii) the Financial Sector Conduct Authority was created to replace the Financial Services Board that initially had oversight over the non-bank financial services sector.

The new regulation was implemented as of 1 April 2018, in response to the 2007/2008 global financial and economic crises that led the South African National Treasury to adopt the Twin Peaks model - a financial regulation system based on the existence of these two separate regulatory authorities (Prudential Authority and Financial Sector Conduct Authority). South African authorities are also working towards strengthening anti-money laundering/counter-terrorist financing (AML/CFT). The Financial Intelligence Centre Act No. 38 of 2001 was amended in April 2017, introducing a fundamental change through the adoption of a risk-based approach (beyond the rule-based AML/CFT approach). Administrative sanctions have been imposed on several banks due to weaknesses in their control and compliance systems.

Banking Sector

Banking Market Structure - In 2017, the South African banking sector was dominated by 5 major banks holding 90.5% of the sector's total assets. Foreign bank subsidiaries held 5.9% of bank assets. The sector also includes 3 cooperative banks and 3 mutual banks. Banking sector assets reached ZAR 5,517 billion in 2018, or USD 362.6 billion. Bank asset trends have been inconsistent. They fell sharply in 2016 (0.9% compared to 15.6% in 2015), in line with a decline in the growth rate of loans and advances. Bank deposits remained above 85% of GDP between 2010 and 2018.

Banking Sector Credits and Deposits Structure - Credit to the private sector amounted to ZAR 4,115 billion (USD 270.1 billion) in 2018 or 82.3% of GDP. The economic slowdown led to a restriction of bank credit, which dropped by 2.9 and 2.4% respectively in 2016 and 2017. Real estate loans accounted for 24% of credit to the private sector. Bank deposits reached ZAR 4,449 billion (USD 292.1 billion) in 2018, or 88.9% of GDP. Term and notice deposits dominate bank deposits, with their share of total deposits averaging 29% (2012-2018), ahead of current accounts (20%) and demand deposits (18%). Businesses hold the majority of deposits with an average share of 42.7% of total deposits between 2013 and 2017.

Deposit and Lending Rates - Credit and debit interest rates followed a trend similar to the (average) key rate, resulting in a near-constant interest spread of 3.3% between 2010 and 2014, before dropping significantly to 3.1% in 2015 and 2016. To ease inflationary pressures, the SARB gradually increased its key rate from 5.0% in 2013 to 7% in 2016. The key rate was then reduced to 6.75% in July 2017, and then to 6.5% in March 2018 as a result of lower food prices, weak domestic demand and falling international oil prices.

Financial Soundness of the Banking Sector - The banking sector is well capitalised with levels consistent with the Basel regulatory frameworks, both for the capital adequacy ratio Tier 1 and total capital. The increase in the capital adequacy ratio since 2015 is attributable to the rise in bank profits and equity. Overall, liquidity requirements have been met. The liquidity coverage ratio remained above the required minimum of 80% following the accumulation of high-quality liquid assets. Asset quality gradually improved between 2012 and 2017 as the ratio of non-performing loans steadily declined from 4% in 2012 to 2.8% in 2017. The sector’s profitability stayed positive over the same period. Return on equity (ROE) declined slightly from 17.64% in 2016 to 15.98% in 2018. This decrease is partly due to the combined outcomes of lower interest income and higher operating expenses.  Return on assets (ROA), on the other hand, has remained around 1.3% since 2016.

Financial Inclusion

South Africa has a significantly higher level of financial inclusion than average in sub-Saharan Africa. 69.2% of the adult population (15 years and above) have an account (70% are women), well above the SSA average of 42.6%. However, despite progress made in mobile money and internet sectors, the share of adults with an account dropped by 1.5% between 2014 and 2017, according to the World Bank's latest Findex report. This downward trend also affects the loans and savings volumes of financial institutions, which dropped by 28.5% and 32.4% respectively over the same period. Access to financial institutions for the majority low-income households is limited to cash withdrawals from bank accounts created as part of social benefits. These social programmes cover about 17 million beneficiaries or more than one-third of the South African population. The decline in inclusion at the level of financial institutions is partly due to the high level of unemployment (27.7% in the first quarter of 2017 according to the IMF) and high costs of opening accounts. Besides, banks have little interest in SMEs and low-income households, because of the high risks associated with them. The recommended solutions include: (i) harnessing of credit information by facilitating the setting up of credit bureaus, including for SMEs; (ii) provision of additional financial services to the poorest segments of the population, taking advantage of bank accounts set up as part of social grants; (iii) strengthening competition in the banking system through the promotion of new actors, especially those helping to improve financial inclusion. High capital requirements (ZAR 50 million or USD 3.3 million) for the opening of deposit-taking institutions have limited their development, particularly in rural areas. Similarly, the current concentration of the banking sector (5 banks representing 90% of assets) could negatively affect the competitive dynamics of these deposit-taking institutions, innovation and cost reduction of financial services. The promotion of microfinance, a segment that is still underdeveloped, could also offer many opportunities in this direction; (iv) the development of a separate regulatory framework for banks serving SMEs, through the establishment of a multi-tiered banking system that would subject medium-sized banks to relatively less stringent regulatory requirements.

The Microfinance Sector - Microfinance in South Africa is growing. Several products are offered, such as micro-deposit services and wage-based micro-credits. Microenterprise loans are relatively new. The sector includes a variety of actors like commercial banks, cooperative banks, micro-lenders and financial cooperatives. The regulator in this sector is the National Credit Regulator. As of 31 March 2018, the sector had 6,191 lending institutions (5,591 in 2017) spread over 36,124 agencies, 23 authorized credit bureaus, 3 payment distribution agents, 4 out-of-court dispute resolution agents and 1,325 debt advisors. Credit bureaus create consumer credit profiles based on credit information received from credit providers, courts and utility providers, thus reducing information asymmetry in the industry. As of 31 March 2018, the sector had 24 million active members who took out consumer credit.

Digital Finance – In spite of strong mobile phone penetration, the mobile money market in South Africa is still in nascent stage. According to the World Bank, only 19% of the population aged 15 and above has a mobile money account, a level lower than the sub-Saharan average (20.9%). Services offered through mobile money and remittances are limited, and mobile network operators are only allowed to issue e-money and accept deposits within the framework of an approved partnership with a banking institution (SARB Circular No. 01/2009). This requirement reduces the profitability of services offered by non-bank agents.

SME Financing - South African authorities have decided to transform SMEs into a means of ending poverty and unemployment. The national development plan provides that SMEs and SMIs will contribute to a GDP increase of 60 to 80% and generate 90% of the 11 million new jobs expected by 2030. In South Africa, SMEs account for about 91% of formal business entities, contribute about 57% of GDP and provide nearly 60% of jobs. SME financing remains a thorny issue. Obstacles to SME financing include increased perception of risk by financial institutions due to the high rate of failure in the sector, insufficient SME collateral, and low financial management skills. According to the Finfind Report (2018), estimated annual financing requests by SMEs and SMIs range between ZAR 86 and 346 billion (between USD 5.7 and 22.8 billion), and the highest need for financing is expressed by microenterprises for a median amount of ZAR 300,000, or USD 19,752. Start-up capital, equipment purchases, business growth, and working capital make up the most significant requests for financing by SMEs and together account for 62.4% of total financing requests.


In March 2018, the insurance industry comprised of 71 life insurance companies and 89 non-life insurance companies. Life and non-life reinsurance businesses each had 3 companies. Assets in the insurance sector amounted to a total ZAR 3,067 billion (USD 199.7 billion) in 2017. The life insurance industry holds more than 90% of these assets and represents on average 47% of the premiums produced. The insurance penetration rate reached 12.6% in 2017. The insurance density was ZAR 10,657.48 (USD 693.9) per capita in 2017. Insurance Act No. 18 of 2017 was promulgated on 18 January 2018. It provides answers to the sector’s prudential requirements. The short-term and long-term prudential provisions have been repealed for the benefit of market conduct under the supervision of the Financial Services Board. A microinsurance framework has also been introduced. Between 2012 and 2017, the life insurance industry as a whole maintained a decent level of capital adequacy. The median level of the capital requirements coverage ratio is above the required minimum. Total assets remained higher than liabilities, both for life and non-life insurance. The trend of non-life underwriting profits, on the other hand, has been inconsistent.

The Capital Market

The capital market has five (5) licensed stock exchanges, the largest being the Johannesburg Stock Exchange (JSE), that dominates the South African stock market. It is also the first African stock market in terms of market capitalisation. The other four stock exchanges are relatively new, two were licensed on 31 August 2016 (4 Africa Exchange and ZAR X), and the other two in April (A2X) and September 2017(Equities Express Securities Exchange, EESE). The Johannesburg Stock Exchange is financially efficient with assets amounting to ZAR 41.9 billion (USD 2.7 billion) in 2018. Market capitalisation reached 328.08% of GDP in 2017. Initial public offerings (IPOs) between 2010 and 2017 helped to mobilise the equivalent of USD 7326 million. The annual ranking of the African Bond Market Development Index published by the African Financial Markets Initiative placed South Africa first in 2017 (first place in 2015 and 2016).

Social Security

General supervision of social protection in South Africa is provided by the Department of Labour. The administrative organisation varies according to the programmes concerned. The sector had 16,945,651 subscribers in 2017 ( 64.75% were held by privately managed funds). The percentage of social grant beneficiaries increased from 12.7% in 2003 to 29.9% in 2016 according to the 2016 general household survey. Requests for social assistance and child subsidies have increased due to high unemployment. The total number of social grants increased from 14,057,365 in 2010 to 17,509,995 in 2018. Spending on social grants amounted to ZAR 150.1 billion (USD 9.8 billion) in 2018 with main allocations for old age, childhood and disability. The social security sector comprises a diversity of funds, which amounted to 5,158 in 2017. Total pension fund assets amounted to ZAR 4262 billion (USD 280.7 billion) in 2017, of these, 45.56% were private-sector administered funds and 40.01% for the pension fund of government employees. Assets invested totalled ZAR 2,420 billion (USD 159.4 billion), mostly in insurance policies (41.97%), foreign assets (18%) and equities (15.47%). The different schemes can invest up to 15% of their assets abroad. Many people still lack access to affordable pension schemes, due in part to the high unemployment rate and the large number of informal sector workers. 

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At a Glance

At a Glance Source
Population in thousands (2017): 56,717.16
GDP per capita (current US$) 2017 - World Average 10,721.61: 6,151.08
Account (%) age 15+) - (2014 vs 2017): 70% | 69%
Agriculture Orientation Index - Credit ( Agriculture, Forestry and Fisheries share of GDP) (2015 vs 2016): n/a
Financial Inclusion Strategies: SADC Financial Inclusion Strategy 2016-2021
Domestic credit provided by financial sector (% of GDP) 2017: 180.54
Made or received digital payments in the past year (% age 15+) (2014 vs 2017): 59% | 60%
Remittances % of GDP for 2017: 0.002
Mortgage Interest Rate / Mortgage Term (years): 10% | 20

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