Quick notes on SA banks..

While everyone knows that it is a bit of a scam rather than banking that is practiced in SA,I am just going to keep this post as a sort of notes for myself. So here goes.

Banks in SA make phenomenal profits, way more than banks in a similarly developing economy like say India. Why? Fundamentally they are all more like deposit taking institutes than anything else.Customers are charged fees for everything, including depositing money in their own accounts (i hear it is starting in India also), ATM fees, Debit order fees, Fees for basically everything. So who needs loans? And it is no surprise that since there is no priority sector lending necessitated by law, most of the loans go to the govt and hence are safe. So end result - profits all the way with very little bad debts! Downside- Since lending is done more to the govt than public, investment suffers and so does the economic growth. I am still to understand how does Bankserv decides fees. It is weird.
In a country like SA, where a vast majority cant afford to take loans to start a small business,another vast majority cant open a bank account only! imagine that! They just cant afford to keep money in the banks coz of the insane fees! The Mzansi accounts launched years ago are a failure with a majority today sitting as dormant accounts (I am going to dig this aspect later to understand more).
A fundamental reason for this situation is the lack of competition. There are only 16 or so banks in SA! thats all! And a good 70%+ is dominated by merely the big 4 banks! what do u expect in such a state! The org, which maintains national payment system and clearing etc is owned by the banks and not surprisingly, the big 4 rule it. Is it a surprise that org. like WIZZIT (funded by world Bank partially with a 10% stake), piggy back on other bank's license? Sooner or later this has to change. There is no denying that. The inefficiency in the banking system is far too excessive to prevent competition from entering.

A quick word also on the foreign holdings. Barclays has majority stake in ABSA and there is another one of big 4 which has foreign holding, I cant recall which one. Standard Chartered seems to be hunting for Nedbank, but lets see. Standard was once one of South Africa's biggest lenders but sold its stake in Standard Bank in 1987 amid opposition to Apartheid. It returned in 2003 by opening a branch and buying an online bank but had to write off that investment. It also considered buying Absa in 2004 but opted out of a bidding war with Barclays. Barclays meanwhile owned FNB earlier.So it is quite interesting at the moment. Also, ABSA and Barclays are now merging their African business I hear. So lets see.

I will keep updating this post as my notes. Till next time..