Impact of regulatory changes on the efficiency of South African banks
Date
2014-10-14
Authors
Soobramony, Vanessa
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Abstract
The purpose of this study is to assess the impact of regulations on the efficiency of South African banks during the 2006 to 2012 period. The context of this study was based on the results from a Sub-Saharan Africa study of middle-income countries that found the South African financial system did not differ significantly from its counterparts although it possesses a financial system that is mature and has depth.
This study utilises the Stochastic Frontier analysis model to determine efficiency levels (profit and cost) over a seven-year period for nine banks that represent 94 percent of the total South African banking sector. The data used was collected from publicly disclosed annual reports and financial statements.
The key findings of this research is that South African banks cost and profit efficiency levels were not impacted by the additional regulatory requirements introduced during the 2006 to 2012 period. All banks, irrespective of size, ownership structure and listing status in South Africa were not negatively impacted by the regulations introduced and amended during this period. Since the results of this study were not as expected at the onset, interviews were conducted with various bankers and a representative of the primary regulator. Based on the interviews, various qualitative themes and market reactions emerged that assisted the sector to adopt the changes in a positive and proactive manner, as a tool to manage and improve their businesses as opposed to a compliance checklist.
The noteworthy themes, related to maintaining cost efficiencies, were the implementation of lean management principles and leveraging of technology, data analytics and integrated systems. In addition, it was evident that healthy relationships were encouraged and fostered between the sector and the regulators and increased utilisation of the risk and compliance functions. Lastly, the profit efficiencies were maintained through pricing mechanisms, unsecured lending growth and diversification of the income streams.
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Keywords
Banks and banking , Banking law -- South Africa