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SA’s banking industry concerned about political intervention, technology risks and cybercrime, according to PwC study

15 May 2014 Johannes Grosskopf, PwC

Political intervention, technology risk and regulation rank high on the risk agenda of South Africa’s banking executives, according to the recent Banking Banana Skins survey.

Every two years the Centre for the Study of Financial Innovation (CSFI) produces the survey in association with PwC, which ranks 28 risks based on participants’ responses. The study is based on responses from 656 bankers, risk managers and close observers of the banking industry in 59 countries, including 14 from South Africa.
 
Johannes Grosskopf, Banking and Capital Markets Leader for PwC Africa, says: "While banks in the rest of the world cite the scale of banking regulation following the global financial crisis and the accompanying political backlash as their prime concerns, the risk agenda of South Africa’s banking industry shares these themes, but with some specific nuances.”

The survey shows that as banks move towards greater digitisation and increasingly embrace technology to manage heightening regulatory requirements, they are focusing on how to better manage technology risk and criminality as a result of concerns about the vulnerability of legacy systems to cybercrime and outages. "The banking industry appears to be hit harder than others by the prevalence and exposure to cybercrime and fraud”, says Grosskopf.
 
For the first time this year a question was included in the survey about risks associated with the rapid growth of social media, such as platforms like Facebook and Twitter, and their potential to amplify and accelerate reputational risk exposure to banks. South African banks who have embraced social media arguably more than international banks, ranked this risk higher than their global counterparts (Global: 19: South Africa: 8).
 
Although confidence about the macro-economic environment has strengthened (Global: 3: South Africa: 4), the survey suggests strong ongoing concern about the macro-economic outlook, and specifically the stability of the Eurozone, the impact of tapering of quantitative easing in advanced economies and rising worries about what these mean for emerging market prospects (Global: 17; South Africa: 7).
 
Concerns about the banks themselves ranked lower in South Africa than elsewhere. A number of institutional risks such as profitability (Global: 5; South Africa: 20), the quality of risk management (Global: 11; South Africa: 26) and corporate governance (Global: 8; South Africa: 23) were ranked lower than in other regions. The survey also shows that concerns expressed in earlier studies about capital availability, liquidity risk and exotic products in the banking system have begun to ease. Tom Winterboer, PwC Financial Services Leader for Africa concludes: "Over the past few years, banks have improved the quality of their risk management and how they manage their capital. Coupled with reduced concerns over the macro-economic environment, anxiety levels in the banking industry appear to be declining after rising for seven consecutive years.

"With regulation and political interference continuing to impact the industry, banks will need to carefully manage these risks while ensuring they are forward looking and focused on positioning themselves for growth in the longer term.”

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