Competition Commission Banking Enquiry

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Competition Commission Banking Enquiry
29 November 2006
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Ithala representatives

• Sbu Luthuli Managing Director
• Siboniso Shabalala Finance Director
• Portia Baloyi Compliance Officer
• Thembi Chiliza Operations

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Presentation Outline

• Banking enquiry
• Background of Ithala
• Area of operation
• Current markets in KZN
• Competition in Banking
• Ithala bank charges

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Presentation Outline cont

• Pricing structure
• Remote/Rural Banking
• Ithalas product offering
• Banking model Access to NPS
• Conclusion

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Banking Enquiry

• Ithala welcomes the public debate on banking
  fees
• We fully support the Banking Enquiry
• Process will enhance transparency in the banking
  sector

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Background

• Mandate of Ithala Development Finance Corporation
  Limited (IDFC) includes mobilizing deposits
• IDFC operated with exemption from Banks Act since
  1990
• Applied for a banking licence in 2000
• Minister of Finance disapproved
• Unconstitutional Provincial Government to own a
  bank
• Minister granted exemption to December 2005
• Ithala Limited established in 2001 to ringfence
  deposits as required by exemption

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Background cont

• Ithala Limited is wholly owned subsidiary of IDFC
• December 2005 exemption notice extended to
  December 2008 or promulgation of Dedicated Banks
  Bill into Act
• Ithala Limited operates predominantly in KZN
• Network of 47 branches throughout KZN (both rural
  urban)
• Mainly savings and secured loans products
• Staff compliment of some 495

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Area of operation
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Current Markets in KZN
Savings/Transaction Products
Loan Products
Living Standard Measurement
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Competition in Banking

• The banking sector in SA is very competitive but
  dominated by the big banks
• The introduction of the FSC resulted in more
  focus on previously unbanked
• Introduction of ineffective products like Mzansi
• Extending of too much credit Micro Loans (over
  indebtedness of customers)
• A number of New entrants including cellphone
  companies, chain stores, etc

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Competition in Banking cont

• The promulgation of the dedicated and village
  Banks Bills will further open the door to new
  entrants to the market (Risk of fly by nights)
• Very restricted environment for smaller players
  and anomalies like Ithala
• National Payment System (governed by SARB
  PASA)
• Ithala sponsored by ABSA
• Sponsorship has cost implications

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Ithala Bank Charges

• Ithalas pricing philosophy is to have fees that
  are
• transparent with no hidden components
• based on recovering the cost of providing a
  particular service
• very competitive
• based on customer behavior
• to encourage a culture of saving (we do not
  charge cash deposit fees)

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Pricing Structure

• The major cost drivers are
• Branch ATM network
• Human resources
• Transporting and handling of cash
• Sponsorship bank charges
• External service providers variable charges
• Compliance
• IT systems

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Remote/Rural Banking

• Banking in rural/remote areas is characterised
  by
• Low volume
• Low value transactions
• High communication costs
• High staff turnover because of limited growth
  opportunities
• Expensive cash holding and transportation

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Ithalas Product Offerings

• Savings/transactional type products
• Book based savings a/c and other savings
  products hosted in-house
• Debit card hosting outsourced
• Loan products
• Housing loans (Valuation fees)
• Commercial Property Development type loans all
  hosted in-house

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BANKING MODEL FOR ITHALA
DELIVERY CHANNELS
Branch
Service Provider
EFT
POS
Saswitch ATM
Cell Operators
Ithala ATM
Cellphone
Internet
Person to Person
ACB Data Transfer (daily) (non Debit Cards)
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Debit Card 3rd Party ATM
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Debit Card Own ATM

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Conclusion

• Regulatory environment favours big banks
• Need for alternative access to NPS
• Need for banks to understand the low end of the
  market and provide appropriate affordable
  products
• Need for shared services in especially in home
  loan products i.e. valuations

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Banking Enquiry

• QUESTIONS

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THANK YOU