Banking Regulatory and Market Framework in South Africa

Abstract

This paper examined and discusses banking regulation and market framework in the South African context. In South Africa, the principal legal instrument which seeks to achieve credibility, stability and economic growth, is the Banks Act, No. 94 of 1990 (the Banks Act). Further, South Africa has 17 registered banks, two mutual banks, 12 Branches of international banks in the Republic of South Africa, 43 representative offices and 15 controlling companies. The dominant banks in the South African banking landscape where outlined as the Standard Bank of South Africa, ABSA Bank, FirstRand Bank and Nedbank. It was observed that the reason for the increased market share by the big four banks in South Africa was seen as caused by the decline of confidence levels in the small banks as a result of Saambou’s Bank failure. Due to the dominance of four banks, using the HHI it was exhibited that the level of concentration in the South African banking sector was high at 0.187 in 2011. This paper concluded that South Africa has a developed and well regulated banking system which compares favourably with regulatory environment applied by the developed countries. However, it was cautioned that further regulation such as the recently announced ‘Twin Peaks' approach to financial regulation could result in unintended consequences, such as driving a larger share of activity into the shadow banking sector.