Financial Institutions In South Africa Research Articles

Exploring causal interactions between macroprudential policy and financial cycles in South Africa

This study investigated the causal interactions between macroprudential policy, measured by the Macroprudential Policy Index (MPI), and financial cycles represented by the Aggregate Financial Cycle (AFC) and the Credit and Asset Prices Financial Cycle (CAFC) in South Africa from 1970q1 to 2023q2. Additionally, the study explored the effects of macroprudential policy during different phases of financial cycles. Using the time-varying Granger-causality model, the study found that the MPI Granger-caused financial cycles during the 2003/07 credit boom in South Africa, while the AFC and CAFC Granger-caused macroprudential policy during the Covid-19-induced collapse of financial markets. The results suggest that macroprudential policy is employed more proactively during financial booms and more reactively during financial busts in South Africa. The Markov switching dynamic regression model used to assess the MPI's effects revealed that macroprudential policy's effectiveness is stronger during financial busts and weaker during financial booms in South Africa. This is because financial institutions in South Africa tend to resist stricter regulations during boom phases due to heightened optimism about future prospects. Conversely, they are more receptive to stimulatory interventions during bust phases. Based on these findings, it is recommended that the South African Reserve Bank and the Prudential Authority use macroprudential policy more assertively during financial booms to enhance its effectiveness. This could involve setting more stringent parameters upon activating macroprudential policy tools or complementing macroprudential policy with monetary policy during financial booms.

Antecedents of big data adoption in financial institutions

Big data (BD) adoption is still relatively slow despite the numerous business opportunities that it embodies. Within the context of financial institutions in South Africa, the specific drivers of big data adoption remain largely indeterminate. Consequently, this study explores the possible relationships between perceived usefulness and perceived ease of use and actual big data adoption, while being duly cognisant of the role that behavioural intention to adopt big data could play. The study employed a survey research approach and relied on data collected from a purposive sample of 195 management level employees of financial institutions. Regression analysis to test the hypothesised relationships in the study revealed that perceived usefulness and perceived ease of use were statistically significant predictors of big data adoption. Instructively, this relationship was subject to the extent of behavioural intention of respondents. For respondents with a low behavioural intention to adopt big data, perceived usefulness and perceived ease of use displayed a statistically insignificant relationship with big data adoption. Conversely, the regression model for the group of respondents with a high behavioural intention to adopt big data is statistically significant. These findings enrich literature related to big data from a developing country context while concurrently identifying veritable antecedents of big data adoption in financial institutions.

An Initial Study of Disclosures Related to Responsible Investing Implementation: A South African Perspective

Purpose: Financial institutions (FIs) such as banks, insurance companies and pension funds have a significant impact on the environment through the financing they provide. Mining and oil and gas companies receive funding and use this for different projects which may have environmental consequences. This study examines the extent to which both the grantor and the receiver of finance identify and apply responsible investment (RI) practices when making investment decisions
 Design/methodology/approach: A detailed literature review was used to construct a disclosure checklist to assess the implementation of RI principles. The population is all companies listed in the financial services, banks, mining and oil and gas sectors of the Johannesburg Stock Exchange (JSE), who had published integrated reports.
 Findings: The results of this research indicate that the extent of RI disclosure in FIs in South Africa is limited. The extent of RI disclosure for the mining and oil and gas companies is stronger than for FI’s.
 Originality/value: At present, there are no studies which have investigated the disclosure of RI principles applied in South Africa. This study constructed a RI disclosure checklist, drawing on the principles of RI to understand the implementation of RI in South Africa.

SME CREDIT RISK MODELLING IN SOUTH AFRICA: A CASE STUDY

This paper examined the funding conundrum by assessing the success rate of applications of small and medium sized enterprises (SME) for commercial bank funding. A quantitative group analysis was done on the overdraft obtained from one of the leading financial institutions in South Africa to determine the drivers of default. The SME scorecard was developed using logistic regression on credit applications over a seven-year observation period to analyse the default experience as part of credit risk management. The robustness, stability and relevance of an application scorecard is enhanced by the reject inference process and inclusion of bureau information. Small businesses operating in the service sector and having a long-standing rapport with the bank can easily access commercial bank funding. SMEs in the construction industry with a high number of credit enquiries are unlikely to survive the stringent conditions of the bank lending criteria. It is the prerogative of the principal business owner to honour their financial obligations across the credit industry if commercial bank funding is desired. Their credit quality, as reflected in the bureau information, forms the fulcrum of the SME application scorecard. The model developed in this study can be used as a tool to reduce defaults and serious delinquencies in boarding new applicants. Furthermore, the model can be applied to determine risk tendency and monitor the performance of SME credit portfolios.

Internal Brand Management and Its Effects on Employees’ Attitude in an Indonesian Airline Company

ABSTRACTResearch Aims – This study investigates the impact of Internal Brand Management (IBM) towards brand commitment, employee job satisfaction, and intention to stay in an airline company in Indonesia.Design/methodology/approach – This study is a quantitative study and the hypotheses are tested from 131 questionnaires from the employees of an airline company and are analysed using Structural Equation Modelling (SEM).Research Result – The result shows that IBM affects positively brand commitment and employee job satisfaction. Job satisfaction impacts positively brand commitment, while both job satisfaction and brand commitment give a positive effect on the intention to stay.Research limitations – The information and research on IBM are limited especially the implementation of IBM in Indonesia. The literature on IBM is also dominated from a marketing point of view rather than human resource management and strategic management point of view.Originality/Value – This study is conducted in an airline company in Indonesia while the previous researches were conducted in financial institutions in South Africa and Saudi Arabia. Even though IBM comes originally from the marketing concept, but it has a significant impact on determining the attitude and behaviour of employees at work.Keywords : Airline, Brand Commitment, Human Resource, Internal Brand Management, Intention To Stay, Job Satisfaction.

The Regulation and Use of Artificial Intelligence and 5G Technology to Combat Cybercrime and Financial Crime in South African Banks

Artificial intelligence (AI) and fifth generation network technology (5G) are now being utilised by some companies and financial institutions such as banks to enhance their competitiveness and expand their businesses. The general types of AI include functional AI, interactive AI, text AI, visual AI and analytic AI. The key components of AI include machine learning, fast Internet connectivity, deep learning, neural networks and advanced data analysis. These components may be complemented by the adoption and use of standard 5G cellular networks. 5G utilises broadband Internet access and Internet connection, and is now employed by some banking institutions, especially in developed countries. It is not clear whether South African banking institutions have adopted 5G for their Internet connectivity and operations. AI and 5G may be used to detect and combat cybercrimes in banking institutions. On the other hand, AI and 5G may also be abused by cybercriminals to commit financial crimes such as money laundering and insider trading. In this regard it is submitted that South African policy makers should carefully revise the Cybersecurity Bill B6-2017 (Cybercrimes Bill) to embrace the use of AI and 5G to detect and combat cybercrimes in South African banks. Accordingly, this article examines the adequacy of the Cybercrimes Bill. It also explores the regulation and use of 5G and AI to detect, prevent and combat cybercrimes in banks and other financial institutions in South Africa.

Modeling System Risk in the South African Insurance Sector: A Dynamic Mixture Copula Approach

In this paper, a dynamic mixture copula model is used to estimate the marginal expected shortfall in the South African insurance sector. We also employ the generalized autoregressive score model (GAS) to capture the dynamic asymmetric dependence between the insurers’ returns and the stock market returns. Furthermore, the paper implements a ranking framework that expresses to what extent individual insurers are systemically important in the South African economy. We use the daily stock return of five South African insurers listed on the Johannesburg Stock Exchange from November 2007 to June 2020. We find that Sanlam and Discovery contribute the most to systemic risk, and Santam turns out to be the least systemically risky insurance company in the South African insurance sector. Our findings defy common belief whereby only banks are systemically risky financial institutions in South Africa and should undergo stricter regulatory measures. However, our results indicate that stricter regulations such as higher capital and loss absorbency requirements should be required for systemically risky insurers in South Africa.

Improving the success rate of business process re-engineering projects: A business process re-engineering framework

Background: Financial institutions in South Africa are implementing business process re-engineering (BPR) on a regular basis because of the fast-changing industry. However, the success of these projects is low because of the lack of clearly defined roles, an unclear definition of what BPR is, the inability to link BPR projects to organisation strategies and the lack of documentation to guide BPR activities. Accordingly, there is a need to define a framework to guide the implementation of BPR projects. Objectives: The researchers embarked on this study in order to define a framework to ensure improvement of BPR in financial institutions. The framework should assist in providing guidelines when conducting BPR activities and will enable plans for BPR projects in terms of knowing which skills and roles to source for these projects. Method: A conceptual BPR framework was developed and BPR experts from financial institutions were then engaged to determine whether the framework would work. The engagements included understanding the challenges faced and how they could be combated, understanding the roles involved and determining if organisations had BPR frameworks in place. This subsequently led to a final framework being consolidated. Results: This study presents the recommended BPR framework that can be used by financial institutions to achieve success in their projects. The framework incorporates project management and change management processes and ensures alignment of BPR activities with the project phases. It also ensures that the activities are clearly stipulated and the roles performing the activities are clearly defined. It considers time management, planning aspects and effective communication within BPR projects. Conclusion: The proposed framework can be used by financial institutions to manage their re-engineering projects. This framework overcomes most of the known challenges and combines two disciplines, that is, project management and business process re-engineering.

Social Media Policies Within the Financial Sector in South Africa

The main purpose of this article is to explore the social media policies of financial institutions in South Africa. Owing to the advances in technology, businesses are exposed to many opportunities but also risks in social media platforms. For the study, a thematic framework was considered to analyze social media policies, which included risk and relationship building, brand image and reputation, stakeholders and communities, disciplinary action and compliance as well as professional and personal guidelines. A qualitative document analysis of social media policies of select South African Johannesburg Stock Exchange (JSE) listed financial institutions was then conducted. For the data analysis, a thematic document analysis using a consensual qualitative research process was applied. The results showed that all the financial institutions appreciated the value and opportunities provided by social media and ensured strict compliance to their social media policies. However, there were some financial institutions that did not focus on relationship building, did not mention brand image and reputation, did not include all stakeholders, and did not suggest personal guidelines in their social media policies.

Characteristics of Credit Instruments Issued by Stokvels in South Africa

Access to formal credit and other financial instruments remains a challenge for the majority of households in South Africa. The objective of this study was, therefore, to determine the characteristics of credit instruments issued by stokvels to households in South Africa. Prior studies have generally focused on mobilization of savings through stokvels while none has paid particular attention to the credit supply function of stokvels. This study attempts to fill this gap by using a self-administered research questionnaire on a sample of 386 respondents. Members of stokvels were surveyed from the cities of Pretoria and Johannesburg in the Gauteng province of South Africa. Data was analysed using descriptive statistics, exploratory factor and correlation analyses. Results show that stokvels issue short-term loans from less than 3 to 6 months. Interest rates are high ranging from 25% to 35% and are charged monthly. Loan sizes are small with approximately two-thirds of the respondents receiving loans above R500 while the remaining third received less than R500. Finally, all loans are secured by the borrower’s identification document or bank card and personal identification number. The results of this study have policy implications for financial institutions in South Africa.

Characteristics of Credit Instruments Issued by Stokvels in South Africa

Access to formal credit and other financial instruments remains a challenge for the majority of households in South Africa. The objective of this study was, therefore, to determine the characteristics of credit instruments issued by stokvels to households in South Africa. Prior studies have generally focused on mobilization of savings through stokvels while none has paid particular attention to the credit supply function of stokvels. This study attempts to fill this gap by using a self-administered research questionnaire on a sample of 386 respondents. Members of stokvels were surveyed from the cities of Pretoria and Johannesburg in the Gauteng province of South Africa. Data was analysed using descriptive statistics, exploratory factor and correlation analyses. Results show that stokvels issue short-term loans from less than 3 to 6 months. Interest rates are high ranging from 25% to 35% and are charged monthly. Loan sizes are small with approximately two-thirds of the respondents receiving loans above R500 while the remaining third received less than R500. Finally, all loans are secured by the borrower’s identification document or bank card and personal identification number. The results of this study have policy implications for financial institutions in South Africa.

Evaluating credit accessibility predictors among small and medium contractors in the South African construction industry

The importance of small and medium construction enterprises (SMEs) in the South African economy has been recognised. However, construction SMEs are faced with difficulties in accessing credit from financial institutions. Furthermore, past research has failed to reach consensus on the demographic and socio-economic factors that predict credit accessibility for construction SMEs in South Africa. This study determines the predicting demographic and socio-economic factors for credit accessibility for construction SMEs from financial institutions in South Africa. A quantitative research approach was used and data was collected, using a questionnaire survey from 250 construction SMEs who were conveniently sampled. The demographic and company profile factors predicting credit accessibility were modelled and set as the independent variables with credit accessibility to the construction SMEs as the dependent variable, irrespective of the amount obtained from financial institutions. The data was analysed using the Statistical Package for the Social Sciences (SPSS) version 22. Binary logistic regression analysis was used to analyse the predictors of obtaining credit. In the first model, the results revealed that the credit accessed irrespective of the amount and those who did not receive credit at all, when modelled with the conceptualised predictors suggested, showed no significant predictors of obtaining credit. However, in the second model, when the conceptualised predictors were modelled with full and partial credit, the results established that age group, current position in the organisation, tax number and location were good predictors of obtaining full credit. The findings of this study cannot be generalised across South Africa, as the study was conducted only in the Gauteng province. The value of this study informs owners of SMEs in the construction industry to provide their age and current position in the organisation when applying for credit. They should also provide the tax number and the location of the business in order to improve their chances of obtaining full credit from financial institutions. Keywords : Credit accessibility, determinants of credit accessibility, full credit, small and medium enterprises

Islamic banking in South Africa – form over substance?

PurposeThe purpose of this study is to understand the economic substance of Islamic banking transactions in South Africa and to analyse whether the economic substance is closely related to the legal form. Additionally, this study highlights the similarities and differences in the execution of Islamic banking transactions across different South African banks. The transactions analysed are deposit products of qard and Mudarabah and financing products of Murabaha, Ijarah and diminishing Musharaka.Design/methodology/approachThe study was conducted through interviews with representatives from each of the four South African banks that offers Islamic banking products. Interviews were semi-structured and allowed interviewees to voice their perspectives, increasing the validity of the interviews.FindingsThe study found that specific Shariah requirements of Islamic banking transactions are considered and included in the legal structure of the contracts by all four banks offering Islamic banking products. However, the economic reality of these transactions was often significantly different from its legal form and was found to, economically, replicate conventional banking transactions. The study also found that all four banks offer Islamic banking products under the same Shariah principles, but in some instances (e.g. diminishing Musharaka), execute these transactions in different ways. This study is the first of its kind in South Africa.Research limitations/implicationsWhile safeguards have been used to ensure the reliability and validity of the research, there remain a few inherent limitations which should be noted: interviewees, while chosen for their expertise and level of knowledge, may provide highly technical insight which may be difficult to interpret. Detailed technicalities were therefore excluded from this research. The regulatory environment of banks in South Africa, for example, regulation imposed by the Financial Service Board on all financial institutions in South Africa, has not been explored. However, the regulatory environment was brought to the readers’ attention to help illustrate certain themes. This research uses only Shariah requirements as detailed in Section 2.2 to analyse transactions. Fatwas (rulings) issued by the Shariah Boards of South African Islamic banks have not been included in this study and may be an area of future research.Originality/valueThis study is the first of its kind in South Africa. The study adds to the Islamic banking literature by analysing the real execution of Islamic banking transactions rather than the theoretical compliance with Shariah law.

Analysis of Determinants of Revolving Credit for Small and Medium Construction Enterprises: A Case of Gauteng Province

Small and medium construction enterprises (SMEs) are an important vehicle to drive the economic growth globally. However, this enterprise sector has been constrained by different factors that stifle their full participation in the main stream economy specially credit accessibility. There is paucity of research to verify the determinants that predict revolving credit accessibility from financial institutions in South Africa. The data was obtained using questionnaire survey. 179 small and medium contractors responded from conveniently sampled respondents in Gauteng province in South Africa. The data was analysed using Statistical Package for the Social Sciences (SPSS) version 22. The study found that the dependant variable i.e. revolving credit was not predicted by the independent variables suggested i.e. gender, age group, current position, organization ownership, tax number, location and collateral. The finding informs bank managers they should not force clients to submit collateral before awarding credit to the SMEs. The suggested model that was tested attained the Hosmer and Lemeshow Test goodness of fit hence the results were credible. However, a further study is proposed for the entire country as the researchers acknowledge limitation on the chosen location of study.

Alternative measures of credit extension for countercyclical buffer decisions in South Africa

Abstract. This paper analyses the behaviour of alternative measures of credit extension for countercyclical buffer decisions in South Africa. These measures include the deviation of the ratio of private sector credit extension to gross domestic product from its long term trend, the deviation of the logarithm of private sector credit extension from its long term trend as well as the annual percentage change in private sector credit extension. The cyclical properties of these measures are examined over the economic and the financial cycles. The results show that the deviation of the ratio of private sector credit extension to gross domestic product from its long term trend is countercyclical with the economic cycle. The results further show that the deviation of the logarithm of private sector credit extension from its long term trend is procyclical with both the economic and the financial cycle. The results finally show that the annual percentage change in private sector credit extension generally performs poorly in cyclical terms with both the economic and the financial cycle. Consequently, of the three alternative measures of private sector credit extension considered, the deviation of the logarithm of private sector credit extension from its long term trend could be used as a common reference guide for implementing the countercyclical capital buffers for financial institutions in South Africa. Keywords. Credit extension, Countercyclical capital buffers. JEL. C32, E44, E51, G21.

Total rewards strategy for a multi-generational workforce in a financial institution

Orientation: Different generations may value and perceive employee rewards differently. This impacts on reward strategies in the workplace which have been specifically developed to attract, retain and motivate staff. A one-size-fits-all approach to reward strategy may not achieve the objectives intended, leading to direct and indirect financial implications for businesses.Research purpose: This study investigated whether perceptions of reward strategy differed across generations in a large financial institution in South Africa. This context was specifically chosen due to the significant competition to attract and retain staff that exists in the financial sector. To contribute to the practical challenges of reward implementation, the study investigated whether specific reward preferences associated with generation exist, and whether offering rewards based on these preferences would successfully attract and retain staff.Motivation for study: South African businesses are competing for skilled staff and rely heavily on a total reward strategy to compensate all generations of employees. Given the financial incentives to retain and attract the most effective staff, it is essential that reward strategies meet their objectives. All factors impacting the efficacy of reward strategies should be considered, including the impact of generational differences in preference. This is of relevance not only to the financial industry, but to all companies that employ staff across a variety of generations.Research design, approach and method: A quantitative survey design was used. A total of 6316 employees from a financial firm completed a survey investigating their experiences and perceptions of reward strategies. Statistically significant differences across different generations and reward preferences were considered.Main findings: Significant differences in reward preferences were found across generational cohorts. This supports international literature.Practical/managerial implications: The results indicate that there is an opportunity for businesses and managers to link components of the total reward strategy to specific generations in the workforce by offering a wider variety of reward options to employees. Employee perceptions indicate a willingness to have reward strategies tailored to their needs and to have a greater say in their reward strategies. The challenge is in presenting the options in a fair and transparent manner, in providing choice and in tracking long-term retention and motivation based on the reward strategy.Contribution: The study found that generations value rewards differently, which will enable management to develop more strategic approaches to reward. This research extends international evidence to include workplaces in emerging economies, which have the additional challenges of high rates of unemployment, but also scarce skills and competition for skilled staff. The findings of this research go some way to support the need to develop more dynamic, flexible and generation-specific reward strategies to support staff retention and attraction.

Retaining Knowledge Workers: A Case Study of a Leading South African Bank

This paper explored the factors that influenced the retention of knowledge workers (KWs) at a major financial institution in South Africa, to ascertain the strategies that are currently being employed, determine the strategies that were most valued by the employees, and recommend strategies to retain the KWs. The data which was collected through self-administered questionnaires from a convenience sample of KWs revealed that remuneration, challenging work, learning and development opportunities and, flexible work practices, were the most valued strategies. The retention strategies KWs were most satisfied with were good working conditions, respect, an aspirational brand, a safe working environment and leave benefits. Remuneration was a key factor influencing their intentions to remain in the organization, and there were no significant differences between the retention strategies valued by Black and White knowledge workers. It is recommended that in order to retain KWs, financial institutions should focus on a few well embedded retention strategies such as flexible working hours, providing more learning and development opportunities, and a more meaningful and challenging work environment. DOI: 10.5901/mjss.2014.v5n23p2768

Bury Pessimism, Carry me Hope

Gabisile Lucy Dladla is currently working at a financial institution in South Africa and is majoring in a BA Degree in Integrated Marketing Communication at AAA School of Advertising. She was first...

An explorative study on factors influencing the career success of management employees

Orientation: South African organisations are increasingly recognising the importance of attracting, developing and retaining top talent, especially management employees.Research purpose: In an attempt to help organisations with retaining talent, this study focused on career success and identified specific factors that influence the career success of managers in the South African work environment.Motivation for the study: Organisations need to establish favourable organisational conditions and human resource practices to retain their management employees. By identifying influential factors for the career success of managers, this research may help organisations to focus more accurately on their retention strategies for management employees.Research approach, design and method: The present study used a qualitative research design that followed an exploratory approach. A non-probability purposive sample of 24 senior management employees was selected from two financial institutions in South Africa. Qualitative data was collected by means of semi-structured interviews and the verbatim transcriptions were analysed by content analysis.Main findings: Managers identified various factors that impact on their career success. One can distinguish ‘external’ factors (e.g. political and economic climate and business environment) from ‘internal’ factors (e.g. individuals’ personal attributes, skills and education).Practical/managerial implications: Individuals should focus on the internal contributing factors, whilst organisations should manage the external contributing factors more effectively.Contribution/value-add: Specific South African factors that influence the career success of managers should be included in future retention strategies. From the findings it is suggested that both the individuals and organisations can implement strategies to ensure career success and thereby help retain the top talent in organisations.

Knowledge Sharing Through Communities of Practice in a Financial Institution

This article discusses the effectiveness of knowledge sharing (KS) within communities of practice (CoPs) in a financial institution in South Africa. This was achieved through understanding the current state of KS within the CoPs, identifying critical factors for effectively sharing knowledge and thereafter determining reasons for a CoP not being effective in sharing knowledge. The results showed that there is still a long way to go to ensure the effectiveness of KS through CoPs. The CoPs within this financial institution are informal in nature, and therefore not necessarily given the attention that they deserve. Time used for CoPs is not maximised effectively, which reduces the chances of their effectiveness and improvement of productivity. Lack of effective system infrastructure to support KS is also a massive challenge for the CoPs, as is not having virtual Cops to reduce challenges faced in the use of face-to-face CoPs.