Presentation to the Competition Commission Banking Enquiry

[Pages:35]Presentation to the Competition Commission Banking Enquiry

9 November 2006

Agenda

Introduction Is competition in banking effective? Are bank profits out of line? Does the payment system function well? Recommendations and Conclusions

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1. Introduction

FRB supports the Enquiry and makes a number of recommendations that it hopes will be of assistance

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FirstRand Bank Competes with Multiple Brands

FirstRand Bank Holdings Ltd

Investment Banking

FirstRand Bank Ltd

Rand Merchant Bank (RMB)

Asset-based Finance

WesBank

Main operating brands

Retail, Commercial, Corporate & Private Banking

First National Bank (FNB)

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2. Competition is Intense

FNB competes against a wide range of effective rivals Market concentration is driven by cost structure

Banks and other players compete vigorously as evidenced by:

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FNB is actively seeking ways of widening access amongst low income and SME customers

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FNB Competes Intensively with Many Players

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New Entrants

? Virgin Money ? Capitec ? Old Mutual Bank ? Kulula ? Woolworths Financial Services ? Discoverycard ? Wizzit ? MTN ? Vodacom ? EasyPay

Exits & Near Failures

? 20Twenty ? NBS ? Saambou ? BoE ? Nedbank ? ABSA

Concentration is Driven by Banking Cost Structure

? +/- 80% of banking costs are fixed

? Market only able to support a limited number of firms in competitive equilibrium

? Recovery of costs needs to cover substantial fixed costs as well as marginal costs

? Cost drivers include:

Staff

Branch and ATM network

IT systems

Regulatory compliance

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Concentration is Driven by Cost Structure

Regulatory compliance cost FNB almost R1bn in 2005/6

Legislation and compliance requirements have grown significantly

NCA R700m fees

impacted p.a.

# of Regulations

250

228 232

225

218

213

206

200

200

Doubled in

191

13 years

186

175

166

154

150

141

132 135

125

111 115

106

100 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Note: Data from FNB

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internal analysis

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