Stringent regulation ‘hampers entry of new banks’
The government should help fund a banking platform for co-operative banks to level the playing field, economic development committee told
Regulation should be eased to allow for second-tier banks so that new entrants can participate in the highly concentrated banking sector, says Competition Commission head Thembinkosi Bonakele.
His comments during a presentation of the commission’s annual performance plan to Parliament’s economic development committee comes amid heightened pressure for greater transformation of the financial sector. This has been the focus of extensive parliamentary public hearings, which are likely to result in proposals to change the targets in the financial sector charter and to change licensing requirements for banks.
Finance committee chairman Yunus Carrim has lamented the fact that 90% of the banking sector is in the hands of the four major banks.
During the public hearings, Co-operative Banks Development Agency chairman Desmond Golding pleaded for the government to take a firm stand on co-operative banking as a tool for financial sector transformation.
The legislative and regulatory framework had to be reviewed to facilitate its development of co-operative banks, which in other countries are well established and successful.
The trouble with the proposed legislation to create a twin-peaks system of regulating the financial sector was that it aimed at protecting the top four banks from failing as this would be disastrous for the economy
The government should help fund the establishment of a banking platform for co-operative banks to level the playing field for new entrants in the banking sector, he said.
Bonakele said the stringent bank licensing requirements should be relaxed to allow for the emergence of second-tier banks. Current regulations entrenched the power of the big four banks.
The trouble with the proposed legislation to create a twin-peaks system of regulating the financial sector was that it aimed at protecting the top four banks from failing as this would be disastrous for the economy. Protecting the big four should be complemented by a system that allowed the entry of other players, Bonakele said.
The licensing requirements could be relaxed for second-tier banks. If the second-tier banks failed, the economy would not collapse because they would be relatively small.
It was possible to "have a thriving banking sector that is still regulated but the regulations are less stringent than those that apply to the big banks", Bonakele said.
There could be thresholds so that more stringent regulations kicked in as the new entities met the higher thresholds.
"A one-size-fits-all system makes it impossible for people to enter the banking sector," he said. "We think that there are a lot of initiatives that can be taken at a regulatory level to relax some of the regulations without causing problems for the entire economy," Bonakele said.
He proposed framing regulations be designed to force big banks to provide smaller banks with access to ATM networks. This would enable smaller banks to attract customers who would otherwise be deterred by the fact that they lacked an ATM network or infrastructure.