Outlook on S.A's banking sector

South Africa's banking sector has been feeling the ripple effects of the current economic slowdown, with recent fines from the Reserve Bank highlighting weaknesses in control measures. The Reserve Bank fined five South African banks a total of 34 million rand due to these deficiencies, shedding light on broader trends impacting the sector. Pierre Fourie, KPMG Director in Financial Services Audit, joined CNBC Africa to discuss the sector's outlook and emerging challenges. Fourie emphasized that the issues in the South African banking sector are reflective of global trends, particularly in terms of anti-money laundering procedures and regulatory compliance. One key point raised during the interview was the increasing pressure on banks to enhance control measures and comply with evolving regulatory standards. Fourie highlighted the complexities faced by African banks, such as the challenges of verifying client information without street addresses. He also mentioned the impact of legislative changes, like interest rate capping, on the sector. Despite the challenges, Fourie noted that African banks have generally demonstrated good behavior compared to global standards, with recent financial results pointing to potential credit performance concerns. Another key theme explored in the interview was the growing role of regulators and central banks in the banking sector. Fourie discussed the challenges of dealing with multiple regulators simultaneously and the rising importance of compliance divisions within banks. He emphasized the need for banks to invest in compliance and innovate to streamline processes and improve client onboarding. The evolving regulatory landscape, including the introduction of twin peaks regulation in South Africa, is creating uncertainty in the sector and driving the need for clear communication from authorities. The interview also touched upon the shifting landscape of banking operations, with a focus on retail banking over investment banking. Fourie highlighted the trend towards simpler, more standardized banking practices, moving away from complex global setups. He suggested that the future of banking may involve localized and regional banks focusing on customer-centric services rather than large-scale global operations. As South Africa grapples with economic challenges and declining consumer confidence, Fourie predicted an increase in delinquencies and loan volume reductions in the banking sector. He noted that stricter credit criteria and uncertainties surrounding economic outcomes may lead to higher payment defaults in the coming years. With the implementation of IFRS 9 expected to bring more transparency around loan losses, the sector is likely to see further challenges ahead. In conclusion, the interview with Pierre Fourie provided valuable insights into the current state of South Africa's banking sector and the key challenges facing banks amidst the economic slowdown. As regulatory pressures intensify and economic uncertainties persist, banks will need to adapt to evolving compliance standards and consumer demands to navigate the turbulent landscape.