Competition Commission comments to Parliament

on the Co-operative Banks Bill

28 August 2007

Outline

• Competition in the banking industryCompetition in the banking industry

• Determinations/appointment of supervisors

• Consequent amendments to the National Payment System Act

• Limitations on primary co-operative banks

• Amalgamations and merger control

Competition in the banking industry

• SA banking services largely dominated by the big four banks

• Serious need for accessible and affordable banking services in South Africa

• Co-operative Banks Bill generally laudableEntry of alternative banking services providersPossible betterment of consumer welfare

• Challenge: lowering the entry & operational barriers

Appointment of supervisors

• Supervisor administers registration applications of co-operative banksAdvantage: allows for effective administration of

the Act

• potential hindrance: section 8(2) of the BillNo clear criteria to guide supervisor in fulfilling his/her role

• Guard against opaque conditions that may hamper growth of co-operative banks

Consequent amendments to the NPS Act

• No reference to primary cooperative banks in the Consequent amendments to NPS Act

Implication: primary cooperative banks precluded from participating in clearing and settlement services?

Primary cooperative banks to only offer transaction services on its own infrastructure?

Limitations on primary cooperative banks

• Lack of clarity on the manner of facilitating payment activities of primary cooperative banks with reference to Section 14(1)(b) of the Bill

• Offering transaction services only on its own infrastructure may:

limit the scope of payment services that primary cooperative banks can provide to members

potentially limit its ability to compete effectively

Amalgamation and merger control

•Competition Commission regulates all mergers captured under Chapter 3 of the Competition Act 89 of 1998

• Competition Commission to scrutinize merger activities between cooperative banks if captured under Chapter 3 of the Competition Act

•Concurrent Jurisdiction: Competition Commission to liase with Minister of Finance and Supervisor

Conclusion

• Competition Commission supports the Competition Commission supports the objectives of the Cooperative Banks Billobjectives of the Cooperative Banks Bill

• Establish clear and objective criteria to guide Establish clear and objective criteria to guide Supervisor in considering registration applications Supervisor in considering registration applications of cooperative banksof cooperative banks

• Clarify rights and obligations of primary Clarify rights and obligations of primary cooperative banks in respect of clearing and cooperative banks in respect of clearing and settlement servicessettlement services

• Amalgamations: need for Competition Amalgamations: need for Competition Commission, supervisor and Minister of Finance Commission, supervisor and Minister of Finance to liase effectivelyto liase effectively