Answer to Question #208753 in Microeconomics for Precilla

Question

Discuss the current state of affairs of the south african banking industry

Answer 1

Solution:

The South African banking industry is regarded as one of the best banking systems in the world and major banks in South Africa are highly regarded. Unfortunately, the industry has also been affected by its own share of scandals, such as corruption which led to the collapse of one of South Africa’s top banks, VBS Mutual Bank.

Many local banks in the South African banking industry are efficiently capitalized but current South Africa’s unsustainable burden of debt is threatening their creditworthiness and will impact their future performance and growth. The banking industry has an oligopoly type of market structure where only a few banks dominate the industry. Although, lately there has been an influx of new banks into the industry making the banking landscape become less polarized with increased competition.

The increased competition has led to a drop in bank charges especially on entry-level accounts making it cheaper for the consumers to maintain their bank accounts. Most banks have adopted digital platforms especially mobile banking, which has permitted them to penetrate deeper into the market and fulfill customer demand for bank services that are affordable, rapid, and more favorable than conventional banking. The banking industry has invested heavily in digital banking which has allowed them to focus more on product customization in order to maintain and woo more consumers.

At the moment, the covid-19 pandemic has really impacted the performance of the South African banking industry. It has led to continuous and endless pressure on customers and businesses alike due to strict lockdown measures implemented which have resulted in a substantial increase in non-performing loans.