In this section, we will be looking at the Banking sector structure of South Africa & compare it with the economy of Brazil. We will discuss topics like number of banks, concentration ratios, banking sector credit-to-GDP, liquid liabilities-to-GDP, foreign bank penetration, leading competitors, profitability, and risk and asset quality. South Africa has the largest and most sophisticated financial market in Africa. The financial services sector, in particular the banking sector, has well-established credit and management information systems. The South African banking system is well developed and effectively regulated by the central bank – the South African Reserve Bank- as well as a few large, financially strong banks and investment institutions, and a number of smaller banks. Many foreign banks and investment institutions have operations in South Africa. The SA banking industry is made up of 17 registered banks, 2 mutual banks, 12 local branches of foreign banks, and 43 foreign banks with approved local representative offices. Brazil on the other hand has a large no of banks which are operating in different parts of the country. With these numbers of banks in SA the banking sector in South Africa is highly concentrated. In South Africa, the top four banks have approximately 89% of retail deposits. This is high by international standards. The Herfindahl-Hirschman Index (H-index) is a widely respected barometer for measuring market concentration in a banking system. The level of concentration in the South African banking sector measured using the H-index is presented is given below. The index measured 0.187 at the end of December 2011 which means very high level concentration. The high concentration prevalent in the South African banking sector is attributable to the high concentration of banking-sector assets among the four largest banks, which accounted for 84.1 % of total banking-sector assets at the end of December 2011. While for Brazil as there are so many banks present the concentration ratio should be very less and it will have a great competition (though the H-index for Brazil was not available anywhere). Investment and merchant banking remains the most competitive front in the industry, while the country’s “big five” banks – Absa, FNB, Standard Bank, Nedbank and newcomer Capitec – dominate the retail market. The oligopoly structure and the perception that there are high costs in delivery of retail banking services in South Africa have militated against entry into the retail banking sector. However, a number of foreign entrants have taken advantage of the relatively lower costs of entry into the corporate banking sector, which has increased the level of choice and countervailing power in this sector.
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