It is a fact of modern life all over the world that the days when you actually go in to a bank for transactions are officially over, apart from those big moments for a mortgage or a big loan which requires a branch manager and even that is a maybe. For most transactions you do not need a physical building and in many countries around the world, you don’t even use cash; you can pay by swiping a card, your phone or even the watch on your wrist. It may not be long before the car guard offers you a swipe machine as many cities in the world now have techie beggars sporting their own card machines. You are also increasingly more likely to be addressed by a chatbot than someone standing on the other side of the counter. It means that banks need less staff and if they don’t keep up with digitisation, they risk losing customers to new entrants into the market, who have embraced all the tech. Kokkie Kooyman from Denker Capital told Biznews in an interview on Rational Radio that the decision by Nedbank to retrench 1,500 staff members is due to digitisation and smaller, more nimble players coming into the market. – Linda van Tilburg
Kokkie Kooyman is a regular at the annual shareholders meetings of Berkshire Hathaway in Omaha in the United States where investors gather to learn from billionaire Warren Buffett. He took Biznews’ Alec Hogg with him for one of his meetings which led to Alec’s book on the Oracle of Omaha. Kooyman says he will attend until Buffett finally retires.
The reason for the retrenchments at Nedbank, he says is due to two factors: Digitalisation or fintech and the banks are being attacked by smaller, nimble partners even in South Africa… Bank Zero, Tyme Bank and Discovery Bank. The banks are responding by working on their technology and making sure they can compete with the smaller, nimble players.
The effect of this, he says that as you digitalise, you need fewer branches as the trend globally is for banking to be done on the Internet or by a mobile phone app. Branches are becoming less important, they get smaller and the remote branches are shut down. Kooyman says another factor that led to the Nedbank retrenchments is that the South African economy has been struggling for a long time and there is no respite in sight which means businesses “have to start sharpening their pencils.” This is not only the case for the banks but for all companies operating in South Africa in order to generate the returns on capital that shareholders require. Business have to start retrenching staff that are left behind.
Due to natural attrition, Nedbank loses about 1,000-1,500 staff members a year. Kooyman says after the 1,500 they probably need to lose another 3,000. Kooyman says South African banks are in terms of cost to income ratios fairly good, “in the middle”, compared to banks worldwide. In developed markets, banks have fewer staff, but they cost far more. South African banks can be regarded as overstaffed compared to developed market banks. In emerging markets, banks still have many branches for taking deposits. He says it depends on the society that the bank operates in, but generally South African banks are fairly efficient. But as the economy is not growing, Nedbank was forced to look fairly sharply at the numbers.
Referring to the focus at the Mpati Commission on the Public Investment Corporation on Ecobank; Nedbank is a big investor in Ecobank, Kooyman said it wasn’t doing well, but it seems to be turning. The stake that Nedbank has in Ecobank is just over 20%; it was bigger before, but they diluted a bit. It is about 5% of the bottom line.
Kooyman says Ecobank has a chequered history; it was attractive to Nedbank because it represented 28 different countries in Africa and 15% of the bank’s earnings are from Nigeria. He says the problem with these countries are that they are all very volatile and the bad debt ratios of the banks that they own have all been very high; it swings from good to bad, from year to year. There were severe corporate governance problems in terms of the leadership and a tussle at the top, which was resolved a year or two ago when there was a bit of a clean-up.
Kooyman says because of South Africa’s slower growth; Nedbank thought that Africa would give a bit of growth to the bank’s bottom line. It has helped Nebbank to have an outlet for investment banking, ‘where Ecobank is very poor and Nedbank is quite good’. But he says as soon as you operate in those countries, you often have corporate governance issues and even as a minority shareholder you still have to stand parent for it.
Referring to the battle between Peter Moyo and Old Mutual, Kooyman who formerly worked for Old Mutual said it is sad for both parties. He said he was not sure what Moyo wants to achieve because it would be difficult to go back to his office. There has been a breach of trust and confidence, “surely he is not going to sit in meetings.” Kooyman said the fight between Moyo and Old Mutual means that the management is taking its eye of the ball and that is a risk for Old Mutual.