The recent downgrade of the credit of South African banks to speculative status has blown a big hole in the industry’s steady expansion into the rest of the continent in pursuit of growth from favourable demographics and low banking penetration rate. In so doing, banks have failed to weigh the cost of this growth against the incongruence of banking systems and cultural attitudes towards credit between South Africa and the other African countries. They have chased yield pick-up instead of yield integrity (better cross-selling and enhanced customer service to existing customers). SA banks should have expanded into countries with a similar regulatory fabric and cultural attitude to credit. These countries are Australia, New Zealand, Finland, Sweden, and Singapore. That way, both their sources of funding and yield pick-up (lending and investment) would not have been compromised by the downgrade to South Africa’s sovereign rating. In fact, the whole matter begs the question: “now that South Africa’s credit rating is speculative, like all the countries the industry has expanded into, should SA banks hold SA government bonds? In an economic environment constrained by sovereign distress, what price will banks pay to make up for lacklustre deposit growth? In the absence of a culture that returns capital to shareholders through share buy backs and/or special dividends, how will they cope with returns required by investors?

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