Address by Mr TT Mboweni, Governor of the South African Reserve Bank1. Introduction Over the past decade, South Africa has established a well-developed banking system which compares favourably with those in many developed countries and which sets South Africa apart from many other emerging market countries. At the end of 2004, we find ourselves with a more mature banking sector, with a moderate level of private-sector indebtedness and a respectable and first-rate regulatory and legal framework. South African banks are well managed and utilise sophisticated risk-management systems and corporate-governance structures in conducting the business of banking. South Africa’s banks are regulated in accordance with the principles set by the Basel Committee on Banking Supervision. Consequently, our banks comply with international sound practice and offer a sophisticated banking system to the public. Customers have online, real-time, nationwide access to bank accounts 24 hours a day, everyday of the year. South Africa’s political transformation, together with the relaxation of exchange controls and the liberalisation of African economies, has resulted in South Africa becoming an increasingly important financial centre. South Africa is now also well positioned to provide global services through the international offices of our banks and the presence of international banks in South Africa. 2. Structure of the South African banking sector Currently, there are 38 registered banks in South Africa. This number consists of 15 South African controlled banks, 6 non-resident controlled banks (subsidiaries), 15 local branches of international banks, and two mutual banks. In addition, 44 international banks have authorised representative offices in South Africa. Representative offices, however, may not take deposits. Five major groups continue to dominate the South African banking sector. These groups are the Absa group, the Standard Bank group, the FirstRand Bank group, Investec and Nedcor. In 1994, these groups represented 83,8 per cent of the total assets of the banking sector and, currently, they represent 87,4 per cent of the banking sector. The remaining 12,6 per cent of assets in the banking sector are currently held by the other 31 banks, excluding the two mutual banks. Initially, the number of medium to small local banks increased steadily over the past decade. During, the latter part of 1999, however, these banks faced liquidity pressures, which led to many of these medium to small banks exiting from the banking system. This downward trend reached its lowest point with the placement of Saambou Bank into curatorship in February 2002 and the subsequent integration of BOE Bank into Nedbank. From the last quarter of 1999 to the end of March 2003, some 22 banks exited the South African banking system. It can be said, however, that this phenomenon was due more to a consolidation of the broader banking sector than a failure of the medium to small banking sector. Currently, small local banks constitute 3,1 per cent of the total banking sector assets, in comparison to 21,7 per cent in 1994. As a result of the political isolation of South Africa in the mid-1980’s, international banks terminated their operations in South Africa. Immediately prior to the advent of the democratically elected government in 1994, few international banks were doing banking business in South Africa. Amendments to the Banks Act in 1994, however, allowed not only representative offices and subsidiaries of international banks to be established in South Africa, but also branches of international banks. Following the opening of South Africa’s financial system in 1994, international participation in the local banking industry increased significantly, from 3 per cent in 1994 to 9,5 per cent of total banking sector assets by the end of October 2004. 3. Periods of change in the banking sector Following South Africa’s re-entry into international financial markets in 1994, locally registered banks have increasingly been expanding their operations into other countries. At the s