Financial banking system of South Africa analysis
Commercial banks are controlled by one central bank and as these banks interact with different activities, they are ensigned under rules that is to control money supply and try as much as possible to prevent inflation. Through this therefore, different regulations have been postulated by the government so that it can affect the financial market and to stabilize the country’s economic development. Compliance to such rule is not only an obligatory duty but it is also geared towards the overall development of the financial system in the country. Financial regulations in a country is meant to bring changes in the financial sector so as to give it an opportunity to operate in a position that is looked up to by many other firms.
Through this, competitive advantage and expansion will be also be achieved since its performance is regarded as benchmark in the banking industry. In his devotion to seeking political freedom, he was subject to various risk amongst this is twenty-seven years detention but at the end of it all freedom was obtained by the country. Governance The governance of the country does not only entail the leadership but also how the leadership is done, its stewardship and accountability. Economic development in a country is not only determined by the contributors and activities like trade and other economic activities but it is based entirely on the policy making of the nation. Favorable economic policies affect the way a country and economic sector will achieve its objectives.
South Africa is a republic country headed by a president as the head of the country. In provision of financial services. It is divided into four system that is financial institution, financial markets, financial instruments that is the assets traded in the financial system, financial services like banking and other related activities and finally money; that is what is actually traded in the financial institutions since it acts as a medium of exchange in various markets 5 Banking system in different countries have different banking Acts but it is the role of the financial institutions through stipulated ministry to work towards attaining conformity to financial rules so as at the end, central bank may control all the financial institutions. South Africa is one of the most developed country in the African continent with most of its population having middle level income.
It is also a member of African member group of twenty. The country has a well-developed monetary, lawful and physical structure, forming which is a basis of a stable economic growth within the country. Other banks include financial markets as well as non-financial institutions and savings and credit corporations whose main role is to ensure that the credits and financial support is offered to those who have limited access to the financial aid. Different companies also trade in the stock exchange registered under Johannesburg stock exchange and through these, the company trades its financial instruments to investors after shares is listed in the stock market. Different changes have also been made in the banking sector where the supervisory framework has been reviewed and well developed.
The role of this is to ensure that bank and non-bank regulators work in conformity with the stock market and through this conformity, risk management and also risk prudential is attained by the management. The improvement in the financial sector in south Africa is the main contributor of the financial performance and improvement in the financial sustainability of the country. Decrease in banking sector performance also causes some challenges to the capital deposits in the market. One of the main responses as a result of projected financial crisis is capital flight. this is a massive outflow of capital from the financial sector where lenders withdraw more money at the same time. this will therefore affect the interest rates as well as the amount of money in circulation.
It also causes an increase in capital spread. The budgetary pro base is decently widened and a couple of center individuals straightforwardly trade accessible. Retail get to is on a very basic level coordinated through normal resources administered by various wander organization firms, anyway individuals can purchase security by methods for merchants gave they do all things considered in sizable aggregates. The helper advertises, dealt with as a markdown feature, is reasonably made and liquid, yet liquidity is pressed in a few government issues. Government paper overpowers the market, addressing around 85 percent of turnover, while repo trades make up ideal around 66% of all trades happening on the area promote. Swaps and choices are furthermore successfully traded on the Over-the-Counter market. Since the central bank is mandated to regulate the operations of banking institutions, an organization that is (commercial bank) perceived to have a higher standing chance of asset gets a higher opportunity to gain financial aid from the central bank.
Capital flight and other unexpected occurrence will only be minimized by companies through holding a substantial amount of assets that will add up to the financial sector. Since equilibrium threshold needs to be attained in the market, efficiency is achieved when the demand and supply in the, market is the same. Without the government and regulatory bodies to govern the financial institutions, issues like market failure and capital flight will be realized. It is therefore an advisory to organizations that desire to grow and increase its deposits and loans hoking to maintain the required level of asset size so as to attain is level of performance and protect its reputation based on the asset size. The higher the level of debt the company accumulates, the higher the risk the common face.
Since lenders and borrowers needs to enter into contractual terms through agreeing with the banking sector as a major intermediary, failure of borrowers to pay debt will not only lead to crystallization of securities but also sell of personal properties by the organization. Attaining performance by the selected five companies will only be possible if the debt is reduced. Debt ratio of the companies portrays an increasing trend and with more debt and reduced profit, it means that the company will have increase the cost of borrowing through charging more on deposits and borrower funds so as to recover what is paid for debt 10 Revenues The aim of every commercial institution is to increase its profitability. every firms as long as it operates under the stated regulation and registered under the statutory Act is given autonomy to engage in the business as stated by its substratum.
Expenses Every organization need to regulate the expenses it incurs so as to increase the profitability of the firm. A rational financial institution that institution that will reduce the disallowable expenses and increase allowable expenses. Through this initiative, it will attain the maximum possible results and be able to pay dividends to its shareholders. Attracting more investors and be able to retain profit to refinance the company operations will entail regulation of expenses. Salaries paid to employees in the organization is the major contributor of expenses and regulation this kind of expenses will require the company to reduce the number pf workforce and move towards automating its system. Another way to make net profit higher is to adopt techniques of taxpaying.
Through tax planning, it means that the organization will not incur more in terms of governmental obligations. This is only possible through use of ways like investment in other companies shares since dividends it tax withheld, reducing the disallowable expenses, savings account in post office as well as other relevant tax planning techniques. through this therefore, it shows that the company will be in a prime position to save more and also distribute more dividends to its shareholders. The company will also be able to finance its obligations when it falls due. Continuous flow of income will also determine the rate of dividend payment and this will therefore affect firm’s performance. Conclusion Since there are different rules and policies adopted by the governance, to attain congruency and comparability of financial affairs in the banking institution will therefore requires the firm to adopt the standards which are laid down by the financial setting bodies and the country’s financial act so as to attain fair comparativeness in the industry.
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