South African lenders are hiring more staff to target the country’s poorest people as banks from New York to London slash jobs to cut costs.
Employment in financial services climbed for a fourth consecutive month in November, rising 0.7 percent to 1.63 million, according to an index compiled by Johannesburg-based recruitment company Adcorp Holdings Ltd. That growth rate was only exceeded by South Africa’s transport industry.
“The story is about banking the unbanked,” Loane Sharp, Adcorp’s labor economist, said an interview from Johannesburg. “Banking services to the consumer are growing enormously with non-traditional offerings from the four biggest banks.”
Standard Bank Group Ltd. (SBK), FirstRand Ltd. (FSR), Nedbank Group Ltd. (NED) and Barclays Plc (BARC)’s Absa Group Ltd. are targeting the 9 million South Africans without bank accounts as growth in the continent’s biggest economy is forecast to accelerate next year. That involves setting up lower-cost banking services via mobile phones or through spaza shops, informal convenience stores in the country’s townships.
South Africa’s finance and other business services industry, which also includes insurance and real estate, added 53,000 jobs in the third quarter compared with a year earlier, according to Statistics South Africa. That equates to almost 90 percent of the jobs created in formal, non-agricultural industries. Banks in the developed world have cut almost 200,000 jobs this year amid Europe’s debt crisis, data compiled by Bloomberg show.
“Banking employment will continue to grow next year,” Sharp said. “There is strong growth in the unrecorded economy and it’s their banking needs that are being tapped into.”
That expansion of South Africa’s financial industry comes after Finance Minister Pravin Gordhan said in a speech in August that lenders need to improve access to credit and overcome the perception that it “isn’t doing enough to support the real economy.” The ruling African National Congress’s Youth League took to the streets on Oct. 27 to demand the nationalization of banks and mining companies in a bid to secure wealth and employment for young people.
South Africa’s biggest banks face competition from smaller lenders, such as African Bank Investments Ltd. (ABL) and Capitec Bank Holdings Ltd. (CPI), which specialize in loans for those on low incomes. Capitec, which plans to open 50 branches annually for the next five years, posted a 72 percent jump in profit to 487.9 million rand ($59 million) in the six months through August.
“We employ, on average, about 200 new employees every month which has been necessitated mainly by the implementation of Sunday trading, growth in client numbers, and the impact of this growth on our support divisions,” said Charl Nel, a spokesman for Capitec, which had 6,351 staff at the end of August.
First National Bank has hired more than 800 people to staff 121 EasyPlan branches, which allow South Africans in remote locations to open accounts and buy funeral insurance, according to Virginia Magapatona, a spokeswoman for the unit of FirstRand. Like other low-income bank services, EasyPlan can be accessed with a mobile phone.
Rival Absa is also using a mobile phone application for opening new accounts and issuing debit cards.
This use of “mobile technology allows us to extend our reach in many of South Africa’s most poorly serviced areas from a banking perspective, and enable greater numbers of our population to access the formal economy,” said Nobubele Mkwananzi, a spokeswoman for Absa.
Nedbank increased its payroll by 4.7 percent to 28,210 in the year through June as the Johannesburg-based lender added new branches and service points in stores across the country. The bank has a monthly fee of 5 rand for its low-income product, known as Ke Yona, or The One in Sesotho.
While Standard Bank cut 1,700 jobs among middle and senior managers at the end of last year, Africa’s biggest lender has expanded its unit offering “affordable” products.
“The business involves contracting small community retailers such as spaza shops and butchers as the bank’s agents in communities, where customers can open bank accounts, access basic account information and perform transactions such as withdrawing and depositing cash, paying utility bills and buying airtime,” the Johannesburg-bank said.
Standard Bank aims to offer this service through more than 7,500 shops across the country and boost the number of clients in this low-income market to 5 million, from about 210,000 at the end of 2010.
The spate of hiring won’t be enough to tackle South Africa’s jobless rate at 25 percent, the highest of 61 countries tracked by Bloomberg. While the government forecasts economic growth of 3.4 percent in 2012, after 3.1 percent this year, that is less than half the 7 percent expansion it says is needed to meet its pledge to cut the jobless rate to 14 percent by 2014.
“It’s not going to be the problem solver by any manner of means, but hiring in services could help South Africa in the short term while manufacturing and mining are under more pressure,” said Dennis Dykes, chief economist at Nedbank.
Going forward, an increase in South Africa’s inflation rate, caused by rising food and electricity prices, and weak job creation could threaten the ability of low-income customers to repay loans, said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town. Inflation breached the central bank’s target range for the first time in almost two years in November.
“A situation where there is too much supply and a deterioration in the ability of the mass consumer to service debt could be a recipe for disaster,” Rassou said.
Still, the returns generated by Capitec and African Bank from unsecured lending are encouraging larger rivals to focus on the low end of the market, according to Faizal Moolla, a banking analyst at Avior Research Ltd. in Cape Town.
“The bottom line is that the big banks are getting into the unsecured lending market,” said Moolla. “Unsecured lending is pretty lucrative at the moment.”
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