South Africa has one of the most advanced financial sectors of all emerging market economies and its development is in many respects on par with those of industrialised countries – and yet its performance was not measured regularly and consistently. There was general consensus on the need for a regular, consistent and impartial Financial Services Survey, from managers in the financial sector to financial analysts.

The contribution of the financial sector to GDP has increased over the past decade and stood at 9.7% during 2011. The contribution of – for example – real estate (6.0%), transport (6.6%) and retail trade (7.2%) are all lower compared to that of the financial sector.

However, the general government (16.5%), manufacturing (12.8%) and mining (10.2%) are bigger.

Despite its importance, current information on the performance of the financial sector lags behind:

• Statistics South Africa publishes GDP and employment figures for the sector covering financial intermediation, insurance, real estate and business services with a lag of one quarter and provides no detail about the sector’s financial performance.
• The compulsory monthly BA 120 (DI 200 until 2007) returns of banks, the Annual Report of the Bank Supervision Department of the South African Reserve Bank (SARB), the Quarterly Financial Stability Review of the SARB’s Financial Stability Department as well as the Annual Report of the Financial Services Board (FSB) provide detailed information about the performance of banks and other financial institutions. However, this information is only made public with a lag (except for the BA 120 returns).
• The interim and annual reports of listed financial companies provide information about their performance, but these reports appear at irregular intervals (their release dates depend on the financial year-ends of the different companies) and the results are not always comparable.
• The periodic PWC Survey, although entirely relevant in relation to its intended target market and ultimate aim, differs fundamentally from the EY Financial Services Survey. The EY survey measures the same performance criteria of financial institutions over time, appears quarterly and the results are obtained by means of short questionnaires.
• The quarterly unit trust and bi-annual life insurance reviews of the Association for Savings and Investment SA (ASISA) are useful. However, the unit trust review does not provide information on the financial performance of management companies and the life insurance review is only published twice a year.
• The investment performance and strategy of asset managers are measured regularly (e.g. Alexander Forbes and Plexus), but no consistent measure of income and expenditure of asset managers exist.

The UK, Poland and Switzerland have the longest experience in conducting Financial Services Surveys. In the UK, the Confederation of British Industries (CBI) in London has been conducting comprehensive quarterly Financial Services Surveys in partnership with Price Waterhouse Coopers (PWC) since December 1989. In Poland, the Research Institute for Economic Development (RIED) at the Warsaw School of Economics has been conducting a banking survey since 1999. The Swiss Business Cycle Institute (KOF) in Zurich has been conducting a quarterly banking and insurance survey since the beginning of 2000.

In the USA, the Federal Reserve Bank has been conducting a “Senior Loan Officer Opinion Survey on Bank Lending Practices” for many years, but unlike the UK, Polish and Swiss banking surveys, it focuses on bank lending practices and not the financial performance of the bank sector.

The South African Financial Services Survey is modelled on those of the UK and Switzerland. However, the questionnaire has been adapted for South African conditions and needs. Furthermore, it also includes the questions on credit standards for approving applications for loans and credit lines out of the US “Senior Loan Officer Opinion Survey”.

The questionnaire has been designed for maximum efficiency and minimum input time. Only multiple-answer type ticks are required. No figures are requested. For example, participants only have to tick if a particular activity (such as total income or number of people employed) is “up”, “the same” or “down” compared to the same period a year ago and with respect to their South African operations only.

Respondents are carefully selected and approached on the basis of their position in the financial world. The head of retail banking or the head of group life insurance is quizzed, and not the chairperson of the board of directors of the group or holding company. Divisional heads tend to be best informed about their business units. The confidentiality of the responses adds to the honesty and candour of participants. Furthermore, respondent quality is monitored.

The same group of participants is surveyed from one quarter to the next. Changes in the results from one quarter to the next can therefore be attributed to an actual change in the performance yardstick in question and not because of the participation – or not – of particular banks, asset managers or life insurers.

South Africa has relatively few banks, asset managers and life insurers. For example, four banks dominate the retail and six the merchant and investment banking sector. Likewise, two companies dominate the life insurance industry. The number of potential participants in a Financial Sector Survey is therefore relatively low in South Africa.

The participating retail and investment banks accounted for 95% of total assets of registered banks in December 2007. The value of the total funds under management of the participating asset managers accounted for 63% of the total during the second quarter of 2007.

The degree of presentation of the panel of participants has an important impact on the reliability of a quantitative survey, i.e. when respondents have to indicate actual amounts for each activity and the rand value of the level and change are calculated. In contrast, the Financial Sector Survey is a qualitative survey, i.e. the majority view of respondents on a particular activity is taken as an indication of the direction and strength of the trend in that activity. The degree of presentation of the panel of participants is less of a concern in the case of qualitative surveys. Furthermore, the participation – or not – of a particular respondent has less of an impact on the overall results in the case of qualitative surveys compared to quantitative ones, as the view of the majority is established and not the actual size.

For reasons of focus, the following financial institutions are not covered, namely short-term insurers, public financial institutions (e.g. the Reserve Bank, Land Bank, Post Bank and official pension and provident funds), medical insurance savings schemes, the informal micro-lending and savings industry, retailers providing credit and individual insurance brokers/agents. The survey also only focuses on the supply of financial services and not on the demand for such services, which stem from government, businesses, households and the rest of the world.

The survey results reveal trends and not actual figures. The net balance statistic is used to interpret the survey results. The net balance statistic is the percentage of respondents replying “up” less the percentage replying “down”. The percentage of respondents replying “the same” is ignored. Over the years, the net balance statistic has proved to be the most reliable indicator of the direction and size of change in the trend of the respective activities surveyed.

The net balance statistic is a qualitative yardstick of the direction and size of the year-on-year growth rate of a particular activity. A positive net balance implies positive year-on-year growth and vice versa. The higher the value of the net balance (positive/negative), the larger the rate of increase/decrease of the activity in question.

To aggregate the sector performance, individual responses are weighted according to their institution’s relative size. It makes sense that the response of a small participant has to count less compared to that of a large participant.

Results are published according to type of activity (e.g. retail banking, investment banking, life insurance and asset management) and not per institution.