Managing a bank today is no longer only about the numbers. It is about agility, foresight, innovation, speed and a deep understanding of your customers. At BDO, our team of financial services specialists, with experience in auditing banks in South Africa and globally, are equipped with the understanding and expertise needed to provide clients with the assurance and support they need in a highly regulated and controlled sector. Our people understand the issues faced by bankers, whether your business has been operating a traditional banking model, or whether you are a start-up fintech entity.

Like all sectors of the global and local economy, traditional bankers are faced with numerous challenges on all fronts relating to their business model.

Digital transformation is challenging large financial services institutions as they battle to transform from their current technologies to digital solutions. Emerging technologies such as block chain, artificial intelligence and cloud solutions allow fintech-type entities to challenge traditional models as they offer better customer experiences at much lower costs because they do not have challenges with legacy technology. In several cases the burden of regulation is also still absent.

In South Africa the competitive banking landscape has a number of new players in the entry-level segment of banking. These new disruptive fintech companies and digital platform businesses bring a different angle as they want to earn money through providing a superior customer experience rather than making money from money, i.e. by using balance sheet. Mainstream banks will have to carefully consider the fast-changing banking and technology landscape and respond to the changing demands of customers to ensure the client experience is taken to a new level of convenience and speed whilst delivering it at a reduced cost.

Artificial intelligence will assist people and organisations make faster, more informed and cost-effective decisions. These decisions are driven through algorithms that analyse large volumes of structured and unstructured data to quickly deliver data based decisions that greatly improve the customer experience, such as having loans approved in near real time.

When one looks at the operational and risk management functions in a bank, the option to replace repetitive predictive tasks with robots will have a significant effect on operational efficiency, accuracy and speed. It will be at the cost of some jobs though, unless employees are re-skilled or re-purposed.

As the new entrants into the market move from transactional banking and deposit taking into more complex offerings like business banking and credit, they will also have to review their business and pricing models – all while the cost of compliance continues to rise. Historically, regulations have lagged behind innovation in the banking sector and the same is seen with the introduction of emerging technologies. Worldwide, regulators are investigating new ways to regulate these new technologies and business models with the intention of protecting consumers.

Unsecured Lending

The unsecured lending industry in South Africa comprises several niche lenders who provide loans and advances to mainly lower income clients. With the recent introduction of IFRS 9, lenders operating in this industry needed to revisit their existing provisioning methodology as the components of the Expected Credit Losses (ECL) model require specific behavioural and credit risk changes to be built into the credit models. Our team has the technical and practical competence to assist lenders with audit and advisory services related to this, including the key component of credit modelling.

Our services include the following:

• Financial statement audits
• Review of credit modelling methodology of the impairment models
• Testing of the ECL models
• Taxation, specifically new legislation in line with the Tax Laws Amendment Bill and new s11j provisions
• Data integrity reviews of client systems to respond to input, processing and output data risks.

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