Combined Annual Report of
the Supervisors of the
Co-operative Banks
Development Agency and the
South African Reserve Bank
2010/11
Select Committee on Finance
Outline
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Introduction
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Application of the Act – types and service
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Legislative framework
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History of the Act 2002-2008
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Preparation 2008-2010
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Implementation from 2010/2011
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Primary reason for failure to register
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Co-operation and co-ordination agreement
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Issues requiring attention 2011/2012
Introduction
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Section 52 of Co-operative Banks Act 2007 requires
the Supervisor in the CBDA and Supervisor in the
SARB submit to the Minister of Finance annual report
on the exercise and performance of their powers and
functions in terms of the Act and report on the
implementation of their co-operation and coordination plan.
Powers and functions include:
– Register and de-register co-op banks
– Issues rules, guidance notes and directives
– Penalties
– Carry out inspections
– Take any steps necessary to protect publics funds
Application of the Act
Application of Act: S 3:
(1) This Act applies to all co-operative banks registered under
this Act and to any—
(a) primary co-operative registered under the Co-operatives
Act that takes deposits and has 200 or more members and
holds deposits of members to the value of one million rand
or more and
(b) secondary or tertiary co-operative registered under the Cooperatives Act, whose members consist of at least—
(i) two or more co-operative banks;
(ii) two or more financial services co-operatives that take
deposits;
(iii) one co-operative bank and one financial services cooperative that take deposits.
Types
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Types of Co-operative Banks:
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Primary savings banks
Primary savings and loans banks
Secondary co-operative banks
Tertiary co-operative banks
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Services (Primary Savings)
May only provide, participate in or undertake the following
banking services:
(a) deposits from its members;
(b) open savings accounts for its members;
(c) borrow money from the Agency and members (subject
% by MoF);
(d) open a savings/cheque account in the name of cooperative bank;
(e) make, draw, accept, endorse, or negotiate negotiable
instruments;
(f) trust or custody services;
(g) additional banking services prescribed by MoF and
(h) invest money in investments prescribed by the Minister.
(See regulations)
Services (Primary Savings and Loans)
A primary savings and loans co-operative bank may only
provide the following banking services:
(a) Any of the banking services referred to previously;
(b) grant secured and unsecured loans to members to a
maximum aggregate value prescribed by the Minister
(see regulations) and
(c) conduct any additional banking services and invest money
deposited with it in any investments prescribed by the
Minister.
Services: Secondary and Tertiary
A secondary co-operative bank may only provide the following
banking services:
(a) Any of the banking services referred to previously;
(b) trading financial instruments on behalf of its members;
(c) open an account with a bank registered under the Banks Act to
facilitate foreign currency transactions;
(d) conduct such additional banking services and invest money
deposited with it in any investments prescribed by the Minister.
A tertiary co-operative bank may provide the following banking
services:
(a) Any of the banking services referred to previously;
(b) conduct such additional banking services and invest money
deposited with it in any investments prescribed by the Minister
SARB
Co-operative
Banks Act
> 20 million SARB
< 20 million CBDA
R 1 000 000 and 200 members
Financial services
Housing
Worker
Social
Agricultural
Burial society
Consumer
Marketing/Supply
Service
dti
Co-Operatives Act
History 2002 -2008
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Fin Sector Summit- (NEDLAC principles to
reform sector, including access to finance
2002)
Pres. Growth Summit-(support to co-ops as
part of strategy to create work opportunities
2003)
Co-op Act replaced 2005
Responsibility transferred to CIPRO
Payout process (following collapse of FSCs
2004)
2004 Co-op Banks Bill (2004)
Exempt. Notices (2006 & 2008)
Preparation 2008-2010
Preparation 2008-2010
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Act (August 2008)
Draft Regulations. (August 2008)
CBDA Board (August 2008)
MD CBDA appointed (March 2009)
CBDA Supervisor appointed (May 2009)
SARB Supervisor appointed (July 2009)
Regulations (July 2009)
SARB CBSU (August 2010)
Roodevallei Consultative Conf. (Dec 2009)
Implementation from 2010/2011
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Rules (Jan 2010)
GN1/2010 (Jan 2010)
17 eligible applicants
Assessment
• 13 by CBDA
• 4 by SARB (Including 1 secondary)
• Total deposits: R 160 million
• Total members: 28,034
11 completed applications
Ditsobotla Savings and Credit Co-operative Bank
Ltd first to be registered 17 Feb 2011
Approval given to second co-op bank by SARB.
Awaiting registration
Primary Reasons for failure to register
Inadequate capital levels
 Regulations require 6% CAR
 Most have been operating at losses and not
making (adequate) provisions
Weak governance and operational capacity
 Committees not meeting
 No AGMs
 Poor systems in place
Poor accounting and MIS
 Few qualified accounting staff
 Few computerised
CBDA and SARB
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Co-operation and co-ordination agreement
sent to Minister of Finance include:
Co-ordination of supervisors’ approach in
exercising their powers and functions in terms
of the Act
Engaging with each other in activities of
research, publication, education, staff
development and training
Engaging with each other in staff exchanges
or secondments
Provide technical assistance or expertise to
each other
Activities engaged in 2010/2011
Activities included

Weekly co-ordination meetings
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Jointly meeting stakeholders (i.e NCR, FIC, samaf,
SACCOL
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Input into regulations
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Joint publication of rules
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Commenting on relevant financial and co-op bills
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Issuing of guidance notes
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Commenting on discussion documents
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Assessment of applications
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Co-ordination of manuals and administrative systems
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Presentation to international and local seminars
Issues requiring attention 2011/12
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Banks Act exemption notices
Deposit insurance fund
Potential abuse of the Act
Appeals board
Submission of prudential returns
“Twin Peaks” model for financial regulation
Application of Basel Core Principles on banking
supervision for deposit taking Microfinance
activities
Questions
THANK YOU !
Supporting slides
Co-ops Act
Exemption Notice
SACCOL/NASSASA/SAMAF
Co-ops Act
COB Act
CBDA
Co-ops Act
COB Act
SARB
Secondary and Tertiary
< R 1 mil
R 1 mil < R 20 mil
Financial Services Cooperative
Co-operative Bank
Co-operative Bank
Limited liability
Limited Liability
Limited Liability
May receive Agency assistance
Deposit Insurance
Deposit Insurance
Agency assistance
NPS
> R 20 mil
Regulations: Investments
Only in following

deposits with a bank

deposits with secondary or tertiary co-operative banks

government co-operative retail savings bonds

participatory interests in portfolios of collective investment schemes
approved by the Registrar of Collective Schemes as determined by
the supervisor by notice on its official website

bonds and debentures determined by the supervisor
Minimum Capital Adequacy
Only the following qualify as capital –

membership shares

indivisible reserves
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non-distributable reserves (excluding provisioning) and
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non-distributable funds of a permanent nature approved by
the supervisor in writing
Must be at least 6 percent of total assets held by cooperative bank
Liquidity
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Max 5 percent of total assets may be held in fixed and nonearning assets
Minimum 10 percent of total deposits must be held in “prescribed
investments” with a tenure not exceeding 32 days and convertible
into cash at any time
In addition, minimum of 2,5 % of total deposits must be deposited
with the Agency or a higher tier co-operative bank
balance of deposits must be held in prescribed investments
or (for savings and loans)
balance granted as loans up to a maximum of 80 percent of total
assets
(loans granted to members that are sourced from cash donations
may not exceed 15% of total deposits.)
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Large exposures
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Hold no deposit from any one member or related person,
exceeds the lesser of 10 percent of the total assets held by
or 25 percent of the capital of the co-operative bank
A co-operative bank may not make an investment with any
one person or related person or grant a loan to any one
member or related person, which exceeds the lesser of 10
percent of the total assets held by or 25 percent of the
capital of the co-operative bank