Role Of Commercial Banks in South Africa

Apart from conducting the common banking functions, banks play a paramount role in the economic development of South Africa, a country that is characterized with poor, unemployed people engaged mostly in traditional agriculture. Apart from being Africa’s giant economy, South Africa has an acute shortage of resources for allocating proper housing for its people; most South Africans lack initiative and enterprise. As such, commercial banks assist to rise above some of these challenges and promote economic development.

Below are some of the roles played by commercial banks in South Africa:

1. Mobilize capital: Through a network of branches, banks assist by mobilizing savings; though most people get low incomes, banks adjust their products by coming up with an array of deposit schemes to suit the needs of each and every depositor. These savings will be channeled into investments thereby assisting in the formation of capital.

2. Finance the local industry: They assist the local industry in many ways, chief among them by offering short-term, medium-term and long-term loans to the industry. These banks embark on short-term and medium-term financing of small scale industries and also offer hire-purchase finance.

3. Finance trade: It is the role of commercial banks in any country to finance the internal and external trade of that country. In SA, commercial banks offer loans to retail and wholesale firms to stock goods in which they deal. It is also the rile of banks to make sure that they finance the movement of goods from point A to B by offering all types of facilities in the name of discounting, and accepting bills of exchange, providing overdraft facilities and issuing of drafts. The importing and exporting activities that happen in South Africa are also financed by commercial banks and this is done by offering foreign exchange facilities to importers and exporters of goods.

4. Financing agricultural activities: The South African agricultural sector depends much on commercial banks for financial support and this is done in a number of ways such as:

   1. Offering loans to traders

   2. Opening a network of branches in rural areas to offer agricultural credit

   3. Provide direct finance to agriculturists for the marketing of their produce, for modernization, and mechanization of their farms

   4. Financing of animal husbandry, dairy farming, sheep breeding, poultry farming and horticulture

5. Fund consumer activities: Most South Africans have low paying jobs such that they are not able to buy durable consumer goods. Commercial banks thereby offer loans to allow consumers to purchase such items as houses, vehicles etc. That way commercial banks assist in improving the standard of living of people in South Africa.

6. Finance employment activities: They finance employment activities by offering loans for educating young people to study courses such as engineering, medicine and other courses. They also offer loans for young people at tertiary level.

7. They assist in SA’s monetary policy: It is the role of the South African Reserve Bank (SARB) to to announce the monetary policy but worth noting is that the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.