Are South African Banks Poised to Enter the Crypto Market?

The opportunity to buy bitcoin (BTC) directly through your banking app might be on the horizon.

Moneyweb contacted various South African banks to gauge their evolving attitudes towards cryptocurrency, and they seem to be softening their previously negative views, especially in light of new licensing regulations by the Financial Sector Conduct Authority set to take effect in 2024.

Listen/read: Banks are nearing entry into the crypto market

The banks that responded to our inquiries indicated they are exploring several crypto-related initiatives, albeit with caution.

While no bank has launched a service as of yet, unconfirmed reports suggest that at least one leading bank is expected to introduce a limited crypto service soon, with others likely to follow in rapid succession.

This shift could greatly enhance South Africa’s cryptocurrency environment, considering that the five largest banks collectively serve over 50 million banking customers, many of whom maintain multiple accounts.

Given their established reputation in digital custody and security, the introduction of digital crypto wallets seems to be a logical step, provided that the associated risks remain manageable.

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Initially, South African banks dismissed crypto as a poorly regulated means, often exploited by fraudsters like Mirror Trading International, now in liquidation after promising over 32,000 BTC from numerous investors with fake assurances of up to 10% monthly returns.

However, with new crypto regulations and licensing in place, banks are starting to pay attention.

“We constantly explore ways to expand our investment offerings to align with our business strategy and meet customer needs,” says Bheki Mkhize, CEO of FNB Wealth and Investments.

“We will consider entering the crypto market if we believe we can offer a simple, unique, easy-to-use, and secure service for our clients.”

Nedbank has indicated that it is currently investigating initiatives related to crypto assets, as per Moneyweb.

“However, we take a cautious approach to ensure we continue to meet and protect our customers’ evolving financial needs. As of now, we do not accept any form of crypto payment as collateral against loans, but this policy may be revisited, especially with the arrival of less volatile crypto assets, like stablecoins.”

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Rob Downes, head of digital assets at Absa Corporate and Investment Banking, remarks: “Absa is consistently assessing client and consumer demands, including how and when to provide services that evolve with their financial conditions. A dedicated team at Absa is currently reviewing a variety of digital-asset solutions that will be launched once they comply with regulations and are finalized.”

Investec opted not to comment, and no response was received from Standard Bank by the time of publication.

As the banks gradually enter this arena, crypto exchanges like VALR, Luno, and AltcoinTrader have fostered a solid following among the estimated 7-10% of South African adults who own crypto. Luno now has over four million customers in South Africa, while VALR, the leading exchange in trade volume, serves over a million users globally.

Listen/read: How bitcoin transitioned from a niche asset to a necessity

Moreover, licensed crypto over-the-counter desks like OVEX, FiveWest, and 80eight enable users to buy and sell crypto, facilitate payments, and utilize crypto across an expanding number of merchants.

Crypto providers are encroaching on the banking sector by offering payment services such as VALR Pay and Luno Pay, allowing customers to spend crypto at retailers like Pick n Pay and DisChem, with transactions processed in rand. Additionally, these providers can transfer assets such as US dollar-backed stablecoins globally within minutes and at a fraction of the cost of traditional banks.

The financial landscape is steadily shifting towards crypto, and banks are increasingly recognizing this reality.

Once South African banks commence operations in the crypto sector—following the lead of institutions like JPMorgan Chase, SEBA Bank in Switzerland, and DBS Bank in Singapore—the market will evolve to be significantly more competitive and dynamic.

Crypto-backed lending

We inquired whether banks are currently lending to customers based on their crypto holdings or if plans for such services are forthcoming. None currently do, but this may evolve. In recent years, borrowing against crypto has been possible through decentralized finance (DeFi) platforms like Uniswap, Compound, and AAVE, without needing personal identification.

Centralized exchanges like Binance also provide crypto-backed lending options.

In South Africa, users can secure loans against their crypto through VALR or Geddes Capital. Gianluca Sacco, chief operating officer at VALR, explains that the loan-to-value ratio depends on the collateral, but for BTC, it currently stands at 90%, with funds available almost immediately.

No prolonged wait for a bank credit committee to evaluate your risk profile.

Crypto has disrupted credit markets, allowing enthusiasts to borrow and amplify their holdings, deferring repayments, or in bullish scenarios, paying off debt using crypto gains. However, the risk during a crypto bear market is that borrowers may need to supply additional collateral or face liquidation of their crypto to satisfy the loan. This is managed through self-executing smart contracts on DeFi platforms.

Christo de Wit, Luno’s country manager for South Africa, argues that banks should include digital assets in their credit assessment processes.

“Globally, crypto-backed loans are rising in popularity as lenders increasingly acknowledge digital assets as collateral. While volatility remains a concern, it has diminished over time, and stablecoins often mirror the volatility of the fiat currencies they are correlated with. Banks can establish requirements to mitigate risks associated with crypto price fluctuations.”

Read: The stablecoin sector could reach $2 trillion: Standard Chartered

Crypto is no longer just an emerging asset class, according to De Wit, emphasizing the growing demand for banks to recognize digital assets as valid collateral for loans. This signals a clear opportunity for integrating digital assets into traditional lending frameworks.

“As banks do not currently recognize crypto as a financial asset, alternatives are starting to emerge in South Africa, facilitated by fintech lenders.”

Warren Deats, chief investment officer at Geddes Capital, points out that many South African entrepreneurs currently find themselves crypto-rich yet cash-poor. Many, particularly within the SME sector, would welcome the chance to leverage their crypto as collateral for loans, yet banks remain hesitant.

“Geddes Capital has innovated in this field, exploring creative security measures. The key requirements for eligible collateral assets are liquidity, accurate valuation, and verifiable ownership. Crypto fits this bill.

“For us, considering crypto as collateral is a logical step. Challenges exist primarily related to its potential use in money laundering and illicit transactions, a concern that has lessened over time but still persists. The difficulty lies not in accepting crypto as collateral but in ensuring our clients trust us with its custody and that we can safeguard against hacks and security breaches.”

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Emma Mer, chief risk officer at FNB, states that the bank presently does not accept crypto as loan collateral.

Similarly, Nedbank affirms it does not currently accept any form of crypto payment for loans as collateral. However, this policy might change as more stable alternatives, like stablecoins, become available alongside more volatile assets such as bitcoin and Ethereum.

The message is clear: stay attentive for further developments.

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