AR square 210mm - obssa.co.za · PDF fileon solid ground, with sufficient ... Chief among these is the Financial Services Board's ... complaints directly, without OBS intervention

A N A C C O U N T O F A C T I V I T I E S F O R T H E P E R I O D

1 JANUARY – 31 DECEMBER 2010

transformationtransformation

OBS AR 2010 (square) 4/19/11 10:26 AM Page 1

The Ombudsman for Banking Services will be known by all banks and their customers for its impartial andwell-reasoned resolutions of all complaints within four months.

The Ombudsman for Banking Services is dedicated to providing banks and their customers with a quickand efficient dispute resolution service. Our professional staff aims to do this in a fair, impartial andconfidential way and strives to improve general banking practice.

CORE VALUESThe Ombudsman and his staff are committed to the following values: fairness, independence,professionalism, accountability, accessibility and timeliness.

The full service standards document is available on www.obssa.co.za

V I S I O N

M I S S I O N

S E R V I C ES TA N D A R D S

T R A N S F O R M AT I O NWith transformation comes innovation, growth,

development. Change – dramatic or subtle, rapid or slow – is the lifeblood of the universe and all in it.

Over the years since its inception, the OBS hastransformed itself from a fledgling dispute resolution

body into an integral part of the bankingindustry, highly respected by banks and their

customers alike.

With a new, finely focused strategy; fresh approaches to evolving challenges;

and a move to quiet, suburban premises, the transformation continues.


Board Chairperson’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Ombudsman’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Case statistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Case summaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Marketing and outreach activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Report of the independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Directors' responsibilities and approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Directors' report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Certificate from the company secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28

Statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Statement of changes in equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

Notes to the annual financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

The following supplementary information does not form part of the annual financial statements:Detailed statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .inside back cover

1

C O N T E N T S


While its global counterparts were still shaking off the lingering effects

of the economic downturn, the South African banking sector continued

to dodge the fallout. In fact, while certain European and American

banks failed banking regulators' stress tests, all our major banks remain

on solid ground, with sufficient capital to withstand any future

recession. This is due in great part to our uncompromising banking

regulation systems and sound risk management practices.

Worrying, though, are the global banking reforms of Basel lll proposed for introduction in 2012, which willrequire banks to hold more capital and liquidity to avoid another financial crisis. As a member of the G20,South Africa would have to comply and banks would need to boost their reserves, which could lead toincreased bank charges in an environment of already high fees.

The banks maintain that their fees are comparable to or lower than those of countries such as Turkey andMexico, but Minister of Finance Pravin Gordhan is calling for certain charges to be lowered and for greatertransparency. During his mid-year meeting with the sector, he also reminded the bankers that, althoughtheir remuneration may be lower than that of international bankers, note must be taken of domestic socialconditions, the inequality of income and the shortage of skills when setting salaries.

Fortunately, international confidence in the local banking sector remains high, as evidenced by OldMutual's negotiations with HSBC for a controlling share by the latter in Nedbank. The deal fell through, buthas left the door open for Standard Chartered, and other global players with an eye for an attractiveopportunity to establish a foothold on South African soil.

The beleaguered Financial Sector Charter limped along, with the latest revisions on black ownership of theindustry being slated in certain quarters for “bypassing transformation instead of advancing it”.

Let us hope the parties find some common ground in the months to come to keep this importantinitiative alive.

Banking the unbanked remains an ongoing challenge, with the Mzansi concept fading further into theshadows against innovative new banking products aimed at the low-income market. In a reportpublished in June 2010, the Banking Association South Africa stated that, although the first half of the yearsaw an 8% increase in the total number of Mzansi accounts opened, dormant accounts – standing at 29%of the total – were cause for concern.

The big four banks all have alternatives, but it has been acknowledged that more needs to be done toexpand the service among the unbanked.

B O A R D C H A I R P E R S O N ' S R E P O R T

2


The National Credit Act (NCA), introduced in 2007 essentially to save South Africans from themselves bypreventing unmanageable debt, has undoubtedly met this aim, with the demand for credit dropping asconsumers become wiser and more circumspect, and banks more stringent with their lending criteria.However, this success has come at the expense of the normal flow of property sales, which, somecommentators point out, is at conflict with the government's drive towards home ownership for allcitizens.

We are pleased to note that the banks' resolution capabilities are improving constantly. Their commitmentto resolving complaints before they reach the OBS is most encouraging, as this not only frees ouradjudicators to pursue more complicated matters, but enhances the reputation of the banking sector andstrengthens perceptions of business professionalism in South Africa.

The profile of top complaints during 2010 was dramatically different from that of previous years. Mortgageloan complaints have traditionally topped the table according to the number of cases processed. This year,however, ATM-related complaints rocketed to the fore, rising from 282 or 9% in 2009 to 937 – 25% – lastyear.

The increasing ingenuity, or more accurately, deviousness of cyber crooks and their ever moresophisticated phishing schemes brought a surge in internet banking complaints. From a mere 45 cases in2009, which accounted for 1% of total complaints, 2010 saw 484 cases, 13% of the total.

Interestingly, mortgage-related complaints fell from 22% of total workload to 18%, which may be anindicator of the impact of the NCA.

During 2010, and not for the first time, the OBS was elevated into the global spotlight, when OmbudsmanClive Pillay was announced as the Gold International Star Quality Award (ISQA) winner for 2010. The award,initiated by Business Initiative Directions (BID) of Madrid, honours individuals from across the globe whopromote excellence and innovation in the workplace, displaying leadership in customer satisfaction,planning and decision-making and communication strategies.

Congratulations to Clive and to the highly competent OBS team, which supports him in all endeavours.Together they enable the organisation to fulfil its mission effectively and consistently.

Advocate John Myburgh SC n OBS Board Chairperson

33


During 2010, the OBS consolidated the changes in strategy and approach implemented

in the previous year – initiatives such as the wellness programme covering physical,

mental and emotional health; a clear succession plan and a restructured appraisal

system.

They have all paid dividends in generating for our staff greater job satisfaction and a better quality of life,which have, in turn, enhanced team cohesion and performance.

Communication is paramount, even in a small operation such as ours, so an internal newsletter, O-Focus,was launched in 2010 to highlight developments, both strategic and personal. It has been well received.

During 2010, the OBS team experienced a significant increase in the number of complaints, probably duein part to the continued effects of the recent recession, but also attributable to the concerted drive wehave undertaken in recent years to promote the scheme to an ever-wider audience, particularly people inrural communities.

The Ipsos Markinor survey we commissioned towards the end of 2009 indicated that one in ten SouthAfricans in the lower income and education groups, knew about the scheme. Although research will haveto verify this, we believe that, with the marketing activities conducted in 2010, the number would haveincreased significantly by the end of last year.

Innovations such as our new programme on satellite station Commuter Radio and regular interviews onother stations helped to cement our position as an impartial adjudicator committed to the fairest solutionto all disputes. The marketing section later in this report provides more details on these.

During the year, 4 241 files were opened, an increase of 36% over 2009, and 3 729 files were resolved andclosed, up 11%.

But it is not the figures that are impressive – it is the fact that the cases were processed without additionalresources. This speaks volumes for the competence, efficiency and dedication of our staff, and for their

willingness to put in the hours necessary to provide a professional, dependable andtimeous service to the banks and their customers.

Moving through 2011, the work of the OBS is likely to be complemented by newinitiatives in the sector. Chief among these is the Financial Services Board'sframework for market conduct regulation, which is based on the UK's well-established 'Treating customers fairly' (TCF) programme. TCF seeks to inculcate inthe culture of financial institutions the fair treatment of customers, from productand service choice and performance, through reliable information to ease ofchanging products or providers.

O M B U D S M A N ' S R E P O R T

4


3

As this report went to print, our move to new premises was underway. It's only a few kilometres from thecity centre to the leafy suburb of Houghton, but we believe it will make a world of difference to ourstakeholders.

The new OBS offices, just off the N1 highway near Killarney, will prove infinitely more convenient andaccessible to complainants. In contrast to hectic Harrison Street, the setting is peaceful and certainly moreconducive to concentration during intense discussions.

We look forward to this new era in the life of the OBS.

Finally, a sincere thank you to my team for making 2010 another sterling year and to the board for itssupport of the changes and decisions we have taken in recent years.

Clive Pillay n Ombudsman for Banking Services

5

OBS board members (from left): Tanya Venter, CEO: Tokiso DisputeSettlement; Jacky Mathekga, ExecutiveDirector: NMG Consultants andActuaries; Diane Terblanche,Chairperson: National ConsumerTribunal; Adv John Myburgh SC,Chairperson: OBS Board; Nicky Lala-Mohan, General Manager: Legislationand Regulatory Oversight: The BankingAssociation South Africa; Bob Tucker,Consultant; Tefo Raditapole, Attorneyand Director: Cheadle Thompson &Haysom Attorneys, and Ina Steyn, Head: Customer Contact and CareManagement, Absa Bank. Inset: Cas Coovadia, Managing Director: Banking Association South Africa.


The total number of files opened andenquiries received increasedsubstantially in 2010. A significantportion of the increase can beattributed to the economicrecessionary factors experienced inSouth Africa. The majority of disputesreceived involved an element offinancial distress. There was a furtherincrease in the number of cases thatrequired further investigation. Thebanks generally settle the easierdisputes once the matter is initiallyreferred to them, which leaves themore difficult and complicated disputesthat need further investigation andadjudication by the OBS.

6

C A S E S TAT I S T I C S

FILES OPENED IN 2010 PER BANK (2009 IN BRACKETS)

Total cases 4 241 (3 366) Assets for all banks R3 128 815 291as at October 2010

Standard 1 265 (940) R825 780 917 26,4%

Absa 1 120 (758) R676 075 142 21,6%

FNB 787 (681) R602 769 686 19,3%

Nedbank 773 (758) R555 586 991 17,8%

Other banks 296 (229) R468 602 555 15%

'OTHERS' ARE:

Capitec 175 (64)

African 69 (76)

Imperial 12 (30)

Teba 10 (7)

Mercantile 8 (12)

Investec 7 (8)

Ithala 5 (11)

Bank of Athens 5 (4)

Sasfin 1 (3)

Albaraka Bank 2 (2)

Bidvest 2 (1)

Enquiries (external call centre, referrals to banks, walk-in enquiries)

Files closed in initial stage after matter referred to the bank

Files closed after further investigation

CASE FLOW COMPARISON 2006 2007 2008 2009 2010

13 536 27 036 24 667 12 562 38 141

Files opened 4 493 5 478 3 620 3 366 4 241

3 521 4 539 3 491 2 342 2 716

755 370 623 973 1 013

Total files closed 4 384 4 909 4 114 3 315 3 729

(480 walk in, 1 695 referralsand 22 492 callcentre)




The number of ATM fraud-related complaints increased compared to 2009. Criminals are again defraudingATM users through various con-artist techniques while the client is at the ATM. The fraudsters alwayscome across as being very friendly and appearing to offer assistance with a problematic ATM. On anongoing basis clients are reminded not to allow anyone near them at an ATM or to accept any assistancewhatsoever. It is generally safe to assume that anyone approaching a user at an ATM or asking him or herto do anything whatsoever while at an ATM is actually after the card and the money.

Internet banking fraud continues to increase and users are reminded never to click on any apparentinternet banking related e-mail link, respond to any apparent internet banking related e-mail or provideany internet banking-related information in response to a phone call.

7

The number of files opened per bank in 2010 was not necessarily indicative of theindividual bank's complaint handling performance or performance in general.The banks vary considerably in size, client profile and product mix. Acomparatively high number of complaints received against a bank might, in fact,reflect its efforts to publicise the existence of the Ombudsman scheme or thefact that it refers comparatively more of its disgruntled clients through to thescheme than do the other banks. A media statement by the scheme on aparticular subject might bring a rush of complaints against a particular bank. Atvarious stages during the year, the major banks' clients were targeted by internetbanking fraud syndicates, which contributed to an increase in the number ofcomplaints against those particular banks.

30

25

20

15

10

5

0ATM

Internet ban

king

Mortgag

e finan

ce

Credit card

s

Vehicle fin

ance

Personal

loans

Current a

ccounts

Savin

gs acc

ounts

Cheques

Investm

ent

Debit orders

Business

finan

ce

Estates a

nd trusts

Other

Overdraf

t

Credit bureau

Cash/ch

eque scam

Foreign exc

hange

Insuran

ce

Telle

r deposit

disputes

Suretys

hips

Safety

deposit

Security

%

27

1817

97

6 6

2 2 1 1 1 1 1 1 1 0 0 0 0 0 0 0

FILES OPENED IN 2010 PER CATEGORY

OBS staff member: Trudy de Klerk


The percentage of decisions in favour of the complainant increased slightly from35% to 36%. The high percentage of decisions in favour of the bank is seen as asuccess as it indicates that the banks are resolving the simpler, legitimatecomplaints directly, without OBS intervention (due to the referral process).Further, the bank's dispute resolution departments provide information tocomplainants without a formal file having to be opened with the OBS. Thisreduces the number of cases where a complainant unsuccessfully requestedinformation from the bank and a formal file has to be opened to get the bank toprovide the information to the complainant.


8

CLOSED CASES IN FAVOUR OF BANK OR COMPLAINANT PER CATEGORY (2009)(Excluding cases closed as outside jurisdiction)

Categories In favour % In favour % Total %of bank of complainant

ATM 529 56% 408 44% 937 25%

Mortgage finance 482 72% 184 28% 666 18%

Internet banking 275 57% 209 43% 484 13%

Credit cards 235 65% 129 35% 364 10%

Vehicle finance 215 73% 81 27% 296 8%

Personal loan 168 62% 102 38% 270 7%

Current accounts 108 59% 75 41% 183 5%

Savings accounts 56 65% 30 35% 86 2%

Cheques 47 63% 28 37% 75 2%

Debit orders 38 64% 21 36% 59 2%

Business finance 42 78% 12 22% 54 1%

Investments 38 73% 14 27% 52 1%

Estates and trusts 32 89% 4 11% 36 0,5%

Cash/cheque scams 16 59% 11 41% 27 0,5%

Overdraft 20 83% 4 17% 24 0,5%

Credit bureau 15 71% 6 29% 21 0,5%

Insurance 15 75% 5 25% 20 0,5%

Foreign exchange 10 50% 10 50% 20 0,5%

Suretyships 8 80% 2 20% 10 0,5%

Securities 2 100% 0 0% 2 0,5%

Safety deposit 1 50% 1 50% 2 0,5%

Other 18 67% 9 33% 27 1%

Total 2 370 64% (55) 1 345 36% (35) 3 715 100%


Breaking down the 3 715 cases listed on the previous page, interms of the decisions made, the following emerges:

10 cases (0,5%) The complainant withdrew the complaint

9 cases (0,5%) The complainant did not respond to repeated requests for information, which led to the file being closed due to a lack of cooperation

2 359 cases (63%) The complaint was not upheld

149 cases (4%) No award was made, but assistance was provided in the form of information

334 cases (9%) Only a portion of the complainant's claim was upheld

854 cases (23%) The complainant's claim was fully upheld and the full amount claimed was awarded

9

PERIOD FROM OPENING TO CLOSURE OF ALL FILES IN 2010 (2009)

Closed within 2 months 39% (55%)

Closed within 2 – 4 months 47% (33%))

Closed within 4 – 6 months 12% (9%)

Closed within 6 – 9 months 1% (2%)

Closed after more than 9 months 1% (1%)

MANNER IN WHICH CASES THAT NEEDED FURTHER INVESTIGATION WERE FINALISED

Assessment report 994

Formal mediation 11

Provisional recommendation 4

Final recommendation 3

Determination 1

Total 1 013

No application for review was received in 2010.Average number of days taken to close a file in 2010 – 77 days (70days in 2009)

Of the files closed, 98% (97%) were finalised within six months ofbeing opened.

There was a slight increase in the average time taken to close files.This was due mainly to the overall increase in the number ofcases received and the very complex and time-consumingnature of the cases that needed further investigation. Internetbanking fraud-related complaints cases increased in 2010 and arenotoriously time consuming to investigate and assess. One casecan involve hundreds of separate fraudulent accounts openedwith different banks.

FILES OPENED IN 2010 PER PROVINCE2009 STATISTICS IN BRACKETS

Gauteng 53%(49%)

Northern Cape 2% (1%)

Western Cape 15% (16%)

Eastern Cape 6% (6%)

KwaZulu-Natal 14%

(13%)

Free State 3% (3%)

North West 2% (2%)

Mpumalanga 3%(3%)

Limpopo 1% (1%)

Other (international etc) 1% (6%)


TOTAL AMOUNTS RECOVERED FROM BANKS (MILLION RANDS)

1999 4,07

2000 7,5

2001 7,8

2002 8,7

2003 11,1

2004 13,8

2005 16,2

2006 10,3

2007 7,2

2008 9

2009 9,9

2010 11,6

Assessments constitute a summary of the matter setting out the complainant's case, the bank's response,the OBS's assessment of the matter and finally the OBS's conclusion as to liability. They are done mostly incases where the bank's offer is found to be fair and reasonable, and the complainant is advised to accept,and where the OBS believes there is no prospect of making an award in favour of the complainant. Anassessment always invites the complainant to make further submissions or submit evidence that couldchange the finding.

Mediations are formal meetings between representatives of the bank and the complainant, with an OBSadjudicator as the mediator. The mediator guides the debate between the parties and facilitates an agreedsettlement.

Provisional recommendations are detailed reports incorporating new evidence tendered and submissionsafter an assessment is done. If new evidence is tendered or further submissions are made, the matterproceeds to a final recommendation.

A determination is a binding, written ruling by the Ombudsman.

A review of the matter is done by a review panel member (retired judge of the high court).

10


There has been an increase in the amount awarded as compensation to customers compared to 2009.One reason is the substantial increase in complaints received. The total amount awarded was, however,still comparatively low due to the banks continuing to resolve and settle many disputes and claims beforethey need to be escalated to the OBS. It is often very difficult to reflect a finding made by the OBS inmonetary terms, as many recommendations take the form of the bank providing a specific service orperforming a specific task. The amounts reflected above are, therefore, indicative only.


Final recommendations were issued in three cases. One case involved two separate banks and resulted inseparate recommendations for each bank.

In most cases, it is the complainant who is unwilling to accept the provisional recommendation made inhis/her favour and wants a higher award, making it necessary to proceed to a final recommendation. Inmost cases, the bank accepts the finding made in the provisional recommendation. It is generally rare fora bank not to accept an initial assessment report against it, which would then make it necessary toproceed to a provisional recommendation report.

In one matter, Capitec Bank applied for a determination by the Ombudsman after a finding was madeagainst it in the final recommendation report. The case regarded a complainant's ATM card that had beencloned and used by fraudsters while she was overseas. The Ombudsman's determination confirmed thefinding made against the bank in the final recommendation report. Capitec declined to take the matterfurther on review and made payment to the complainant in accordance with the determination.

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FINAL RECOMMENDATIONS MADE PER BANK (2009)

Bank In favour In favour of Totalof bank complainant

Nedbank – 1 1 (1)

Absa – 1 1 (1)

FNB – 2 2 (2)

– 4 4 (6)

HOW THE COMPLAINANT LEARNT ABOUT THE OBS Files opened in 2010 (from completed complaint forms)2009 statistics shown in brackets

Through the bank 40% (25%)

Word of mouth 36% (30%)

Other 8% (24%)

Newspaper 8% (13%)

Radio 3% (3%)

Television 3% (2%)

Magazines 1% (1%)

Referred by organisation 1% (2%)

It was pleasing to note the increase in the number of cases referred by the banks. This indicates that thebanks are making an ongoing effort to assist their customers in resolving disputes, instead of merely beingdismissive of a complaint. The high percentage of word-of-mouth referrals is a further indication that theOBS service is appreciated by the public and is being recommended to others.

SERVICE STANDARD TARGETS (2009)

Target 2010

Finalise all files within six months of opening 98% (97)

Average time to closure of 70 days 77 days (70)


SHUT UP OR PAY UPThe complainant had a home loan with the bank, which he settled in 1998. He did not ask that the accountbe closed. In 2005, he became aware that he owed R52 000 on the bond. It appeared that the bank hadcontinued to debit his account with home owner's cover insurance. The complainant denied responsibilityfor the debt and the bank obtained judgment against him.

The OBS noted two essential aspects to the case. Any reasonable bond account holder in this positionwould not simply pay the outstanding balance and then forget about the account. Any reasonable bondaccount holder would try to confirm that the account is closed and that no further insurance would bedebited. Over the years (or at least for a few years after the account was settled), one would receive regularbond account statements and yearly insurance premium letters. No reasonable person would simplyignore these letters, assume it was merely a mistake and accept that the bond was settled. The reasonableperson would enquire why statements were still being sent. Even if no statements or letters were receivedfrom either the bank or the insurance company (which would be highly unlikely), the reasonable personwould, at some stage, enquire whether there was any insurance on the property and thereby discover thatthe bond account was not closed. Thus, the complainant was deemed negligent to a certain degree.

The bank, however, also carries some responsibility. The reasonable banker would not simply continue todebit an account with insurance premiums for years on end without any payments being made to thebond whatsoever. He would enquire from the account holder whether he wanted to close the account orkeep it open for the insurance. The bank was, therefore, negligent in not obtaining clear instructions fromthe complainant or not contacting him sooner.

Fortunately for the complainant, the bank also continued paying until 2005 the premiums on a life coverpolicy in the complainant's name and he was able to claim the surrender value on this policy.

It was suggested that the bank credit the account with half of the amount outstanding. Both the bank andthe complainant accepted.

n Lesson to be learntWhen paying off a home loan, give the bank clear instructions on what must

happen. Where an account has been fully closed, all insurance premiumsand policy premiums are stopped. The bank will give instructions to an

attorney to cancel the bond at the deeds office. The cost of the attorney isfor the customer's account. The title deed will then be sent to the

customer.

If the account is not fully closed, the bank will continue to debit the homeowner insurance and policy premiums from the account. The accountmust continue to be paid. The customer will not receive the title deed asthe bank's bond over the property is still registered with the deeds office.

12

C A S E S U M M A R I E S

OBS staff (front, from left): Lee-andra Ontong,Antoinette Pieterse,Bonita Burger;Nerosha Moodley andRonel van der Merwe.Back: Johan Conradieand Frans Maja.


THE EX FACTOR

The complainant and her husband divorced but then reconciled without marrying again. While livingtogether they applied for a mortgage loan in their joint names. The loan was approved. During 2005, thecouple separated again and in 2008, the ex-husband stopped paying the bond account. The complainantthen discovered that her former husband had made numerous withdrawals from the account. Thecomplainant asked the bank to refund the money before she continued paying the account.

The bank could not provide documents or evidence to show that the complainant had consented to theex-husband having sole access to the account.

Such cases are generally more suited to a law court as it is often very difficult to prove that the withdrawnfunds were not used for the benefit of the common household.

However, in this case, numerous factors indicated that the complainant could not have received anybenefit from the funds, a major factor being that the husband did not live with the complainant when thewithdrawals started.

The OBS found that the bank was negligent in allowing the withdrawals without both account holders'consent and that its negligence caused the complainant a loss. The bank refunded the complainantR124 569,09 – R90 000 capital plus interest.

n Lesson to be learntWhen a home loan account is in two separate names, both parties must make themselves aware oftransactions on the account. If the account is linked to an internet banking profile it will usually allow oneperson sole access to the account. Check statements regularly.

13


BOUND BUT NOT GAGGEDThe complainant – a property developer – held numerous bond accounts with the bank. During 2005, henegotiated for a certain interest rate on one of his accounts. Due to certain problems with the propertyregistrations. the complainant agreed to the application being granted as two separate loans. In 2008, herealised that the interest rate applied to the bond accounts was more than he thought had been agreedon. He stated that he never received any statements on the account and did not read the contract whenhe signed it. He had numerous meetings with the bank and the bank eventually agreed to reduce theinterest rate on the bond. Further, it offered to pay the complainant R60 000 in settlement of the dispute.

The complainant refused the offer, insisting on a much higher offer. The bank then withdrew its offer. Thecomplainant eventually reported the matter to the OBS in 2010.

An investigation found no basis for a lower interest rate. The format of the original loan application hadchanged, which changed the original interest rate. The contracts were signed by the complainant at thetime and were legally binding. There was no evidence that the bank had increased the rate contrary to theagreement or that a mistake had been made.

The complainant was viewed as a professional in the field of mortgage bonds and reasonably should haveread the contract or have noticed the problem sooner.

However, it was suggested that the bank reduce the interest rates on both the loans and apply the rateretrospectively from the time that the matter was reported to the OBS. Further, it was suggested that the

bank offer R5 000 for distress and inconvenience suffered. The bank accepted, but thecomplainant refused, now insisting on the reinstatement of the offer of R60 000.

The file was closed as there was no prospect of a successfulresolution. The complainant was advised to pursue the

matter in court.

n Lesson to be learntAlways read the mortgage bond

documents carefully beforesigning – especially the clausesrelating to interest rates, the loanrepayment term and insurance. Ifthe bank makes an offer to settlea matter, consider it carefully. Theoffer may have been madepurely as a gesture of goodwilland may be retracted later ifrefused.

14


OBS staff (front, fromleft): Cylvia Rapodile,Tebello Tobejane,Nadima Hartley,Ayanda Dyasi,Maureen Mashoaiand AbrahamMhlanga.Back: Helena van derwalt, Anni-CeeEmmanuel, ChristinaMoalusi, MosupiMashele and EdrichBuytendorp.


CLOSED CASE, FINISH AND KLAAR Fraudulent transactions totalling R12 994,99 were effected from thecomplainant's account. After investigating, the bank offered a refund of R3 248,70 in full and final settlement. Both parties signed an agreement in2009 recording the terms and conditions of the settlement.

In 2010, the complainant lodged a complaint with the OBS claiming a fullrefund from the bank. The bank repudiated the claim, stating that itconsidered the matter resolved after paying the settlement.

The OBS agreed, as the complainant had signed the settlement agreement,which indicated that he had read and understood it, and thus agreed to bebound by it. By signing, the complainant had also relinquished his right tomake any future claims against the bank in terms of the matter.

The file was closed as there was no reasonable prospect of a finding in his favour.

n Lesson to be learntBefore signing any document, read and understand the terms and conditions because they are binding.

DOUBLE LIFEThe complainant applied for a personal loan, which was approved. At the time, he received a monthlydisability pension. Despite handing in proof of his own life insurance policy, the bank deducted monthlycredit life insurance premiums for the loan amount.

When he queried the premiums and requested a reversal the bank advised him that he signed the loancontract and insurance documents, thereby agreeing to take out the bank's credit life insurance.

The OBS established that the bank's credit life insurance details, such as the terms and conditions and theamount of the monthly insurance premiums, were very clearly indicated on the forms and thecomplainant had initialled each page. He was therefore bound by the conditions.

It was noted, however, that the documents included a copy of the complainant's insurance scheduleissued by an external life insurance company. It was, therefore, probable that he informed the loanconsultant that he did not require the bank's credit life insurance.

On the OBS's recommendation, the bank agreed to refund all the life insurance premiums. Thecomplainant wanted further compensation, but this was not found to be reasonable.

15

n Lesson to be learntRead and query the terms ofany loan agreement carefullybefore signing or initialling.


NO CHEQUE MATEThe complainant applied for a current account online, a service advertised by the bank. It offered to movehis savings account and his debit orders to a cheque account.

This was not done and the complainant's debit orders were returned unpaid. Penalty fees of R1 400 weredebited against the account.

According to the terms and conditions of the service, the bank could move the debit orders from thecomplainant's savings account to the cheque account only once the complainant visited the branch toactivate the account and had provided information to move the debit orders. The complainant was unableto visit the branch.

The OBS noted, however, that the bank had charged the complainant significant penalty fees and interestfor the returned debit orders. Whilst the office found that the complainant was negligent by not going tothe branch, it acknowledged that his explanation for this was reasonable.

It was suggested that the bank write off 50% of the fees and interest charged to the complainant. It agreedand wrote off R759,88.

The offer was accepted.

MISLAID, MS PAIDThe complainant drew a cheque in favour of one of his staff members on 1 July 2008. The staff membertold him that the cheque had been mislaid so he drew another cheque for her, without cancelling orstopping the first cheque. The staff member then left the employ of the complainant. A year later, shepresented the 'mislaid' cheque for payment, after altering the date on the cheque.

The alteration was done by punching two holes in the cheque, one of which removed the top circle of theeight in 2008. A line was then drawn next to the remaining circle to form a nine, thereby altering the 2008to 2009. The alteration was done in such a way that it should have placed the reasonable banker on alert.Furthermore, the complainant's account on which the cheque had been drawn was held with the samebank at which the cheque was presented for payment.

The OBS found that bank had been negligent by paying the altered cheque. However, the complainanthad been negligent by not cancelling or stopping the mislaid cheque. The OBS suggested that the bankreimburse 50% of the complainant's loss.

n Lesson to be learntIf use of cheques is unavoidable, ensure that both the chequebook and any signed cheques are kept in asafe place. Contact the bank to cancel a signed cheque that has been lost or misplaced.

OBS staff: PortiaKekana and UzileGugushe.

16



TRAILER TRASHES BUSINESS The complainant's trailer was wrongly deregistered by the bank. He alleged that the deregistration forcedhim to use more expensive, alternative delivery routes to avoid the traffic police. He added that he couldnot use his trailer for a number of days, which caused his business to fail. He wanted the bank to write offthe arrears and debt on the trailer, and reimburse him for inconvenience suffered, loss of income and thefailure of his business.

The bank placed responsibility for deregistration on the bank that had financed the trailer previously. Thatbank also denied responsibility.

It was clear, however, that the trailer should not have been deregistered and that the complainant hadendured distress and inconvenience.

The OBS assesses claims for distress and inconvenience conservatively and considers the correctiveactions taken by the bank. The bank confirmed that it had reregistered the trailer.

Since it was impossible to determine which was at fault, the OBS suggested that both banks compensatethe complainant with R500 each. Both accepted the recommendation.

As numerous reasons were identified for the failure of the complainant's business (which had nothing todo with the banks), he was advised to take his claim for loss of income to the courts.

The complainant rejected the banks' offer, opting to pursue his claim for hundreds of thousands of randin court.

17

n Lesson to be learntClaims against banks for loss ofincome and the failure of abusiness are generally verydifficult to prove and moresuited to a court, wherewitnesses can be called andexpert evidence led.


RECKLESS LENDING, ENDLESS SPENDINGThe complainant was the beneficiary of a trust fund, which paid out a large sum to her monthly. She hada home loan with the bank, which was fully settled in 2000.

In 2010, she applied for a further loan to be secured by her property, which was registered in the name ofthe trust. In spite of the trustees' lack of consent to the registration of a bond over the property, the bankgranted the loan.

The trustees decided to limit the amount paid out to the complainant due to her spending habits. Thecomplainant was then unable to repay the loan to the bank. She then alleged that the bank was recklessin granting her the loan and asked that the amount be written off.

An investigation found no evidence of reckless lending. Banks are entitled to rely on the informationprovided to them by the applicant regarding his or her income and expenditure, but are expected to doreasonable checks to confirm the financial background of the customer – such as credit bureaux checks.The bank cannot be held liable for reckless lending if the complainant has not submitted relevantinformation or had misled the bank about income and expenditure.

The complainant's trust income combined with her employment income was substantial and there wasno evidence to show that the bank was aware or should have been aware of problems between her andthe trust regarding her spending.

A recommendation could not be made in favour of the complainant.

NO REVERSAL OF FORTUNEThe complainant made an electronic funds transfer (EFT) into an incorrect beneficiary account, whichbelonged to an ex-employee and was held at a different bank. The complainant asked his bank to reversethe transaction, but the request was signed over a weekend. None of the big four banks will or can effecta reversal. over weekends as they require telephonic or written contact with the account holder.

By Monday, the reversal could not be processed as there were insufficient funds in the account and therecipient of the funds could not be reached to obtain his permission to process the reversal.

Banks can reverse only the full amount transferred to an account. They cannot do partial reversals orreverse a portion of the funds when the balance has already been removed from the recipient's account.In addition, the recipient's permission must be obtained to process a reversal.

The OBS found that the bank acted correctly.


18

OBS management: John Simpson and Louise Hall.

n Lesson to be learntCheck the intended recipient's paymentdetails carefully before processing an EFT.The fact that the bank is physically able toreverse an EFT does not mean it will do soor that it will be at liberty to do so. Bankscan process a reversal only with therecipient accountholder's permission andthen only where there are sufficient fundsleft in the account for a full reversal.


GAMBLE SHAMBLES The complainant used her credit card to gamble onlinealmost continuously over four days. Direct withdrawals weremade from her credit card and winnings were credited by the sitevendor, resulting in a large number of transactions in and out of the account.She had a credit limit of R15 000 on her credit card account and transacted 38 times, but to a value of up to R128 000 a day. She regularly contacted thebank to confirm the amount of credit on her credit card and, having won almost R800 000 over the four days, felt assured that she had sufficient credit available to continue playing.

Her month-end statement showed, however, that R173 492,18 was owing on the account. She disputedthis and maintained the bank owed her R300 000.

An investigation revealed that there was a time delay between the account withdrawals and the amountscredited by the vendor. The actual balance would reflect only once the credit and debit transactionssubmitted by the vendor had been reconciled. The bank conceded that a system error allowed thecomplainant to exceed her credit limit significantly. She had continued gambling without verifying theamounts she was betting against the amounts she was winning. In reality, she had lost far more than shehad won.

The OBS found that the bank had transgressed the reckless lending provisions of the National Credit Actby allowing her access to extra credit without an income and expenditure assessment. The bank agreedto write off the amount exceeding the credit limit originally granted to the complainant.

The offer was refused by the complainant, as she insisted that the bank owed her money. She was unableto prove her claim despite being given numerous opportunities to do so and the file was closed.

n Lesson to be learntGreat care should be taken when using a credit card for online gambling or any related activity, astransactions may reflect only later, skewing the apparently current balance.

19


SOMETHING AMISS, BUT IGNORANCE IS BLISS Unauthorised ATM transactions amounting to R7 450 occurred on the complainant's account. The bankoffered to reimburse R1 850. The complainant was unhappy, insisting that the bank reimburse the fullamount.

The bank advised that the complainant's card had been cloned and that the first fraudulent transactionoccurred on 24 April 2010 and the last on 24 May 2010. The complainant had transacted on her accountseveral times during this period, which the bank maintained enabled her to mitigate her loss. The claimwas repudiated.

A shortage of funds in her current account prompted the complainant to transfer money from her bondaccount to her current account on 28 April. At the time, two fraudulent transactions worth R1 850 hadtaken place. A reasonable person in her position would have realised this or noticed something amissduring subsequent transactions.

The OBS deemed it would be unfair to hold the bank responsible for the full extent of the complainant'sloss

n Lesson to be learntWhilst there is a duty on the bank to ensure that its payment systems are reasonably safe and secure,customers must safeguard their card and pin and ensure that their financial affairs are in order.Continuing to transact on an account while fraud is being committed and failing to identify it can beregarded as negligence.

SALARY SLIPS AWAY The complainant's credit card was in arrears for a considerable time and the bank eventually handed theaccount over to its attorneys for collection.

The attorneys concluded numerous payment arrangements with the complainant, but he failed tocomply.

The bank then resorted to the legal principle of set-off to collect the debt, debiting the complainant'ssavings account by R10 000 – his entire salary for the month.

Although the bank may be entitled to payment of the outstanding debt and may apply set-off in certaincircumstances, it is also obliged to apply it in a responsible and reasonable manner. Deducting a person'sentire salary simply compounds the problem by placing the person in arrears with other debts as well.

The OBS held that the amount deducted was not reasonable and recommended a R5 000 refund. Thebank agreed.


20


21

THAT SINKING FEELING The complainant advertised his boat for sale for R120 000. The buyer presented a cheque for the fullamount, without haggling and without inspecting the boat. The seller's wife approached the bank toconfirm the validity of the cheque before the boat was handed over.

The bank initially confirmed that the cheque was authentic and deposited it into the complainant'saccount, but the printing on the cheque caught the eye of a senior bank official, who contacted thebranch from which the cheque was issued. It was confirmed that the cheque was stolen, but by this time,the boat had already been removed by the fraudster.

The dispute centered on the time that the bank advised of the stolen cheque and the time the boat washanded over.

It appeared that there was a reasonable possibility that the bank called the wife in time, but that theinformation was not conveyed to the husband, who handed over the boat. Further, the actual value of theboat may have been substantially less than the amount claimed. The matter ended in a dispute of fact andthe Ombudsman's office was unable to make a finding in the complainant's favour.

The complainant was referred to his insurer to settle the claim and the matter was successfully resolvedbetween the two.

n Lesson to be learntIf something is too good to be true, it usually is. It is highly improbable that a legitimate buyer will pay theasking price of advertised goods without negotiation or inspection of the goods. Carefully inspect thestatement to confirm whether cash or a cheque was deposited. Obtain written confirmation from thebank if unsure. Extra care should be taken when payment is received by cheque. Hand over the goodsonly once the cheque has been paid by the drawer bank and not merely reflects on the account. If unsure,obtain written confirmation from the bank that the cheque has been paid and cannot be dishonoured orreturned unpaid.


WIFE QUITS JOINT AFTER BREAKDOWNThe complainant and her ex-husband purchased a house jointly, which was financed by the bank on28 October 2004 for R118 000. Subsequently the relationship between the complainant and her ex-husband broke down and she was evicted from the home. She asked the bank to release her from thecontract as she no longer occupied the property and was unemployed.

Subsequent to her divorce, the complainant discovered that her ex-husband applied for and was granteda second loan – of R216 767 – on the bond account, which was in both names. She submitted that shedid not apply for this loan and that her ex-husband fraudulently used her name.

She asked that the bank remove her name from the credit bureau, remove the judgment on her name, payher R182 000 (her share in the value of the property at the time of registration) and not hold her liable forthe second loan.

The bank investigation confirmed that the complainant's ex-husband applied for the second loan andfraudulently included the complainant in the application.

The bank agreed to rescind the judgment at its cost, update the complainant's credit bureau details,remove the complainant's liability for 50% of the repayment of the mortgage loan account shortfall andpay her half of the proceeds of the sale of the property, R46 882,19.

CHEQUE WITHOUT BALANCESThe complainant issued a cheque for R98 084,45 in favour of ABC and posted it to the company aspayment for services rendered. The cheque was intercepted in the postal system and deposited into anaccount opened with a fraudulent identity document.

The OBS considered whether the bank was negligent in allowing the cheque to be deposited into thefraudulent account or in opening the account.

No indication of negligence was found in accepting the cheque. It was properly signed and the words 'orbearer/of toonder' had not been deleted. The cheque could, therefore, be deposited and withdrawn byanyone who came across it. Although the thief had added the word 'Caterers' after the name of the payee,this was not noticeable as an alteration.

The OBS found that the identity document presented to open the account had gone through averification process and did not appear fraudulent, thus the bank would not have noticed anythingsuspicious. It was further determined that all the funds had been withdrawn from the fraudulent accountbefore the theft was reported to the bank.

The bank could not have prevented the theft of the cheque and was not negligent in any way.


22

n Lesson to be learntWhen there is a joint bond account, beaware of the transactions happening onthe account by checking statementsregularly. Disputes regarding transactionsdone by one party generally arise whenthe relationship sours and could havebeen prevented had more care been takenby both parties to monitor the account.

n Lesson to be learntIf possible, avoid using cheques. The OBSstopped using cheques many years ago. Ifcheques have to be used, complete themproperly to ensure maximum legalprotection. Obtain advice from a legalprofessional or from banking websites onhow to complete a cheque properly to tryto avoid fraud. Never post a cheque as itcan be easily intercepted.


M A R K E T I N G A N DO U T R E A C H A C T I V I T I E SMarketing and consumer education continue to be integral to the drive to acquaint as many SouthAfricans as possible with the OBS service. The year 2010 was busy on several fronts.

An educational radio programme called 'The banking dialogue' was launched on a national satellite radio station called Commuter Radio. The programme, aired from 06:00 to 07:00 on weekdays to morethan 2-million listeners countrywide, creates awareness of OBS activities, details the types of complaintsreceived, and offers tips and advice on how to avoid banking problems. The programme has a slot called'Exchange rate', which explains financial terms and jargon. Also over the airwaves, the first OBS 30-secondadvert reached listeners of nine national stations.

The consumer education campaign included presentations at several workshops, particularly in ruralareas, which were identified by the Ipsos Markinor survey as a prime OBS focus area.

The team participated in a number of exhibitions in Johannesburg.

The OBS banner was posted on websites such as IOL, National Small Chamber ofBusinesses (NSBC) and the National Consumer Forum. This internet exposure hasplaced the organisation on the Google search engine, where previously googlingwould produce only international ombud links. The banner also appears in theWho owns Whom 2011 business publication.

The office's following on Facebook grows daily. The page offers banking advice andtips, and showcases OBS current events. As the pool of Facebook friends expands,the OBS achieves a higher profile among young South Africans, another keyaudience for its services.

Relationships with the banking sector were maintained through the AnnualExcellence Awards, held in November at the Radisson Blu hotel in Sandton. Theawards recognise excellence in the banks' complaint resolution procedures andreward the efforts of individuals in the sector. Taking the trophy – which has beenredesigned as an extension of the OBS logo – were Standard Bank in category A(the big four) and African Bank in category B (smaller banks).

Les Barret of Standard Bank took the category A individual award for the second consecutiveyear, while Sonette Botha of African Bank took the honours in her category.

As part of its community outreach programme, the OBS joined the industry's 'Teach children to save'initiative. Interested staff attended a training session in preparation to present coaching sessions during2011 to South Africa’s upcoming generation of bank customers.

23

were Nedbank in categor y A


24


The directors are required by the Companies Act of South Africa, 1973, to maintain adequate accounting records and are responsible for thecontent and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensurethat the annual financial statements fairly present the state of affairs of the company as at the end of the financial year and the results of itsoperations and cash flows for the period then ended, in conformity with South African Statements of Generally Accepted Accounting Practice. Theexternal auditors are engaged to express an independent opinion on the annual financial statements.

The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and arebased upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and placeconsiderable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board setsstandards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation ofresponsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptablelevel of risk. These controls are monitored throughout the company and all employees are required to maintain the highest ethical standards inensuring the company's business is conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk managementin the company is on identifying, assessing, managing and monitoring all known forms of risk across the company. While operating risk cannot befully eliminated, the company endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour areapplied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internal control providesreasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system ofinternal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The directors have reviewed the company's cash flow forecast for the year to 31 December 2010 and, in the light of this review and the currentfinancial position, they are satisfied that the company has or has access to adequate resources to continue in operational existence for theforeseeable future.

Although the board is primarily responsible for the financial affairs of the company, it is supported by the company's external auditors.

The external auditors are responsible for independently reviewing and reporting on the company's annual financial statements. The annualfinancial statements have been examined by the company's external auditors and their report is presented on page 24.

The annual financial statements set out on pages 28 to 39, which have been prepared on the going concern basis, were approved by the boardon 2 March 2011 and were signed on its behalf by:

n Director n Director

25

D I R E C T O R S ’ R E S P O N S I B I L I T I E S A N D A P P R O VA LFOR THE YEAR ENDED 31 DECEMBER 2010


26

The directors submit their report for the year ended 31 December 2010.

1. Review of activitiesMain business and operationsThe company is engaged in banking dispute resolution and related services and operates principally inSouth Africa.

The operating results and state of affairs of the company are fully set out in the attached annual financialstatements and do not in our opinion require any further comment.

2. Post statement of financial position eventsThe directors are not aware of any matter or circumstance arising since the end of the financial year.

3. Authorised and issued share capitalThere were no changes in the authorised or issued share capital of the company during the year underreview.

4. DirectorsThe directors of the company during the year and to the date of this report are as follows:

Name NationalityJF Myburgh South African Independent non-executive MDC Motlatla South African Independent non-executive (resigned: 12 November 2010) N Mapetla South African Independent non-executive (resigned: 1 December 2010)AM Ramosedi South African Banking sector (resigned: 14 July 2010)TN Raditapole South African Independent non-executive C Coovadia South African Banking sectorHJ Wilken South African Independent non-executive (resigned: 17 September 2010) V Klein South African Banking sector (resigned: 4 November 2010) N Lala-Mohan South African Banking sector (alternate)D Terblanche South African Independent non-executive

The following directors were appointed after year end:I Steyn South African Banking sector B Tucker South African Banking sectorJ Mathekga South African Independent non-executiveT Venter South African Independent non-executive

5. SecretaryThe secretary of the company is Corporate Law Services (Pty) Ltd of:Business address: Central Office Park Unit 3, 257 Jean Avenue, Centurion 0157Postal address: PO Box 7750, Centurion 0046

6. AuditorsNkonki Inc will continue in office in accordance with section 270(2) of the Companies Act.

D I R E C T O R S ’ R E P O R TFOR THE YEAR ENDED 31 DECEMBER 2010


27

In terms of section 268G(d) of the Companies Act, 61 of 1973, as amended, I certify that, to the best of my knowledge and belief, the companyhas lodged with the Registrar of Companies for the financial year ended 31 December 2010 all such returns as are required of a public companyin terms of the Act, and that all such returns are true, correct and up to date.

Corporate Law Services (Pty) Ltd.Company secretary

C E R T I F I C AT E F R O M T H E C O M PA N Y S E C R E TA R YFOR THE YEAR ENDED 31 DECEMBER 2010


S TAT E M E N T O F F I N A N C I A L P O S I T I O NAS AT 31 DECEMBER 2010

28

Figures in Rand Note(s) 2010 2009

Assets

Non-current assetsProperty, plant and equipment 2 415 837 567 317Intangible assets 3 111 206 281 791

527 043 849 108

Current assetsTrade and other receivables 4 215 815 88 746Cash and cash equivalents 5 21 149 340 18 040 434

21 892 198 18 129 180

Total assets 21 892 198 18 978 288

Equity and liabilities

EquityRetained income (504 475) 12 272

Liabilities

Current liabilitiesTrade and other payables 6 22 396 673 18 966 016Total liabilities 22 396 673 18 966 016

Total equity and liabilities 21 892 198 18 978 288


S TAT E M E N T O F C O M P R E H E N S I V E I N C O M EFOR THE YEAR ENDED 31 DECEMBER 2010

29


Revenue 7 16 545 778 14 701 160Other income – 6 643Operating expenses 12/13 (17 776 692) (16 246 574)

Operating deficit 8 (1 230 915) (1 538 771)Finance income 714 167 825 002

(Deficit) surplus for the year (516 747) (713 767)


30

S TAT E M E N T OF CHANGES IN EQUIT YFOR THE YEAR ENDED 31 DECEMBER 2010Figures in Rand Retained income Total equity

Balance at 01 January 2009 726 039 726 039Changes in equitySurplus for the year (713 767) (713 767)Total changes 12 272 12 272

Balance at 01 January 2010 12 272 12 272Changes in equityDeficit for the year (516 747) (516 748)Total changesBalance at 31 December 2010 (504 475) (504 476)


31

S TAT E M E N T O F C A S H F LO W SFOR THE YEAR ENDED 31 DECEMBER 2010


Cash flows from operating activities

Cash (used in) generated from operations 10 2 620 576 8 859 309Interest income 714 167 825 002Other non-cash item – –Net cash from operating activities 3 334 743 9 682 281

Cash flows from investing activities

Purchase of property, plant and equipment 2 (114 992) (347 508)Sale of property, plant and equipment 2 – 14 948Purchase of other intangible assets 3 (110 688) (488 641)

Net cash from investing activities (225 680) (821 201)

Total cash movement for the year 3 108 067 8 861 080Cash at the beginning of the year 18 040 434 9 179 354

Total cash at end of the year 5 21 149 502 18 040 434


ACCO U N T I N G POLICIESFOR THE YEAR 31 DECEMBER 2010

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1. Presentation of annual financial statementsThe annual financial statements have been prepared in accordance with South African Statements ofGenerally Accepted Accounting Practice, and the Companies Act of South Africa, 1973. The annualfinancial statements have been prepared on the historical cost basis, and incorporate the principalaccounting policies set out below.

These accounting policies are consistent with the previous period.

1.1 Significant judgementsIn preparing the annual financial statements, management is required to make estimates and assumptionsthat affect the amounts represented in the annual financial statements and related disclosures. Use ofavailable information and the application of judgement are inherent in the formation of estimates. Actualresults in the future could differ from these estimates which may be material to the annual financialstatements. Significant judgements include:

1.2 Property, plant and equipmentThe cost of an item of property, plant and equipment is recognised as an asset when:n it is probable that future economic benefits associated with the item will flow to the company; andn the cost of the item can be measured reliably.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment andcosts incurred subsequently to add to, replace part of, or service it. If a replacement cost is recognised inthe carrying amount of an item of property, plant and equipment, the carrying amount of the replacedpart is derecognised.

Depreciation on property, plant and equipment is calculated using the straight-line method to allocatetheir cost (Including capitalised leased assets) over the estimated useful life as follows:

Item Average useful lifeFurniture and fixtures 5 YearsOffice equipment 5 YearsIT equipment 4 YearsSecurity equipment 5 Years

The residual value and the useful life of each asset are reviewed at each financial period-end.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the totalcost of the item shall be depreciated separately.

The depreciation charge for each period is recognised in profit or loss unless it is included in the carryingamount of another asset.


33

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item isderecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the item.

1.3 Intangible assetsAn intangible asset is recognised when:n it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; andn the cost of the asset can be measured reliably.

Intangible assets are initially recognised at cost.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

Amortisation is provided to write down the intangible assets, on a straight-line basis, to their residual values as follows:Item Useful lifeComputer software 2 Years

1.4 Financial instrumentsInitial recognition

Trade and other receivablesTrade and other receivables are carried at amortised cost less any accumulated impairment.

Trade and other payablesTrade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest ratemethod.

Trade and other payables are carried at amortised cost.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readilyconvertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recordedat fair value.

Bank overdrafts and borrowingsBank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interestrate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised overthe term of the borrowings in accordance with the company's accounting policy for borrowing costs.

Other financial assets are carried at amortised cost less any accumulated impairment.

Held-for-trading financial assetsAvailable-for-sale financial assets are non-derivative financial assets, either designated in this category or not classified in any of the othercategories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the statementof financial position date.


ACCO U N T I N G POLICIESFOR THE YEAR 31 DECEMBER 2010Available-for-sale financial assetsInvestments are recognised and derecognised on a trade date basis where the purchase or sale of aninvestment is under a contract whose terms require delivery of the investment within the timeframeestablished by the market concerned.

These investments are measured initially and subsequently at fair value. Gains and losses arising fromchanges in fair value are recognised directly in equity until the security is disposed of or is determined tobe impaired, at which time the cumulative gain or loss previously recognised in equity is included in theprofit or loss for the period.

Impairment losses recognised in profit or loss for equity investments classified as available for sale are notsubsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debtinstruments classified as available for sale are subsequently reversed if an increase in the fair value of theinstrument can be objectively related to an event occurring after the recognition of the impairment loss.

Held-to-maturity loans and receivablesHeld-to-maturity financial assets are non-derivative financial assets with fixed maturities and fixeddeterminable payments. Management has the positive intention and ability to hold these financial assetsto maturity. Financial assets held to maturity within 12 months from the statement of financial positiondate, are classified as current assets and after 12 months as non-current assets.

1.5 LeasesA lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental toownership. A lease is classified as an operating lease if it does not transfer substantially all the risks andrewards incidental to ownership.

Operating leases – lesseeOperating lease payments are recognised as an expense on a straight-line basis over the lease term. Thedifference between the amounts recognised as an expense and the contractual payments is recognised asan operating lease asset. This liability is not discounted.

Any contingent rents are expensed in the period they are incurred.

1.6 Impairment of assetsThe company assesses at each statement of financial position date whether there is any indication that anasset may be impaired. If any such indication exists, the company estimates the recoverable amount of theasset. Irrespective of whether there is any indication of impairment, the company also:n tests intangible assets with an indefinite useful life or intangible assets not yet available for use for

impairment annually by comparing its carrying amount with its recoverable amount. This impairmenttest is performed during the period under review and at the same time every year.

n tests goodwill acquired in a business combination for impairment annually.

34


If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimatethe recoverable amount of the individual asset, the recoverable amount of the cash generating unit to which the asset belongs is determined.

1.7 Employee benefitsShort-term employee benefitsThe cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave,bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, inthe case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make suchpayments as a result of past performance.

1.8 Provisions and contingenciesProvisions are recognised when:n the company has a present obligation as a result of a past event;n it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; andn a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the expenditure expected to be required to settle the obligation.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement shall berecognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursementshall be treated as a separate asset. The amount recognised for the reimbursement shall not exceed the amount of the provision.

Contingent assets and contingent liabilities are not recognised.

1.9 RevenueRevenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and servicesprovided in the normal course of business, net of trade discounts and volume rebates, and value added tax.

Interest is recognised, in profit or loss, using the effective interest rate method.

Royalties are recognised on the accrual basis in accordance with the substance of the relevant agreements.

Dividends are recognised, in profit or loss, when the company's right to receive payment has been established.

Service fees included in the price of the product are recognised as revenue over the period during which the service is performed.

1.10 Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred.

35


N OT E S TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR 31 DECEMBER 2010

36

Figures in Rand

2 Property, plant and equipment2010 2009

Cost/ Accumulated Carrying Cost/ Accumulated Carryingvaluation depreciation value valuation depreciation value

Furniture and fixtures – – – 195 793 (181 925) 13 868Office equipment 134 095 114 957 19 138 188 623 (145 236) 43 387IT equipment 955 763 569 032 386 732 840 771 (348 749) 492022Other property, plant and 40 373 30 406 9 967 40 372 (22 332) 18 040equipmentTotal 1 130 231 (714 395) 415 837 1 265 559 (698 242) 567 317

Reconciliation of property, plant and equipment – 2010

Opening Additions Disposals Depreciation Totalbalance

Furniture and fixtures 13 868 – – (13 867) –Office equipment 43 387 – – (24 248) 19 139IT equipment 492 022 114 992 – (220 282) 386 732Other property, plant and equipment 18 040 – – (8 075) 9 965

567 318 114 992 – (266 472) 415 835

Reconciliation of property, plant and equipment – 2009

Opening Additions Disposals Depreciation Totalbalance

Furniture and fixtures 26 428 – (2 273) (10 287) 13 868Office equipment 56 452 12 757 (475) (25 347) 43 387IT equipment 375 534 334 751 (12 200) (206 035) 492 050Other property, plant and equipment 26 115 – – (8 075) 18 040

484 529 347 508 (14 948) (249 744) 567 317

A register containing the information required by paragraph 22(3) of Schedule 4 of the Companies Act isavailable for inspection at the registered office of the company.


Figures in Rand

3. Intangible assets2010 2009

Cost/ Accumulated Carrying Cost/ Accumulated Carryingvaluation depreciation value valuation depreciation value

Computer software, other 599 329 (488 123) 111 207 563 420 (281 629) 281 791

Reconciliation of intangible assets – 2010

Opening Additions Amortisation Totalbalance

Computer software, other 281 791 110 688 (281 274) 111 205

Reconciliation of intangible assets – 2009

Opening Additions Amortisation Totalbalance

Computer software, other 12 430 488 641 (219 280) 281 791

4. Trade and other receivables2010 2009

Trade receivables 34 200 3 131Deposits 181 615 85 615

215 815 88 746

5. Cash and cash equivalents

Cash and cash equivalents consist of:Bank balances 21 149 340 18 040 434

6. Trade and other payables

Trade payables 60 327 98 570Subscriptions received in advance 21 609 499 18 250 373VAT 352 495 246 985Accrued employee costs 4 548 –Provision for leave pay 369 798 370 088

22 396 667 18 966 016

37


Figures in Rand 2010 2009

7. Revenue

Subscriptions received 16 545 778 14 701 160

8. Operating (deficit) surplus

Operating profit for the year is stated after accounting for the following:

Operating lease chargesPremises• Contractual amounts 1 221 084 1 193 481

Depreciation on property, plant and equipment 547 746 469 024Employee costs 11 767 749 10 557 494

9. Taxation

No provision has been made for 2009 (2008) tax as the company is exempt from tax.

10. Cash (used in) generated from operations

(Deficit) surplus before taxation (516 747) (713 767)Adjustments for:Depreciation and amortisation 547 746 469 024Interest received (714 167) (825 002)Changes in working capital:Trade and other receivables 127 403 31 059Trade and other payables 3 430 651 9 895 995

2 620 080 8 857 309

11. Risk management

Liquidity riskThe company's risk to liquidity is a result of the funds available to cover future commitments. The companymanages liquidity risk through an ongoing review of future commitments and credit facilities.

Cash flow forecasts are prepared and adequate utilised borrowing facilities are monitored.

38

N OT E S TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR 31 DECEMBER 2010


Figures in Rand 2010 2009

Interest rate riskThe company has no borrowings that are either at fixed interest rates or marketinterest rates.

Credit riskCredit risk consists mainly of cash deposits, cash equivalents and trade debtors.The company deposits cash only with major banks with high-quality creditstanding and limits exposure to any one counterparty.

12. Directors' emoluments

For services of non-executive directors 311 623 318 820 Total 311 623 318 820

13. Operating lease

The Ombudsman for Banking Services leases its office accommodation interms of operating lease. Escalations of 9% have been included in the lease agreements. The total futureminimum lease payment under this lease is as follows:

Due within one year 1 050 336 1 221 084Due between one and five years 5 644 800 748 343

39


40


RevenueSubscriptions received 16 545 778 14 701 160

Other incomeProceeds from insurance claim – –Interest received 714 167 825 002Other income – 6 643

17 259 945 831 645

Expenses (refer to page 38) 17 776 692 (16 246 572)(Deficit) surplus for the year (516 748) (713 767)

Operating expensesAdministration and management fees (board fee) 311 623 318, 820Auditors remuneration 100 199 89 309Bad debts – –Bank charges 10 575 8 049Consulting and professional fees 58 148 63 446Call centre 359 600 208 538Depreciation, amortisation and impairments 547 746 469 024Employee costs 11 767 749 10 557 494Entertainment and travel 47 517 140 162Offsite storage costs 30 183 27 135Recruitment fees 92 560 40 868Office stationery 83 345 83 265Staff refreshments and functions 31 131 26 239Training and education costs 361 579 192 756Penalties and interest (VAT refund written-off ) – 132 478Gifts 6 378 3 311IT expenses 436 858 613 155Insurance 97 462 101 384Lease rentals on operating lease 1 759 181 1 646 322Postage 30 468 26 933Promotions 790 851 740 287Premise relocation and Installation 13 650 –Premise maintenance 97 057 101 654Equipment rental and maintenance 431 584 387 810Subscriptions 57 600 56 205Telephone and fax 253 648 211 929

17 776 692 16 246 572

D E TA I L E D STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR 31 DECEMBER 2010


G E N E R A L INFORMATION (AT YEAR END)

Country of incorporation and domicile South Africa

Nature of business and principal activities Banking dispute resolution and related services

Directors JF MyburghMDC MotlatlaN MapetlaAM RamosediTN RaditapoleC CoovadiaHJ WilkenV Klein NM Lala-Mohan D Terblanche

Registered office 5th Floor28 Harrison StreetJohannesburg2001

Business address 5th Floor28 Harrison StreetJohannesburg2001

Postal address PO Box 5728Johannesburg2001

Bankers First National Bank Standard Bank

Auditors Nkonki IncChartered Accountants (SA)Registered Auditors

Secretary Corporate Law Services (Pty) Ltd.

Company registration number 2000/002577/08


Copies of our brochure and application for assistanceform should be available at the local branch of yourbank and on its intranet.

Alternatively they may be obtained from theOmbudsman for Banking Services.

CONTACT DETAILS Postal address PO Box 5728

Johannesburg 2000

Physical address First floorHoughton Place51 West StreetHoughton Johannesburg

Sharecall 0860 800 900

Financial 0860 OMBUDS/0860 662 837Ombudsman Call Centre

E-mail [email protected]

Website www.obssa.co.za


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