S.Africa: IDIOTS AT WORK: Government says it’s ready to launch a state bank

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FIFI PETERS: A wide view held by quite a number of individuals pertaining to South Africa’s banking sector is that it doesn’t cater for all, and that many small businesses find it really hard to access loans. The ANC government has said that the solution – or a solution – to this could be a state bank that could be more inclusive in its lending practices, and in turn generate money that could help the economy grow.

The problem is the ANC government doesn’t have the best track record in managing state companies already under its belt, and so what will make a state bank any different? These are some of the questions I am putting to the Minister of Communications and Digital Technologies, Minister Khumbudzo Ntshavheni, who today said that the Postbank was ready to launch a state bank, and she said that there were plans to roll out a hundred new branches and also revamp the Postbank’s infrastructure to be a fully fledged bank. Minister Ntshavheni joins the Market Update now for more. Minister, thanks so much for your time, ma’am.

KHUMBUDZO NTSHAVHENI: Thank you for having me, Fifi. Let me start here at the intro you just made.

FIFI PETERS: I am glad that you plan to do so because that was my first question. The news you announc[ed] today [January 10, 2023] is really significant on the plans and the progress to launch a state bank. But I know you have heard the comments I made in my intro about the track record of the government and being able to successfully run another state-owned enterprise when most of the current ones haven’t got the best record. So let’s tackle that point first, ma’am. How will the state bank be any different?

KHUMBUDZO NTSHAVHENI: Let’s start with the Postbank. Sure. The Postbank is going to be governed like any other bank. It’s governed by the Reserve Bank. It has to comply [with] all the requirements of the Reserve Bank. And part of that is it had to require that we put a board there of the Postbank. That board has been put in place. That board had to go through an assessment, one by the Auditor-General of South Africa and, two … by the Reserve Bank. They even gave us the requirements that these board members must meet.

Secondly, in terms of the Banking Act, the Postbank or any bank must have what is called ‘competent officers’. Those competent officers must satisfy particular criteria; those criteria are not set by Khumbudzo Ntshavheni, they are set by the Reserve Bank. And, as the board recruits them, they also go, again, through a ‘fit and proper’ [assessment] to say [whether] they are competent people in terms of running the bank. And that’s what it is.

I just need to also clarify this thing saying ‘government does not have a [good] track record’. I’m a politician. I don’t run a department. Employees of the department run the department, and those people are not all ANC members. So it’s a very unfair statement to say the ANC government has no [good] track record. It’s government employees who are not having a [good] track record.

So what we have resolved also in the [ANC] conference was to improve government monitoring.

There’s been work to professionalise the public service, but the bank is not going to be offering a public service. The bank is going to be governed by the Banking Act.

That’s what I needed to clarify.

In terms of how far we are, there are a few things that we are doing. One, there [is] the ownership of the Postbank. Currently the Postbank is owned by the Post Office.

The Banking Act, again, has a specific provision that says you can’t have an SOE or a state-owned entity that is not financially viable owning a bank. So therefore we had to change or amend the Postbank Act to remove the ownership of the Postbank from that of the Post Office and move the ownership – that means the shareholding of the Postbank – to government. The Minister of Communications and Digital Technologies is the shareholder representative in that ownership. That is the amendment that we’re waiting for parliament to finalise – and the structuring and creating of what is called the bank holding company – so that you don’t have the bank reporting to the minister, but the bank will have a bank holding company which is, again, regulated by the Reserve Bank to deal with that question that you’re worried about.

And then the other thing is the technology space of the Postbank. The Postbank was operating using all the facilities of the Post Office. The Post Office will then not have facilities that are suitable for the bank. We have done the audits. We did the audits for the last four years. So with the Auditor-General, we submitted the reports and we had to do an IT audit on our own, though the Reserve Bank had already given us a variation on non-compliance with certain requirements of the Banking Act, including the clearing system, the bank payment system and so forth.

We have been working with the Reserve Bank through the Prudential Authority to address those challenges. The Reserve Bank came out in December – because the term of the variation notice was ending on the December 31, 2022 – and said, “We appreciate the progress you have made. We understand the challenge that you could not meet all the requirements in time because of the circumstances that prevailed in your environment. We are giving you another extension until December 2023”.

I’ve come out and said, yes, we appreciate that the Reserve Bank has given us up to December 2023 to sort out the technology environment and all other banking gaps that we have. But we are confident, given the progress we have made, that we will complete that earlier.

In terms of the IT systems our target is to say by April that all the things that that relate to the technology environment should be sorted by that time.

In terms of the competent people that must be hired in the Postbank, we are confident that by June the board should have concluded that process. And, working backward with the approvals and the assessments that the Reserve Bank will do, we are going to advise the president on a date that we think we will have first finalised the corporatisation of the Postbank. And that is the first milestone.

And when the Postbank has been corporatised as a fully-fledged bank – because currently it’s not a fully fledged bank – then we will say this is the mandate of the Postbank as it relates to its function as a state bank.

FIFI PETERS: I guess the view on the poor track record of state-owned entities and laying part of the blame on government is the fact that a lot of these SOEs fall under the Ministry of Public Enterprises … being the shareholder representative of government. That’s seen as the place where the buck stops. A lot of the hirings on SOEs will come from the Ministry of Public Enterprises. Therefore, when things go well we’ll obviously award the ministry for that. But also when things don’t go well, as I said, the buck stops there. So I think that that’s where that view of the [poor record] comes from. What do you think about that?

KHUMBUDZO NTSHAVHENI: I have 11 entities under me. I wish I could pass them all over to Minister Pravin Gordhan, but I’ve got 11 entities [of which] I’m the shareholder representative, and other ministers have others. I can give you an example. Sentech is doing [well]. It is one of the entities under me. I can give you an example. We’re working on the SABC to make sure that it does [well].

What’s interesting with what you say is when the ministers come out and say what is being done is wrong, and is not going to make this entity profitable, we are accused of interfering and all sorts of things. I’ve been accused by the SABC, the very SABC that SAfm belongs to. And when the Auditor-General finally came out later with the audit report and said [to the] SABC, “What you’re doing is not going to make you financially viable in the short- to medium term,” nobody came back to me to say, minister, you were right. Because I was raising the profitability of the SABC, the commercialisation of certain businesses and the approach to certain things, to say it doesn’t make commercial sense for an organisation that has to be commercially viable when we have gone out and given them exemptions that they needed, given them waivers when they needed to have the waivers, to make sure that we untied their hand. So it is not the minister of public enterprises – and I don’t want to defend him – it’s all of us collectively and what we do with our institution.

I just use those two entities under my responsibility. I’m responsible for Icasa, I’m responsible for .ZADNA, I’m responsible for the Films and Publications Board.

I’m responsible for 11 entities. And of those 11 entities have only three that are not doing well. And we are sure that in the three that are not doing well, between two and three years we should have them on firmer ground.

For me, that’s the confidence I have.

But coming back to the Postbank, I’ll just assure you [by saying] that this track record of maybe poor performance-monitoring, being weak on strengthening the governance and so forth, we say to you it is not only the minister, it’s not only government. It’s the Reserve Bank.

And you must give credit to the Reserve Bank, the Prudential Authority, which has been able to hold banks to account. They’ve been able, where there was difficulty, whether it was with the African Bank; I can’t remember the bank that became Capitec … later; those that collapsed – whether it was VBS; they’ve come out to say, this is how we are saving this bank, or this is how we are allowing this bank to go down. This is how this bank is going to be rebuilt. They’ve been very strong in monitoring, and I’m sure they’ve learned lessons related to the collapse of VBS to say what they need to strengthen in overseeing banks that also have community ownership or government ownership. They’ve learned lessons to improve on that.

And remember, the Reserve Bank and government and the other commercial banks have shares in African Bank. There are lessons and I’m sure with those lessons the Reserve Bank will come in very handy to make sure that the Postbank will never collapse.

But we don’t intend the Postbank to collapse. Why? Because it has a captive market. Remember every month they disburse R10 billion in social grants across the country. With that amount and their ability, that’s why we say we need the State Bank. They have a good basis to stand on…. We should make an announcement later, the president should make announcement later, [regarding] what are we going to make sure we seed this bank with, to ensure that its balance sheet is always strong and it can perform well?

FIFI PETERS: I’m glad that you mentioned the African Bank, because I was reading a comment from an economist at the weekend, an idea that he posted about African Bank, saying that perhaps another way to launch a state bank would be to merge Postbank with African Bank, given, as you say, that the Reserve Bank is a large shareholder there at African Bank. This particular economist, Duma Gqubule, believes that management under the CEO of African Bank right now, Kennedy Bungane, is excellent and [he’d] address perhaps some of the concerns around governance and security. What do you think about that?

KHUMBUDZO NTSHAVHENI: Look, for now I’m focused on making sure that the Postbank is corporatised. So when the Postbank is corporatised, the board of the Postbank will then consider the options to strengthen itself if it has to do an acquisition of African Bank, because you have to buy out the commercial banks that have shares there. If there is money to buy out for the Postbank, it is solely their decision to take. But where I am, I’m focused on delivering the corporatisation of the Postbank so that we can have the state bank. How it consolidates itself to make sure that it performs stronger will be up to the board of directors and executive or the competent officers of the Postbank.

FIFI PETERS: Comments from the Minister of Finance, though, [show] that finances are tight, resources are constrained to establish a bank. Can you talk to that and perhaps where the money will come from and whether you will need money, actually, more importantly from National Treasury, to go ahead with this?

KHUMBUDZO NTSHAVHENI: Those comments were related to African Bank because if government had to make African Bank a state bank, they [would need] to pay R10 billion over, I think, R10 billion or R30 billion to the commercial banks who are shareholders of African Bank. Remember what was called the dirty [bad] bank and the good bank? So that comment relates to that.

In the Postbank, if government does not have to put extra funding in, we are confident that with the current resources that are available and the ability, how we seed it, it doesn’t have to be seeded by a cash injection into the bank.

Interestingly, I had a conversation when we were doing the activation with the chairman of the board of directors of the Postbank, and he was saying, “What’s the possibility?” I was very clear: there’s no money to seed. They must go and raise money. They must go and make sure that as a business they’re profitable, and then fund their operations going forward. That’s why we’re not even planning to start with a large number of branches, but starting with 100 branches so that we give them breathing space to build on and ramp up and grow organically.

FIFI PETERS: Okay. Minister, ma’am, thanks so much for your time. Thanks for taking all the questions. Minister Khumbudzo Ntshavheni, the minister of Communications and Digital Technology, has been speaking to the readiness of government to go ahead with the state bank, with the Postbank.

Source: https://www.moneyweb.co.za/moneyweb-radio/safm-market-update/government-says-its-ready-to-launch-a-state-bank/

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