Plan to turn Postbank into state bank will simply result in ‘another Eskom’

South Africa does not need a state bank, economists say, because the people it will be aimed at are unlikely to ever be able to pay back the money they borrow, while it will also not be contributing to getting unbanked people to access to banking services.

Khumbudzo Ntshavheni, minister of communications and digital technologies, told the SABC on Tuesday that the Postbank is ready to take up the role of a state bank, with plans to roll out 100 new branches and revamp the group’s infrastructure to operate a fully-fledged bank.

Watch Ntshavheni explain the plan in the clip below:

What exactly is a state bank?

State banks are financial institutions commissioned by the state to provide commercial banking services, according to Investopedia, but state banks are not responsible for monetary policy and are restricted to providing banking services.

Monetary policy is the sole domain of the Reserve Bank.

Ntshavheni, speaking as a party spokesperson, says a state bank will enable government to rely on interest earned from customers’ deposits to fund transformation interventions in the country.

“Access to capital and funding is critical to the diversification of the economy. We cannot apologise for the interventions we need to transform the sector and raise money for government.”

She said the ANC proposes for government employees to be paid from the state bank.

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State bank not a good idea

The Postbank is part of the Post Office and its mission is to provide cost-effective financial services to appropriate market segments.

The bank was established in 1875 and in 1974 the Post Office took full responsibility for the Post Office Savings Bank and the National Savings Certificates.

Legislation was promulgated in 2010 that made it possible for the Postbank to change from a deposit-taking institution to a full-fledged bank.

Independent economist, prof. Bonke Dumisa, says starting a state bank with the Postbank will just turn out to be another Eskom.

“I do not see this working. Idealistically it is a great idea, but practically it will not work.”

Dumisa says government probably wants to use the Postbank for a state bank because it already has a banking license, but this is not a good idea.

“People who want to raise loans for businesses from a state bank do not want to stand in long queues.”

He says there are already many Developmental Financial Institutions that operate below capacity and constantly need bailouts. These institutions require people to adhere to the usual banking terms that you have to offer security for a loan.

“Many black people do not have collateral for a loan because they do not own land. How will the state bank ensure that people pay back the money they borrow? The questions are whether this bank will be sustainable.”

Dumisa points out that 29 million people are receiving social grants, while Treasury says only 7.4 million people pay tax. About 23 million people are registered for tax, but the salaries of more than 60% are under the tax threshold.

“Everyone who goes to the state bank will go there without the intention to pay back the money.”

“The establishment of the Postbank as the new state bank will simply be for the own agendas of politicians, exploiting the sentiments of the Radical Economic Transformation section. It is certainly not based on sound financial management.”

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Why do we need a state bank?

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says nobody knows why government wants to start a state bank, although they claim that it is meant to help the unbanked section of the country.

“However, at non-market related rates, this will not work. The risk is very important and therefore interest must be high to cover the risk. Nobody has provided any information on the benefits of this state bank and I think it is simply a political issue to say to people this is what government did.”

Rossouw does not think the state bank will solve any problem because no problem was identified to start with.

“Government does not learn from its mistakes. There is simply not the capacity to do what they must do.”

In her budget vote speech last year, Ntshavheni said access to funding is a major contributor to participation in economic activities and it was clear during the pandemic that commercial banks are reluctant to assist the poor and marginalised to financially recover despite government guarantees.

“The Postbank as a state bank can, therefore, play a significant role to drive adoption of technology and extend banking services to promote inclusion and banking for all South Africans. We are working to ensure that the corporatisation of the Postbank is concluded within the current financial year, but we will require the assistance of parliament to prioritise the finalisation of the Postbank Amendment Bill that is already submitted for consideration,” she said.

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A state bank you can trust?

However, the Postbank, like the Post Office, is not in a good financial condition.

Ntshavheni said in her budget vote that her department is aware of the challenges of system weaknesses facing the Postbank, and are working with the board to resolve them, including holding those liable accountable.

Irregular expenditure at the Postbank increased by R118 million in the 2021-22 financial year, and it did not reach its priority target of acquiring a banking licence.

The inappropriate spending was due to services procured without contracts in place and non-adherence to procurement processes, Joyce Nkonyane, a senior manager at the Auditor General of South Africa (AGSA) told parliament’s portfolio committee on communication.

The AGSA also noted insufficient consequence management efforts, and no internal processes were established to deal with consequence management.

One of the irregularities was that Postbank failed to maintain an effective internal system to safeguard the issuing of bank cards for the South African Social Security Agency, which caused a financial loss of nearly R68.8 million in cards unaccounted for.

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Not implementing effective controls on card management and the Sassa beneficiary payment process caused fraud with stolen Sassa cards amounting to almost R13.6 million.

There was a huge outcry in December when Postbank suspended ATM withdrawals for Sassa beneficiaries, which Postbank maintained was necessary only for the month to curb fraud.

Ntshavheni said President Cyril Ramaphosa is expected to make an announcement regarding the Postbank or state bank in his State of the Nation Address on 9 February 2023.

This is happening while finance minister Enoch Godongwana said earlier last year that the creation of a new state bank was not possible as the country lacked the money to back it.

“The government-owned Postbank already accepts deposits and if another lender were to be established, it would have to be self-funded,” he said.