New state bank for South Africa

Finance Minister Enoch Godongwana said progress is being made in creating a state bank, and Postbank will play a key role in this regard.

Godongwana shared this information during a question-and-answer session in Parliament, where he was quizzed about a state bank.

This discussion followed a big development in March 2024, when President Cyril Ramaphosa enacted the new South African Postbank Amendment Act.

This act officially transferred Postbank’s shareholding from the struggling South African Post Office to the government.

This change enables the establishment of a Bank Controlling Company, the new holding entity for a bank.

It paves the way for Postbank to evolve into a fully-fledged state-owned banking operation in the country.

Historically, Postbank offered limited banking services through the Post Office, focusing solely on savings.

Postbank could not provide transactional accounts, credit, and other banking services, which many argue would help lower-income citizens.

With the Postbank Amendment Act in effect, Postbank, independent of the Post Office, can proceed as a state-owned entity.

It is applying for a new banking license from the South African Reserve Bank to initiate full banking operations.

While retaining the Postbank name from its Post Office days, it will become a completely new banking entity.

The new bank’s primary goal will be to provide affordable financial services to communities underserved by traditional retail banking, including SMEs and the public sector.

Last week, one member of parliament alleged that the banking sector refused to transform and give all citizens access to financial services.

These services include access to credit for low-income housing and expanding financing for small and medium-sized businesses.

He asked the finance minister what his department is doing to address the shortcomings of the banking sector.

Godongwana said they will do whatever they can, within the legislative framework, to improve access to credit for small and medium enterprises.

He added that the government should help to introduce more competition to the South African banking sector.

“Institutions like the Postbank will be critical in the competitive environment,” Godongwana said.

The minister added that progress is being made to ensure that the licensing of the state bank is achieved.

“We are in discussions with the Department of Communications and Digital Technologies regarding appropriate funding for Postbank.”

Godongwana said once the discussions are concluded, an announcement will be made accordingly.

Mixed reactions to a state bank

Two of South Africa’s most experienced banking executives, former FNB CEO Michael Jordaan and former Nedbank CEO Mike Brown, have different opinions on a state bank.

Jordaan said he always welcomes competition in the banking sector, in principle, as this gives customers more choice and, over time, better service.

He said South Africa’s banking sector is too concentrated within the Big Five banks – Standard Bank, Absa, FNB, Nedbank, and Capitec – and this carries risk.

However, he said that the SARB’s recent launch of depositor insurance had secured all banks for all but the very large depositors.

“So, Postbank will enter a very competitive market and will need to compete against the zero fees and advanced functionality of Bank Zero and other new challengers,” he said.

He warned that commercial banking is complex and requires hardcore banking experience and expertise, which enables sound decision-making when building and operating a bank.

In addition, Jordaan said he recommends that Postbank refrain from offering credit as there is an oversupply in the market, and some segments are already over-indebted.

“Also, important controls are needed to prevent credit misuse and corruption,” he added.

“Globally, credit risk is the main reason for bank failures, so Postbank would be well advised to stick to transactional banking.”

Brown disagreed, saying there is no need for a state bank in South Africa. He added that the government already has a poor track record running companies.

Brown said that the state already has the Postbank and other financial institutions, and entering the retail banking segment makes no sense.