South Africa’s new state-owned bank faces uphill battle

Bank Zero chairman and former FNB CEO Michael Jordaan said competition in the banking sector is always welcome, but the government’s state-owned bank is entering a very competitive market with many new challengers.

Jordaan’s comments come a few weeks after the government announced its intention to transform the Postbank into a full-service bank.

In March this year, President Cyril Ramaphosa enacted the new South African Postbank Amendment Act, officially transferring 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, paving 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 and lacking the ability to provide transactional accounts, credit, and other banking services.

With the Postbank Amendment Act now in effect, Postbank, independent of the Post Office, can proceed as a state-owned entity, apply for a new banking license from the South African Reserve Bank, and initiate full banking operations.

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

According to the government, the primary goal of the ‘new’ Postbank will be to provide affordable financial services to communities underserved by traditional retail banking, including SMEs and the public sector.

Michael Jordaan’s view

Jordaan told Daily Investor that 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 also warned that commercial banking is very complex and requires hardcore banking experience and expertise that enables sound decision-making when building and operating the bank.

“These skills are not readily available – not just in South Africa but globally,” he said.

“For example, technology decisions have a profound impact on the bank’s operating cost (which determines customer pricing).”

“Features and innovations are important, like the Bank Zero card patent, which to date has not had any card skimming fraud. Poor technology choices can be detrimental and very expensive.”

Jordaan said state-owned banks can work well, as seen in countries like India, especially when there is healthy competition between the private sector. 

He explained that one of South Africa’s many challenges is that bank fees are prohibitive, and access is a problem in deep rural areas.

This is something low-cost banks can fix, and the Postbank will, therefore, do best if it focuses on areas that are neglected by other commercial banks rather than competing head-on.

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.”

Mike Brown’s view

Nedbank CEO Mike Brown

Jordaan’s view is not shared by Nedbank CEO Mike Brown, who said there is no need for a state bank in South Africa.

In addition, he warned that the government already has no money to run one and has a poor track record for running state-owned enterprises.

Speaking to the Sunday Times in March, Brown said that the state already has the Postbank and other financial institutions, and entering the retail banking segment makes no sense.

“From a government point of view, the economy simply does not generate enough tax revenue to fund the large public service that we have in South Africa, and to fund multiple failing state-owned enterprises, and the important safety net that we have in place,” Brown said.


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