South Africa’s new state-owned bank is in trouble

South Africa’s new government-owned bank, the Postbank, has yet to apply for a banking licence from regulators, but is taking on critical payouts for the state.

The upgraded Postbank aims to broaden access to banking services across South Africa, focusing on prioritising rural and lower-income communities.

Under the South African Post Office, the Postbank offered some banking services, but it was strictly a savings subsidiary.

Things changed for the group after President Cyril Ramaphosa signed the Postbank Amendment Bill into law in September 2023.

This formally transferred Postbank’s shareholding from the embattled South African Post Office to the government.

The shift allowed for the creation of a bank-controlling company, Postbank SoC Limited, which allowed Postbank to become a fully-fledged bank in South Africa.

Despite keeping the Postbank name, the new laws allow it to become a separate banking entity, opening the path for it to offer transactional accounts, credit, and other banking services.

However, according to GroundUp, the South African Reserve Bank (SARB) has confirmed that the Postbank has still not applied for a full banking licence, putting these plans on ice.

This comes amid a nationwide push to get social grant beneficiaries to switch to the new Postbank Black Cards.

The SARB said that the Postbank needs to apply in terms of section 16 of the Banks Act for registration as a bank. The Prudential Authority has not received an application in this regard.

GroundUp noted that the Postbank operates as a Designated Clearing System Participant per the Payment System Act.

This allows it to issue payment instruments like the SASSA Gold and Postbank Black Cards without a full banking licence.

Postbank, however, stressed that becoming a fully-fledged licensed bank is part of its broader mandate, and that it intends to apply for a banking licence and is on track to do so.

New team and question marks

In addition to a banking licence, several other developments have occurred at the state-owned bank, with Minister of Communications Solly Malatsi opening applications for Postbank board members.

Applications closed in February, and the new board was set to oversee the strategic direction and governance of the Postbank in terms of the Banks Act.

Candidates are required to have diverse skills, knowledge, and experience in overseeing a state-owned or private financial institution.

Candidates will also need at least five years of board experience and at least eight years in an executive or senior management role in the banking or finance sector.

The department said it was looking for candidates with knowledge, experience and skills in the following areas:

• Transformation for diversity and equity: promoting financial inclusion.
• Banking and Financial Services: transactional, lending, borrowing, investment operations and banking information technology at senior management level.
• Finance and Economics: financial management, accounting, auditing and economics.
• Risk Management: credit, market, liquidity, interest rate and operational risk.
• Corporate Governance: Experience in providing oversight based on best practice corporate governance frameworks for South Africa.
• Compliance: legislative and regulatory compliance and compliance risk management.
• Legal: corporate or commercial law relevant to financial institutions.
• Project Management: management of projects within financial sectors.

Despite the developments, there have been serious questions over the Postbank and whether the state needs to create a new bank, given the broader troubles facing South Africa’s state-owned companies.

Questions have also been raised about the need for another bank, given the large number already in operation and the various operating models covered.

Over and above this, the state’s poor track record with handling banks has also thrown up red flags.

The recent court and government battles involving the KZN-based Ithala SOC Limited have highlighted these risks.

The Prudential Authority applied to the Pietermaritzburg High Court for the provisional liquidation of Ithala, whose shareholder is the KZN provincial government.

This comes amidst a series of regulatory and financial challenges faced by Ithala. Following the provisional liquidation, National Treasury approved a R2.2 billion guarantee to protect depositors.

These concerns have not been abated by the bank’s latest financial report, which showed that the bank is technically insolvent. 

This means it cannot settle all its liabilities by liquidating its assets. The bank’s declining capital adequacy ratio also jeopardises its chances of getting a banking license.