Nail in the coffin for new state-owned bank in South Africa
Finance Minister Enoch Godongwana says the government has no plans to establish a new state-owned commercial bank in the country.
There have been several calls and proposals over the last decade for South Africa to launch a state-owned bank to address shortfalls in financial inclusion.
Proponents of such a move claim that the current requirements imposed by commercial banks in the country to qualify for funding are too stringent, excluding millions from access to capital.
The push for a new state bank was backed by the ANC when it still held a majority in government, with President Cyril Ramaphosa supporting the drive.
In 2020, Ramaphosa said the government would proceed with establishing a new state bank “as part of our effort to extend access to financial services to all South Africans.”
However, following years of global black swan events and major political change in South Africa in 2024, talk of establishing a new state bank has died down.
Responding to a Parliamentary Q&A on the plans, Godongwana has now made it clear that there are no plans to establish a new commercial state bank.
The minister cited three core reasons for this:
- South Africa already has many state banks
- The country cannot afford to finance a new bank
- It is not clear what market failure or shortfall it would address
“South Africa already has a number of state banks, including the Land Bank, the Postbank, the Development Bank of Southern Africa, the Small Enterprise Development and Finance Agency, and other national and provincial Development Finance Institutions,” he said.
Godongwana noted that banks like the Land Bank have specific mandates—such as providing financial services to commercial, emerging, and development farmers.
But he stressed that, while the government is a shareholder in these banks, it is not able to dictate day-to-day operations, which are left to the Board of Directors and executive management.
With state banks, Godongwana said that management is ultimately accountable for their performance, including ensuring that they are financially sustainable.
Because of this, they should not require continuous government financial support.
According to Godongwana, this is one of the biggest impediments to starting a new state bank.
“The government does not have the financial resources to inject into a new state bank, especially since the country already faces challenges with the financial position of existing state banks,” he said.
“Ultimately, it is imperative that no state bank be a burden on the fiscus, and that all state banks must be able to generate sufficient own revenue to fund their operations.”
Enough state banks
The finance minister said it is paramount that all banks are managed prudently at all stages, with the highest regard for sound corporate governance practices and ethical conduct.
“If any bank lends recklessly or is managed poorly and/or fraudulently by its Board of Directors or management, such bank will fail and face the prospect of closure.”
Finally, the minister said that before the government can consider establishing a new state-owned bank, it must determine the market failure it aims to address.
But even if there is a market failure, he said the state must determine whether it can be adequately addressed within the framework of existing public and private-sector financial institutions.
Godongwana noted that the government is currently establishing a new state bank of sorts through Postbank.
In 2010, legislation was enacted that enabled Postbank to convert from a deposit-taking institution to a full-fledged bank.
It was during this time that the group transitioned from a SA Post Office division to a separate company (SOC) under the South African Postbank Act of 2010.
This was supplemented by the Postbank Amendment Bill, which was signed into law by President Cyril Ramaphosa in September 2023.
The new legislation formally transferred Postbank’s shareholding from the South African Post Office to the government. It also created the bank-controlling company, Postbank SOC Limited.
Most recently, Postbank registered as a licensed financial services provider with the Financial Sector Conduct Authority (FSCA).
It is now working with the Department of Communications and Digital Technologies to finalise its application for a banking licence with the South African Reserve Bank’s Prudential Authority.
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