Government plans to consolidate existing state-owned banks

As part of plan to establish an enlarged state-owned bank.

- Moneyweb

Cyril Ramaphosa

President

The establishment of a state-owned bank which President Cyril Ramaphosa touted during his State of the Nation Address two weeks ago will involve the amalgamation of existing state-owned banks.


The government already owns and operates several banks – including Postbank, a banking subsidiary of state-owned enterprise the South African Post Office, KwaZulu-Natal-based Ithala and others.

Unlike commercial or privately-owned banks, state banks are not profit-driven and largely support SA’s socioeconomic development agenda of including unbanked individuals in the formal banking sector.

In a briefing with journalists ahead of the 2020 budget speech on Wednesday, Deputy Finance Minister David Masondo said the government plans to consolidate existing banks that it owns to create an enlarged entity.


“We already have quasi-state banks, which give us the opportunity to consolidate them to ensure that they comply with governance processes. This will ensure that we have a proper consolidated state bank,” said Masondo, who is tasked with leading the consolidation process.

Masondo said the enlarged and amalgamated entity will take cash deposits from consumers, which will require it to get a banking licence from the South African Reserve Bank (Sarb).


The idea of a state bank has long been mooted by the ANC in its various policy proposals. The party wants the Postbank to be a fully licensed and state-owned bank that can take cash deposits, lend money to lower-income consumers and small businesses at favourable interest rates and terms.

Masondo said the enlarged and amalgamated entity will take cash deposits from consumers, which will require it to get a banking licence from the South African Reserve Bank (Sarb).


The idea of a state bank has long been mooted by the ANC in its various policy proposals. The party wants the Postbank to be a fully licensed and state-owned bank that can take cash deposits, lend money to lower-income consumers and small businesses at favourable interest rates and terms.

“We want to consolidate the proliferation of state banks that are already in the system. There are market failures in terms of the poor not getting basic services. [Establishing a state bank] is an attempt to get people included in the financial system and ensuring that small businesses are well funded.”

Masondo said that government will be drafting a policy paper in the next few weeks about the capital structures of existing state-owned banks to ensure that “they will be run like proper banks”.


In his budget speech, Finance Minister Tito Mboweni said the architecture of the enlarged state-owned bank will be that of a “retail bank operating on commercial principles”. It will be governed by the Banks Act and the Sarb’s Prudential Authority.


Mboweni said development finance institutions will not be included in the government’s state bank ambitions. These entities are owned by the state and operate like banks, although their mandates are tied to supporting infrastructure projects that induce economic growth and job creation. There are about ten development finance institutions that are owned by the state, including the Industrial Development Corporation and the Development Bank of Southern Africa.