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Two new state banks eye rapid expansion

Jun 11 2017 06:00
Dewald Van Rensburg and Paddy Harper

The two new banking licences in the works for state-owned entities will technically create state-owned banks, but on a scale that is inconsequential in the overall scheme of South Africa’s concentrated financial sector.

Both Postbank and Kwazulu-Natal-based Ithala SOC are awaiting banking licences as prerequisites to planned rapid expansions into transactional banking as well as lending.

Once Ithala has a banking licence, it aims to become a fully fledged bank and establish a national footprint.

The Postbank application is central to the SA Post Office’s (Sapo’s) positioning to pay social grants in future and may be granted as early as next month.

This would, by itself, give Postbank a client base of millions and make it the conduit of several billions of rands in transitory deposits every month.

Postbank offers savings accounts, but aspires to be a lender.

In his recent budget speech to Parliament, Minister of Telecommunications and Postal Services Siyabonga Cwele said the Sapo application for full licensing of Postbank was on track, following the approval granted by the banking regulator in July.

Cwele said that, despite Sapo’s challenges, Postbank was “well cushioned, managed and profitable’’ and had capital of R1.4 billion.

Ithala hopes to have its licence by the end of the year.

A pillar of Ithala’s expansion plans is to draw in public sector entities as depositors.

Since 2014, it has fallen short of its goals in this regard, achieving deposits from the public sector of R331.7 million by the end of March 2016, compared with a target of R517.4 million.

In February, KwaZulu-Natal economic development MEC Sihle Zikalala said Ithala had R600 million in deposits from various municipalities and public
entities.

This is inconsequential at 0.2% of the public sector’s deposits in the banking system as a whole – about R320 billion at the end of last year.

Total deposits in the local banking system come to roughly R3.5 trillion.

Ithala has the support of highly influential ANC leaders in the province, including eThekwini Mayor Zandile Gumede and Zikalala – and the party itself.

The province intends to move its accounts, currently held by Absa, to Ithala, as do a number of municipalities, including the eThekwini metro.

Ithala has been getting exemptions from the SA Reserve Bank to conduct banking business for several years and has a R1.4 billion loan book largely consisting of home loans. Ithala is owned by the province’s development financier Ithala Development Finance Corporation.

“Every effort is being made to meet the requirements for a full banking licence and to become a fully fledged bank in keeping with Ithala’s mandate to serve the previously unbanked,’’ said Ithala’s CEO Peter Ireland.

BIGGER GAME

South Africa’s two aspirant state banks are starting from humble bases, but many promoters of the concept envisage something far more ambitious.

Some call for a state bank buoyed by public sector deposits, while others say the existing development finance institutions (DFIs) should merge to form the basis of a significant new financial institution.

The market failures a state bank is said to potentially solve include a lack of low-cost transactional banking, overpriced credit and an overall misdirection of the nations’ savings away from job-creating investment.

At the recent parliamentary hearings into transformation of the financial sector, the call for a state bank, or a black bank, was raised alongside calls for the existing banks to transform.

The Economic Freedom Fighter’s submission called for a “wholly state-owned bank” that would provide banking services to the entire public sector while also ensuring “access to banking services to the poor and workers at minimum bank charges”.

The National Union of Metalworkers of SA couches the demand in the same terms, calling for a state bank “which will consolidate all the state-owned financial institutions to facilitate affordable credit to the progressive class forces”.

The SA Communist Party has called for Postbank to not only pay social grants, but to provide “developmental banking services” that profit-seeking banks do not.

The National Empowerment Fund (NEF) is pushing to combine the demands for state-owned and black-owned banks.

BLACK-OWNED

What South Africa needs is a bank that is 51% black-owned and 49% state-owned, NEF CEO Philisiwe Mthethwa told Parliament at the hearings.

Her more significant proposal is that the state then direct 30% of all public sector bank deposits into this new bank. This would be over R100 billion and immediately allow it to be a fairly large lender.

Another vein of proposals would see the existing DFIs agglomerated to form the base of a state-owned bank.

Chris Malikane, technical adviser to finance minister Malusi Gigaba, recently told City Press that his take on a state bank is one based on the DFIs that also compete in the retail market.

A drawn-out process of rationalising DFIs is well under way.

The department of human settlements announced last month that it had completed the long-awaited consolidation of three national housing finance institutions into a new Human Settlements Development Bank.

Minister of Human Settlements Lindiwe Sisulu called it “the asset that our struggling black entrepreneurs have been waiting for” in her recent budget speech.

In effect, the National Housing Finance Corporation will absorb two smaller entities – the Rural Housing Loan Fund, and the National Urban Reconstruction and Housing Agency.

This amalgamation was first mooted in a 2008 Treasury review of the DFIs.

All three lend money to intermediaries such as contractors and retail lenders to incentivise the provision of affordable housing, understood as housing affordable to people earning less than R15 000 per month.

The combined entity will have a balance sheet of around R4 billion – a small part of the R254 billion in assets of the state’s DFIs, dominated by the Industrial Development Corporation (IDC), Development Bank of Southern Africa and the Land Bank.

The consolidation of a housing bank follows other consolidations like the IDC’s absorption of the Small Enterprise Development Agency in 2012 and the ongoing conversion of the National Empowerment Fund into an IDC subsidiary.

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postbank  |  sa economy  |  financial services  |  banking
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