South African Post Bank Bill [B14-2009] & South African Post Office Bill [B2-2010]: public hearings

Meeting report

ICASA submission on the South African Post Office Bill
Ms Brenda Ntombela, Counsellor: ICASA, said that ICASA supported the substance of the legislative framework for the governance of the South African Post Office (SAPO). Once the Bill had been passed into law it had to co-exist with other laws under which SAPO was regulated such as the Postal Services Act. ICASA also recommended that words used in the Bill had to be accorded the same meaning so as to minimise confusion or misinterpretation with other laws (see document).

Discussion
Mr S Kholwane (ANC) commented that he had struggled all throughout the weekend to reconcile ICASA’s submission and the Bill because they simply did not talk to each other. Some of the issues that ICASA was raising were already addressed by the current version of the Bill. He was sure that ICASA was making the same submission that had been given to the Executive and not looking at the Bill in its current form. The Bill as it stood had taken the power to appoint from Parliament and it was now the Minister who did that. There seemed to be a mismatch which required clarification.

Ms J Kilian (COPE) agreed with Mr Kholwane because ICASA’s comments had been written on the old draft version of the Bill from 2009. She suggested ICASA go back to the Bill and revise the numbering and take note of where changes had been made and to look at any other changes that they needed to re-evaluate. This would require a new submission to substitute the one that they had actually tabled and discussed with the Committee.

The Chairperson asked ICASA to explain why they had this discrepancy and why they had commented on an outdated version of the Bill. Had not the advert specified the Bill number? What had gone wrong with ICASA’s submission?

Ms Ntombela responded that the version of the Bill that they were commenting on was the one that had been on the Government Gazette.

The Chairperson responded that if that had been the case then they would have picked up that some of their comments had been addressed already.

Ms Ntombela responded that they accepted that they had commented on the earlier version and they would update their comments accordingly.

The Chairperson responded that wanted to understand why they had not done so in the first place. He found it problematic for ICASA as the regulator to make public comments on an outdated version of the Bill.

Ms Ntombela responded that they had thought that they were on the right track. They had looked at that version because it had been retrieved from the Government Gazette - and that was where the confusion had arisen.

The Chairperson commented that the Bill had made significant proposals on ministerial intervention. He asked if ICASA agreed with these proposals for very direct intervention by the Minister in certain circumstances. This was an unusual proposition.

Ms Ntombela responded that ICASA agreed with these proposals. The only section that they wanted to emphasise was the section that dealt with approval of the tariff because those tariffs were supposed to be approved by the Authority in terms of the Act as well as the licence.

Ms Kilian asked what ICASA’s view of the fact that they were having only a partial repeal of the 1958 Act and not a complete repeal. It rationalised everything as far as the Postal Services were concerned within one Act.

Ms Ntombela responded that their submission stated that there were words in the South African Postal Services Act that they felt could still be used in the Post Office Bill. Therefore, the fact that it was going to be repealed partially was not that much of a problem, as long as there were some sections that could be moved to the Post Office Bill and the Bill still spoke to the other Acts. ICASA had recommended in their submission that the Bill when it was passed as an Act had to be looked at as the principal Act.

Ms P de Lille (ID) commented that the drafters of the Bill had not applied their minds about the extent of the powers of ICASA vis-à-vis the powers of the Minister. She suggested that instead of relying on what ICASA and the Minister said the Committee could get its own independent legal opinion. The Committee would make up its own mind on how to deal with the different submissions.

Ms Ntombela agreed.

Mr Kholwane commented that in terms of legal assistance, that it was perhaps unfair to ask ICASA since most of the issues in the Bill were corporate governance issues. He did not think that it was desirable for Parliament to legislate corporate governance issues. He also commented that Bills were not addressing the White Paper issues which had been raised to transform the country’s postal services.

Mr Kholwane referred to the new Companies Act and asked how far the South African Post Office Bill had taken that into consideration.

Dr Maria Socikwa, Councillor: ICASA responded that it was desirable to legislate on corporate governance given the position in the White Paper. ICASA had conducted extensive workshops on King III and the new Companies Act. Looking at the ICASA Act alone, one could see some of the contradictions in corporate governance vis-à-vis the King III Report. The Companies Act had not been finalised and from the sentiments that they got from the lawyers, it would not be finalised in June and not likely in August. Given that background she suggested that they look at re-alignment of the Bill with the King III because it would be tragic if there were contradictions. ICASA was aware that the Companies Act was in place and required change in structure, at least at corporate governance level.

Mr N van den Berg (DA) asked for the rationale behind ICASA’s thinking to support the Minister’s role in the new Bill.

Ms Ntombela responded that the rationale for supporting this was based on the objects of the South African Postal Service Act (SPSA). The Minister had certain roles to play when it came to the Post Office itself. When one looked at section 2 of the SPSA some of the objects they had cited were the ones looking at allowing the Post Office to be innovative and to increase investment within South Africa. Therefore, the roles to be played by the Minister in doing all those things were the ones that ICASA agreed to. Secondly, on the matter of appointing the Members of the Board, when one looked at the ICASA Act on the appointment of ICASA Councillors, it was the Minister who was also responsible for that. It was therefore in line with most of the things that were done by the Minister.

Ms Kilian wanted to probe this issue a little further. The role of the Minister was usually policy directive oriented and if they looked at section 2 of the SPSA, it made the role of the Minister very clear. Now the question that came to mind was how that intervention had to be conducted, in terms of the South African Post Office Bill. It seemed that any intervention had to be done in conjunction with the regulator. She asked ICASA to elaborate specifically on section 2 of the SAPO Bill on this matter. She asked how one could have a provision inserted into the SAPO Bill so that it had the same approach as the SPSA and aligned these two pieces of legislation. The SPSA had set guidelines on ministerial intervention and she could not understand how and why this had to change in the SAPO Bill that was before the Committee.

Ms Ntombela responded that there was a section where ICASA said that the word postal industry had to be removed from the Bill because the Bill was only looking at the Post Office. However when one looked at section 2 of SPSA it spoke to policies within the postal sector or industry. ICASA therefore agreed with the comment by Mr Kholwane that this was about the governance of the Post Office.

Ms Kilian asked that if the Bill had as its objective to attend to governance issues in the South African Post Office, then what had been the shortcomings of the old Act. She hoped that they could get rid of old legislation that kept coming back in a new format. Experience had shown that when certain sections were repealed they could then reappear in a new format.

Ms Ntombela responded that this Post Office Bill was actually an improvement from the old Act of 1958. It had some sections that spoke to the Postal Services Act but not a lot. The shortcomings were that it had left out a lot of operational and policy issues that were supposed to be driven by the Minister about what the Post Office itself had to do. There had been very little that had been carried from the White Paper of 1998.

The Chairperson asked when ICASA would give the Committee a revised document.

Ms Ntombela responded that they would do so by the following day.

Comments by ICASA on the South African Postbank Bill
Dr Maria Socikwa presented the Authority’s comments on the Postbank Bill. The Authority welcomed the process to corporatise the Postbank and welcomed the publication of the Bill and the consultation process attached. She briefed the Committee on ICASA’s general and specific comments to the Bill. [See document]

Discussion
Ms Kilian commented that she had been a little lost with the page references for instance on page 8 of the Bill the Committee had section 50 where as ICASA had section 80. She asked ICASA to revise their submission on the Postbank Bill accordingly.

The Chairperson commented that he had also been lost in trying to follow the submission until he realised that they were working with an older version of the Bill. This made things very difficult.

Mr van den Berg asked for clarity with respect to page 10 of ICASA’s submission with respect to the issue of the Composition of the Board if that was in line with the Companies Act.

Ms Socikwa responded that it was and that they had taken this recommendation from a workshop they had with King III specialists.

Mr van den Berg commented that the Ministerial role envisaged by the Bill was too big. The nominations Committee made recommendations but at the end the person responsible for appointing members of the Board was the Minister. This was not a very healthy situation.

Ms Socikwa responded that ICASA was just a regulator and Parliament was the legislator and speaking specifically to ICASA’s role, they wanted to see more of the Authority particularly in the pricing methodology being used and with respect to issues of competition. She asserted that it was the legislator’s prerogative to decide just how far and wide the Minister’s powers were in the Bill.

Mr William Stucke Councillor: ICASA agreed that there was a substantial problem in as far as the members of the Board would be entirely creatures of the Minister. This did not seem to him to be a very healthy situation in that the Minister had almost unfettered discretion in the way that the Board was appointed. He suggested that a very different approach be taken such as the one in the ICASA Act.

Mr Stucke also responded that both Bills, in his opinion seemed to abrogate too much power to the Minister and it was very strange that no mention of ICASA was made by the SAPO Bill. It seemed that these two Bills were doing two things, firstly giving too much power to the Minister and secondly taking away quite a lot from ICASA.

Ms Kilian commented further and stated that since ICASA staff had undergone training on King III. She asked if they could indicate if the Bill would conform to broad principles of accountability and oversight or if there was need for a better balance.

Ms Socikwa responded that the difficulty with King III was that it did not align very neatly with public entities. ICASA did not fit very neatly into the King III paradigm. They were going to raise this when Parliament began to look at the ICASA Act amendment process. What King III really espoused was a clear delineation of roles and certainly less conflict of roles between the Chief Executive Officer (CEO) and the Board and greater independence for the sub-Committees, namely audit, risk and socio-economic issues. It envisaged a greater participation of social catalysts in the way that companies conducted their business to ensure that accountability was enhanced.

Ms Socikwa responded further that they did not know if the principles of King III had been tested. They had been lucky to meet King himself who had commented that that the world was very intrigued by King III and countries such as Japan and Australia were all looking at implementing it in their legislation. South Africa needed to wait and see how King III was implemented in other jurisdictions. At the moment it still spoke to an ideal environment and it had not been tested.

Ms Ntombela added that another thing that was of interest to ICASA about the Postbank Bill was the issue of the separation of accounts so that when they were looking at regulating the tariff they were clear that they were looking at the reserved postal side. This was another concern of theirs as the Authority in terms of their oversight responsibility.

Mr van den Berg commented that the Postbank wanted to settle in the free market and take part as a bank. However, there was certainly a cost involved and they had to survive as a company otherwise it would cost the state and taxpayers a lot of money. He asked if ICASA would in any way be involved in as much as pricing and bank fees were concerned.

Ms Socikwa responded that she found it distracting that the Post Office was also a licensee in terms of the Electronic Communications Act (ECA). ICASA was not certain how SAPO would use that licence in that environment because banks were increasingly using mobile banking services to deliver to rural areas. ICASA did not know how that was going to evolve in the future. The other day they had been told that FNB had accessed a lot of rural areas through mobile banking. ICASA was therefore interested to see what that meant in terms of the proposed model. Ms Socikwa felt that there was a need to be cautious and to do a feasibility study to see how far this had to be rolled out.

Mr Kholwane asked if Postbank would need a licence from ICASA and if they were separating things, what that separation meant in terms of licensing. He commented that the role of the regulator was developmental in nature and that it acted not only in the interests of those doing business only but also for the poor. If one went through the legislation it prescribed that adverts had to be published in two national newspapers. He asked what this requirement meant in a developmental state where they wanted to include ordinary people in the mainstream of doing things.

Ms Socikwa responded that they had most of the major commercial banks applying for licences. The Post Office too also had a licence and it would be interesting to see what would happen in the near future because this meant that they would be competing directly with the Post Office to access both urban and rural areas. In future they would definitely need to do scenario planning as they finalised this particular piece of legislation.

Ms Ntombela responded that this was up to the discretion of whosoever wanted to make an advert. As ICASA, they were concerned about the interests of consumers and they could recommend for adverts to be made in community newspapers. However it was not their call to say it was two or three or whatever number of newspapers.

Mr Kholwane was concerned about the fact that the objects of the SPSA were very tentative about what the Act was about and seemed apologetic when it was clear that the Act was intended to benefit the previously disadvantaged. He was raising this with the regulator because they also had to take the interest of the poor at heart.

Ms Socikwa responded that ICASA had earlier on made a submission that the word “disadvantaged” be included in the objects of the Act. The current reading of the objects clause did not make it very clear who the intended beneficiaries were and this needed to be made explicit there.

Ms Ntombela added that in terms of the Postal Services Act, the word “under-serviced” had not been defined as yet. They were still in the process of defining that word together with the Minister.

Ms Ntombela responded that ICASA’s role re the Postbank was that there was a section in the Bill where they said exactly what it meant when they said corporatisation. This was because as far as they were concerned as an authority they still saw this Postbank being part of the Authority in some way.

Ms P de Lille (ID) asked if it was possible if ICASA could explain the differences between a commercial bank and a Postbank. She also wanted to know how they were going to determine disadvantage and whether a means test be used. If one was a person in the highest Living Standards Measure (LSM) who lived in a rural area and the Post Office was there, did this mean that such a person would not be able to use the Postbank.

Ms de Lille commented that the only other banking model that was different from the commercial bank was in Bangladesh. There, the bank was owned by depositors, the Board came from the people and it was wholly owned and controlled by a disadvantaged community. However, in Bangladesh they did not exclude anybody with money who wanted to assist the poor by investing in that particular bank. She asked if the Bangladesh model had been considered in light of the principles of the Bill and what it sought to achieve.

Ms Socikwa responded on the face of it, they were not certain what the difference was between the Post Office Bank model and commercial banks. The objects of the SPSA had not zoomed into the word “disadvantaged” to elaborate on that particular target group. It became unclear, therefore, at a policy level what the intention of the legislature had been. If one looked at those functions of the Postbank in the Bill it started to become very vague and the rural focus disappeared. ICASA had gone as far as proposing different models where for instance there was a mobile Post Office, so that consumers could access it from wherever they were in the South Africa. However, the Bill did not speak to those proposals and at face value it looked like the Postbank was competing with existing entities.

Ms Socikwa responded that the Bangladesh model referred to a community oriented approach of which there was no reference to that in the current Bill. ICASA was worried about the cross-subsidisation of money and funds that made it impossible to start analysing postal services and banking services as distinct functions at a pricing level. ICASA hoped that if the Bill was passed that the Post Office would not use its profits to subsidise the banking side.

Eastern Cape Youth Development Board submission
Mr Viwe Sidale, Chairperson: Eastern Cape Youth Development Board (ECYDB) briefly introduced the Eastern Cape Youth Development Board (ECYDB) to the Committee a Non-Governmental Organisation (NGO) based in the Eastern Cape which had been formed in 1999 as a nerve centre for youth and development in the Eastern Cape Province.

Mr Sidale submitted that the Postbank was used mostly by historically disadvantaged persons as a result of apartheid policies and poverty in rural communities that limited access to education and literacy. The ECYDB had conducted a survey in 2008 in rural areas in the Eastern Cape to count the number of people who had access to banking services and to monitor compliance with FICA rules. This research was conducted with the aim of identifying people who were experiencing problems accessing banking services and to measure the extent of the gap of disadvantage between rural and urban communities.

They had managed to interview about 10 000 people based on a range of criteria including computer knowledge and access to information. Their findings had revealed lack of information, transport problems and high illiteracy as issues affecting access by the rural community to banking services. Postbank services were used by a greater proportion of old pensioners compared to the youth and this presented certain challenges. Problems experienced included long ques in the Postbank and insufficient staff to cope with the demand. Postbanks also had early closing times and older people often forgot their identity document at home which was a long distance away from the bank. There was also lack of hospitality by Postbank staff that was impatient in dealing with the elderly who sometimes would have travelled more than 75km to access the Postbank and was often illiterate. Poverty also affected the poor’s ability to maintain savings in the Postbank because when they needed it they could often incur transport expenses of about a quarter of the money in the Postbank.

The ECYDB recommended an inclusive consultation process that focused on educating the rural community on the Postbank Bill. [See document]
 
Discussion
Ms de Lille commented that ii seemed as if the ECYDB had no support for the new form of the kind of Postbank that they wanted to see. Their submission showed that they wanted to see improvement of the existing Postbank but made no comment on the proposed new Postbank which was completely different. It seemed that they were implying that the existing Postbank would work if certain improvements were made. She therefore did not see the submission as accepting the Bill that was before Parliament but as one that was saying they improve the existing bank.

Mr Sidale responded that they accepted the new Bill. However it was important for them to firstly identify the problems and the challenges that were in the old Postbank so that the failures of the old Postbank would not be repeated in the new one. Another issue was that the new Bill was not accessible to rural communities as they were not aware that there was a new Bill in progress and had therefore not commented directly on it. What the ECYDB had done was to use the old Postbank as the basis for comments on what challenges people were facing in rural areas.

Mr Kholwane commented that Parliament had to be the first to change the practice of advertising in two national newspapers if they wanted to reach the people who they sought to represent. The question that he wanted to pose was that the submission did not deal with the current form or the proposed one but also sought to talk to the issue of postal services currently. The submission also raised an issue of the charges for banking services.

Mr Kholwane raised a question around the issue of accessibility. Part of the mandate of the Post Office had been to address the infrastructure and developmental problems of the former homeland areas. Now there was an issue of people travelling 75km to access the Postbank. Perhaps it would be necessary to revisit the Bill and the White Paper to strengthen what the Bill was meant to do because those former homeland areas had been a priority.

Mr Sidale responded that what they could request as an NGO was that these hearings were made accessible to people in the rural areas so that they could participate effectively in the law-making process. It was of little use for Parliament to debate about these issues without the participation of the affected communities.

COSATU submission
Ms Prikashnee Govender Coordinator: COSATU Parliamentary Office and Mr Vuyo Ninzi Legal Coordinator: COSATU made submissions to the Committee on COSATU’s comments to both Bills.

Ms Govender submitted that COSATU’s first concern was that the overall thrust and direction of the two Bills emphasised the corporatisation and the eventual privatisation of the Post Office as well as the Postbank. If one looked at the access and the usage of services from the Postbank and the Post Office, they indicated South Africa as being one of the most unequal countries in the world. On the one hand middle and upper class South Africans were moving towards greater use of electronic communication whilst poorer people relied on the Post Office. There was a greater range of services that could be expanded for use by working class people. COSATU advocated for greater protection of the developmental nature of the Postbank which was something that private commercial banks did not prioritise with respect to banking services for the poor. The Competition Commission had made findings on banking fees and this included findings that there was a bias in favour of higher deposits in this regard which meant that there was discrimination against poorer people. In addition to this was a general sense that South Africa was a country with a very poor savings culture. However this did not apply equally to all people and varied according to socio-economic status. COSATU also touched on the issue of micro credit and indicated their support for expanding lending services to the poor. Commercial and consumer credit arrangements were extremely exploitative in terms of the interest rates applied and their supported the Postbank initiatives that really took into account their personal circumstances.

The Postbank also played a role in advancing the interests of particular vulnerable groups such as those who depended on social grants migrant workers who relied on mechanisms for remitting earnings to their families in their countries of origin. Recent studies suggested that the majority of remittances across borders tended to be through informal mechanisms such as taxi drivers for instance. This was obviously a problem with respect to the security of those remittances and there was a need to address that to protect their hard earned money.

Mr Ninzi took the Committee through COSATU’s comments on specific provisions of the Bill. [See document]

Discussion
Ms de Lille referred to page 5 on the issue of the process where COSATU had submitted that they had not been consulted. She also referred to section 12 (1) (b) of the Bill on the appointment of non-Executive members of the Board. She asked COSATU to clarify if they were saying that they had not been consulted on that provision in the Bill.

Ms de Lille asked on the issue of process if they were of the view that these Bills had to go to NEDLAC first before they came to Parliament.

Ms Govender responded that even though there was a reference to inclusion of representatives of labour there had been consultation. COSATU had not emphasised for the Bills to go through NEDLAC but they had insisted that any memorandum of association or articles had to be done by NEDLAC in forming a developmental agenda that would be maintained by the Postbank.

Ms de Lille commented that there was no need for NEDLAC to give an input on the Bills at the initial stages dealing with the principles.

Ms Govender responded that they would have preferred that the Bill was considered at NEDLAC in terms of the overall agenda.

Ms de Lille commented that on page 6 COSATU had stated that as a general principle they were opposed to the corporatisation of the Postbank. She asked COSATU if they agreed that the way the Post Office Bank was structured now had to remain like that or if it was necessary to bring some improvements to make it more efficient and effective without corporatisation.

Ms Govender responded that they did not see the Postbank playing a supportive role in its current form. The transformation would have to happen in terms of the services that it rolled out such as different forms of investment services, credit facilities and services for small entrepreneurs at preferential rates as opposed to institutions that exploited them. So they definitely supported a transformation of the services but there could be other structural adjustments required in terms of how that would operate.

Mr Ninzi added that the question was whether the Post Office would be able to play the role it was playing currently in terms of developmental objectives without corporatisation. There were problems within the Post Office as it is and what COSATU was saying was that Parliament had to focus on the problems that the Post Office was facing as in institution and then look at whether once they had dealt with the problem, the problem still persisted. There was a myth that was going around that corporatisation or anything relating to privatisation was efficient. This was not true. What was important was to put the mechanisms and supporting structures in place and to get people who were able to do the job to do the job.

The Chairperson clarified that the difficulty seemed to be that COSATU believed that corporatisation and privatisation were one and the same thing. They were two very different things. At the moment the Postbank was basically a savings institution and the moment that one wanted it to become a lending institution that would have to be covered by the Banks Act. It could not be covered by the current Postal Services Act because then they were fulfilling the functions of a classical bank. If one had to do that then they had to register as a bank and one could only register as a bank only if they had registered a company. A company needed to be registered and then that company needed to be registered as a bank. It was that process which he understood to be corporatisation.

Ms Govender responded that COSATU’s concerns with corporatisation arose from their history with privatisation. Normally, corporatisation was the first step to privatisation. Their experience was that corporatisation was the basis for privatisation because privatisation could not occur unless there had been corporatisation. They other concern was that corporatisation emphasised certain corporate models and looking at the way that public entities had to operate there was an emphasis on profits even of they were completely state owned and that objective remained a concern. If there was a corporatisation model, the emphasis was very different, even for a state entity that was state owned. COSATU probably had to come back to Parliament with suggestions for an appropriate model.

Comments by National Treasury
Mr Omega Shelembe Acting Chief Director: Financial Sector Development Unit of the National Treasury submitted that their submission touched on National Treasury’s objectives particular as they related to the financial sector and its development. It dealt with their strategy with respect to how they saw the sector shaping going forward. The presentation also touched briefly on the lessons that they had learnt from the global financial crisis; the forms of regulation envisaged for the Postbank and the reasons why they needed regulation; the corporatisation process-referring to the infrastructure that lent itself to the Postbank being able to deliver services to remote areas; the inter-departmental committee on corporatisation which they coordinated as National Treasury; and the guidelines that they had followed in crafting the Bill in terms of what they wanted the Bill to reflect and how those issues that were not reflected in the Bill would be dealt with. [See document]

Discussion
Ms De Lille asked what mechanisms were in place to protect depositors’ funds such as ring-fencing deposits through existing legislation.

Mr Shelembe responded that there were legal mechanisms that were in place to ensure that depositor funds were accounted for by the Postbank. Treasury had been worried about the protection of the depositors’ funds in the past. As had been alluded to in the submission, the Post Office had used Postbank funds for its operations and Treasury had felt that if this went unchecked then even bigger re-capitalisation would have been required. What they had done in re-capitalising the Postbank was that the funds they were paying back to the Post Office, which ultimately belonged to depositors, would be invested in the Corporation for Public Deposits in the Reserve Bank and would not be touched. This money was sitting there and accruing interest and awaiting the date when the Postbank would be fully corporatised when the funds would be transferred in the name of the Postbank.

Treasury was therefore somewhat comforted that those funds were beyond reach although there was still a residue of the funds that were still held by the Post Office which also belonged to depositors. Treasury had been given assurance that there was some kind of corporate governance system in the Post Office that would ensure that these funds were looked after in a prudent manner. Treasury had also been assured that there would not be a situation where a single manager in the post office would have access to the funds without going through the Postbank committee and ultimately the committee of the Board of the Post Office. This system was not fool proof however and they still required an oversight mechanism for the Postbank’s role in the management of depositors’ funds through the corporatisation process. Hence the need to register as a bank so that they would be required to send regular returns to the Reserve Bank as was done by all other banks.

Ms de Lille asked National Treasury to explain to the Committee the difference between a normal commercial bank and the Postbank. The submission had spoken about the target market being the rural areas and that they could use the infrastructure of the existing post offices and that although they did not have it in the object of the Bill, this would be for disadvantaged communities. She asked if they had any means test to determine who was disadvantaged and if there was some one from the rural areas in the highest LSM, whether such a person would be excluded from using the post office bank.

Mr Shelembe responded that business of the Post Office as it stood currently was highly circumscribed. It was a deposit taking institution that made third party payments but that was pretty much all that they could do. Even if Treasury allowed them to do lending their business model would still be different from that of a commercial bank which performed, amongst other things, sophisticated derivatives, foreign exchange transactions and all kinds of financial transactions that they did not envisage the Post Office would want to venture into. They envisaged the Postbank to be registered in terms of the Dedicated Banks Act whose business would also be prescribed in terms of the legislation allowing for deposit taking, and allowing for some element of very strict lending. In essence this was the bank that was supported to deliver services to the poor and by definition the poor needed a basic bank account and basic loans but nothing that would require derivatives and sophisticated investments.

Mr Shelembe responded in as much as the criteria for determining who qualified for the Postbank, it was a bank that was envisaged to service the poor. There was nothing in the business model that precluded other people from banking with the Postbank. It would not only target the poor, but it would ensure that banking services were within reach for the poor.

Ms de Lille asked National Treasury if they would consider the Bangladesh model of a community owned and community managed bank. In this new proposal there was no indication of the actual involvement of the community that the Postbank wanted to serve in the rural areas. She asked if they were not just creating another bureaucracy again that would not improve service to people in the rural areas.

Mr Shelembe responded that he had indicated in the submission that they had amongst other things community based financial institutions that were known as cooperative banks. Those were the ones that were the equivalent of the Bangladesh model but they envisaged the Postbank to be slightly above that in the sense that one did not necessarily need to be a member of the Postbank before one could have access to it services. The Postbank serviced everyone within reach and who had the means to participate in its business plan.

Ms Kilian asked if they could give an indication of whether there had been success or failure with respect to the Mzansi Account initiative.

Mr Shelembe responded that they considered the Mzansi account to have been a success. When the figure of 6 million account holders had been attained they had thought this to be quite an achievement in terms of delivering financial services to the poor. However there were certain dynamics in the holding of those accounts such as inactivity of the accounts and the failure to maintain even the bare minimum that was required. There was no activity in the account after opening and it was a cost to the banking system for accounts to lie dormant and inactive and this usually resulted in the closure of the accounts after a certain period of time. Mzansi accounts had been a success nevertheless by opening banking opportunities as banks were already starting to convert some of those Mzansi account holders into other equivalent accounts within their product range. The Mzansi account initiative had therefore served to open opportunity for people who had not otherwise been included in the banking system.

Mr van den Berg asked if during the handover people could perhaps become restless because they were not certain what would happen with the bank and this could result in panicked withdrawals by depositors. To kick start a bank was quite a costly affair in terms of staff training, infrastructure, and advertising to establish corporate identity for instance.

Mr Shelembe responded that theoretically it was correct that there could be handover uncertainty and that people could be jittery about the safety of their funds in the new entity. However as things stood currently, the funds in the custody of the Postbank were ultimately guaranteed by the fiscus which was why they had to bailout the Post Office in the 2003/04 financial year. So there was that guarantee which he thought the Postbank and the Post Office had been quite good in communicating to their clientele even during the financial crisis. As Treasury they did not want this open ended guarantee to remain in place indefinitely. They wanted the Postbank to be formally supervised like all other banks to maintain proper amounts of capital. Treasury hoped that with corporatisation, the exposure of the fiscus would be somewhat limited when the Postbank was properly regulated because they would be able to get the signal early enough that things were not going well and they could possibly intervene and take corrective action.

Mr Shelembe responded with respect to the question of the cost of kick starting the bank. It was true that it was a costly exercise but Postbank was already performing these functions. Therefore even if corporatisation were to take place the next day there would not be necessarily a need for an immediate cash requirement to further market its operations. All that they were doing was what one could call back office restructuring but the front office would remain unchanged. They were restructuring behind the scenes to allow the Post Office to become a stand alone company. If however they decided to engage in lending going forward, that of course would require them to bolster their systems rather drastically to actually be able to perform that function. When they became regulated as bank they would also have to bolster their systems so that they would be able to extract the information that was required by the registrar of banks and to submit that information on time.

The Chairperson asked if Treasury could give the Committee an idea of the banking system in South Africa as he was getting a sense that they were different types of banks. He asked if Treasury could identify these banks and their location.

Mr Shelembe briefly explained how the banking system was made up and how they located the Postbank within that system. In terms of existing banking legislation, namely the Banks Act that allowed for the establishment of commercial banks and also allowed for the registration of representative offices or branches of foreign banks in South Africa-these were commercial banks whose business was entirely regulated and supervised by the registrar of banks in the South African Reserve Bank. The financial crisis had revealed that because these banks operated in more than one geographical area, they were exposing the financial system to risk and therefore regulation was being done at a global level to coordinate between regulators in each jurisdiction in order to ensure that each financial institution was regulated to the fullest.

The other piece of legislation had to do with the registration of mutual banks. These were sort of member owned type of banks which unfortunately had not quite taken off in South Africa at this point in time. However their licensing requirements were lower than the licensing requirements for commercial banks. Treasury had also come up with the cooperative banks development legislation that created community based financial institutions that were your sort of entry level type financial institutions whose deposit holdings could start from R1 million. They were supervised by a supervisor established in terms of the Cooperative Banks Development Act who was either located at the Cooperative Banks Development Agency (CBDA) for all bank deposits up to R20 million. When those financial institutions exceeded R20 million in their deposit holdings they then got supervised by a supervisor who was appointed in terms of the same legislation but was residing within the South African Reserve Bank.

So these were the financial institutions that although small were starting to be systemic in terms of the deposit holding that they had at their disposal. Currently they were doing the application processes for these financial institutions. A large bulk of them was going to be below the R20 million mark and would therefore be supervised by the supervisor in the CBDA. Treasury was now working on the legislation for what they called the 2^nd tier of banks. The 1^st tier would be commercial banks and then the 2^nd tier which was dedicated banks and a 3^rd tier which was these community based institutions.

The difference between commercial banks and dedicated banks was that the nature of the business of dedicated banks was that they would be confined to deposit taking and loans and nothing over and above that. These were the banks that would essentially compete with the commercial banks in so far as clientele for savings accounts and small loans were concerned but they would not be fully fledged banks as were commercial banks. Postbank was located in the 2^nd tier of banks.

The Chairperson asked if when the Bill was passed and the Postbank became a company and then it registered as a bank if the registration process and the licensing process were one and the same thing.

Mr Shelembe responded that the Banks Act, which was the main banking legislation that they relied on talked about registration and spelt out the registration process. The licensing was the ultimate award of the licences that were issued after all the requirements of registration had been met. So the Banks Act spoke about registration and registration requirements and ultimately the award of the licence when registration had been fulfilled.

The Chairperson asked Treasury if they were happy with the governance structure that was being proposed in the Bill.

Mr Shelembe responded that they were generally comfortable with the governance structures as they had been spelt out in the Bill. There had been perhaps a higher level of prescription in terms of good governance in so far as they had allowed the Minister to have oversight of the activities of a subsidiary that would otherwise be limited to the holding company. However in terms of the Bill they had allowed the Minister to appoint board members into the subsidiary and this was a higher level of governance than what one would have had if the Post Office had been allowed to have full control of its subsidiary. The Bank Act was also very specific in terms of the governance framework and structures and those would have to be imposed as part of the licensing process. There was therefore quite a stringent set of corporate governance requirements that had to be met.

The Chairperson asked if the Postbank was using the facilities that belonged to the Post Office at present and they were denying competition with other banks, whether it would not fall foul of the competition laws of South Africa because it was using other people’s facilities and resources to compete in the open market.

Mr Shelembe responded that the fact that Postbank would utilise the Post Office infrastructure would not necessarily render it foul in so far as competition laws were concerned. The way that Treasury envisaged it was that the Postbank and the Post Office were going to enter into a commercial service level agreement in terms of which the rate for utilising that infrastructure would be determined. So it was not necessarily free riding on this infrastructure but it would be in terms of a service level agreement. This was similar to leasing the infrastructure.

Ms de Lille commented that when interests went up, normally the banks had a set rate and there could be some collusion there. In the case of the Postbank would they also just follow that rate cut or would they at least be sensitive to the poorer market.

Mr Shelembe responded that it was true that when the reserve bank adjusted its repo rate commercial banks would almost move in tandem. However there had not been any finding of collusive behaviour in that regard in terms of the Competition Act. Whether the Postbank would follow in sync with the rest of the commercial banks in determining its interest rates would really be a function of its own business plan. As far as he was given to understand currently, the Postbank charged different interest rates to those of the commercial banks. They were offering a general deposit interest rate, which meant that a depositor got something when they deposited their money through Postbank rather than having one’s deposits eroded over time by admin costs and charges. They hoped that the Postbank would break with the rest of the herd in terms of its pricing structures but Treasury were not yet privy to their business plan going forward to really determine if they were breaking away from the rest of the herd in terms of pricing.

Mr Kholwane expressed the concern that he would not be comfortable with a provision in the Bill that referred to the Banks Act and at least Treasury had referred to the Dedicated Banks Act. However it was still a Bill and one could check with the Finance Committee in terms of how far that cross reference was being addressed.

The meeting was adjourned.