Postbank Bill [B14B-2009]: Department of Communications briefing

NCOP Public Enterprises and Communication

14 September 2010
Chairperson: Ms M Themba (ANC, Mpumalanga)
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Meeting Summary

The Department of Communications presented the South African Postbank Limited Bill [B14B-2009]. The Department gave a background to the establishment of the Postbank and also presented the strategic focus of the Bill which was (a) to create a legislative framework that would facilitate the incorporation of the Postbank division of the Post Office as a public company wholly owned by the Post Office and for the company to be registered and to operate as a bank; (b) to provide for the establishment of a financial institution for the mass mobilization of savings and investment from a broad community, particularly to communities that had little or no access to commercial banking services and facilities; and (c) to provide an improved and expanded role for the Postbank and to strengthen the Postbank to provide financial services to wide segments of society, particularly the rural community. The Department also explained each clause of the Bill to the Committee.

Members raised questions on, amongst other issues, the structure of the bank; whether mobile vehicles would be used to reach rural areas; how the board members would be appointed; what members would make up the board; the transfer from the Post Office to a company; the powers of the board; the security of funds at the bank; the accessibility of the bank to rural communities; and the operations of the bank.

The Department denied that Government would privatise the Postbank in the future. The Postbank was to remain a state bank. In other parts of the world, the postbank concept had proved a great success. For example, in Germany, Deutsche Post was a state-owned bank and it was the most successful bank. The Department had conducted benchmark studies with other banks globally. In both Sweden and Japan the postbanks were the biggest banks. Also, it was the Government’s duty to allow individuals who had never previously had the opportunity to enter the economic mainstream to do so. Due diligence studies had been conducted and the market was there.


Meeting report

Department of Communications (DoC) briefing
Dr Harold Wesso, Acting Director-General, Department of Communications (DoC), commented that the Postbank Bill was a ground-breaking bill in the international context. The DoC had examined legislation in countries like Japan and Germany where there had been great success with similar banks. The Bill was passed by the National Assembly on 14 September 2010.

Mr Norman Munzhelele, Acting Deputy Director-General, Information and Communications Technology (ICT) Policy Development, DoC, presented the first part of the presentation to the Committee (slides four to 12). He explained that the postbank ccncept was a financial services division of the post offices worldwide. It aimed to give mostly isolated and rural communities access to vital financial and related services. The South African Post Office (SAPO) had been offering financial services since its incorporation. These services included money order and postal order services. Postbank was established in terms of the Post Office Act 1958 (Act No. 44 of 1958) as a division of the Post Office and under the control and management of SAPO. Postbank currently operated as a deposit taking and savings division of SAPO and utilised the shared Post Office infrastructure to provide its services.

In implementing the 1996 White Paper on Postal Policy, a Memorandum of Understanding (MoU) was entered into between the Minister of Communications and Finance on the re-structuring and corporatisation process in 2005. The policy and MoU spelt out the governing principles and the process to be followed in the restructuring and corporatisation of the Postbank. The DoC was tasked with developing the legislative framework that would enable the corporatisation process and creation of the bank. National Treasury (NT), SAPO and the Reserve Bank were also working on other prudential requirements to ensure proper implementation of the process, which included conducting due diligence on the state of readiness and work on the gaps identified.

The strategic focus of the Bill was (a) to create a legislative framework that would facilitate the incorporation of the Postbank division of the Post Office as a public company wholly owned by the Post Office and for the company to be registered and to operate as a bank; (b) to provide for the establishment of a financial institution for the mass mobilization of savings and investment from a broad community, particularly to communities that had little or no access to commercial banking services and facilities; and (c) to provide an improved and expanded role for the Postbank and to strengthen the Postbank to provide financial services to wide segments of society, particularly the rural community.

Mr Willie Vukela, Director, Postal Policy, SAPO, gave the second part of the presentation (slides 14 to 37) which covered Clauses One to 20 of the South African Postbank Limited Bill.

Mr Alf Wiltz, Director, Legal, DoC presented the final part of the presentation (slides 39 to 50) which covered Clauses 21 to 32 of the South African Postbank Limited Bill.

Dr Wesso thanked his colleagues for their comprehensive overview and commented that all the checks and balances were in place to assist the poorer people of society. The Department wanted the masses to come into the fold and the Postbank wanted to encourage savings and investment.

Discussion
The Chairperson thanked the Department for its presentation and asked Members whether they had any questions for the delegation.       

Mr H Groenewald (DA, North West) wanted to know what kind of structure was going to be used for Postbank: would vehicles be used or would permanent structures be provided, especially in the rural areas?

Mr Vukela commented that because of the risk factors involved mobile banks could not be used. The financial sector was highly regulated and there were stringent conditions.

Mr Z Mlenzana (COPE, Eastern Cape) wanted to know how interest rates would be determined especially for the rural people. Also, in terms of the centrality of power, there was no mention of Parliament or the Portfolio Committee, particularly with regards to the appointment or re-appointment of board members. He wanted to know whether Parliament would be informed if things went wrong at the Postbank.

Mr Munzhelele replied that the South African Reserve Bank (SARB) decided on the repurchase rate (the repo rate) [the interest rate at which commercial banks could borrow money from the Reserve Bank]. The prime rate was the rate at which banks loaned money to individuals. Depending on one’s risk profile banks would lend money either on prime minus or prime plus. Most poor people did not have assets to use as collateral. The rates and charges had to take into account the people in the lower income bracket. In terms of practice and theory, very often with a policy or law if there were no mechanisms or checks and balances in place the outcomes could be unintended. Postbank would be investing heavily in e-banking, which was very robust. Broadband and fibre optics would cover the entire country. There would be a need in terms of quality assurance. The most time spent in a queue should be seven minutes. If a client stood in the queue for longer than seven minutes, the client had a right to lodge a complaint with the Independent Communications Authority of South Africa (ICASA). Postbank was a state bank and the public played a role in terms of appointing members to the board. Notices would be placed in newspapers and the Government Gazette and a Nomination Committee would then be set up that would consider the individuals nominated. This Nomination Committee would be independent and various people would make up the Committee.

Mr Wiltz said that bailouts needed to be prevented. The current scenario without the Bill was the risky scenario. National Treasury (NT) had to ring fence the money to secure the positive funds. The scenario was much better with the Bill. A relevant corporate governance structure had to be created. Included in the Bill was the power of the Minister. The Minister could not interfere but could intervene under certain circumstances. The last two issues that were critical were the policy’s power. Clause Nine of the Bill mentioned the three critical policies related to borrowing, lending and investment. If one could control those policies one could control how the bank operated. These policies required proper consultation. The strength of NT came in to make sure that the policies were well drafted. Cabinet must also approve the policies. The Minister must create the policies within six months of the commencement of the Act. Currently there was exemption from the Banks Act. However, the Bill now brought Postbank within the fray of the whole financial sector and financial regulation. Banks must comply with all the requirements of the Banks Act which would ensure that all the checks and balances were in place. The Postbank could not do as it wished.

Mr M Sibande (ANC, Mpumalanga) wanted more clarity on the transfer of the Post Office to a company. He also wanted more clarity on the compilation of the Board. Also, how many board members would be full-time and how many would be part-time? Finally, he wanted the Department to indicate the powers of the board.

In terms of the transfer of the Post Office to a company, Mr Vukela said that Postbank did have money. There was pressure on Government to establish the bank. Money from the former Transkei, Bophuthatswana, Venda and Ciskei (TBVC) states was centralized but the money could not be utilized until Postbank became a legal entity. 

Mr Wiltz commented that the board was made up of nine non-executive members who were part-time and one executive member who was full–time. The executive member was the Managing Director. The nine non-executive members included seven persons appointed by a public nomination process and two who were nominated by the Post Office.

Mr M Jacobs (ANC, Free State) wanted to know whether the Postbank was going to operate as a commercial bank. Also, what happened if the bank collapsed? Finally he wanted clarity on the operations of the Postbank.  

Dr Wesso commented that the Postbank was supposed to be a state bank to service the needs of the poorer sections of the community. There were elements built into the Bill to ensure that the Postbank was not just another commercial bank but that the appropriate mechanisms in terms of lending, borrowing and investment were in place. It was a bank for the poor.

Mr Munzhelele commented that the Government must develop a lending policy and spell out the conditions and circumstances in which money would be lent to individuals.

In terms of operations, Mr Vukela commented that already in 1996 there was talk of establishing a policy of a Postbank and that in 1998 the White Paper on policy was published; the Postal Services Act was promulgated that same year. There were three stages outlined in this policy. Firstly, the Postbank had to be a deposit-taking bank. Secondly, the Postbank had to be independent of the Post Office and, thirdly, the Postbank had to be able to compete pound-for-pound with any other commercial bank. Currently the Department was in stages two and three of the legislation. At some future time stages two and three might be combined. The Postbank was a subsidiary of the Post Office. The Postbank must also have an independent board. There would be a dedicated counter only for Postbank transactions in all Post Office outlets. In the future the Postbank would build its own infrastructure and have its own corporate mix.

Mr Munzhelele added that a state bank was being created not a private company. It was not true that Government would privatise the Postbank in the future. The Postbank was to remain a state bank. In other parts of the world, the postbank concept was a great success. For example, in Germany, Deutsche Post was a state-owned bank and it was the most successful bank.

Mr Vukela added that the Department had done benchmarks with other banks globally. In both Sweden and Japan the postbanks were the biggest banks. Also, it was the Government’s duty to allow individuals who never had the opportunity to be in the economic stream to now enter the stream. Due diligence studies had been done and the market was there.

Ms L Mabija (ANC, Limpopo) commented that she was happy with what she was hearing. She gave the example of an old woman who had placed R50 000 in her thatched roof for her children’s education. When she needed the money she found that it had been reduced to powder because the mice had got to it. Ms Mabija was therefore pleased to know that the Postbank would be catering for the needs of the poor who did not have access to ordinary banks.

Mr Sibande commented that some banks had a lot of strings attached due to state security. Some people were opening bank books with the aim of using them for their own purposes. There were big syndicates operating in these banks opening up bogus bank books. He wanted to know how the Department would counter the opening of fraudulent and bogus bank books.

Dr Wesso said that policy must still be developed around these matters like the one raised. Policies would have to be developed within six months of the Bill's being passed. There would have to be a policy on investment as well. There would have to be clear policies and guidelines on the conditions under which the Postbank could invest, borrow and lend money.

On the question of security, Mr Munzhelele added that the Postbank must go through the process of registration with the Registrar of Banks. The issue of security could not be exempted in that process. The Postbank would be subjected to all the rules and regulations as per normal to ensure the funds were secured.

Mr Vukela added that all banks were under the Minister of Finance. He referred to slides nine and 10 of the presentation. There were a number of role players involved in the corporatisation process and creation of the bank.

Mr Groenewald commented on the fact that there was no infrastructure in the rural areas and wanted to know how the funds would be secured in those areas.

Mr Munzhelele said that as the Postbank continued its business there needed to be reflection on that matter. There were Post Offices in all parts of the country. The bank needed to think outside the box on this matter to see how it could move forward.

The Chairperson wanted clarification from the Department on the consultation process carried out and asked with whom the Department had worked when holding public hearings.

Mr Vukela replied that there was wide consultation on the part of the Department. All nine provinces had fully participated during the consultative process. The Department had drawn a database of all the Postbank clients and looked at the saturated areas. There was a good response from Mpumalanga. Councillors, cadres and politicians were briefed before the public hearings. At one public hearing there were more than 2 000 people. Also, the Department went to Mafikeng more than once to hold public hearings. The House of Traditional Leaders in Mafikeng was consulted. There was also a good response from the community in Guguletu, Cape Town. The House of Traditional Leaders was also consulted when the Department was visiting Port Elizabeth in the Eastern Cape. There were good responses from communities in Polekwane in Limpopo and also from Kimberley in the Northern Cape. The Department had also consulted with students at the University of the Free Sate. There was a good response from rural villages in KwaZulu-Natal. Talk shows were also broadcast on community radio stations. All economic cluster departments were consulted. All Cabinet structures were also consulted. Local newspapers were used to market the process. Thus it was clear that there was wide consultation.    

The Chairperson thanked the Department for sharing the important information and thanked the Members for their comments and input.

The meeting was adjourned.



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