Postbank's Corporatisation Process: South African Post Office briefing

NCOP Public Enterprises and Communication

22 May 2013
Chairperson: Ms M Themba (ANC; Mpumalanga)
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Meeting Summary

The South African Post Office (SAPO) and Postbank briefed the Committee on Labour on the progress of the Postbank’s corporatisation process, attempting, in its presentation to elaborate on some of the challenges and outline the plans. However, this presentation was later criticised by the Committee as being too brief, as not actually indicating the progress, and the delays were also questioned, as a result of which it was agreed that a further briefing document in more detail would be forwarded to the Committee within the next fourteen days. The briefing had set out some background to the context, and the plans, and it was noted that the corporatisation was intended to allow the Postbank, which was presently a division within SAPO, to be able to operate as a stand alone entity and to offer a far wider range of banking services than it presently did, since at the moment it only accepted deposits. At the moment, Postbank operated in terms of an exemption under the Banks Act, but the wider range of activities, involving greater risk, required it to be licensed and registered as a banking institution, and SAPO would be required to be registered as a controlling company. Corporatisation was seen as generating substantially more economic activity for the country, and extending access to financial institutions. It would, however, also require a complete overhaul of the presently inadequate IT systems, and employment of a number of key personnel, and enhanced regulatory and information security reporting. It was noted that there had been progress towards the fulfilment of the corporatisation process, although the Committee later disputed this and said that the progress was not visible nor advanced enough. At the moment, the banking licence documentation was in the process of being completed, but there had been delays in getting financial forecasts, and National Treasury did not release as much funding as Postbank had hoped, leading to the need to reassess the project and re-draw some plans. The most significant challenge at the moment, in addition to the financing, was the fact that the PostBanks Act and the Banks Act were not in alignment, so there was a need to amend the legislation as well as comply with the licensing processes before the new product could be offered. Input was also given by the SAPO officials on the profitability considerations, but they stated that they were confident that the products could be delivered. The Department of Communications (DOC) also stated that many of the initial constraints had been addressed, but that the need to comply with the banking legislation was still to be resolved, although it was confident that Cabinet would approve the process. It also noted that monthly meetings involving both the DOC and National Treasury were taking place.  

Several Members were critical about the content and detail of the presentation, and requested more clarity within fourteen days. They asked how the shortage of skills in the banking sector would hinder Postbank, whether it had sufficiently skilled staff, whether it had risk managers on the team already. Members asked how many Postbanks there were, and said that there was insufficient in the presentation about the benefits that it could or would offer to rural communities in particular. They raised instances of fraud, one involving senior executives, and the other a syndicate action on New Years Day 2012, and asked what the investigations revealed and whether action had been taken against the perpetrators. Members wanted to know what was presently done with deposits made by the public, enquired why the Postbank and the Committee had not been kept fully informed of difficulties such as SAPO being offline, strikes and backups, and insisted on better reporting in future. The Committee pointed out to the officials that it should not be seen as prepared to “rubber-stamp” and must be taken seriously. They asked about business plans for the corporatisation process, and wanted to see them, and asked how the IT structure in particular would be addressed. Specific progress was requested on the licence process, Members were disappointed to hear that labour brokers were still being used by government entities, and wanted to hear about monitoring structures.

Meeting report

Postbank’s corporatisation process: South African Post Office briefing
The Chairperson noted that it had been some time since the Select Committee had met with the Post Office and the Postbank, and she requested that the presentation specifically highlight challenges, present and future plans.

Mr George Mothema, Chairman, South African Post Office, noted that the Post Office (SAPO), was appreciative of the opportunity to present on the corporatisation project, which was prime in its efforts. He noted that the presentation would outline the economic activity the project would produce for the country, the legislative obligations, how this would help to achieve the objects and provide people with access to a financial institution, once the banking licence was secured. Mr Mothema apologised on behalf of the Chairperson of the Postbank Sub-committee, who should ideally have led the discussion, but she had lost her voice.

Mr Mothema noted that the intention was that Postbank would become an entity separate from the post office. The plan had always been to create an independent entity. The board of Postbank would be appointed by the shareholder, the Department of Communications (DOC).

He noted that the presentation would, amongst others, address the specific requests of the Select Committee and hoped that Members would present their views to ensure that SAPO achieved the legislative obligation. There were essentially two critical challenges to the process; the first being issues around funding and how this impacted on the IT platform that allowed the bank to perform its different programmes, and the second being the fact that at present the PostBanks Act was not aligned with the Banks Act.

The Chairperson reminded Mr Mothema that the Select Committee was excited at the prospect of the new Postbank.

Mr Shaheen Adam, Acting Managing Director, Postbank, set the context for corporatisation against the Postbank’s current and future background. Postbank was currently a division within SAPO. In terms of the PostBanks Act it would become a fully stand-alone entity, owned by SAPO. Currently Postbank was exempt from the provisions of the Banks Act, but in the future the new entity would fall under the Banks Act supervision, and this was a critical change. Within the current legislative framework, Postbank operated within an exemption but under the Postal Services Act it had been allowed to take deposits, so there was no incentive to comply with the Banks Act. This, however, had a wider implication because there was no requirement on it for regulatory returns, implementing certain controls, and risk management practices. When it corporatised, it would have to start implementing all of these. At the moment, also, because it was governed by an exemption, Postbank was not able to extend lending products, and so it only took deposits, and did not offer overdrafts, medium term loans, and mortgages as it was not an established bank.

Being a division of the Post Office, Postbank typically focused on branches and call centres. However, when it became a fully fledged bank it needed to open up more channels such as mobile and internet banking. He reiterated that Postbank was currently not required to comply with the Banks Act, and so its IT platform was therefore geared towards taking deposits, and not towards risk management and analytics. The organisational structure meant that it operated purely as a division of the Post Office. When it corporatised, in order to be fully compliant with the Banks Act, it would need to have a compliance officer, company secretary, people in regulatory structures, and risk management staff. These were new positions. Other future plans included optimising processes in order to become more standardised, automated and cost efficient.

Readiness for the new structure
Mr Adam tabled a slide entitled “Postbank Readiness means…” and then proceeded to explain what the difference would be with the new Postbank. In future, simple, accessible and affordable products would be provided to communities (see attached document for more detail). Rural communities needed to be served. Currently, Postbank was the only banking provider in a great number of  regions. The Post Office had a universal services obligation, and was the only source of access for many of the rural communities. The absence of lending opportunities within these communities presented a challenge that directly affected the activation of economic activity within rural communities.

The new Postbank would need to be more efficient and reliable in its IT systems, complying with regulatory and legislative framework, recruiting and upskilling staff, and having world-class scaleable processes. Postbank aimed to be affordable for the communities it served. It did not want to charge exorbitant bank charges and high prices.

Finally, he noted that “Postbank readiness” also meant an enhancement of information security and regulatory reporting.

Corporatisation Plan
Mr Adam stated that there were typically five steps involved in corporatisation, and stressed that there was no straightforward scenario of applying for a licence, and then receiving it in two weeks later. All the IT and relevant processes pertaining to corporatisation had to be finalised before a licence could be issued.

He noted that Postbank had, to date:
- completing the due diligence, strategy and assessment phase
- was preparing the banking licence documentation
- was in the process of concluding the design and construct phase

He then explained that there were three steps to obtaining the banking licence (see attached document for more detail) and reiterated that this was not straightforward, but required that all rigorous processes be completed as determined by the Banks Act. Extensive documentation pertaining to the application had been submitted to the Registrar of Banks for review. If permission was granted to establish a bank, the necessary conditions, such as sorting out IT and filling certain positions, would then have to be undertaken, and the section 15 steps could be taken only after the section 12 steps had been completed.

After the twelve month compliance period, SAPO would also have to apply to become a controlling company in the new Postbank, which was different from the current position.

The following changes followed from the amendment to the Postbank Amendment Act:
- Previously Postbank did not have to comply with Section 15
- SAPO would now need to be registered as a controlling company
- SAPO would now have to comply with the Banks Act

He paused here to allow Mr Mothema to explain the dynamics behind the SAPO becoming a controlling entity for the new Postbank. From a compliance point of view, the Post Office must form business processes that would enable it to comply with the Banks Act. The Board would need to go through the proper exercise to have board members appointed by the DOC, although currently the DOC did not require approval from he Register. However, DOC would have to ensure that the Board members who were appointed did have the requisite skills and that all the different provisions that were required of it as a controlling entity were fully complied with.

Mr Mothema admitted that this was a challenge, and he was pleased to be supported here by officials from the DOC. The SAPO Board had agreed that before a licence could be issued, there would have to be compliance with all provisions of the Banks Act, and it had also agreed on the provisions round the controlling entity. The Amendment Bill would be taken to Cabinet for approval within the next two weeks, followed by it being submitted to Parliament.

Mr Adam continued with his presentation on the corporatisation process, saying that in addition to what he had already set out, the application document had been compiled.

About a month ago, National Treasury advised that it would be providing funding, and this was currently being fully understood and conditions met, which had resulted in some delay, but there was an intention to complete the detailed design by the end of June.

He added that the processes around the appointment of key individuals and looking at IT infrastructures had already begun.

Mr Adam summarised the progress made to date, as follows:
-In 2010, SAPO had begun the whole process by recruiting a transaction advisor, and he explained that this was needed because the application for a banking licence was a highly technical exercise requiring expert support.
-The PostBanks Act was also promulgated in 2010.
-A draft Memorandum of Incorporation was submitted to the Department of Communications to accompany company document registration
-Postbank had secured membership in VISA card, which was a requirement for the licence application
-A number of policies were developed, in consultation with DOC and National Treasury, around lending, borrowing and investment. These policies should be going to Parliament for approval later.
-A transaction advisor was brought on board
-SAPO secured approval for the transfer of staff
-The Minister had appointed people to sit on the Postbank Board
-Postbank had achieved full membership in PASA, which was a significant milestone
-Extensive input had been given into the amendments that were needed to the PostBanks Act to align it to the Banks Act

Funding Requirements
Mr Adam said that the National Treasury had advised that it would cost close to R3.3 billion to establish the new Postbank. Out of that amount, R2.4 billion related to capital adequacy requirements under the Banks Act. It must be remembered that Postbank was already an established entity, with roughly R6 billion in investments. Capital was needed to support these investments. A request had been made to National Treasury for additional funds to make the necessary investments around infrastructure and to appoint staff.

Mr Adam advised that the difficulty with corporatisation is that initially costs were incurred before benefits were seen, but the costs would only be limited by failing to comply. Compliance included the need to hire people and invest in systems and processes. The financial returns would not be immediate, but would start only after the licence was secured that would enable the Postbank to start providing lending products and services which it currently lacked. That was the reason why it needed to request financial support in the initial stages.

National Treasury had provided some funding, but had requested that Postbank not offer lending, so as to manage risks better. This request, however, limited Postbank in its ability to generate revenue. It had also requested that Postbank, over time, must invest in Treasury Bills, but the problem with this was that although they were lower risk, they had a lower capital requirement and depleted revenue. Typical earnings of 6.7% now decreased to 4%. This reduced funding had forced Postbank to do a re-prioritisation to try to generate revenues more quickly and find ways to optimise its available funding so as to ensure compliance in securing the banking licence. It would need to look at alternatives such as outsourcing and partnership arrangements. The challenge now lay in finding ways to close the deficit. However, Mr Adam stressed that despite funding limitations, Postbank remained grateful to the National Treasury as the funding it had been given at least allowed it to appoint people and get the necessary systems in place.

Mr Adam summarised that the Postbank needed to appoint certain key personnel, whom he listed as the Chief Financial Officer, Chief Operating Officer, Head of Payments, Financial Controller, Head of Processing, and a Customer Experience Manager. He stressed that the staff would be kept lean; the Postbank did not want to employ expensive resources without the licence application having been completed. He summarised that the provision of funding had triggered the process to appoint the key individuals. The funding for the shortfall was provided. There was still a need to address the legislative amendments.

Future developments
Mr Adam said that the following issues still needed to be attended to:
- Transfer pricing needed to ensure that depositors are protected
- The Cooperation Agreement was a requirement of the PostBanks Act, and it was important to establish the relationship between Postbank, as a subsidiary, and SAPO as the holding entity. He reminded Members that at the moment, Postbank did not have its own branches but was using the infrastructure of SAPO
- He noted that Postbank was working “tirelessly” to submit the Banking licence document by the end of June as it triggered other critical processes involved in corporatisation. It also would enable the determination of the financial forecast.
- he reiterated that staff were being appointed, but the first stage was to appoint executive staff, as this would then trigger the process of recruitment in the lower staff structures.
- The budget provided by National Treasury explicitly stated that funds only be used for core systems and hiring of staff and this was being complied with.
- The marketing plan would be viewed in line with the limited budget provided by National Treasury.

Profitability considerations
Mr Mothema advised that due to the funding deficit, management had needed to come up with a plan that would enable the corporatisation process to proceed.

Mr Christopher Hlekane, Chief Executive Officer, SAPO, acknowledged that processes respected the date of bank corporatisation. The application for R3.2 billion from the National Treasury meant that SAPO had considered the profitability required for the new Postbank to sustain itself, including investments in the infrastructure. SAPO had to consider also:
- The level of profitability for the future, without the deliverable date changing
- Which of the products would be affected against the profitability of the product in the portfolio
- Whether there was a need to re-think some of the products without affecting the service offered to the community
- Reassess, but not necessarily remove, certain products from the portfolio
- The likelihood of using a third party provision to be able to go to market
- The possibility of using external funding to ensure that the project continues

Mr Hlekane admitted that this was a challenging process, but was confident that, with the Board’s support, the product could be delivered.

Department of Communications comment
Mr Willie Vukela, Chief Director, Department of Communications, noted that there had been some fundamental issues raised by the Reserve Bank, when the process started, but noted that they had since been resolved. Firstly, the existing legislation did not allow the Post Office to be a controlling company, but this point was resolved after lengthy discussions. The Minister’s powers to make policies and regulations had to be brought in line, and issues that would result in ministerial intervention, and amendments, were to be debated. He said that he would not go into these in detail, in the interests of time, but confirmed that what had been set out already by SAPO in its presentation was correct.

Mr Alf Wiltz, Legal Adviser, Department of Communications, noted that the Constitution required that the South African Reserve Bank, in pursuit of its primary objective, must perform its functions independently and without fear, favour or prejudice. The Office for Banks controlled the licensing process and regulated banking, and its operational autonomy and independence was also set out in the Banks Act. He noted that the banking legislation would have to be complied with in all respects, and any new legislation must be consistent with it. Although both National Treasury and the Reserve Bank were involved in the original legislative processes for the Postbank, there were still some contradictions, and the final licensing and full corporatisation was not possible until these were resolved. He was confident that Cabinet would approve the principles that the PostBanks Act be brought into full alignment with the Banks Act.

Mr Wiltz added that the DOC has been working hard at the corporatisation and implementation processes, and noted that monthly meetings were taking place between DOC, Postbank, SAPO and National Treasury. He assured the Committee of the DOC’s commitment to corporatisation.

Ms L Mabija (ANC, Limpopo) referred to a survey which highlighted the problem of skills in the banking sector in South Africa and asked how this might affect the Postbank's recruitment of new staff members.

Mr H Groenewald (DA, North West) wondered if it would not be better to wait until the Cabinet process was completed before moving forward to the rest of the process. However, he noted that the Committee was committed to assisting in the success of the corporatisation project. He wanted more details on the legislative restrictions. He also asked how many established and workable Postbanks there were in South Africa, and what was done with the money that people deposited into the current Postbank. He also wanted to know what happened to the three senior executives involved in the multi-million rand fraud incident, to whom had reports been made in this regard, and what structures had been put in place to prevent further such breaches of security.

Mr Groenewald noted that during 2012, the SAPO was offline for five days, but apparently members of the bank were not informed. He asked why, and what backup plans had been created should similar situations arise again.

Mr M Jacobs (ANC, Free State) said that the Select Committee was very happy to hear how people were going to benefit from the new Postbank. He was, however, concerned that this process had already been ongoing for two years yet the new Postbank was still not registered. He wondered if this Committee had been kept fully advised and informed on the matter, and suggested that corporatisation be revisited next year, pointing out that very shortly, MPs would be campaigning and would no longer be sitting in Parliament. He thought that the amendment Bill was unlikely to come before this Committee.

Mr Jacobs enquired if the DOC had a business plan to ensure the success of the corporatisation project, and, if so, requested where it was.

Mr Jacobs was also concerned about the fact that on the one hand there were concerns around the scarcity of funding, yet on the other, there were reports on fraud. Mr Jacobs asked whether there were enough skilled people in key risk management positions, and how the presently-inadequate IT structure was going to be addressed, as that was fundamental to the success of the bank.

Mr M Sibande (ANC, Mpumalanga) observed that the presentation was in the nature of a progress report, yet he too was concerned that the project had not actually got off the ground, and questioned whether there had been tangible progress with so much yet to be done. He wanted more clarity on the achievements and key challenges. There was a huge funding allocation, but he was concerned how exactly it would be used, and whether the right risk management structures were in place in order to deal with so much money.

The Chairperson noted that the banking licence was delaying the corporatisation process, and thus enquired when this application for a licence would be complete. In light of the high risk, she wondered how Postbank would be able to run a banking institution. She was also disappointed in the presentation, which she felt was too short and not sufficiently clear on progress. She also wondered why the recent strike had not been mentioned as one of the challenges, and asked how future challenges were to be minimised. Strikes could not be allowed to happen frequently, as it would cripple the economy. Finally, she noted that the Select Committee needed assurance that the people in the provinces, particularly in the rural areas, were benefiting from the Postbank, as this did not appear from what had been presented.

Ms Mabija also took up this point, saying that the presentation of the report had been inadequate and reminded the officials that this Committee was not to be regarded as one who would merely “rubber-stamp” and must be provided with all the necessary information

Ms Mabija added her concerns also in relation to the 1 January 2012 fraud case, and asked what was being done to prevent future security system failures.

Mr Mothema (SAPO), thanked the Committee for the positive comments and assured the Committee that the Post Office did indeed take the Select Committee very seriously. This engagement would provide SAPO with the necessary guidance to help it achieve the necessary banking services for the people. Any limitations in the presentation were caused by the fact that it was attempting to deal with the request of the Committee to provide an update on the corporatisation process, since the Bill was passed.

Mr Adam was apologetic that the presentation did not meet the requirements or expectations of the Committee, but also reiterated that SAPO had tried to cover the request for a report on progress, but would send on any additional information that the Committee required.

The Chairperson urged Mr Adam not to attempt to cover himself, and was insistent that when the Committee requested a proper progress report, it expected to receive information on the progress on Postbank, from start of the project to date. She asked that a full report be submitted within fourteen days, which outlined in particular the progress in Provinces, particularly in the rural areas.

Mr Mothema then proceeded to explain the reasons behind the delay in the corporatisation of the bank. After the passing of the Bill, an assessment of the Banks Act was needed, in order for SAPO to decide on the most appropriate processes and policies. The borrowing and lending policy was a critical process that needed to be approved and implemented by National Treasury. Unfortunately, at the time that SAPO was ready to submit the application, the Reserve Bank also highlighted the discrepancies between the Banks Act and the PostBanks Act. Postbank needed to comply with certain provisions of the Banks Act, in order to create its new banking services and this had been the main impediment to the process. However, the Board had decided to proceed with the implementation phases so that the legislation and compliance could take place more or less simultaneously to do away with any further delays.

Mr Mothema then dealt with the queries on the fraud cases, and assured the Committee that the three executives involved with the fraud were no longer with SAPO, but had been replaced by other suitable staff to stabilise the business. Their criminal matter was being investigated, and once the report was available, it would be forwarded to the Committee.

Mr Adam also gave some details on the 1 January 2012 fraud case. He noted that the exact amount withdrawn was R31.2 million, and the perpetrator was one of SAPO’s labour broking staff. SAPO has since moved away from using labour broking staff, as they had been found responsible for 90% of the frauds. The intention was to employ only permanent staff in the future. Six people who were part of the syndicate had since being arrested, and some other arrests were pending. Because of the extent of the collusion, and the fact that the modus operandi kept changing, it was difficult to manage and prevent such cases.

Mr Mothema agreed that the strike was an unfortunate incident. It was an illegal strike provoked by certain individuals who had infiltrated the system. Six hundred to seven hundred strikers participated without placing any demands on the table. The strike had nothing to do with the business, but the business had lost revenue and there was an impact on customers. Mr Mothema admitted that certain security measures would need to be enforced in order to prevent future illegal attempts to de-stabilise the organisation.

Mr Hlekane added that the illegal strike arose from a dispute which was not related to any direct relationship between employer and employee. To date, 620 employees had been dismissed, and Mr Hlekane assured the Committee that, as an employer, SAPO had informed the employees of the high risk involved in participating in an illegal strike. This matter had been closed. The conditions of employment largely involved temporary staff and allegations that there were not equitable benefits. SAPO would be engaging in a process to review policies, in the hope of stabilising the environment so that future strikes would not happen.

Mr Hlekane responded to questions about staff and skills, and said that at the moment, Postbank did not have the relevant staff skills, and had some difficulty in attracting them, because it could not afford to offer shares or extended benefits for its employees, as the traditional banks tended to do. SAPO was reviewing this area with its service provider, so try to establish a process that would offer optimal benefits and attract a fair market of skills, without compromising the product. The goal was to attract a fair market of skills.

Mr Adams spoke to the questions around risk management skills in the organisation. SAPO was short of funding and had to be particularly discerning about who it would appoint. Senior Risk and Compliance staff were expensive, and it was important to employ people experienced within the banking market. The challenge SAPO faced was that until the banking licence was granted, no work could be done, and so SAPO did not want to employ people who were being paid to sit and do nothing. Once the licence was assured, the appointments of Chief Risks Officer and a Chief Information Officer would be made. There were attempts to find internal staff with banking experience.

Mr Adams also noted that in relation to risk management, SAPO was compliance with the Financial Intelligence Centre Act (FICA), and Financial and Intermediary Services (FAIS) legislation, and regular audits were conducted. A fully fledged anti money-laundering system was also in place. There was strong governance and financial control.

Mr Mothema (SAPO) felt it was important to mention that of the R31 million lost in the fraud, SAPO had recovered R29 million from its insurers.

Mr Adams assured the Committee that there had not been direct fraud, other than the R32 million case disclosed earlier, and no outright theft. He pointed out that the Ecopoint issue was not fraud, but rather irregular expenditure. Postbank had a risk management department and a fraud department. SAPO also had a forensic department.

Mr Adam informed the Committee that Postbank was presently run as a counter within a Post Office, so every post office in South Africa could offer Postbank products. There were 1 600 branches and 800 agencies, although the latter did not offer a full range of services, due to the risk of cash losses and theft. Postbank customers were also able to access point of sales to do cash withdrawals.

When money was deposited into a Postbank account, the Postbank would then reinvest into the money markets. He reiterated that at the moment, Postbank did not do any lending, as it was high risk. Money markets were less risky, but did not have the potential for large profits.

Mr Adam conceded that the current IT systems at Postbank were problematic, which was the reason for the request to National Treasury for an amount of R1.5 billion to sort out the IT problems. National Treasury responded by instructing Postbank to use profits generated to fund the IT structure, while National Treasury would make up the shortfall.

Mr Adam explained that the cause of Postbank being offline for five days was due to an override from one data base to another. There was some challenge in identifying the problem and getting Postbank back online again. This was an indicator, once again, of inadequate IT structures, since Postbank did not have a backup recovery programme. Being offline greatly impacted on the customers, especially those people in the rural areas. Small cash disbursements were allowed, to allow customers to transact. Since the incident, Postbank had installed a backup so if one system went down, it would move over to another system.

Mr Adam assured the Committee that Postbank did have a business plan, but because of the revisions to the funding, this would have to be revisited. The financial projections were the only aspect delaying the application for the licence. Confirmation of funding was only received in March, and this opened up the way for Postbank then to apply for the licence. However, because of the reduced funding, SAPO was now required to provide assurance of profitability. Credibility would be lost if the project remained unprofitable for more than five years.

Mr R Keaobaka, General Manager, Postbank, wanted to tell the Committee about what he termed “the 26 versus the 55 issue”. This had arisen during the attempts to procure a strategic partner to assist SAPO with the procurement process. SAPO chose to partner with Deloitte, a top auditing firm who was also one of SAPO’s external auditors. During the procurement process a “Request for Proposal” (RFP) was submitted and this contained certain “gate-keeping” or essential conditions on which requirements had to be met. One of the bidders had made an erroneous assumption that SAPO would provide half the people necessary to undertake the work, although this did not form part of the briefing. The brief centred instead around how Deloitte could assist SAPO on this journey. This had created the wrong impression and the brief of Deloitte was later terminated.

Mr Adams responded to questions on the time line, by reiterating that the application documentation was ready, but needed to be updated with the financial projections. This update would be completed as soon as possible. In June, SAPO would take the Board through key decisions, which would trigger submission of the licence application by end of June. SAPO had progressive targets so as to ensure the quicker submission of the licence application.

Mr Hlekane added that the hardware for both SAPO and the bank had already been procured, and it was busy with the installation and the project networking and decision on where equipment will be placed.

The Chairperson enquired whether SAPO had any doubts whether the application might be unsuccessful, in light of the risks stipulated in the presentation.

Mr Adams replied that this was precisely why the application process was addressing the risk issues. He added that the risk report was a Board and management document, acknowledging deficiencies within the IT system. This deficiency was considered to be SAPO’s number one risk. The challenge lay in how to prioritise the addressing of risk, given the limited funding.

Mr Keaobaka provided more insight into what SAPO was doing, at a project level, on risk. The design phase was scheduled for completion by the end of June. A risk framework formed part of the deliverable. There was consideration into how a typical bank would look, insofar as structures, batch practices and batch processes were concerned. SAPO had compiled a huge file with steps stipulating implementation that would meet the Reserve Bank standards.

Mr Vukela agreed with the Chairperson that at the next meeting SAPO needed to enumerate all achievements made. He wanted to speak to the question of appointment of staff, but noted that according to the Companies Act the new entity needed firstly to appoint a Board, as the appointing authority. The Minister had appointed a board, but it needed to be corporatised. The Board would approve staff. In addition, he assured the Committee that the Board had operating and functional structures already to deal with risk, which included the Ministerial Committee, the Committee on which DOC, National Treasury, Post Office and Postbank were represented, and an operational committee. A legislative review mechanism was in place. 

Mr Wiltz (DOC) reiterated that corporatisation was not a simple process, and although the achievements may not be so visible, he believed that major progress had been made. He reminded the Committee that the end result was dependent on critical stakeholders. The Reserve Bank requirements, in particular, must be met. Mr Wiltz assured the committee that DOC was working hard to meet the 7 June deadline.

Mr Jacobs expressed his dissatisfaction with the DOC’s response. He had enquired whether DOC had a business plan, but he was not entirely happy that the DOC had given proper guidance to the Committee. He also commented that it was very unfortunate that government departments were using labour brokers, despite the known disadvantages.

Mr Mothema assured Mr Jacobs that a decision was taken to terminate labour broker employment in future.

Mr Vukela assured the Committee that DOC did indeed have a business plan, and he would attach it to the report that had been requested from SAPO within the next fourteen days. He would also outline the stages envisaged in the policy.

Mr M Sibande (ANC) stated that he was still not clear on the risk management, and asked who was monitoring the risk.

Mr Adam said that risk management structures were in place, as highlighted earlier, and there were attempts to identify where greater vigilance was needed. Fraud was not unique to Postbank.

Ms Mabija enquired whether SAPO’s Board had a monitoring tool.

Mr Mothema replied that as SAPO was a controlling entity, it was subject to the same scrutiny as others under the Banks Act, and the Board in addition must report to the shareholder, DOC, which was another line of monitoring.

The Chairperson highlighted the fact that the lines of communication between the Post Office, Postbank and the Select Committee should remain open. New information should be communicated through the Committee Secretary, and she reminded SAPO and DOC that more information was required within fourteen days

Mr Vukela assured the Committee that DOC took the work of this Committee very seriously, fully respected its mandate and was appreciative of the serious and practical questions raised, to which full responses would be provided.

Mr Mothema thanked the Committee and expressed SAPO’s appreciation for the insight and constructive criticisms received, which were welcomed, and to which appropriate responses would be given.

The meeting was adjourned.


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