The Department of Communications, with some input also from the South African Reserve Bank, and Postbank, presented the South African Post Office (SAPO) Amendment Bill to the Committee. It was explained that the SAPO Act was passed in 2010, which had intended to incorporate the Postbank division of SAPO as a separate company, and to have it registered as a bank. However, there were certain inconsistencies in the legislation at that time, which were pointed out by the Deputy Governor of the South African Reserve Bank (SARB), who had questioned why Postbank should not have to comply with the same requirements as other banks, and why a different regulatory structure applied. A working committee consisting of representatives from SARB, National Treasury, SAPO/Postbank and the Department of Communications, was set up, to analyse the points made by the SARB and decide upon adjustments. The amendments now being presented sought to deal with the fundamental features of the transfer of Postbank from a division of SAPO to a separate, stand-alone and corporatised public entity, to remove any inconsistencies with the Banks Act, and withdraw the exemptions initially provided, which the SARB had identified as problematic. The roles of the Department and Minister of Finance, the Registrar of Banks and Office of Banks were explained. The Department took the Committee through each of the clauses in the Bill, explaining the changes made. Other stakeholders also added to the presentation, making their comments and confirming that the Bill was fully supported by, because it incorporated the views of all the stakeholders. Essentially, it was important for the Reserve Bank to retain its regulatory role over any bank, although Members were assured that this would not exempt the Minister of Communications from any involvement as that office would remain a shareholder of the Postbank and responsible for appointment of the board. The legislation would also realise the vision of the Postal Policy, to establish a financial institution for mass mobilisation of savings and investment from the broad community and to create a bank of first choice for the lower income group.
Some Members were concerned that the vision of the Bill seemed to be a bit different now from the time that the Act was first drafted, because of the assertion that Postbank would be competing with other banks in South Africa, and asked if this would not conflict with the aim to reach the poor. The Department explained that the developmental aims remained, that Postbank would reach more people because it would be housed physically in post offices, but it had to be compliant in the same way as other banks. It was explained that there was a three-phase process for Postbank which had been accelerated and it was now already entering the last phase. It was not a new institution. Members also asked how the funding and capitalisation of the Postbank would occur, who would be responsible for oversight, to whom it would report, and whether there were secure systems in place to establish the bank. They also asked if consultants had been involved, and what would happen with the recommendation of members to serve on the boards. The Department of Communications, SAPO/Postbank and the SARB responded to the issues to the satisfaction of Members, who would be further dealing with the Bill at their next meeting.
South African Post Office Amendment Bill: Department of Communications briefing
Mr Willie Vukela, Chief Director, Department of Communications, presented the South African Post Office (SAPO) Amendment Bill. By way of background, he noted that the Postbank Act was established to provide for the incorporation of the Postbank division of the South African Post Office, to provide for the transfer of the enterprise of that division to the new Postbank Company, and to provide for the governance and functions of the Postbank. It further provided for the corporatisation of the Postbank, and stipulated that it would have to be registered as a bank after it had satisfied the requirements of relevant banking legislation.
The Department of Finance had competency over banking legislation, and national policy for banking matters. The South African Reserve Bank, as a functionary, was the regulator, and thus it would deal with the legislation of any company seeking to operate as a bank. He explained that after the legislation was passed to allow Postbank to be registered as a bank, the Minister of Finance and Minister of Communications had established a working committee.
The South African Reserve Bank (SARB) Deputy Governor had written to the Minister of Finance, highlighting that some of the provisions in the Postbank Act were in fact inconsistent with the Banks Act. In particular, it was noted that Postbank seemed to have an unfair advantage over other registered banks in that it would benefit from the award of a banking license, without having met the Office for Banks’ licensing criteria. He noted that the Office for Banks was responsible for registering institutions as banks, enforcing all the requirements of the Banks Act and supervising the institutions registered as banks. This supervision included compliance with certain capital and liquidity and legal requirements, which would promote the soundness of the domestic banking system and to minimise systematic risk, through effective and efficient application of international regulatory and supervisory standards.
Subsequent to the submission by the Deputy Governor of SARB, a Legislative Review Committee was established, comprising of the SARB, National Treasury, SAPO/Postbank and the Department of Communications (DOC). This committee was meant to analyse the risks as outlined by the SARB. Having agreed with the points, it had then developed the current Bill, with input from all stakeholders on that Committee. It had concluded that amendments would be required to the Postbank Act, which would be limited to the fundamental features around its transition from a division of SAPO to a separate, stand-alone and corporatised public entity. The amendments would also seek to remove any inconsistencies with the Banks Act, and withdraw the exemptions initially provided which the SARB had identified as problematic.
He noted that the Bill had 14 clauses. Clause 1 would amend the definitions of the South Africa Postbank Act, by substituting the definition of “Minister” and deleting the definition of “Registrar of Banks” which was no longer needed.
At this point, Mr Johan Naude, Senior Legal Adviser, SAPO, joined Mr Vukela, introduced himself and explained that the rest of the delegation was on its way.
Mr Vukela noted that clause 2 would amend section 3 of the Postbank Act by deleting the exclusion of section 37 of the Banks Act. That section 37 of the Banks Act dealt with permission to acquire shares in a bank or bank controlling company. It was necessary for the Office of Banks to monitor and approve the acquisition of certain shares or interests by shareholders, which were above specified thresholds or which exercised a material influence on the operations of a bank. The Office for Banks would therefore, in future, also be required to assess the fitness, propriety or other qualification tests of entities wishing to acquire shares in Postbank.
Clause 3 sought to repeal section 4 of the Act. Now, in order to register as a bank, the Postbank would be required to comply with the Banks Act in all respects. This includes consolidated supervision, which sought to evaluate the strength of the entire banking group, taking into account all risks. The section was also being removed to avoid any overlap or contradiction with the Banks Act.
Clause 4 would delete section 8 of the Act, since exemption from tax liability should be the subject of a Money Bill.
Clause 5 amended section 9 of the Act, since some of the powers set out in section 9 related to areas already governed by the provisions of the Banks Act, and require the prior notification or the approval of the Registrar of Banks. The amendments would remove any overlaps with the Office for Banks’ jurisdiction.
Clause 6 would add an additional requirement into section 13 of the Act, to make it clear that no person may be appointed as or remain a board member if such a person was not fit and proper to hold the office of a member of a Board of a banking institution as contemplated in the Banks Act. The new wording was highlighted (see attached Bill and presentation for full details).
Clause 7 would amend section 14 of the Act to remove references to ‘‘fit and proper’’ and the required ‘‘concurrence of the Registrar of Banks’’. These provisions were no longer required, because of the amendments to section 13. Furthermore, section 14(1)(b) was now to be aligned with section 8(5) of the South African Post Office SOC Ltd Act, 2011 (Act No. 22 of 2011). SAPO, as a controlling (holding) company could recommend names of individuals to sit as board members to the subsidiary, Postbank.
Clause 8 deleted section 15(2)(e), since it was no longer necessary, following the addition of section 13(1)(h).
Clause 9 sought to amend section 18 of the principal Act, to make it clear that the managing director of the Postbank must be fit and proper to hold the office of Chief Executive Officer of a banking institution, as contemplated in the Banks Act. A specific reference was now inserted to that latter Act.
Clause 10 was amending section 25 to ensure that the powers of the Minister to intervene would fall away once the company was registered as a banking institution in terms of the Banks Act. This was necessary, because the Banks Act provided clear guidelines (in sections 60(6), 69 and 69A) to address any mismanagement, non-compliance or any areas of material maladministration, from the date of registration as a bank, and there should be no restrictions to this in the case of Postbank. The independent regulator must thereafter take over all functions that the Minister previously exercised. He read out the amendments.
Clause 11 sought to amend section 26 of the Act, to remove the requirement that the Minister make policies for the Postbank, because these would be already covered by the Banks Act, and all registered banks were expected to adhere to regulations made under the Banks Act. He reiterated that the Office for Banks was charged with promoting the soundness of the domestic banking system through the effective and efficient application of international regulatory and supervisory standards and best practice. It operated on two cornerstones – the Basel Capital Accord and the Core Principles. Furthermore, good banking and governance practice required that the Postbank’s board of directors should approve and regularly review the policies of the bank, and then oversee management’s actions and their consistency with board policies, as part of the checks and balances of sound corporate governance. It was not good practice to require Cabinet to approve policies, as multiple lines of responsibility led to delays.
Clause 12 was inserting a new section 26A, which provided that in the event of any conflict between the provisions of the Banks Act and the principal Act, the provisions of the Banks Act prevail. In this regard, Postbank was also being aligned with other bank scrutiny frameworks. This was rigorous, but had benefits.
Clause 13 amended section 30 of the Act to ensure that any exemption under the Banks Act applicable to the former Postbank, immediately prior to the transfer date, would apply to the South African Postbank Limited until it was registered as a bank. Postbank was currently a division. He read out the transitional provisions.
Mr Vukela told the Committee that none of the submissions expressed any opposition to the amendments; as everyone was in agreement with the alignment of the Postbank with the functions of the SARB and banking sector. It was important that the Reserve Bank, rather than the Minister, regulate the issues. The Bill would also realise the vision of the Postal Policy, to establish a financial institution for mass mobilisation of savings and investment from the broad community, and to create a bank of first choice for the lower income group.
Mr Themba Phiri, Deputy Director General, Department of Communications, added that these amendments would enable the Reserve Bank to do its work properly, and for Postbank to comply fully with the financial services regulations and the Banks Act.
The Chairperson said the Committee was excited about this issue and had even taken a trip to Japan to see how successful Postbank was in other countries.
Mr Z Mlenzana (COPE, Eastern Cape) said that he thought the Portfolio Committee would have had information from National Treasury and SARB, unless the views of these entities had already been captured in the presentation.
The Chairperson agreed that this should have been done but added that the Portfolio Committee had already invited submissions from stakeholders. She also comments from National Treasury, SAPO or Postbank and the SARB.
Mr Phiri repeated that the Working Committee comprised these entities, so their views were included.
Mr Shaheen Adams, Acting Managing Director, SAPO/Postbank, said Postbank was part of the committee and had consulted extensively with SAPO. SAPO supported the Bill and had no objections to any of the provisions.
Mr Johan Naude confirmed that SAPO supported the Bill. All their inputs and comments were taken up. SAPO was satisfied and concurred with the provisions.
Mr Michael Blackbeard, Specialist Legal Counsel, SARB, said the Reserve Bank was satisfied that the overlaps had now been removed so that this Bill allowed Postbank to be properly included. The application process to the Registrar of Banks would follow, to allow Postbank to be registered as a bank. Postbank must be on a level playing field with other banks, to compete with them, and its registration was the first step to attaining that.
Mr Malusi Ncolo, State Law Adviser, Office of the Chief State Law Adviser, was satisfied with everything in the Bill.
Mr Mlenzana said the Committee must still deal with the Bill, clause by clause. He said Mr Vukela had previously indicated the concurrence of the two Ministers, and the DoC had now clarified the position. He thought that some valuable lessons could be learned from the process followed before, and particularly the degree of consultation with stakeholders. He asked if all stakeholders both in the financial and communications sector were now on board. He noted that Postbank was talking about a bank for the rural poor, and asked if it would be competitive with other banks. He mentioned that, after introduction of the Bill, Members had their own stance on what the best practice should be, and wondered whether other countries had shared their best practices with the DoC.
Mr H Groenewald (DA, North West) was still excited about the bill and said he thought it would work in rural areas. He was disappointed that the Committee was, however, having to meet again to rectify issues, and asked what happened to the consultants who were meant to give sound advice to manage Postbank, and the budget, commenting that consultants were paid huge fees only for nothing to happen, which was wasteful, and he wanted to know how this was being addressed. He also asked whether SARB had not been involved from the beginning and what advice it had given to Postbank. He started to comment that there was a problem where the system was broken into and millions of Rands were stolen.
Mr Mlenzana interrupted and called for a point of order, requesting that the Members ask only questions directly relevant to this Bill.
The Chairperson asked that the questions must focus on the Bill only.
Mr Groenewald maintained it was his right to ask the question. He said the Chairperson should rule the meeting and not allow other Members to interrupt him while he was speaking.
The Chairperson repeated that the Committee was dealing with the Postbank Bill. Mr Groenewald’s questions had been noted and would be dealt with by the Department at a later time.
Mr Groenewald said that he asked about the Postbank systems because they were relevant to the Bill.
The Chairperson said that next week, Mr Groenewald’s questions would have been addressed.
Mr R Tau (ANC, Northern Cape) said he would have liked the Bill to be finalised today, because, listening to the presentation and the views of the stakeholders, it was quite clear that a lot of effort has been put to aligning the Bill and the governance framework of the financial sector. His main concern was the politics behind the establishment of the institution itself. The Members were initially excited because Postbank was set to reach the poor and marginalised who needed banking services, would address issues of accessibility, and allow them to invest and get mobility of financial resources. However, some serious questions of competition were being raised. If DoC wanted to make Postbank compete with other banks, why then did it not merely insist upon other existing banks move into rural areas, instead of wasting time and effort coming up with new legislation. Secondly, the presentation proposed that the Minister no longer be the regulator, but he pointed out that any business had to have start-up capital, and he wondered where DoC was getting this for Postbank. If it was expecting state funding, then National Treasury must do the allocation and it must be overseen by the Minister, who would have to remain involved for accountability. He also noted that names for board members would now be subject to normal processes in the banking sector, and wondered what would happen if the names submitted were not approved. He also sought clarity on whether the reporting was to the National Assembly (NA) or Parliament, in which case the NCOP must also get reports.
Mr M Sibande (ANC, Mpumalanga) noted that when Members visited Japan, they had looked to how the lives of the rural poor were being uplifted, and if anything of relevance had been taken from its findings to the Bill. Members would recall how Nedbank was first established and, even as commercial as it was currently, it did not reach the rural areas, although its stated aim was to assist the poor. He was concerned whether this would be the case also with Postbank. He referred to page 20, clause 20, and thought the intervention by the Minister would be important. He asked what international standards and frameworks had been reviewed.
Ms L Mabija (ANC, Limpopo) corrected Mr Sibande’s reference to a ‘study group’, explaining that the visit to Japan was a “study tour”. She too was disappointed because the initial intent and connotation was that the Bill should favour the poor, but the whole gist of Postbank seemed to have changed. Some stakeholders present had never been to the Committee before, and this was unacceptable because the Members were representing provinces with rural poor people. There would be no point, to her mind, in establishing Postbank as a bank on par with the rest of the commercial banks, and the real goals as initially presented, must be reached.
The Chairperson , then there is no point in establishing it. She said if she seemed to have missed something in the presentation, then they should explain it to her. They need to reach the real goals of their initial understanding.
The Chairperson noted that the Postbank would be a stand-alone entity, no longer a division of the Post Office, and asked how this would affect the legislative oversight in the future. She wanted to know if the new Postbank would remain with the DoC or move to another department. She was asking this, in light of the recommendations by the Presidential Review Committee that there must be uniformity in overseeing all state-owned companies. She also asked, if this Bill was passed, how long it would take to establish Postbank. Noting that it had funding deficits, amongst other challenges, she said these must be addressed.
Mr Phiri said the perspectives of all stakeholders in this Bill had been noted, and he had heard the concerns around the function and role of the Minister. With all banks in the country, it was the ultimate intention that they become commercialised. However, the process for the Postbank establishment had three stages. He explained that Nedbank still had a bias towards the rural poor. Postbank was still expected to use the infrastructure of SAPO, and in doing so, it would be brought close to the masses. He stressed that it was not up to the Department, but to Parliament, to ensure that the Bill would achieve its initial aims. Unlike Capitec Bank, Postbank would have to fulfil the mandate as it was set out in the White Paper. The Minister of Communications was a shareholder, through the holding company and still had a role to play. The Minister still appointed the Board, in concurrence with Office of Banks and the Registrar. Postbank would function within the financial structures designed by the country, and although this was not a factor that permeated the past legislation, that was the stage where Postbank was heading. The new Postbank must function under sound systems, and he pointed out that the reason that South African banks had managed to withstand many challenges was due to strong regulations. Postbank must still, whilst it met those, still meet the needs of the rural poor.
Mr Vukela said section 2 of the Act had not been amended, and read out the objectives of the Bill. He noted that the only thing that was changing was the route followed to meet those objectives. The policies provided for three stages of corporatisation. Phase 1 was the profit centre, deposit station, and division. South Africa finally wanted a bank that complied with phase 3.
He explained that in terms of the company law, the Post Office was the controlling company, and the Minister was the stakeholder on behalf of government. The Postbank was a subsidiary, and one day it was intended that it must be a stand-alone bank. When the principal Act was passed in 2010, implementation of that was started. However, the current Bill would allow the Postbank to become a bank. The risk mitigation was being addressed. The Bill was essentially affirming something already in the process, but bringing it in line with the Banks Act. He explained that Japan was one of the model countries for their regulatory framework, because Japan had privatised its Postbank, using the same model as South Africa. Many countries were following the South African model now – the DoC hosted Uganda last week, and the Reserve Bank went to Nigeria for follow up meeting. The Swedish model, also being used, was brilliant and was followed by Germany and South Africa. The DoC wanted a bank that would stand the test of competing with other banks but primarily reached the poor. To prevent the Minister of Communications being unduly burdened, it was decided to let the Registrar of Banks interface with the holding company, whilst the Minister, as shareholder, would oversee the controlling company. Not even a single cent was spent on consultants in the process; those sitting in the meeting today were the ones who had advised and consulted throughout.
Mr Vukela said that Mr Tau was quite correct with the comment about the politics behind the bank and said that this was the role of the Executive, but the Postbank was retaining the aim of the three-phase development process, only it was reaching the Phase 3 faster than expected.
Mr Vukela said that in relation to the question about the board members’ qualifications, the current Post Office Act stated that the SAPO should not limit two of its board members from sitting as board members of the subsidiary, and if nobody qualified to be a board member, SAPO must find someone with the right expertise. He noted also that the provisions of section 26 had been repealed, and the report would not be to the “National Assembly” only.
Mr Alf Wiltz, legal advisor, DoC, also addressed the question of representation, and said the Postbank would make recommendations to the Minister for board members. The law required that the Minister appoints at least two people from those recommendations. The SAPO then had to approve them, before their final appointment. He reiterated that the Minister remained responsible for the establishment of Postbank and the appointment and removal of board members. The Minister could make company regulations and must oversee budgeting. The Minister could intervene where there was poor management or irregularity. The amendment would ensure that the Minister could intervene until Postbank was registered as a bank, and then the Registrar of Banks became responsible for supervision and regulation.
Mr Wiltz stressed that Postbank was a government-owned bank, and would thus always be different to commercial banks, and still has a chance to be financed by Government in line with section 22. Postbank would, however, be regulated as a commercial bank. Postbank would remain under the Communications portfolio. Start-up capital was provided and details would be given to the Committee. The Department was waiting for permission from SARB to move this forward.
Mr Shaheen Adam said that applying for a licence to become a bank on 25 September was one of the milestones of Postbank. It had received an allocation of R481 million over a three year period from National Treasury, at the beginning of this year, although it had requested more than this, and the money had been used to start filling the executive structure. Postbank was thus an established entity and was not a new start-up. The challenge was that Postbank never complied, in the past, with the Banks Act, and thus it was unable to do any lending until it got permission from the Reserve Bank. Postbank was in the process of getting Mastercard membership, and should have an answer by March 2014. After being registered as a bank, Postbank has one year to be established as a bank. Funding from National Treasury was conditional on Postbank investing in Treasury bills. Postbank was sufficiently capitalised but may have trouble with capital adequacy as it grew in the future.
Ms Nichola Dewar, Chief Financial Officer, Postbank, said Postbank had originally applied for R3.3 billion worth of funding. Due to their Memorandum of Understanding (MOU) with the Finance and Communications Ministers, Postbank removed all requirements of lending from its funding requests, which was why it then got significantly less funding that requested. It would be able to corporatise with the money it had been given.
Mr Blackbeard said there were two phases in the application process to be a bank. Firstly, the entity must meet at least 95% of the Registrar’s requirements. After that, it would need authorisation to establish a bank, subject to certain conditions. Once all of these requirements have been met, the Registrar approved the entity as a bank. Once that happened, the entity could commence with the business plan. The Reserve Bank did not have to manage that bank, as this was the function of its board of directors, so the Minister of Communications would continue to have a large role in Postbank. The Registrar merely supervised, as the bank managed its risks. Postbank was currently a savings bank and would be the biggest branch bank in SA. With regard to the consultation process followed in 2010, he noted that Postbank was more hands-off and the Registrar could not be a consultant, but this had now changed.
Mr Phiri said the Committee should take comfort from the fact that Postbank was getting all the right advice. In relation to oversight, he confirmed that the Postbank would be a state-owned company of government, so Members would continue to exercise oversight and hold the Minister accountable, in terms of the normal reporting process.
Mr Mlenzana said he took section 2 as an outlook, but hoped the content did not contradict the form.
Mr Tau said the concern was triggered by the National Treasury suggesting that Postbank would compete with others, and he had been uneasy with that, but was now happier that this had been clarified. He noted that when touring Japan, Members had initially disagreed with how that system was operating, and South Africa would have to be careful that evolution did not actually result in Postbank being privatised, so that it could continue to play its intended developmental role.
The Chairperson said the Portfolio Committee did share its findings from the Japan study tour with Mr Vukela. The Members would be recommending a tour also to Sweden.
Mr Mabija also said the further explanation had helped her understand the position, and she was more accepting of the principles.
The meeting was adjourned.
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