Video: SC on Public Enterprises and Communication, (National Council of Provinces) 16 Sep 202
In a virtual meeting, the Select Committee on Public Enterprises and Communication engaged with Postbank on its financial sustainability, the customer outreach in urban and rural areas and the impact of Covid-19 on the bank’s operations, particularly the distribution of the social grant.
Postbank was en route to emerging as a fully-fledged state-owned bank, having made an application to the Reserve Bank for a banking licence in 2017. The Reserve Bank was awaiting an Amendment of the South African Postbank Ltd Act. The Bill had been submitted to Parliament. The deposit-taking capability of Postbank and participation in the National Payment Systems could be better leveraged to invest in socio-economic developmental assets. The fiscus was constrained by the high debt level which precluded the development of a State Bank from scratch but, through the Post Office branch network, the National Payment Systems could be utilised to develop the objectives of a future State Bank.
The Covid19 restrictions had a negative impact on the operations of the Postbank as staff had either been unable to work owing to sickness in the family, or unable to achieve the desired productivity as a result of not being able to work in the offices. The closing of rural SAPO offices impacted particularly on the distribution of social grants, leaving rural residents to travel to urban areas and resulting in overcrowding in grant queues that increased the threat of spreading Covid19. Postbank had opened accounts for almost 3.4 million beneficiaries of the Covid-19 unemployment relief programme. However, as no banking fees were charged, Postbank experienced a loss of almost R9 million. As people lost their jobs, they did not have the money to save with the bank and could not afford further investment in Postbank products.
Postbank was engaged in a cybercrime strategy to prevent loss through fraudulent issuing of bank cards and intended to set up a network of ATMs, especially in rural areas, and provide the necessary machines for social grants to be collected from minor retail traders that did not have access to debit machines from commercial banks.
The financial position of Postbank was discussed and the balance sheet presented. Total assets were R11.1 billion, 15.6% higher than it had been the previous year, suggesting a fairly strong financial position. However, there were significant risks in relation to the Land Bank and to the South African Post Office considering its financial position and the assigned SASSA projects. The financial position of the bank was anticipated to decline over the next two years, based on capacitation and modernisation plans for the next two years, as well as the modest economic recovery.
Members asked about the approval for the banking license being subjected to a controlling structure. Who would those people be? What were the achievements of the Postbank in the past few years? How was Postbank managing the long queues? Was the grant payment system efficient and reliable? Were there any risks involved? What checks and balances were in place to ensure that Postbank would not be hijacked by politicians and suffer the same fate as the Venda Mutual Bank?
Members also asked how Postbank had arrived at the high cost for personal protective equipment when most employees were at home, which was the very reason that laptops had been bought. When was Postbank going to make permanent appointments in senior management positions?
The Chairperson welcomed everyone and introduced the Acting Director-General of the Department of Communications , Ms Nomvuyiso Batyi .
Ms Batyi spoke on the context of the meeting in preparation for the presentation about the financial sustainability of Postbank, how Covid19 had impacted its business and how it had adapted. She noted that Postbank was managing the South African Social Security Agency (SASSA) Covid-19 payments and the Covid-19 unemployment grants.
Ms Phumzo Noxaka, chairperson of the Postbank board, stated that although Covid-19 had affected business, it was important for Postbank to be sustainable in the future. The presentation would elaborate on some of the programmes in that regard.
The acting CEO of Postbank, Hannes van der Merwe, made the presentation. Postbank’s account portfolio growth was noted as not having experienced either growth or decline since January 2020 and that needed to be addressed. Programmes were in place, especially for when Postbank became a fully-fledged bank which would include unsecured lending using various supplementing financial instruments. Postbank’s value proposition was not competitive without lending and bank assurance.
Mr van der Merwe indicated that the Covid-19 unemployment grants had led to a growth of more than three million accounts from March to July 2020. The financial literacy programmes had limited reach due to Covid19 restrictions but was expected to be more successful post lockdown.
The economic implications of Covid-19 and its impact on the bank’s operations and on stakeholders was discussed. Postbank staff had either been unable to work owing to sickness in the family, or unable to achieve the desired productivity as a result of not being able to work in their offices. As people lost their jobs, they did not have the money to save with the bank and could not afford further investment in Postbank products. That was an issue, but the impact of Covid19 on the bank had not been drastic or particularly significant.
Mr van der Merwe reported on the financial literacy programmes. Although slowed down by Covid-19 restrictions, there was steady progress with regional interviews underway and the provision of regional resources to assist with these initiatives. The financial impact of adjusting operations to Covid19 restrictions, which included the purchase of laptops, data and personal protective equipment totalled R2 088 627 while the Postbank forfeited R9 million in fees as a result of the waiving of fees for transactions by SASSA beneficiaries. There was an estimated loss in turnover of R311 million. However, Mr van der Merwe noted that it was not too significant and he believed that Postbank would be able to resolve the issue and focus on growth towards the future.
Ms Innocentia Pule, Acting CFO, focussed on the financial performance of Postbank. Although the performance was lower than the previous year, considering the R9 million forfeited in waived fees as well as reduced interest rates, Postbank was still successful. The financial position of Postbank was discussed and the balance sheet presented. Total assets were R11.1 billion, 15.6% higher than had been the case in the previous year, suggesting a fairly strong financial position.
Two exposures of their budget sheet were noted: firstly, the exposure to Land Bank, although the risk was slightly relieved due to ongoing developments of managed loans and the R3 billion injection into Land Bank announced by National Treasure. The second worrying exposure was that of working with the South African Post Office (SAPO) considering its financial position and the assigned SASSA projects. The financial position of the bank was anticipated to decline over the next two years, based on capacitation and modernisation plans for the next two years, as well as the modest economic recovery. In the 2020 financial year Postbank was able to secure R1.3 billion which was critical to the progression of the financial positioning going forward.
Mr van der Merwe concluded by speaking on the role that Postbank could play as a future State Bank. It was noted that the deposit-taking capability and participation in the National Payment Systems (NPS) could be better leveraged to invest in socio-economic developmental assets. The fiscus was constrained by the high debt level which precluded the development of a State Bank from scratch but, through the SAPO branch network, the NPS could be utilised to develop the objectives of a future State Bank.
Ms Noxaka spoke on the goal of Postbank being corporatized and informed the Committee that an application was being prepared for a banking license for submission to and consideration by the Reserve Bank. The bank had been digitalised for use on various digital platforms as a government partner payment channel.
Ms W Ngwenya (ANC, Gauteng) requested a comparison of the figures of customer accounts opened in rural and urban areas. She asked about the approval for the banking licence being subject to a controlling structure. Who would those people be? What were the achievements of the Postbank in the past few years? Would Postbank introduce ATMs as the current collection method with physical queues was dangerous considering Covid-19? How was Postbank managing that currently?
Mr A Arnolds (EFF, Western Cape) asked how Postbank was dealing with fraudulent transactions as many fraudulent transactions had occurred in the expenditure of the R50 billion Covid-19 funding. Was the grant payment system efficient and reliable? Were there any risks involved?
Mr Arnolds requested an update on the situation regarding the banking employees who had stolen from the bank. Lessons learnt would ensure that those challenges could be avoided going forward. He commended the stable deposit growth during the Covid-19 period and asked if there was stability in the board of the Postbank. The Committee needed to be assured of stability in the board.
Mr M Nhanha (DA, Eastern Cape) asked the acting CEO who was managing the payment of the R350 grant announced by the President. He had witnessed long queues for collection of the funds. It was a positive action to subsidise young people but they were at risk of spreading the Covid19 virus. His second concern was the huge sums involved in the programmes. Was it not a risk as crooks could steal those huge sums of money? Was there not a 21st century method that could be used to disperse the R350 subsidy to the youth?
Mr Nhanha asked if Postbank would be issuing loans to individuals and corporations. If that was the case and it intended to issue loans in the long run, what checks and balances were in place to ensure that Postbank would not be hijacked by politicians and suffer the same fate as Venda Mutual Bank (VBS)? As far as risk was concerned, Mr Nhanha recalled the CFO mentioning that Postbank had mitigating strategies to deal with a number of risk factors. Did international syndicates pose a threat of hacking systems, not only stealing money but valuable client data in the possession of Postbank? With that in mind, he enquired whether Postbank had any security measures in relation to cyber activities.
Ms T Modise (ANC, North West) enquired about the long queues at Postbank. She asked if rural area Postbank offices had been closed so that people had to use that of the few urban Postbank offices. Elderly and young demographics were dominant in the social grant queues. That needed to be attended to and the appropriate mechanisms set in place to deal with that during the Covid19 period. How had Postbank arrived at the high cost for personal protective equipment (PPE) when most employees were at home, which was the very reason the laptops had been bought? She asked when Postbank was going to make permanent appointments in management positions so that if something went wrong it could be addressed by the appropriate manager.
The Chairperson asked how long it took the Reserve Bank to consider an application as the Postbank application had been submitted in 2017. Was the Reserve Bank responsible for the delay or was the delay caused by the finalising of the application by Postbank? He referred to the non-compliance of Covid19 restrictions in Postbank queues and recommended that it be attended to as the grant would be available for six months. If the grant continued for six months, would it not affect the balance sheet? The Chairperson asked about the waiver of clients that all banks had to perform and what the impact of that had been on the bank’s operation.
Response by Postbank
Ms Batyi answered the questions relating to the board members of Postbank. Board members were subject to a fitness test in line with the Reserve Bank’s requirements. The Reserve Bank had stated that the Cabinet and responsible Minister would attend to the actions required by the Reserve Bank. Responding to the question of overcrowding during social grant distribution at Post Offices which posed a threat in respect of spreading Covid-19, she stated that Postbank relied on SAPO to distribute the grants and many SAPO branches had been closed because of Covid19. The current method of addressing the issue was via the SMS sent to those receiving the grant. The SMS stated that preference would be given to the disabled and elderly, and making the receiver aware of retail outlets, such as Game, where grants could be collected, including the R350 for the Youth. However, people still went to the post office on non-designated days.
Ms Noxaka addressed the issue of the banking licensing application that had been submitted in July 2017. She noted that correspondence had been received from the Reserve Bank to the effect that it would not commence the review of the application until Postbank had satisfied the outstanding requirements. Those requirements included the Amendments to be effected to the Banks Act to enable the Postbank, which was a public entity, to apply for a banking licence. That condition had been satisfied. However, an Amendment to the The South African Postbank Limited Act was required. Currently the Act allowed for SAPO to be the holding company of Postbank. There had been a concern in that regard from the Reserve Bank as it did not want to extend its oversight responsibilities to SAPO because SAPO’s business was not that of a financial service. In addition, the current financial situation of SAPO was problematic. The Postbank Group would need to hold significant capital reserves in order to meet the Reserve Bank’s requirements.
She added, in regards to SAPO being the holding company of Postbank, that there needed to be a review of the bank’s controlling structure in terms of the ownership of the Postbank. That decision had to be taken at the shareholder level with the necessary government departments. Since the submission in 2017, information needed to be updated, such as the three-year focus and the changes within the structure of Postbank. The SA Postbank Amendment Bill had been submitted to Parliament.
Ms Noxaka stated that Postbank’s plans moving forward were to submit the necessary information to the Reserve Bank so that it coincided with the finalisation of the Amendments to the Postbank Act, as well as the decision to be made by government on a bank controlling structure. All of those events should be finalised by the end of the financial year.
In response to the question of whether the Postbank was operating illegally, Ms Noxaka stated that it was not as it was currently operating under an exemption granted by the Reserve Bank. Although Postbank was exempted from operating under a banking license, it was still required to adhere to some of the regulatory requirements of the Reserve Bank. Postbank was a deposit-orientated institution entrusted with the money that people deposited which was why it had to demonstrate to the Reserve Bank that it had the necessary structures and practices in place to ensure that the money of the depositors was safeguarded.
Ms Noxaka explained what the exemption entailed. She ascribed the limited service offering to the lack of a banking license which meant that Postbank was not yet in a position to offer fully-fledged banking services. The licence was described as a guarantee of the depositors’ funds by the Reserve Bank and was why the Postbank needed a certain minimum level of reserves that the Reserve Bank would hold on behalf of the Postbank. Because the Postbank was not regulated, the National Treasury currently guaranteed the depositor’s funds held at Postbank.
The next question addressed was that of the achievement of the Postbank in the previous five years. Ms Noxaka stated that the board had been appointed three years previously and its primary task had been to submit the banking licence application and ensure the corporatization and capacitation of the bank. A lot of progress had been made in positioning the Postbank as a corporate structure and implementing the required governing structures, including the development of policies and processes and procedures. Another achievement was working through SAPO to ensure the involvement of Postbank in the SASSA project.
Ms Noxaka responded to the question on Postbank ATMs, stating that part of the digitalization strategy included deploying an ATM network across the country and targeting strategic areas with implementation by the end of the financial year. On the question of cybercrime, Ms Noxaka stated that the Chief Information Officer was currently determining the relevant strategies to limit any exposure to cybercrime.
The matter of employees who had stolen from the bank was being addressed. The implicated employees had been suspended and the disciplinary process of one of the individuals had been finalised while the case of the second individual was awaiting finalisation. The contract of the third individual had ended during the process and as a result further internal action could not be pursued.
She said that only five members had been appointed to the current board and that during the term of office the former CEO of SAPO had resigned. The five members had been appointed in accordance with the provisions of the Postbank Act. The ministry had announced the names of four board members who would constitute the new board as the term of the current board was coming to an end.
Ms Noxaka addressed the question of making permanent appointments to the vacant positions. Postbank was experiencing challenges in the recruitment of banking professionals as suitable professionals were wary of working for a state-owned entity. That, coupled with the limited salary in comparison to the far higher salaries and incentive schemes in non-state owned banks, meant that it was not easy for Postbank to recruit for those positions.
Mr van der Merwe stated that statistics on rural versus non-rural accounts were not readily available but would be sent to the committee when possible. The digital strategy included placing the ATMs in areas where there were high concentrations of SASSA beneficiaries. Paying cash in rural areas was costly and risky for all parties involved and if Postbank could assist with alternative methods, that would be their strategy. Digitalisation of Postbank payments included appointing merchants in rural areas who did not qualify to have a contract with bigger banks. The Postbank could provide them with the necessary equipment to accept whatever cards the beneficiaries used.
Mr van der Merwe said that one of the most important investment projects was the banking functionality that was set to offer a fully-fledged digital banking solution. The current project included the revamp of Postbank IT infrastructure with a focus on security to support the digital outlets. Fraudulent activities were being addressed and no SASSA beneficiary had been compromised by the fraudulent activities that had led to cards being stolen. The main risk with card fraud was mostly illegal card reissues, in some cases in collusion with SAPO and SASSA employees who had access to information on large payments to people, such as backdated pay. An illegal card swap took place and the fraudster would empty the account before the beneficiary could secure the money.
He explained that Postbank had an arrangement with SASSA to reimburse such beneficiaries within 14 days of the fraud being established. However, the agreement between SAPO, Postbank and SASSA was that, depending on where the collusion had taken place, that entity was held responsible for the fraud and would have to reimburse the funds lost. The amount spent on reimbursement so far was in the region of R74 million. Postbank had implemented an improved card system which had seen a drastic reduction in that type of fraud. The core banking application had been addressed and the aim was to gradually move the SASSA beneficiaries from the current system to the core system.
Mr van der Merwe stated that Postbank would target small individual loans and small commercial loans for SMMEs and farmers. Wholesale lending and corporate lending or similar practices were not being planned. Polices would be put in place to avoid a situation such as occurred at VBS. The exposure to SAPO was currently in the region of R1.2 billion to enable the Post Office to pay social grants. SAPO acknowledged that it owed Postbank that money and had agreed in principle to enter a loan agreement that would be recovered once SAPO had received its allocation from National Treasury through the mid-term budget.
Ms Noxaka said that licensing applications took approximately sixty days after submission to the Reserve Bank.
Ms Batyi informed the Committee that the Department was engaging with National Treasury on the Amendment Bill. The finance cluster had to provide the necessary approval.
The Chairperson called for further questions.
Mr Nhanha noted that the response on the risk to cybercrimes had not provided the necessary detail. He requested a more detailed response. However, that response should not be sufficiently detailed as to pose a security threat.
The Chairperson requested Postbank to submit the requested data when it made other required submissions on the matter. The Acting DG of the Department would manage the communication. When addressing the matter in future, it would be necessary to communicate with both SAPO and Postbank and a joint meeting with Social Development should be held so that SASSA was also included in the discussion. In relation to the other matter of the Amendments the Chairperson asked the DG to attend to the matter so that the application to the Reserve Bank could go forward.
He stated that the Committee would be doing oversight to make sure that a State Bank would assist people in rural areas. Considering the footprint of the Postbank and SAPO, together they could bring the advantages of the financial sector to the previously disadvantaged people of the nation. The Postbank had to place an emphasis on research as well as the digitalisation strategy so that the Postbank footprint could be placed everywhere it was needed.
The meeting was adjourned.
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