Question NW1254 to the Minister of Finance

Reply:

There a number of state banks that are already operating, including the Land Bank, Development Bank of Southern Africa (DBSA), Postbank and many other Development Finance Institutions (DFIs). The Minister of Finance is responsible as the executive authority for the Land Bank and DBSA, and the Minister of Telecommunications and Postal Services for the Postbank. The province of KwaZulu-Natal also owns Ithala Bank. Aside from the Postbank and Ithala, none of the other banks are retail deposit-taking banks, and none of these banks are registered in terms of the Banks Act, as they are often established in terms of their own legislation, or by an exclusion or exemption from the Banks Act (a practice we intend to phase out). Hence, both the Postbank and Ithala have submitted applications for a bank license to the Registrar of Banks at the South African Reserve Bank (Registrar of Banks).

The National Treasury has no plans to establish a new state bank. Neither can any province establish a new state bank in terms of section 125(2)(b) of the Constitution (which only permits provinces to engage in functional areas which are listed in Schedule 4 and Schedule 5 of the Constitution), and we are only dealing with legacy provincial banks like Ithala (which is the only remaining one) in terms of Schedule 6 the Consitution. Rather, the initiatives around Postbank and Ithala are to ensure that all state deposit-taking banks operate in future in terms of a bank license in terms of the Banks Act, and the National Treasury assists the relevant departments to remove some legal and structural impediments that currently prevent them from applying for a bank license.

Whilst there is an initiative to review and possibly consolidate some of the DFIs, there is no intention to consolidate the different banks into one ‘one’ state bank, as they serve different markets (e.g. agriculture and land, municipal infrastructure and retail banking). The Department of Human Settlements is in the process of merging the three DFIs under its watch (National Housing Finance Corporation (NHFC); National Urban Reconstruction Housing Agency (NURCHA) and the Rural Housing Loan Fund (RHLF), to create one Human Settlements DFI. There is also the process of merging the National Empowerment Fund (NEF) into the Industrial Development Corporation (IDC). All these consolidating initiatives are led by other national departments, and do (and should) involve consultations with the National Treasury before such plans are finalised, and submitted to Cabinet for approval.

Major South African State Banks and DFIs

Institution	Sector	Funding Model
IDC	Industrial/SMME	Wholesale/Self-Funded
SEFA (Small Enterprise Finance Agency)	SMME and BEE	Government transfer (via IDC)
NEF		Government transfers and self-funded
DBSA (Development Bank of Southern Africa)	Infrastructure	Wholesale/ Self-Funded
NHFC	Housing	Wholesale/Government transfer/ Multilateral and bi-lateral loans
NURCHA		Wholesale/ Government transfers/ Self-Funded
RHLF		Government transfer/ Self-Funded
Land Bank	Rural Development	Wholesale/ Self-Funded
Ithala	Savings/transactional	Government transfers/ Deposits
Postbank		Deposits

*Smaller or provincial DFIs are not included in the table

2. The National Treasury has been working together with the Department of Telecommunications and Postal Services to establish the Postbank division of the South African Post Office (SAPO) as a stand-alone state bank with its own governance structures separate from the SAPO. The Postbank was granted authorisation to establish a bank by the Registrar of Banks in July 2016, and it submitted its application for registration as a bank to the Registrar of Banks on 26 June 2017.

However, decisions relating to the institutional form have not been finalised, and will depend on regulatory requirements as required by the Registrar of Banks at the SARB, taking into account the possible costs for the fiscus (both current and future) associated with various institutional arrangements.

3. (a-b)There is no intention to fund any equity holding in any state bank from the Government Employees Pension Fund or any other state pension or provident fund. The National Treasury is still engaging with the Department of Telecommunications and Postal Services on the funding of the Postbank, the expectation is for the Postbank to be funded or capitalised from its own resources, as we want to minimise any funding from the fiscus or via the sale of government assets. It is anticipated that all state banks will operate on a commercial basis, and profitably, and will not need to have recourse to the fiscus.

4. (a-c) Minister of Telecommunications and Postal Services, who is the executive authority for the Post Office (of which the Postbank is a division).

Defining the specific market failure or gap in the market that the state bank is to address will be an important policy decision. Any bank that lends to retail customers opens itself to great risks, and that is why we want all such banks to be regulated in terms of the Banks Act and properly supervised by the Registrar of Banks at the SARB, to ensure that we minimise any lending and other risks to the fiscus.

5. (a-b) Not applicable, as there are no new state banks that are to be created. With regard to the Postbank, I refer you to the Minister of Telecommunications and Postal Services, who is the executive authority for the Post Office (of which the Postbank is a division).