Top banking CEO sends a warning about state banks in South Africa

[Nat Quinn]

Nedbank CEO Mike Brown says there’s no need for a state bank in South Africa – warning that the government already has no money to run one while also exhibiting a poor track record for running state-owned enterprises.

Speaking to the Sunday Times this week, Brown – who will be stepping down as Nedbank’s lead – said that the state already has the Postbank and other financial institutions, and entering the retail banking segment makes no sense.

This is because South Africa already has a relatively high bank coverage – and it’s unlikely that a viable banking model will be able to offer anything different.

Brown’s comments come after the government pursues two new banks – one of which is a complete overhaul of Postbank.

President Cyril Ramaphosa recently commenced the new South African Postbank Amendment Act, formally transferring the Postbank’s shareholding from the embattled South African Post Office to the government.

This allows for the creation of a Bank Controlling Company – the new holding company of a bank – opening the way for Postbank to become a fully-fledged state-owned banking operation in the country.

While Postbank has always offered minor banking services through the Post Office, it was strictly a savings subsidiary, unable to offer transactional accounts, credit, and other banking services.

With the Postbank Amendment Act in effect, the group, now independent of the Post Office, can move forward as a state-owned entity, apply for a new banking licence from the South African Reserve Bank, and launch full banking operations.

While maintaining the Postbank name it held under the Post Office, it will become an entirely new banking entity.

According to the government, the ‘new’ Postbank’s primary objective will be to offer affordable financial services to communities not catered for by traditional retail banking, SMEs and the public sector.

By its own admission, however, the state bank will be entering a very competitive market. Brown said that the established banks already cover the SME market quite comprehensively.

Other state banks on the cards

In addition to Postbank, the Department of Women, Youth and Persons with Disabilities (DWYPD) is also planning to launch a new bank – though this is smaller in scope as a cooperative bank.

Cooperative banks are more conservative in nature and invest the members’ money into secure funding and government bonds instead of riskier stock exchanges.

They also differ from mutual banks as they operate under a common bond, either as a group of people that work together or belong to a particular association or a specific geographical area.

As the department’s name suggests, the bank aims to advance the inclusion of women, youth, persons with disabilities, and their businesses and other co-operatives into the broader financial system. The target customers are also based in rural areas.

Beyond these initiatives by national departments, some provinces are also looking at the prospects of entering the banking sector. In its latest provincial budget, the Gauteng government still lists the investigation into establishing a state bank as part of its 2030 plans.

Reflecting Brown’s warnings, however, while these ambitions are presented on paper, they have not come with the requisite funding attached.

The 2024 budget made it quite clear that South Africa has run out of room for expanding expenditure – the government is doing quite the opposite, in fact, outside of social coverage.

This is also while the economy is barely scraping by with marginal growth, leaving little room and appetite for even more banks.

“From a government point of view, the economy simply does not generate enough tax revenue to fund the large public service that we have in South Africa, and to fund multiple failing state-owned enterprises, and the important safety net that we have in place,” Brown said.

 

source:Top banking CEO sends a warning about state banks in South Africa – BusinessTech

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