Treasury, Bank back state-owned banks

• Institutions must be law-abiding and solvent, says finance minister

The Treasury and the Reserve Bank have no objections to the creation of state-owned banks, provided they are subject to the same legal and regulatory requirements as commercial banks.

National Treasury and the Reserve Bank have no objections to the creation of stateowned banks provided they are subject to the same legal and regulatory requirements as commercial banks.

Their views were expressed during public hearings held on Tuesday by parliament’s finance committee on the Banks Amendment Bill proposed by EFF chief whip Floyd Shivambu.

Finance Minister Nhlanhla Nene said in a letter to the committee the cabinet had already approved the Financial Matters Amendment Bill, which provided for state-owned banks on condition they were solvent and had government approval. These requirements were proposed to limit the fiscal risks state-owned banks could pose.

In a presentation, Treasury chief director of financial stability and markets Roy Havemann said there were heightened risks for depositors’ money in a state bank because of the generally bad repayment culture (for example Eskom), problems with asset quality (Ithala Bank) and the fact that such banks often lent to single markets (Land Bank) that made their business model more risky.

Reserve Bank head of policy, statistics and industry support Unathi Kamlana said the Bank was broadly comfortable with the inclusion of state-owned banks into the banking sector but insisted that only stateowned companies with a solid track record of fiscal rectitude, solvency, liquidity and financial sustainability should be allowed to create such a bank.

The Banking Association SA (Basa) expressed concerns that a state-owned bank could engender systemic risk for the banking sector if it were to capture the accounts of public servants. It also flagged political interference in the bank. Basa said it supported the creation of new banks provided they were subject to the same regulatory supervision as other banks to ensure a level playing field.

However, it noted that “consideration should be given to the potential for systemic risk on the current banking industry should such a bank come into being, especially if there is large-scale movement of public sector staff away from the current banks”.

Basa said safeguards would have to be put in place to prevent the state imposing laws or regulations that compelled other state institutions to only hold accounts with the state-owned bank. Nobambo Mlandu, Basa’s representative, raised concern about the additional burden on the fiscus in relation to the initial and ongoing funding and licence obligations of such a bank.