State’s banks to be consolidated

ONE: GOVERNMENT WANTS TO CREATE AN ENLARGED ENTITY

Deputy Finance Minister David Masondo tasked with leading the process.

The establishment of a state-owned bank, which President Cyril Ramapahosa touted during his State of the Nation address, will involve the amalgamation of existing banks that are owned by the state.

The government owns and operates several banks – mainly Postbank, a subsidiary of state-owned enterprise the SA Post Office and KwaZulu-Natal-based Ithala.

Unlike commercial or privately owned banks, state banks are not profit-driven and largely support SA’s socio-economic development agenda of including unbanked individuals in the formal banking sector.

In a briefing with journalists ahead of the 2020 budget speech yesterday, Deputy Finance Minister

David Masondo said the government plans to consolidate existing banks that it owns to create an enlarged entity.

“We already have quasi state banks, which give us the opportunity to consolidate them to ensure that they comply with governance processes. This will ensure that we have a proper consolidated state bank,” said Masondo, who is tasked with leading the process.

Masondo said the enlarged and amalgamated entity will take cash deposits from consumers, which will require it to get a banking licence from the SA Reserve Bank, which regulates operations of banks. The idea of a state bank has long been mooted by the ANC. The party wants the Postbank to be a fully licensed and stateowned bank that can take cash deposits, lend money to lower-income consumers and small businesses at favourable interest rates and terms.

“We want to consolidate the proliferation of state banks that are already in the system.

“There are market failures in terms of the poor not getting basic services.

“[Establishing a state bank] is an attempt to get people included in the financial system and ensuring small businesses are well funded.”

Masondo said the government will be drafting a policy paper about the capital structures of existing state-owned banks to ensure “they will be run like proper banks”.

In his budget speech, Finance Minister Tito Mboweni said the architecture of the enlarged state-owned bank will be that of a “retail bank operating on commercial principles”.

It will be governed through the Banks Act and by the SA Reserve Bank’s Prudential Authority.

Development finance institutions owned by the state operate like banks but their mandates are tied to supporting infrastructure projects that induce economic growth and job creation and will not be included in the government’s state bank ambitions.

There are about 10 development finance institutions owned by the state, including the Industrial Development Corporation and the Development Bank of Southern Africa. – Moneyweb

State-owned banks will be run like proper banks