Government moves ahead with grand ambitions to secure banking licence for Postbank

The SA Post Office and the government have ambitions to launch a fully fledged bank that will offer financial services such as loans to the poor and unbanked population – individuals and small business owners who are not catered for by established commercial banks.

It’s a big plan that has been in the works since 2015. But the plan has been hobbled by the financial and operational crisis at the Post Office, the state-owned entity that has recorded a 14-year money-losing streak and is financially insolvent.

For more than five years, the government has been working to hive off Postbank from the Post Office’s operations – a crucial step for a fully fledged bank to be launched. A separation, which is still ongoing, would help set up an independent bank that is not haunted by the Post Office’s troubles.

The Postbank is a subsidiary of the Post Office and has, since 1974, offered limited banking services such as transactional banking, taking customer deposits and offering savings accounts.

The Postbank doesn’t have a full banking licence from the SA Reserve Bank (Sarb), barring it from offering loan products, which are profitable for the banking sector because of the interest rates charged.

To offer limited banking services, Postbank has been piggybacking on the Post Office’s infrastructure such as technology systems and its more than 2,000 postal branches across SA, some of which have Postbank ATMs.

Work for a full licence

Within the next few months, the Department of Communications and Digital Technologies will approach Sarb for a full banking licence, which would pave the way for the Postbank’s entry into SA’s highly competitive banking industry.

Sarb recently opened up its bank licensing regimen, which has seen the entrance of technology-driven banks such as Patrice Motsepe’s TymeBank, Adrian Gore’s Discovery Bank, and Michael Jordaan’s Bank Zero (yet to be officially launched).

The new Postbank, which is set to have a full banking licence, will be separate from the Post Office’s operations but will still rely on its infrastructure. Postbank is also hoping to leverage its relationship with the Post Office and its social grant payments operations that administer payouts to 8.1 million beneficiaries.

The Postbank might offer these beneficiaries – normally overlooked by the big five banks (Absa, Standard Bank, Capitec, Nedbank and FNB) – personal and business loans at favourable interest rates. To do this, it requires registration with the National Credit Regulator in addition to having a full banking licence.

Relying on the Post Office is arguably worrying, because the entity is facing an operational and financial crisis so daunting that it cannot meet its basic mandate of delivering mail on time.  

For the year to 31 March 2020, the Post Office recorded financial losses of R1.76-billion and its current liabilities exceed assets by R1.49-billion — rendering the company technically insolvent. The start of the Covid-19 pandemic after its reporting period has probably worsened financial losses.

The Post Office’s financial crisis also saw landlords closing the entity’s postal branches due to non-payment of rent. The Post Office itself plans to close postal branches across SA because of its financial crisis. It said also that some branches are “not productive” because there are at least three branches located within a 5km radius.

The plan is to permanently close 130 branches across SA, said Nomkhita Mona, the Post Office CEO, who briefed Parliament’s Portfolio Committee on Communications on Wednesday. 

“We will be deliberately closing down branches. We are conscious to not do this work in rural areas, where postal services are needed the most,” said Mona.

A Postbank 2.0 might be doomed, given the planned closures of Post Office branches. After all, the Postbank will use the Post Office’s branches to roll out banking services and fewer branches means that the Postbank will have limited reach.

Postbank 2.0 is not part of the government’s ambition to launch a state bank, meaning that SA’s state-owned banking and finance institution industry will remain fragmented. The government already owns the Land Bank, Postbank, Development Bank of Southern Africa, the Industrial Development Corporation and Ithala.

Post Office crisis delays Postbank

One of the conditions imposed by Sarb on the Postbank in its quest for a full banking licence is for Postbank to have a bank-holding company. The holding company wouldn’t offer banking services, but it would act as a controlling shareholder (along with the SA government) of Postbank. The bank-holding company won’t run the day-to-day operations of Postbank, but will exercise control over its management and banking policies.

The Postbank doesn’t have a viable bank-holding company and has struggled to find one since 2015, delaying the bank’s separation from the Post Office and its efforts for a full banking licence. The Post Office wanted to be the Postbank’s holding company, but the former’s financial and operational crisis didn’t make it a viable candidate.

The jury is still out on whether Postbank will successfully launch with a whole gamut of banking services while remaining profitable. Unlike the Post Office, the Postbank has been profitable, recording a profit of R296-million in 2018 and R544-million in 2019.

Moses Ntshabele, who is responsible for the oversight of state-owned entities at the Department of Communications and Digital Technologies, said the Postbank is financially sound and has passed Sarb’s capital adequacy requirements.

Ntshabele said the Postbank has a net asset value (a value of a company: total assets minus total liabilities) of R3-billion. Sarb requires banks to have enough capital set aside to withstand losses from soured loans or a black swan event, such as Covid-19. This capital buffer is referred to as a capital adequacy ratio, which is expressed as a percentage.

A bank’s failure can cause systemic risk to a country, as seen in the near-collapse of African Bank in 2014. So Sarb wants banks to have enough capital available to survive economic shocks. Ntshabele said the Postbank has a capital adequacy ratio of 30%, which he said has satisfied Sarb. DM/BM