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Government pushes ahead with plans to launch a state-owned bank – despite warnings of huge risks


Despite its own findings that a state-owned bank could become a massive R7 billion liability on the country’s books, finance minister Tito Mboweni says that National Treasury will move ahead with plans to set up its own bank.

In his concluding statements of the budget vote debate for the Finance Ministry, Mboweni said that the various responsibilities of the portfolio have now been split up.

According to Mboweni, deputy minister David Masondo has been given the responsibility to start the process of forming a state bank.

While the minister did not go into any detail about what this process would entail, he said that the establishing of a state bank was necessary.

“It’s a matter of responding to a cry among our people – and that cry fundamentally has to do with the discriminatory nature of the standing banking institutions,” the minister said.

“There has to be a response. It’s a big task that he (Masondo) has.”

It has been argued by politicians in the past – particularly the EFF – that South Africa’s private banking institutions do not act in the interests of the wider population, and that the finance sector is one of the least transformed in the country with no black-owned bank.

The EFF previously proposed that all banks in the country be nationalised, with the state taking 51% ownership.

A R7 billion mistake

The position to forge ahead with the establishment of a state bank comes counter to warnings from National Treasury itself that such an institution could be a massive liability that the country can ill-afford.

In a presentation to the Standing Committee of Finance in February 2019, Treasury warned that a number of recent banking failures – including the failure of VBS Mutual Bank – showed that a banking licence should not be handed out lightly.

It also warned of previous issues with state-owned banks, highlighting that the South African Post Office used depositors’ funds to finance postal operational losses in the late 1990s.

“International experience and South Africa’s own experience suggests that state ownership of banks has (the) potential to undermine prompt corrective action by prudential regulators,” it said.

“Prudential regulators sometimes forebear (i.e. they do not apply full regulatory measures) when faced with failing state banks due to the reluctance to frustrate what could be viewed as government policy or programs.”

Treasury added that the traditional rationale for introducing a state bank relates to addressing market failures, i.e. the state supplying services that privately-owned banks may be unable or unwilling to supply.

However, in a market where failures do not exist, introducing state banks is harder to justify, it said.

“The ownership of banks by the state represents a huge contingent liability on the shareholder (in this case ultimately the fiscus). Currently, the contingent liability is circa R7 billion,”it said.

“Financial inclusion is often cited as the key reason for the establishment of state-owned retail banks.

“However, South Africa has made progress in improving retail financial inclusion, with 90% of South African adults using some form of financial service and of which less than 1% is attributable to the Postbank.”


The move to establish a state-owned bank is not a new position by the South African government, with plans in place to turn the Post Office’s Postbank into a fully-fledged banking institution to compete with private banks.

It has been government’s plan since 2010 to fully incorporate Postbank into its own entity – pending the awarding of a banking licence from the Reserve Bank.

In March 2019, the Department of Telecommunications and Postal Services gazetted a notice for transferring the enterprise of Postbank from the South African Post Office to the newly incorporated South African Postbank Company. The date of transfer was on 1 April 2019.

This is a vital step in Postbank becoming a fully-fledged banking operation in South Africa, with the Financial Matters Amendment Bill – recently adopted by Parliament – paving the way for the group to get a banking licence and proceed to compete with other South African banks.

Postbank operates under the South African Post Office, functioning through several exemptions from the country’s Banking Act, which allows it to receive deposits and provide basic services.




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