What the new state-owned bank means for SA

You can also listen to this podcast at iono.fm.

Download the free LiSTN audio app on Google Play, Apple, or here.

Jimmy Moyaha: In the financial services sector, we are focusing on Postbank.

We received a very interesting announcement from the government. The government took over ownership of the Postbank from the Post Office.

Now, we knew that this was gazetted as part of the law a while ago and is currently in the works. However, the South African government now appears to be actively pursuing the goal of a state-owned bank.

I got on the phone with Cocky Kooyman, a director at Denker Capital, to discuss this matter. Good evening, Cocky. He really appreciates his time. I don't even know where to start. Thinking about state-owned organizations, [SOEs] The first question is, “Do I need another one?”

Cocky Kooyman: [Chuckling] Absolutely not. My mind gets confused. And let's face it, it's a stupid idea when states have proven themselves incapable of running institutions and now they want to run banks. .

They have already tried and Postbank, which was really just a savings bank, lost a lot of money.

But okay, let's get the process going right away. what happened? The Postbank problem – they knew all along they wanted to own a national bank, but let’s go back to why they wanted it. But the problem with Postbank is that its holding company, the Post Office, has gone bankrupt. And the post office was not 100%, so it had to be transferred to a bank holding company that was created in the meantime.

And now this transition to a new bank holding company has been gazetted or promulgated, and I believe it was signed by President Ramaphosa on February 19th. Therefore, it is now a legal bank holding company.

Postbank was actually just a savings bank, but it wants to change so that it can not only accept deposits but also facilitate loans and transactions.

Both the loan and the transaction are aimed at targeting South Africa's poor and underserved communities, which number around 6 million people, the so-called unbanked. Then there are small and medium-sized enterprises, small and medium-sized enterprises.

The problem here is that currently unbanked people have very little income as they are essentially unemployed and living on state subsidies.

So you're actually setting up a bank now to lend money to those people. [Sigh] And with the current interest rates, you're not getting any service.

but it's okay. So it's the edge of the market, and it's true that it's not a very profitable market segment for banks, and often governments are more concerned about rural areas, for example Van Wyksdorp. There are no bank branches there and banks are closing branches in such small locations. So that we can provide banking services there.

and small businesses. Although the aim is to create jobs, the reality is that this space is highly competitive. This new postbank will compete with Capitec, Absa, TymeBank and Bank Zero in the SMME space if it wants to compete at the low end. Therefore, it is a very competitive field.

Remember, you need to have highly skilled people. We need to attract talent from the banking sector. Next, you need to get the system. Technology is very expensive.

In reality, you need to expand your customer base. Given my past experience, why would I go to a postbank (probably a government postbank with poor service) and stay away from a private bank, unless I go because I can't get credit at this point? [there].

In other words, the government is targeting high-risk customers. [and] Ultimately, these customers end up going bankrupt and causing losses to the bank.

Jimmy Moyaha: yes. But Cocky, the bank has already moved, so it doesn't matter. They have effectively been moved from the Post Office's balance sheet to the state's balance sheet, just as Eskom's debts have been moved to the state's balance sheet. That's a big balance sheet. They can continue to be funded through bailouts. We have no choice but to approve banks, even if, as you rightly state, the state proves that state-owned enterprises have no ability to make a profit.

Cocky Kooyman: yes. By the way, I had a very interesting conversation this morning with a banker from Argentina about what's going on there. That government is tackling the problem and doing the opposite of what our government is doing. The government refuses to print more money to reduce inflation and balance the budget.

As you say, our government is trying to solve the problem by simply printing more money. That means higher inflation, a weaker rand, and, in fact, it's always the poor who lose the most from higher inflation.

It is driven by ideology. The government is actually going to give money to people who can't pay it back and say, “This is from the government.”

Jimmy Moyaha: yes. Cocky, I'm so glad you brought up the government, the state banking side, the money printing side.

Discussions about the sovereignty of central banks have come up many times. I've written an article about the nationalization of Saab, and it's not so much about nationalization as it is about whether the government can run the business.

read:

On this particular thing, we just talked about the fact that there is this new bank management company and the separation of structures and so on.

But what we didn't touch on is the fact that this didn't come out as an agreement. I think the new postbank will still need to resubmit the section 16 application.

They still need formal approval from Sarb [South African Reserve Bank] Regardless of who owns it, it must be licensed as a bank. And to that end, we know that the government has fought forces like Itala in the past. [Bank], was exempted for 10 years. Now that exemption has been abolished.

So, from Sarb's perspective and from the central bank's perspective, given the government's primary track record, how can the central bank be incentivized to issue new banking licenses? But secondly, won't this jeopardize other banking licenses? We boast that we have the best banking infrastructure in the world, but if we recklessly grant banking licenses, the quality of their Are you at risk?

Cocky Kooyman: That's exactly right, 100%. I apologize for not covering that part as well. That's right at all. Now that it has been gazetted, the bank is officially a bank holding company, with an actual bank within it. To be able to accept loans of that size and subsequent deposits, it needs approval from Sarb, i.e. a banking license.

And to be able to obtain that license, the new bank, or the directors appointed to run the bank and the team, must submit a business plan.

This should be a fairly detailed business plan. So Sarb considers it. It will focus on the quality of the individuals appointed. Because it's very important for serving. [the process] When directors and executives are appointed, Sarb ensures that they have the necessary experience and know what they are doing and what their track record is. To do.

So you're absolutely right. Before this bank can actually lend you money, you have to appoint someone first. Next, you need to put together a business plan. Third, they have to submit it to Sarb, and Sarb has to approve it.

And it's no surprise that Saab has been reluctant so far.

we know what happened [VBS] We don't want the banking sector to actually be harmed by state banks making reckless loans.

Jimmy Moyaha: Speaking of reckless loans and the need to put together a business plan, Postbank lost R2 billion in the current financial year. I think the post office's loss was around R976 million.

Currently, these organizations are separate and each can apply for their own relief because the parent company is the state, but we are simply adding to the list of people in line for relief. Shall we?

I understand that it has been stated that even in the current state of losses, the bank is fully solvent in that the value of its assets exceeds its liabilities. But do we know what those postbank assets are and whether that is actually the case?

Cocky Kooyman: [Chuckling] One of those assets, a major asset, was a loan to the post office!

Jimmy Moyaha: Make sense, Cocky! [Laughter]

Cocky Kooyman: If you think about it, it was a savings institution. You can't go bankrupt, except obviously for the costs of running a business. But in reality, the Postal Bank was not paying its own obligations in terms of taxes and pension funds, as the Post Office was no longer able to service its debts. [contributions]in terms of employee medical assistance.

I recall that at the end of last year, the total bailout of the Post Office and the banks themselves was R3.5 billion, which the government had to dam up. It's just to get you back to square one. Now, for Sarb to approve the plan, the new bank will also need to be capitalized. And it depends on the loan amount.

So what we're talking about is, for example, the R5 billion that the government will have to submit, which will put the government right at the debt level.

Remember, we are getting closer and closer to a debt-to-GDP ratio of 80%. This means that interest in the budget will consistently increase – and the Minister of Finance's forecasts will be in terms of debt, which means that interest will subsequently increase on debt. But this is certain to increase the government's debt levels and the interest bill it has to pay.

Jimmy Moyaha: I completely forgot about bank capital requirements. of course. So, Cocky, what we're saying here is that before a bank can start lending and open for business, it needs to clear any debt that exists there. We need to capitalize the banks. Therefore, we need to invest a lot of money. It's money that we've been repeatedly told we don't have for other companies or state-owned enterprises. That was before we started operating banks.

Cocky Kooyman: yes. That was before we even thought about national health care. Therefore, there are many competing players demanding money. We need money for Sars, railways and ports.

If you ask me if it's highly unlikely that this bank will ever see the light of day, I would say yes.

There just isn't enough capital for it.

Jimmy Moyaha: I try to be optimistic. I want to be a patriot. But again, Cocky, as you said at the beginning of the conversation, the government has proven time and time again that it leaves a lot to be desired in its ability to manage state-owned entities. .

It should be left alone. I hope we can continue this conversation because it is an interesting and relevant conversation that effectively relates to the future of South Africa.

But let's leave it at that. That's Cocky Kooyman, a director at Denker Capital, who shares his thoughts on the government's recent acquisition of Postbank from the Post Office.