Communications Portfolio Committee Report recommending candidates for ICASA Council & Initial briefing on Post Bank Bill & Post Office Bill

Meeting report

Initial Briefing on the Post Bank Bill and the Post Office Bill
Ms Vuyo Mahlati (Chairperson, SAPO) introduced the delegates from the South African Post Office (SAPO) – Ms Totsie Memela-Khambula (Managing Director, Post Bank) and Ms Ntombi Msimang (Board Member, SAPO).  She extended the apologies of the Chief Executive Officer, who was unable to attend the briefing due to the strike by Post Office workers.

Ms Mahlati explained that the Department of Communications was a shareholder of SAPO and was responsible for the Post Bank Bill.

Ms Memela-Khambula explained that the Post Bank Bill arose from the memoranda of understanding signed by the Minister of Communications and the Minister of Finance in 2004 and 2005.  The Minister of Finance wanted to ensure that depositors’ funds in the Post Bank were adequately protected.

The Post Bank was established in October 1822 and became part of the Post Office in 1894.  In 1910 the Post Bank became a division of the Post Office.  The purpose of the Bill was to allow clients of the Post Bank access to banking services beyond the current savings services.  The vision of the Post Bank arose from the White Paper published prior to the signing of the memoranda of understanding.  The Post Bank vision was to provide simple and affordable banking services to ordinary people and to enable individuals and the broader community to save.

The Post Bank was not an autonomous legal entity and was part of SAPO.  The activities of the Post Bank were regulated by the Postal Services Act and the post office banking regulations contained in the Act.  The Post Bank was not a registered bank but had an exemption form the Minister of Finance to operate as a bank without having a banking license.  The Post Bank was subject to regulation by the Financial Services Regulator and must comply with FICA regulations.  The Post Bank was excluded from the payment association system in its own right and was sponsored by Standard Bank.  The Post Bank had however developed a framework to make use of the payment association system and was gaining experience in the use of the system.  The activities of the Post Bank were currently limited to deposit-taking but third-party agreements were in place to allow clients to make use of other banking services.

Government’s vision incorporated in the White Paper was to establish a financial institution for the mass mobilization of investments and savings from the broader community, for the Post Bank to become the bank of choice for the under-served section of the community, to contribute to the growth of household savings and to have a positive impact on the growth and stability of the national economy.  The vision included the creation of a corporate structure for the Post Bank, which will be owned by Government and which will provide the necessary services to satisfy the requirements of the bank’s clients.

SAPO had faced a number of challenges at the time the Post Office was separated from Telkom and used depositors’ funds to fund the changes imposed.  The Minister of Finance imposed conditions on SAPO to repay the funds borrowed to the Post Bank.  The conditions included the corporatisation of the Post Bank to safeguard depositors’ funds and to expand the range of services offered to clients.  In terms of the memoranda of understanding signed in 2004 and 2005 with the Ministers of Finance and Communications, three broad phases for the development of the Post Bank was identified.  The first phase was for the Post Bank to offer diversified products, including card and investment products and to firewall depositor funds.  During the second phase, the Post Bank would become a subsidiary of the Post Office.  During the third phase, the Post Bank would become a fully-fledged bank, offering a wide range of banking services, including lending services.

The key focus area of the Post Bank was to become a second tier national bank in order to service customers, whilst managing the financial regulatory environment to ensure that the banking system was protected, to avoid risk by operating within the banking system and thereby protecting depositors’ funds and to enable the Post Office to diversify.  Currently the bulk of revenue for the Post Office was derived from mail business (62%), the Post Bank contributed 24% and the remainder of the income was from the courier and freight business.

Since signing the memoranda of understanding, the Post Bank had been working on determining the focus areas and developing the range of products to be offered by the bank, e.g. money transfers, bill payment facilities, insurance premium payment facilities, savings accounts, transmission accounts and investment accounts.

The savings book of the Post Bank totaled R3.3 billion as at 30 April 2009 (up from R1 billion at the time of the signing of the memoranda of understanding).  The composition of the savings book was 19% from Msanzi account holders, 18% from Flexicard account holders, 8% from investments and 54% from savings-book account holders.  The bulk of the bank’s clients preferred bank-book types of accounts to bank-card types of accounts.

Prior to 1994, Government allowed Post Bank depositors tax-free savings of up to R100000.  Over the last six years, the Post Bank levied service charges for internal (i.e. Post Office) payments.  The Post Office had used R960 million of depositors’ funds to fund the changes when Telkom was separated from the Post Office.  National Treasury had refunded only R750 million to the Post Bank but the funds were held in the Central Corporatisation of Public Deposits (CCPD) account at the Reserve Bank and will only be transferred to the Post Bank once the corporatisation process was completed.

The Post Bank determined the amounts deposited by clients at Post Offices on a daily basis and had separated the amount of interest payable on depositors’ funds.  In terms of the Memoranda of Understanding, steering and working committees had been established by the Post Bank.  National Treasury and the Department of Communications were represented on the committees.  The committees were tasked with implementing the memoranda of understanding and formulating the Post Bank Board policies.  The committees met monthly and reported to the Board on the funds held by the Post Bank on a quarterly basis.

In conclusion, Ms Mahlati explained that amendments to the Post Office Act were required because the Act contained provisions pertaining to the Post Bank.  The Post Office was currently in consultation with the Department of Communications regarding the amendments to the Post Office Act and the Post Bank Bill.  The Post Office saw the purpose of the corporatisation of the Post Bank as the most important step to allow poor communities and individuals access to banking services.  The Post Bank Bill will allow the Post Bank to become a fully-fledged financial services entity.  The Post Bank had a proven track record in reaching the under-served sector of the community and its Msanzi savings account product enjoyed a 40% market share.  The Post Bank continued to grow the savings-book business, which was preferred by the poor.  The Post Bank considered the linkage with the Post Office as essential as that allowed the bank to increase its outreach in rural communities.  Currently, the Post Bank had 5.6 million clients in rural areas.  Under-served communities however required other banking and financial services in addition to the savings services currently offered by the Post Bank.

Discussion
The Chairperson thanked Ms Mahlati and Ms Memela-Khambula for the briefing.

Mr N van den Berg (DA) asked if every post office would be a bank.

Ms Memela-Khambula replied in the affirmative.

The Chairperson remarked that there was a branch of the post office in Parliament.

Ms Memela-Khambula confirmed that the Post Bank services available in all post offices were part of the banking system.  Withdrawals from accounts held at other banks can therefore be processed by the Post Bank.

The Chairperson was unaware of the facility and asked whether the bank charges on the transactions would be the same.

Ms Memela-Khambula advised that most of the bank charges accrued to the other bank concerned.  She said that the Post Bank had recently launched a 2010 bank card, which was considered one of the best-designed Visa cards.

Ms P de Lille (ID) asked for clarity on the concept of corporatisation and wanted to know how this concept differed from privatisation.  She asked for further details of the ownership of the Post Bank and asked whether the bank’s poor clients would have some form of ownership in the Post Bank.

Ms Memela-Khambula explained that the corporatisation of the Post Bank was basically about good governance.  National Treasury required the Post Bank to implement systems to ensure that depositors’ funds were properly safeguarded.  The Post Bank will not be privatised and will remain under the Post Office, with Government as the only shareholder through the Department of Communications.

Ms De Lille asked what role would be played by Standard Bank.  She wanted to know if the Post Bank will pay dividends to Government and if any dividends had been paid in the past.

Ms Memela-Khambula explained that Standard Bank merely provided support to the Post Bank to allow the Post Bank to make use of the national payment system.  The Post Bank had no banking license and was therefore excluded from the payment system.  The Post Bank paid a fee to Standard Bank for services rendered in this regard and had no ownership relationship with Standard Bank.  In terms of the memoranda of understanding, the Post Bank would continue to be owned by the Post Office on behalf of Government.  The ownership of the Post Bank by clients was not defined in the memoranda of understanding.

Ms Mahlati explained that the Post Bank paid no dividends.  During the bank’s Annual General Meeting, the Post Bank reached an agreement with the Minister of Communications on the reinvestment of any surplus for the benefit of the people.

Ms S Tsebe (ANC) asked how the interest paid on Post Bank savings accounts compared to the interest paid by other commercial banks.

Ms Memela-Khambula replied that the Post Bank monitored the interest paid on deposits by other banks on an ongoing basis.  She said that other banks did not pay interest on the type of savings accounts comparable to the Post Bank’s Msanzi account.  The Post Bank considered Msanzi account holders to be important clients and did pay interest on deposits held in these accounts.  Currently, the Post Bank offered simple one or three month fixed deposit accounts but did not offer a 30 day notice deposit account.  The Post Bank allowed clients to have a stop order on an account whereby a fixed amount can be transferred to another savings account on a monthly basis.  The Post Bank also considered stokvels and other savings clubs to be an important category of client and offered the best rates in the market on these accounts.  The Post Bank recognised that stokvels and savings club account holders required interest on deposits in addition to access to the funds in the accounts.

Mr L Mkhize (ANC) asked if the intention was to offer tax concessions on Post Bank savings as was the case prior to 1994.  He wanted to know if the Post Bank will have its own Board of Directors and whether the Board will report to the Post Office or to the Minister of Communications.

Ms Memela-Khambula replied that the Post Bank could not dictate Government’s tax relief policies.  She said that the Post Bank had R4 billion on deposit in 1994 but clients withdrew R3 billion when the tax benefit was withdrawn.  She explained that the Reserve Bank required a bank to have a Board of Directors.  Directors serving on the Board and the executives of the bank had to satisfy the Reserve Bank’s “fit and proper” criteria.  In addition, the bank must have a risk management committee, an audit committee and a committee of directors.  The Post Bank Bill will include the provisions for the reporting lines and the requirements for directors and executives.  In addition, the independence of directors needed to be ensured.

Ms J Kilian (COPE) requested details of the Post Bank’s current accounting practices.  She wanted to know if the Post Bank was listed as an entity under the Public Finance Management Act (PFMA).  She asked what measures were in place to safeguard depositors’ funds.  She remarked that the commercial banking sector was not providing the products and services required by rural communities and wanted to know what would prevent the Post Bank from expanding the products and services offered to clients.  She asked if the changes to the Post Bank required by National Treasury would prohibit the bank from offering banking services to the poor and to rural communities.  She asked what other measures the Post Bank had to take to service the poor.

Ms Memela-Khambula replied that the Post Bank was included in the annual financial reports of the Post Office.  In future, the Post Bank as a subsidiary of the Post Office would issue its own annual financial reports.  Currently the Post Bank was not listed as an entity in terms of the PFMA.  The range of products to be offered by the Post Bank would be determined by the Post Office Board.  She said that the Strauss Commission had found that offering banking services to rural communities was a major challenge for banks.  Although pensions were collected at post offices, the Post Bank was unable to provide loans to clients where necessary.  The Post Bank was unable to offer short or long term insurance products to clients and was limited to insurance on Post Office mail.  Third party agreements were in place to allow various transactions to take place at post offices, which could in future be transferred to the Post Bank.  The Post Bank was encouraging Government entities to make use of the Post Bank and Post Office infrastructure.  Examples were a project with the National Housing Finance Corporation to provide funding for affordable housing and the opening of bank accounts to receive the proceeds of land restitution payments from the Department of Land Affairs.  Because the Post Bank offered no lending facilities, the bank lacked experience with regard to lending practices.

Ms Mahlati advised that the Post Bank’s deposit book was regularly reviewed by National Treasury.  The bank operated as if it was licensed in order to gain experience and representatives from the Reserve Bank were on the Post Bank committees.  Post Bank officials were attending banking training courses.  She said that the Post Bank was prepared to use the savings history of clients to satisfy the collateral requirements for loans.  She said that the FICA requirements were often a major problem (especially for women) as FICA required proof of a client’s physical address (such as a telephone or municipal account in the name of the client).  Although women contributed to the household’s finances, the required documentary evidence was often in the husband’s name.  The problem was exacerbated in rural villages, where municipal and other accounts did not exist.

Ms R Morutoa (ANC) asked what programs were in place for the Post Bank to assist the disadvantaged and female sector.  She wanted to know how the location of post offices was determined.

Ms De Lille asked what the difference was between the Post Bank and other commercial banks.  She asked if the Bangladesh model and the model of banks developed by Yunus Mohammed were considered.  She was not convinced that a banked owned by Government would be any different than any other commercial bank.

Ms Msimang explained that the regulatory restrictions in place in South Africa had resulted in the financial systems applicable in the country.  The Post Bank Board was reviewing the mandate of the bank to increase access to banking services by the poor.  The bank made an effort to determine the profile of its individual and stokvel clients in order to tailor the products offered to the client’s requirements.  The Post Bank encouraged clients to save and become financially independent.  She disagreed that the Post Bank was the same as any other commercial bank.

Ms Mahlati explained that the Post Bank had no banking license and was prohibited from loaning money to clients.  She said that the bank had considered the Bangladesh model and had participated in the workshops with Yunus Mohammed.  The facilities offered to groups of savers (e.g. stokvels) applied these principles.  She said that the Post Bank fire walled depositors’ funds from lending funds, offered savings book-types of accounts and planned to use the savings history of clients as collateral for future loans.  Access to the bank at all post offices extended the Post Bank’s reach into rural areas and the bank was in a better position to offer banking services to the under-served sector of the population than any other commercial bank.

Mr S Kholwane (ANC) welcomed the developments in the Post Office.  The key issue was the provision of banking services to the poor and he felt that the Post Bank would address this concern.  He asked if the proposed legislation would prevent a future shift in the location of the Post Bank from rural areas to more densely populated areas because of business reasons.  He hoped that the Post Bank would contribute to the drive to reduce the cost of banking services.

Responding to Ms Morutoa’s question, Ms Memela-Khambula said that she was not able to reply to the question concerning the location of post offices.  As a division of the Post Office, the Post Bank will be at every post office and will not have its own premises.  The Post Bank was also considering involvement in enterprise development projects, for example the manufacture of trays used by the Post Office to carry mail.  Other current projects the bank was involved in included programs with the World Savings Bank Institute, the World Financial Institute (WFI), the Bill Gates Foundation and a Non-Governmental Organisation (NGO) to provide training on financial literacy for savings groups and communities.

The Chairperson suggested that Parliament’s research section prepared a background paper for the Committee.  He asked when the Committee could expect the Bills to be submitted for consideration.

Ms Mahlati advised that the Department of Communications will advise the Committee when the Bills would be submitted.

Adoption of Committee Report recommending candidates for the ICASA Council
The Chairperson requested nominations for candidates for the ICASA Council from the political parties.  A short-list of candidates had been compiled after the Committee had interviewed applicants for the position.

Mr Mkhize advised that the ANC proposed Khulile Boqwana and Edmund Mihloti Baloyi.

Mr Van den Berg advised that the DA proposed William Stucke and Josephine Kwena Mabotja.

Ms De Lille advised that the ID proposed David Vannucci, Khulile Boqwana and William Stucke.  The ID had noted that Mr Stucke had had problems with ICASA in the past, which might influence his acceptance of the position.

Ms Kilian advised that COPE proposed Zandile Mxaku and William Stucke

The Chairperson noted that further discussion was required because there was no clear agreement on the persons nominated by the various parties.

Ms Kilian asked if the ANC was prepared to withdraw the nomination of Mr Baloyi if all the parties agreed to accept the nomination of Mr Boqwana.

Mr Mkhize pointed out that all parties were allowed to submit two nominations.

Ms Kilian said that the ANC had a majority in the Committee and was in a position to overrule any nomination from the opposition parties.  She asked if one of the nominees could be a person that would be acceptable to all the parties.

Mr Mkhize gave the assurance that the ANC was open to discussion and had no intention to abuse its majority position.

Ms L Mazibuko (DA) suggested that the horse-trading that took place during the Committee’s nomination of candidates for the SABC Board was avoided.  She asked if the Members could discuss the credentials of the candidates.

The Chairperson said that the Committee had a responsibility for nominating the most competent persons as candidates.  The nominees to serve on the ICASA Council had to add value to the organisation as ICASA had major problems.  For example, he felt that Mr Vannucci was very innovative but was better suited to a developmental area rather than the regulatory environment of ICASA.  The persons nominated needed to have experience as well as the technical skills required.

Ms De Lille felt that ICASA was too reliant on technical expertise being provided by the very industry it was supposed to regulate.  She thought that Mr Vannucci had the required technical skills and that he would add value to the ICASA Council.  She questioned the necessity of ICASA councilors to appoint advisors because they themselves lacked technical knowledge.  As the Regulator, councilors serving on the ICASA Council must have a thorough understanding of the industry.

Ms Mazibuko agreed with Ms De Lille’s comments.  She said that Mr Stucke had the necessary skills and that he understood the problems facing ICASA.  She felt that the ICASA Council needed a problem-solver with extensive technical knowledge.

Mr Van den Berg remarked that Mr Stucke had made a very good impression during the interview and clearly had a thorough understanding of the issues facing ICASA.  Ms Mabotja also displayed good understanding of ICASA.  He said that the problems at ICASA resulted from incompetence and caused the organisation to have a bad name in the industry.  The functions of the organisations were not being carried out at an acceptable level.  He felt that the nominations from the Committee needed to be based on practicalities and should not be politically motivated.  He felt that Mr Stucke had the personality to effectively deal with the ICASA Council but that Mr Vannucci lacked the necessary experience.

Ms Kilian was convinced that the person nominated to the ICASA Council needed technical as well as problem-solving skills.  The nominee needed to be someone capable of dealing with the complicated structures an a fast-developing sector.

Mr Mkhize said that Mr Boqwana impressed the Committee during the interviews with his detailed knowledge of the ICASA Act.  He felt that he had the necessary experience and knowledge required.  He remarked that the Committee’s understanding of ICASA had significantly increased as a result of the interviews held with potential candidates.  Mr Baloyi displayed a thorough knowledge of ICASA as well.  The ANC had nominated Messrs Boqwana and Baloyi because of their understanding of the legal requirements and processes that had to be followed.  He remarked that ICASA had lost legal challenges because the organisation had not followed the required processes.  Mr Boqwana had extensive legal knowledge and Mr Baloyi had previous experience at ICASA and understood the problems faced by the organisation.

Ms De Lille suggested that the Committee proposed Mr Boqwana and Mr Stucke as candidates.

Ms Kilian seconded Ms De Lille’s suggestion.

The Chairperson said that Mr Stucke was certainly competent but he raised concerns over his nomination by the industry and his independence.

Ms Mazibuko pointed out that Mr Baloyi was the adviser of the Chairperson of the ICASA Council and therefore had a close working relationship with the Chairperson.  She questioned his independence and ability to confront the Chairperson if necessary.  She felt that Mr Baloyi did not bring the necessary fresh approach to the ICASA Council.  ICASA need new blood and because of his earlier involvement with ICASA, Mr Baloyi may have contributed to the problems of the organisation.

Mr Mkhize remarked that the ANC was not entirely comfortable with nominating Mr Stucke because of the problems and frustration he had previously experienced with ICASA.

Ms De Lille said that Mr Stucke’s problems with ICASA arose out of the five cases reporting Telkom to the Competition Commission.  Although Telkom was at fault, the subsequent Court ruling found against the the Competition Commission because the Commission had no jurisdiction.  Mr Stucke had pointed out that weaknesses in current legislation favoured the operators rather than the consumers.

Mr Van den Berg pointed out that independent candidates were difficult to find because all the applicants had some background in the industry.  He felt that Mr Stucke had the necessary strength of character, technical skills and knowledge of the legal requirements.

Ms De Lille pointed out that all the candidates had to understand the legal framework applicable.

The Chairperson established that all parties agreed to the nomination of Mr Boqwana.  The second person to be nominated would be either Mr Stucke or Mr Baloyi.  He suggested that the Committee adjourned for further discussion and reconvened at 3.00 p.m. on the same day.  A task team would then be set up to compile the Committee Report.

After the Committee reconvened, the Chairperson confirmed the nomination of Mr Boqwana as the first candidate.

Mr Kholwane said that the ANC had agreed to participate in the process of nominations in a manner that did not cause conflict amongst the parties represented on the Committee.  The ANC accepted the opposition parties’ nomination of Mr Stucke, although it would have preferred a female candidate to promote gender equality.

Mr Van den Berg remarked that it was clear that the ANC felt that Mr Boqwana would be a suitable candidate.  The DA felt that Mr Stucke could also perform the required responsibilities.  The DA was sensitive to the gender equality issue but felt that the problems at ICASA required that the most capable person was nominated to the ICASA Council.

Ms De Lille agreed that the gender issue was sensitive.  She felt that the problems at ICASA required effective intervention.  She had reviewed the provisions in the ICASA Act concerning the requirements for ICASA councilors and the ID supported the nomination of Mr Stucke.

Mr Kholwane confirmed the support of the ANC for the nomination of Mr Stucke.

Ms Mazibuko asked if the order of the nominations indicated a preferred candidate.

The Chairperson read the Committee Report.  The Committee nominated Messrs Boqwana and Stucke as candidates to the ICASA Council.  All the Members of the Committee agreed to the Committee Report.

The Chairperson confirmed that Ms De Lille, Mr Kholwane, Mr Van den Berg and Ms Kilian would comprise the members of the task team.  He asked the Committee Secretary to contact Mr K Zondi (IFP).

Mr Kolwane raised concerns over the lack of support to the Committee from the Parliamentary staff.

The Chairperson agreed to take up the issue with the management of the department concerned.

The meeting was adjourned.