SA Postbank Amendment Bill: DCDT Briefing; with Deputy Minister

Meeting report

Opening Remarks from the Chairperson
The Chairperson greeted the Committee and said that he hoped the Committee was doing well and ready to go. He highlighted that it was Africa Month, and then indicated that the main agenda item of the meeting was a briefing from the Department of Communications and Digital Technologies (DCDT) on the SA Postbank Amendment Bill.

The Chairperson welcomed the Committee Members, and said the meeting was now duly open. He asked the Committee Secretariat if there were any apologies sent.

The Committee Secretary said that she had not received any apologies.

The Chairperson said he received a written apology from the Minister of Communications and Digital Technologies. He said the Minister indicated he would be busy with interviews for the Director-General of DCDT position. The Chairperson said, however, the Deputy Minister (DM) of DCDT and Acting Director-General of DCDT would be present in this meeting.

The Chairperson welcomed the Deputy Minister, who was present and leading the delegation from the Department. He said the Deputy Minister would assist in handing over to the designated official who would be briefing the Committee. He acknowledged that Wednesday was a difficult day for the Deputy Minister. He assured the DM that the Committee was working on rescheduling meetings on Wednesdays so that they did not clash with Cabinet meetings and committees. He allowed the DM to address the Committee and to provide an introduction to the Department’s presentation from a political and ministerial perspective.

Introductory Remarks from the Deputy Minister

The Deputy Minister of Communications and Digital Technologies, Mr Philly Mapulane, greeted and thanked the Chairperson and Committee. He indicated that his internet connection was not good but seemed stable now and therefore missed some of the points the Chairperson had made. He said it was a busy day for them, as a Cabinet Committee was in session and a Budget Vote debate later in the afternoon. He said that the Minister was also engaged with the Department and had sent his apologies. The Deputy Minister said that he would lead the delegation.

Deputy Minister Mapulane said that the Department’s presentation concerned the SA Postbank Amendment Bill that had been taken through the National Assembly. He said that the intention behind the Bill was to ensure financial inclusion through Postbank. The history of this Bill arose from the enactment of the South African Postbank Limited Act (2010). After this Act was enacted, it created a separation between the Postbank and Post Office. The Postbank was a subsidiary of the Post Office. Therefore, to provide for the full licensing of Postbank, it had to be separated and incorporated. He said this Bill, therefore, sought to conclude this separation process and to provide for the full bank licensing of the Postbank.

The Deputy Minister said that the decision to separate the Postbank and Post Office was due to the requirements of the licensing authority – the Prudential Authority (PA). He said this authority required the Bank controlling company to have certain capital adequacies. This meant that, due to its financial issues, the South African Post Office (SAPO) could not continue to be the Bank controlling company of Postbank. Therefore, separation was needed.

He said that this Bill proposed the establishment of a Bank controlling company that would be responsible for the administration of the Postbank. The Deputy Minister said that the details of this would be provided in the presentation that would be handled by Department officials.

This Bill was critical and, should it be passed, the Department would be able to position Postbank as a State Bank. The process to ensure Postbank was repositioned to become a State Bank had started. The Deputy Minister said there were other services that the board and stakeholders were working to introduce to ensure that Postbank could be transformed into a state bank and transform the financial sector. The financial sector was not transformed and most South Africans did not have access to banking and financial services. He said that they were trying to reposition Postbank. So, it hopefully could provide these services and the majority of people could have access to financial services.

The Deputy Minister handed over to the Acting Director-General of DCDT to take the Committee through the presentation.

Briefing by the Department of Communications and Digital Technologies: Postbank Amendment Bill

The Acting Director-General (DG) of the DCDT, Ms Nonkqubela Thathakahle Jordan-Dyani, greeted and indicated that she was experiencing network challenges.

Ms Jordan-Dyani proceeded with the presentation and said the main objective of the Bill, as shared by the Deputy Minister, was the establishment of the Bank controlling company.

Ms Jordan-Dyani said the process had been with the Department since 2015 and 2016. The Department had tried to allocate this to the SAPO, but it was found that SAPO did not meet the requirements. She said this meant that the Department was required to ensure a qualified entity or representative was designated as the Bank's controlling company. The amendment of the South African Postbank Limited Act was also needed.

Ms Jordan-Dyani indicated the steps that were taken. She said that there were full consultations to finalise this within government that included state law advisors and state attorneys. The Department also had to ensure that Cabinet approved the Bill being tabled to Parliament. She said that the Bill was being tabled as a Section 75 Bill. DCDT was mindful of the working arrangements between the Nation Assembly (NA) and the National Council of Provinces (NCOP). Therefore, the Bill was being passed on for consultation with this Committee. She said there had been extensive engagements on the Bill in the Portfolio Committee on Communications and Digital Technologies and numerous stakeholders made submissions. The Director-General emphasised that, by in large, the Bill had been supported.

She said that the Act itself was in the final stages of being tabled. The Director-General asked the Deputy Director-General to take the Committee through the various proposals, the rationale for establishing a Bank controlling company, and the specific amendments the DCDT wanted to make.

The Director-General thanked all the partners that were a part of the process and appreciated the collaboration between SAPO and Postbank and the full support of National Treasury. She also appreciated the support the DCDT received regarding the regulations and licensing in the banks, South African Reserve Bank (SARB) and the Prudential Authority. The Director-General also appreciated inputs from the Financial Sector Conduct Authority (FSCA), the Banking Association of South Africa and the Ombudsman. She thanked all the other stakeholders who have walked this journey with the Department. The Director-General said the Committee would see the inputs from the labour federations and employees were critical. She said this because there were working relations between the SAPO and Postbank. She appreciated the labour federations' input dating back to 2016 regarding this process.

Mr Omega Shelembe, Deputy Director-General: ICT Enterprise and Public Entity Oversight, DCDT, greeted the Committee and proceeded with the presentation.

Objectives of the Postbank Amendments Bill
- To mainly amend the South African Postbank SOC Limited Act (Postbank Act) to mitigate against the risks associated with the structure envisaged in the Postbank Act, which makes SAPO the sole owner and shareholder of the Postbank;
- To amend other sections of the Act impacted by the change in the Postbank reporting structure;
- Upon the enactment of the Postbank Bill, the BCC for Postbank will be registered in terms of section 43 of the Banks Act to exercise control over the Postbank. This is to conclude the Postbank licence application process.

Rationale for the Establishment of the BCC

A Bank Controlling Company (BCC) is required to be registered in terms of section 43 of the Banks Act to exercise control over the Postbank:
- Shareholder of reference for capital adequacy and in terms of compliance and submission of statutory monthly returns as stipulated in the Banks Act regulations and circulars.
- The implication is that the BCC will step in to recapitalise and support its subsidiary bank if it runs into financial difficulties.
- One of the key requirements is that the BCC must be in a financially sound position in terms of section 44(2)(e) of the Banks Act.

Meanwhile, Section 3(2) of the Postbank Act states that “upon the incorporation of the Postbank Company, SAPO shall be the sole member and shareholder of the Company.” This implies that SAPO needed to be registered as a BCC for Postbank.

To mitigate:
- Appropriate BCC reporting structure had to be determined
- Various BCC structure options were considered to determine the optimal option by DCDT & Treasury in consultation with the SARB and SAPO.

BCC Structure Option Chosen

Option two (as recommended by National Treasury, which makes the Postbank report directly to the DCDT through the establishment of the Bank Controlling Company (BCC) between the Department and the Postbank) was selected as the optimal reporting structure option:          
- Least financial implications for the Bank based on the results of the financial audits on the capital costing requirements of the various options.
- SAPO’s financial and liquidity position and the requirements as outlined in the Financial Matters Amendments Act did not allow for the BCC to report to it; it reinforces the selected BCC option.

In addition, SARB made it clear that it would be comfortable with the BCC structure endorsed by National Treasury as it controls the fiscus. To effect the appropriate BCC structure for Postbank, amendments to Postbank Act have been affected as contained in the Postbank Amendment Bill.

Status of the Postbank Act Amendments Process
The Department of Communications and Digital Technologies developed the Postbank Amendment Bill in consultation with key stakeholders: SAPO, Postbank and National Treasury. The Bill was publicly consulted upon and the ESIEID Cluster supported the Bill for submission to the Ministerial Cluster after its comments were addressed

The approval by Cabinet was granted, and the Bill was then submitted to the Speaker of the National Assembly and the Chairperson of the National Council of Provinces during April 2022 for further processing in Parliament. The Portfolio Committee on Communications commenced its own processing of the Bill, and published the Bill for public comments. The Department assisted in responding to the public comments.

Amendments to be enacted on the Postbank Act

The Bill seeks to amend the following sections of the Postbank Act:
- Section 1
- Section 2, 2(b), 2(f)
- Section 3
- Section 9, 9(1), 9(2)(a)
- Section 10
- Section 12, 12(1)(c)
- Section 14
- Section 15(a)
- Section 18
- Section 19
- Section 20
- Section 22
- Section 23
- Section 24
- Section 28
- The Long Title of the Act
- The arrangement of the sections in the Act.
- The Short Title of the Act

(For the detailed presentation,  see attached)

The Chairperson asked if the DG had any concluding comments and if the Committee could proceed with its engagement.

The DG said that the Department had no further comments but was on standby to respond to the Committee’s questions.

The Chairperson joked that he thought there would be alpha after omega. He said that the presentation was clear in the way it was tabled to the Committee. He invited the Committee to pose their questions and comments.

Discussion
Ms L Bebee (ANC, KZN) appreciated the presentation. She stated that she only had two questions. The first was if Postbank, as a standalone entity, had been given enough funding to be an operational and profitable business enterprise. This is because most state-owned entities (SOEs), when experiencing financial difficulties, the first thing they said was that they were never fully capitalised.

Ms Bebee’s second question was whether Postbank was a standalone entity under Schedule Two of the Public Finance Management Act (PFMA) in terms of borrowing power. She wondered how the Department reigning in reckless borrowing would, as seen at Schedule Two SOEs such as Eskom and South African Airways (SAA).

Ms T Modise (ANC, North West) welcomed the presentation of such an important Bill. She said that all major SOEs fell under the Department of Public Enterprises (DPE) and not under their policy departments such as the Department of Mineral Resources or the Department of Electricity. This was true for many other SOEs. She said that she assumed this was the case because the DPE had gained experience overseeing major SOEs over the years. Her question was if there had been issues between departments concerning under which department Postbank would fall. She also asked if DCDT had the capacity to oversee a commercial state-owned bank, especially considering what had happened to SAPO.

Ms W Ngwenya (ANC, Gauteng) thanked DCDT for their presentation. Her first question was how the Bill would protect funds accessed by the Bank controlling company from National Treasury if SAPO’s financial standing was not healthy.

Ms Ngwenya’s second presentation pertained to page four of the presentation, which stated that the risk of SAPO’s non-banking services posed a threat to safeguarding depositors' funds. She asked if an Information Technology (IT) system could be developed separately to assist in monitoring deposited funds.

Mr M Magwala (EFF, Western Cape) thanked the DCDT for their presentation. He said his colleagues had sufficiently covered him but still had some questions. Given the SAPO's liquidity issues, he asked, in terms of capacity, if the DCDT had enough capacity to ensure the country and its people that this Bank would not collapse. Mr Magwala also asked the Department to explain the powers of the Bank controlling company that would be the middleman in monitoring and evaluating the Bank, and everything between the Department and the Bank.

The Chairperson said the Committee was quite clear in its questions and comments. He welcomed the presentation as it was clear and made sense regarding the need to separate the Postbank and SAPO. He said they had been asking for a state-owned bank for over a decade and it was now time for it to happen. He appreciated the DCDT’s work on establishing a state-owned bank because this Bank could be used as a coercion instrument for transforming financial services in the country. This is because it would give much-needed access to people on the margins of society.

He said that this would allow people to bank the little that they had. This Bank would also ensure people had access to financing in the form of reasonable and affordable loans and development finance. The state-owned Bank could assist people with the building of homes without overcharging. The Chairperson said that home loans were often paid over twenty-year periods, and this Bank would help with reviewing such because it could provide reasonable timelines for people to pay back their home loans. The state-owned Bank, if realised, could assist with several things. Perhaps the shareholder that was mainstreamed was the state itself. He asked if any thought had been given to the possibility of citizens, especially the historically marginalised, having custodianship of the ownership of the Bank.

Response from the DCDT

The DG appreciated the Committee’s questions and comments. She thanked Ms Bebee for her questions and indicated that the DDG would respond to some of the questions.

On the capitalisation of the Postbank, she said that the key was to give the Committee sense of where the Bank stood. The DCDT was happy with the Bank. The net asset value of the Bank was over R4 billion.

The DG said that she was cautious in responding to some of the concerns, as the Postbank was now entering the commercial space – which meant there was sensitivity needed around details to avoid competitors in the commercial space using the information to their benefit. The DG said that the Postbank was operating separately from the SAPO due to the SAPO’s going concerns. The Postbank and SAPO had separate IT systems, and this was in response to the question posed by Ms Ngwenya. The Postbank had to adhere to the PA and Banking Association of South Africa’s requirements. One of the requirements was the need to strengthen the IT system and related security. She said that there was also a need for the Bank’s officials from the board downwards to meet the minimum requirements of being fit and proper. The board was vetted and passed the requirements. The DG said that the board would be put through an extensive assessment that they needed to pass too. So, with the management within the Bank, they had met these requirements. The DG said this spoke to the human capital element and ensured they had the relevant capacity.

Concerning the matter of risk and SAPO, she said that the Department was responding to this. Currently, the Bank controlling company for the Postbank is SAPO. However, due to SAPO’s financial status and leadership instability, the SAPO could not meet the Bank controlling company’s requirements.

Regarding representation by the DCDT, the DG said that, technically, the Bank controlling company was the state. This was why the Chairperson referred to the Postbank as a State bank. She said that the Minister of the DCDT was now the designated representative, but the President could decide at any point who the shareholder representative of the Bank would be.

Regarding capacity, the DG said the Department had an oversight function that had two components. The DCDT’s oversight division oversaw the issues related to the financial systems and their adherence to the PFMA and MOI, as well as other prescribed good governance requirements. She said that the DCDT was in the process of establishing a new structure. In this area, they had strengthened the mechanisms to ensure there was stronger expertise in this regard. The DG said that this would strengthen auditing responsibilities regarding the banking sector's requirements. She also indicated that, once this was in law, there would be a need to meet the requirements of the PA, SARB and the Banking Association of South Africa. Therefore, oversight would still be prescribed. The DCDT was working collaboratively with these institutions and the Auditor-General (AG).

She said there were wider opportunities for this Bank, and the DCDT noted the existing competitors in this sector. The DG said that the Postbank was valuable because there were still pockets within South Africa, especially rural and remote areas, that had no access to banks. She also said that, because of the financial status of these people in most cases, mainstream commercial banks rejected their requests to open facilities for lending and home loans, etc. This matter presented opportunities that the DCDT had looked at in a preliminary assessment of the need and desire. She said that there were several sectors and stakeholders that were important that that were looking for opportunities for them to venture into, such as small, medium and micro enterprises (SMMEs). She said there were also government officials who had, at times, due to their financial situation, been rejected by banks. On the transactions being offered through the SASSA grant, one would be asked at a mainstream bank for proof of creditworthiness. SASSA grant recipients and the most vulnerable would not be able to provide proof thereof.

She said there were many opportunities, and their intent as government was to expand and ensure that there was financial access for all and not a limited group of people. Financial inclusion and opportunities for SMMEs and disadvantaged people were important.

The DG said that, with the sense of ownership, and if DCDT was looking into it what was needed since the Bank was a new establishment, was to ensure it met the minimum requirements. There was a strategy developed that concerned the Bank’s plans. There was also collaboration that was being undertaken with other critical stakeholders. Regarding the stakeholders, the entities under the state had welcomed the establishment of the Postbank as a fully corporatised bank. They also expressed their interest in transferring some of the facilities they offered to the Postbank. This was because these entities were not fully licensed banks.

She said that, because of the sensitivities, the transfer of certain facilities would be announced at an appropriate time. The DG assured the Committee that the DCDT was confident that Postbank met the minimum requirements to secure its IT systems and build its infrastructure separate from SAPO. She said there still would be a collaboration between the SAPO and Postbank regarding using postal outlets to access grant recipients. There would be shared use of physical infrastructure between the two, but this did not pertain to IT systems at Postbank because these needed to be secure and independent. The DG said that her response was due to a question that had not been asked by the Committee but rather by other platforms, in terms of platforms the Postbank would be using in the future.

The DG invited the DDG to respond to the Committee’s concerns.

The DDG said he would go through the questions the DG had responded to and provide further explanation. Regarding if the Postbank was capitalised enough to be operational, he said that the DG had responded to this in terms of the net assets of the Bank, which exceeded the liabilities of the Bank; the difference constituted the full capitalisation of the Bank. He added that the reason for separating the SAPO and Postbank and establishing the Bank controlling company was to facilitate the finalisation of the Postbank’s application to the PA for a banking license. The DDG said that, once the finalisation took place, the PA would take over the function of oversight and ensuring that the Bank had adequate capital and complied with the rules and regulations for banking organisations. This meant the matter of the DCDT’s oversight capacity could be responded to by saying that, in the first instance, banks were regulated, overseen and monitored primarily by the regulator. Shareholders only played a shareholding role in this instance. 

The DDG said that the Department would therefore rely on the capacity of the SARB to detect early warnings and report on threats to the viability of the Bank. With the question of the borrowing powers of the Postbank and the Department reigning in the Bank’s potential reckless borrowing, the DDG said the Bank’s main source of funds was from depositors. Essentially, banks borrowed from depositors, and depositors earned interest from their deposits. The Bank invested the deposits to earn more interest which was then distributed to depositors. The Bank kept a part of these proceeds for the business. He said there was an inbuilt mechanism where the regulator monitored the management of the depositors’. Therefore, the DCDT was comforted that the management of such funds was overseen properly.

On the question about the regulatory authorities overseeing the Bank, he said that it would be helpful when the Bank was undertaking risky operations, as it would notify both the Bank and the shareholders to ensure that this practice was being managed properly.

On the non-banking operations of SAPO posing risks and whether there were IT systems to deal with these risks: he responded that the banking operations and their monitoring capacity required heavy investment to deal with such operational and security risks. He clarified that the risk the DCDT referred to in its presentation was the operational risk of SAPO if it were to be the Bank controlling company of the Postbank. This was because the risk the SAPO posed would make it difficult to manage the IT systems of the Bank. Therefore, the Department proposed the creation of a Bank controlling company to manage such risk.

On the question about whether comfort could be provided that the Bank would not collapse, he said that banks did collapse as a matter of their business, but the risk of collapse was reduced by proper regulation and oversight. Therefore, with the South African financial banking system – which is amongst the most respected in the world, for its rigour – the Department was confident that Postbank would be properly overseen to ensure that it did not collapse.

The DDG said that the role of the Bank controlling company was to be a holding company for the Postbank; it had no other business outside of this. Its main function was to ensure that the Bank filed its compliance returns to the relevant authorities to ensure that risk management was done properly. The Bank controlling company’s function was also to ensure the execution of proper governance in the organisation. He said that, in the event the Postbank experienced financial difficulties, the Bank controlling company would be the entity that the SARB would look at for further capitalisation of the Postbank. This was the reason for creating proximity between the Bank controlling company and the government so that recapitalisation could be facilitated quickly.

The DDG responded to the Chairperson’s question on the possibility of citizens owning shares in the Bank. He said that, in Section 3 of the Bill, it was provided that, in the near and medium future, the Minister of DCDT – in compliance with the Minister of Finance – could allow for other shareholders of the Postbank. This section did not specify whether these shareholders would be individual citizens or other corporate entities, but it did create a window for such consideration to be made.

The Chairperson thanked DG and DDG. He said to the Committee that responses were clear and that the DG and DDG did a good job responding to the Committee’s concerns. He said the Committee could make follow-ups. But from his side, the responses seemed sufficient.

The Chairperson thanked the Acting Director-General, Deputy Director-General and Deputy Minister. He said that the Deputy Minister was not on the platform due to network connectivity issues that he was experiencing. The Chairperson asked the DG to express the Committee’s gratitude to the Deputy Minister. They gave good responses to the Members’ concerns. What the DCDT presented made a lot of sense and would assist the Members in taking this work forward and ensuring that what needed to be done was prioritised and processed within a reasonable amount of time. This was so that the realisation of the Postbank as a state bank could happen as soon as possible. This was what they wanted, and what the people wanted and needed urgently.

The Chairperson wished the DCDT the best and said they needed to go back and do the work to ensure they delivered as soon as possible. The Chairperson said that it would be good to have this Bank established long before the next election so that the next administration could hit the ground running with this Bank.

He thanked the DCDT delegates again and released them from the meeting. 

Consideration of Minutes from 10 May 2023
The Chairperson said that the Committee would indicate if there were any issues with the minutes. However, as far as he was concerned, these minutes were a true reflection.

Ms Ngwenya said she had received and gone through the minutes, and she moved for the adoption of the minutes.

Ms Bebee seconded the motion of adoption.

The Chairperson said the minutes were then duly adopted as a true reflection of the meeting held on 10 May 2023.

Committee meeting with the Department of Public Enterprise
The Chairperson said that there was a matter he wanted to raise that came through his office. He said that, given the diary of Parliament, he was compelled to accept a proposal that there was a need to hold a meeting on Friday.

The Chairperson asked the Committee Secretary to take them through the summary of the meeting they needed to have on Friday.

The Committee Secretary said that, in this meeting, the Department of Public Enterprises would be briefing the Committee on its strategic plan and annual performance plan for the 2023/24 financial year. She said that the meeting needed to happen urgently because a report needed to be tabled in the House of Parliament on 24 May. The meeting needed to be on Friday.

The Chairperson said that this was a compliance issue and that the Committee had to consider tabling the annual performance plan so that a report could be compiled. This report would be presented by the Committee in a formal sitting of the NCOP on 24 May. He said a date then needed to be found before 24 May. But due to the diary of Parliament, the only available day they had was then Friday.

The Chairperson kindly requested that the Committee make time on Friday at 10am to receive the Department of Public Enterprises briefing.

Members agreed.

The Chairperson thanked the Committee for their work on making the Postbank a standalone entity and for related issues tabled before them. He expressed his gratitude for how the Committee engaged with the DCDT’s presentation.

Mr M Nhanha (DA, Eastern Cape) thanked the Chairperson and said he understood the circumstances forcing the Committee to have this meeting on Friday. He hated to sound negative always, but the Committee knew his thought process by now, as he never kept quiet when things were wrong. Mr Nhanha said that the Department of Public Enterprises must have known they needed to present their annual performance plan to this Committee, but it was left until the last minute. The Committee had leadership responsibilities in their provinces, and Mondays and Fridays were constituency days for some of them and they were held responsible by their parties. Mr Nhanha said that they were made to do constituency work because it was part of the reason why they were appointed [as Members of Parliament]. The Committee was now expected to sacrifice a Friday to accommodate the Department of Public Enterprise. He reiterated that he did not want to sound negative, and asked that the ANC Members speak with each other and stop this thing because it was not right.

Mr Nhanha said it was already Wednesday, and he was running a by-election in Port St. John’s.

The Chairperson said he understood Mr Nhanha’s point and shared his sentiments as he had the same initial reaction. The Chairperson said that they were dealing with the historical context that this Department was under a lot of pressure arising from problems such as loadshedding. The Chairperson said he was not trying to defend the Department but acknowledged that they were under a lot of pressure, which perhaps slipped through the cracks. He said that this issue, however, would be raised because it was a shared concern that an important instrument of governance, such as a strategic plan and annual performance plan, came as an emergency.

The Chairperson said that Mr Nhanha should understand the context they were working within was that there was a set deadline of 24 May, and the meeting on Friday needed to happen before this. He said this issue would be communicated to the Department to avoid reoccurrence.

The Chairperson said that if the Committee did not have the meeting on Friday, it would affect their performance, as they would have nothing to show the NCOP on 24 May. He thanked Mr Nhanha for raising this issue.

The Chairperson thanked the Members and reminded them that the Committee had a sitting later in the afternoon.

The meeting was adjourned.