THABILE WONCI: SARB will be robust in assessing integrity of Postbank’s systems

Managing public funds in SA is a responsibility that is enjoyed by various institutions and individuals whose custody and stewardship of public resources represents a unique social duty. Individuals and institutions tasked with managing such resources operate under an implicit social contract that binds their actions to the fate of the nation.

As we have seen over the years, when those tasked with managing public resources fail in their duty critical services collapse and the social compact is gradually eroded. Given the scarcity of resources, the elevated sense of scrutiny on these custodians is a necessary instrument of accountability. Over the past decade, as multiple instances of malfeasance and corruption have been identified and reported, the trust deficit has deepened. The consequence of this tragedy is that public institutions with a mandate for fostering the country's developmental mandate are increasingly viewed with a sense of scepticism by citizens.  

Over the past few weeks, as the president delivered the state of the nation address (Sona) and the finance minister delivered his budget speech, the state of public institutions was once again in sharp focus. One institution in particular — the Post Office and by extension the Postbank — has been especially topical as the president reiterated the commitment to harness the Post Office’s unique footprint and bring to life a state bank through Postbank.

As stated in the president’s speech, the creation of a state bank will enable the country to “provide financial services to SMMEs, youth and women-owned businesses and underserved communities”. Like everything in SA this statement must be understood in the context of our political and socioeconomic history.  

The country’s unique history of inconsistent resource allocation led to the tacit exclusion of millions of citizens from accessing services. This is particularly acute in rural areas, where issues of spatial planning and resource limitations significantly affect the ability of communities to access the full spectrum of economic opportunities. These underserved communities have historically found their foothold on the financial ecosystem to be compromised by multiple physical and financial bottlenecks, which limited the number of institutions and services that could be made available and accessible to the communities.  

In the early 2000s, SA deliberated on the question of how to foster financial inclusion for the country at large and ensure all citizens had access to financial products, financial institutions and financial resources within their local communities. The dimensions of financial inclusion were not only product-specific but also proximity-specific. The presence of Post Office branch infrastructure within communities represented an opportunity to expand the reach of financial services to remote areas and play a significant role in accelerating financial inclusion. As a deposit-taking institution the Postbank provided an important resource to communities whose access and participation in the financial ecosystem was made possible. 

The evolution of the country’s economy and its financial systems has also increased the need for diverse products and transacting platforms. For a range of reasons many citizens still maintain traditional preferences for engaging with the financial system. For example, citizens who collect pensions once a month and need to balance the costs of access to pension payouts, benefit from the proximity of Post Office branches and a Postbank network that has traditionally centred on the communities. While the new age of financial systems offers options like transacting using phones and other channels, such options are not universally adopted or even universally accessible, particularly given the relatively high costs of digital communications.  

The long-standing criticism of the SA financial ecosystem — a sophisticated system that still unfortunately leaves some citizens out of its transactional and services loop — is something that justifies a call for diverse offerings that appreciates the complexities inherent in our societies. Monolithic and rigid lending practices inherent in the system have created an access bottleneck where citizens who possess entrepreneurial ideas but lack access to sophisticated advisory services find the process inaccessible. The sum of these factors — the need to diversify the financial ecosystem, acknowledgment of traditional preferences and increasing costs of access particularly for rural communities — are key considerations that the Postbank regards as a challenge and an opportunity.  

The primary challenge is a function of historical and political contexts. The location of the Postbank under the umbrella of the Post Office business has created its own limitations and challenges. The preferred model of managing banks in SA emphasises the need for an anchor shareholder or shareholder of reference to become the foundational support for the bank. The Postbank’s relationship with the Post Office — which has resource limitations of its own — significantly compromised the Postbank’s ability to harness its primary capitals — proximity, access and trust capital — and grow its footprint in the financial services market. 

The most obvious consequence of this limitation was the participation of the Postbank on just one side of the banking coin — only receiving deposits and not participating in the lending dimension of banking. Such a limitation essentially created a strategic and operational ceiling for the bank. The limitation was acknowledged as a key bottleneck that needed to be addressed. Two weeks ago, after years of deliberations, the National Assembly passed the Postbank Limited Amendment Bill, which alters the prevailing model of housing the Postbank within the architecture of the Post Office.  

The effect of the amendment is that the shareholding of the Postbank will now be transferred to an entity whose alignment with the requirements of the Banks Act will enable the bank to gravitate towards being regulated on the same terms as other banks. The consistency of the regulatory framework is critical to address some of the risks associated with banking institutions. For the Postbank, its primary strategic risk is the perception that its governance and oversight processes would be less robust than other banking licencees. Such a perception would be fatal to the prospects of the institution. As the board of directors of Postbank we are acutely aware of the importance of establishing trust in the institution from inception.  

In recent weeks former Post Office CEO Mark Barnes has expressed public reservations about the ability of the bank to qualify for a licence (“It is doubtful that Postbank in its current form would qualify for a licence,” February 16). Of particular concern to Barnes is the assertion that the bank is unlikely to pass the “rigour and integrity of the tests the Reserve Bank applies in terms of skills, capital and systems”.

As custodians of a public institution, we acknowledge that our job is one that is subject to public scrutiny and we embrace this in light with our fiduciary and social duty. Part of the challenge associated with overhauling an operational model of an institution like Postbank is that much of the groundwork occurs within the dull corridors of regulation and systems design rather than in the glare of the public arena. As a consequence, many citizens remain largely unaware of the work that has been undertaken to get the institution ready for its next evolution.

The fact that Barnes once worked within the institution may give him additional insights into the strategic challenges and opportunities as they were during his time at the institution. But our reality is that much more work has been undertaken since that time that has clearly escaped his attention. 

Our most important work has been on crafting a strategy for the Postbank that is responsive to the state of the financial ecosystem as it is now. The diversification of the system and the emergence of alternative operating and transactional models represents an ongoing learning process for Postbank. The persistence of bottlenecks in access to finance and diversity in product offering  that acutely affect rural communities, youth-owned businesses and SMMEs, represent an opportunity we believe we are best-placed to tackle as a properly-regulated organisation. 

The key anxiety expressed by sceptics such as Barnes relates to the apparent tension point between the Postbank itself and the state’s long-standing commitment to creating a state bank. Core to this anxiety is the reality of the fragile state of most state-owned enterprises in the country today. This prevailing stigma is an intersection of political and social factors that transcends the mandate of the Postbank board. Crucially, however, the narrative of the sceptics misses the crucial point of the role of regulation in the management and governance of a licensed bank. Given the stellar track record of the regulators in ensuring stability in the financial system we do not share the view that the mere association with the state will be fatal to Postbank’s prospects.  

We quite simply do not envisage that the SA Reserve Bank would be any less robust in assessing the integrity of our systems, as feared by Barnes. In reality, so resolute has been our commitment to addressing the risks we face that we have undertaken an extensive process of mapping out how the institution will harvest the best skills and systems in the market to meet the rigours of the regulators.

Such a commitment means the most important job we have right now is to regard the passing of the Postbank Limited Amendment Bill as not the end of the journey but a clarion call for finally putting to life a long-standing mission to grow the Postbank into an institution that plays its role in fostering the national development agenda. To this end we urge all citizens to judge us not on the basis of our association, but on our actual performance.

• Wonci chairs the Postbank board.