Finance: Stamp of approval
As the African National Congress government promises “radical economic transformation” and President Jacob Zuma threatens to end the dominance of the four big banks, the state-run South African Post Office (SAPO) is set to get a full banking licence by January 2018.
With former investment banker Mark Barnes as chief executive, SAPO says it will target low-income clients and the unbanked population.
Barnes tells The Africa Report: “There is a huge market for us.
[Those in the] informal market are financing each other, are not part of the banking system and are paying over the odds for their money.”
In South Africa’s competitive market for financial services, attracting those clients is likely to be a tough task.
SAPO is one of several state-owned entities that has been in a steady decline.
As the necessity for postal services as a means of communication has waned, the private sector has nudged into its delivery space.
SAPO’s last annual report, covering the period until March 2016, shows that revenue dropped 9% to R4.7bn ($354.7m) and its losses totalled R1.1bn, reflecting a “lack of funding, unsettled labour agreements, little progress on the corporatisation and licensing of Postbank and, if anything, a further decline in government business”.
SAPO’s banking subsidiary, Postbank, which is the vehicle for the soon-to-be licensed bank, also recorded a decline in deposits and customer numbers.
Since the year end, SAPO received a R650m capital injection from the national treasury and it raised further debt funding of R2.7bn to pay for past liabilities, fund its losses and invest more than R1.5bn in capital projects over the next three years.
Financially, things look a bit precarious, but it is all systems go for the banking side of its operations.
The Reserve Bank approved its first-level application towards a fully fledged banking licence in June 2016, which will be followed by the final granting of a licence.
Barnes has been chief executive since January 2016 and has ambitious plans.
These include using the Post Office’s more than 1,500 branches and more than 750 agencies, many of which reach remote communities, as a conduit for various government services: from paying government pensions to dispensing medication and issuing identity documents.
Barnes says Postbank has more than 5.5 million loyal clients out of South Africa’s population of about 55 million people.
There are many South Africans who do not trust the big banks and new technologies, and keep their savings at the Post Office, with their balances recorded in a book.
Postbank is, Barnes says, “one of the top 10 banks” and has a long history of managing people’s savings. Lending, however, is far more complicated.
“Postbank does operate ‘under exception’ and can take deposits, but what we are looking for now is to become a fully fledged bank, and the licence will get us into a position to start extending credit and solving the problem of banking the unbanked.
” By the end of July, SAPO must submit its final documentation, after which the Reserve Bank has “some time”, which is typically about six months, to grant final approval.
The Post Office and Postbank will operate at arms’ length.
“The analogy I would use is Clicks and Dis-Chem,” Barnes says, referring to two of South Africa’s pharmacy chains.
“You have a pharmacy which operates with strict rules and regulations in a controlled environment, but you also sell toothbrushes and plastic ducks.”
Banking the poor
In its current form, Postbank has total deposits of R5bn from 5.7m clients, and assets of R7.8bn, Barnes says.
It is well managed and profitable, and there is little risk.
Once it expands into transactional services, it will still not be like other banks.
It intends to bank the poor and those who do not qualify for inclusion in the formal banking sector, such as “those who are not bankable because they don’t have a title deed”, says Barnes.
He becomes combative when asked if SAPO may have missed the boat, as development agencies, a mushrooming lending sector and bank accounts aimed at lower earners have tied up some of its potential clients.
“Name them,” he says. “If the boat has sailed, you wouldn’t have 80% of the population not being banked.”
A 2015 Finscope survey says that 84% of South African adults have some form of bank account.
Lower lending rates
The state could fund the bank at a relatively low cost of capital, which in turn would enable it to lend at a cheaper rate.
Many people may have access to unsecured lenders, but they pay exorbitant interest, Barnes says: “We will lend at much lower rates so that the cost of debt is appropriate.”
He adds: “We say it is possible to look intelligently at the informal economy, and we have reach and infrastructure.”
The Post Office’s strategy is to become the ‘national paymaster’, paying everything from state pensions to student loans and even issuing insurance products, like funeral policies.
“Mail is a dying business, but parcels, essentially sourced out of e-commerce, are a growing business,” Barnes says. “We have a three-pronged approach – e-commerce, financial services and post.”
He adds that he has talked to the administration about getting involved in the management of the payment of social grants.
Barnes suggests that the next steps for Postbank will be more about evolution than revolution: “We will start gradually. We will earn our way into this market.
We have to report every month, so I think there will be a gradual proof of of our capability. There was a trust deficit in the Post Office when I got there.
It was borderline deceased, and that is changing, but slowly.”
From the June 2017 print edition