NOMPU SIZIBA: National Treasury has said it’s moving forward with its plans to introduce a new state bank for South Africa. Speaking at parliament yesterday, National Treasury Director-General Dondo Mogajane said the new bank formed part of government’s structural reforms announced by President Ramaphosa to help overcome the economic impacts of the Covid-19 pandemic. How much of a game-changer could a state bank be for ordinary South Africans? Can it be fine-tuned such that its governance principles are top-notch? Is it doable?
Well, to discuss this matter I’m joined on the line by Professor Raymond Parsons, the head of economic and management sciences at the North West University Business School. Thank you very much for joining us, professor. A state bank is something that the ruling party has been talking about for the longest time, and now it does look as though National Treasury is set to make it happen. Of course we have had Finance Minister Tito Mboweni state very clearly that he supports this. In principle, do you think a state bank can help a country like South Africa, where access to funding is not always easy, particularly for the less formal market?
Prof RAYMOND PARSONS: Good evening, Nompu. What we must understand is the concept of a state bank is not an alien one. State banks exist in several other countries, and some of them are more successful than others. So there could be no objection in principle to the idea of a state bank having a role in the South African economy – if it is well done and it is efficient.
And, as you’re saying, Nompu, the idea of a state bank has been the subject of debates in this country for some years, and indeed we must continue to interrogate the whole concept to make sure that, before we finalise it, we ensure that the conditions for a successful state bank in South Africa are created. I think that’s the important challenge that we have in an overarching way when you talk about a state bank.
NOMPU SIZIBA: The Treasury’s director-general has touted the possibility of collapsing the current Post Bank and replacing it with a new state bank, which is something that would be established basically from scratch. What are your thoughts about this?
Prof RAYMOND PARSONS: Well, what’s important here is this has been …….[2:13] a very prolonged ….. .the base of planning and ……. that’s actually a good thing because we must get this right, we can’t make mistakes in the banking sector. And if we proceed with a state bank, there are certain strong safeguards that you need. For example, first you need to ensure that it’s tailored to our economic circumstances and it’s not just an unnecessary add-on to the banking system. It needs to be indeed properly capitalised.
Then you will know that the prudential requirements that are imposed on the banking sector as a whole will need to apply to a state bank, to indeed mitigate and indeed minimise whatever risks might exist. In other words we must ensure, if we want to make a success of a state bank, that the same regulatory framework as the commercial banks have must also apply to a state bank. And it must compete with equal terms with the commercial banks. And then finally, and most importantly, there are advantages if we collapse some of the existing institutions, such as the Post Bank or the Land Bank in our case, into a more streamlined or perhaps a sort of rationalised state bank.
So I think there is a case, as we move through this whole discussion, for trying to build on existing institutions, and these are options that should be explored – that we should be open-minded in ensuring that whatever we create will be viable and sustainable.
NOMPU SIZIBA: We can’t escape the fact that we’ve experienced state capture. In fact, there’s the argument that different forces are always looking to capture the state, even now, and with that comes the potential for massive governance lapses. How do you think a state bank should be set up such that it delivers on its mandate to promote development and nothing untoward?
Prof RAYMOND PARSONS: I think what’s important here is we need to understand we have to be cautious. We need to understand there are these additional risks in South Africa as a result of the huge governance failures we’ve had in the recent past.
And if you look at the global experience, if you ……[4:33], ……you are very careful, you will find that the costs and the drawbacks of a state bank are just the same as any other state-owned enterprise generally. We need to draw the lessons from that. And we’re not in …… .circumstances. But if we go ahead, we need to ensure that the safeguards are built in to ensure that a state bank does not suffer the same fate as some other of the state-owned enterprises.
So the challenge as I see it, as we move through this whole crafting initial period about a state bank, is that we will launch a state bank – or we are set to launch it – one that will enjoy the necessary confidence from the outset. It’s got to enjoy the confidence of its potential clients. And for that we need to ensure right at the outset that the necessary strict checks and balances are there to make for a successful state bank to compete in the banking market.
NOMPU SIZIBA: Yes. A state bank implies that it’s a state-owned bank, and it implies therefore that it would be capitalised by the state, by government, by National Treasury. But we know for a fact that National Treasury is broke as a joke. So is it actually practical to do it, even if the principle is right? And even if we could get the governance right is it practicable?
Prof RAYMOND PARSONS: Well, I think these are the very severe tests that we face at the moment, given our fiscal and our own economic position and the vulnerability of our economy and of our public finances. So it will be essential to ensure that the capitalisation can be afforded, that we can afford to do it and, above all, that we create an institution that, unlike other state-owned enterprises, will not keep coming back to the state and say: “We have run into problems, we’ve got it wrong, we need to be further capitalised.” This is a major question and I think – apart from getting the whole institutional framework right so that you can have a successful state bank – we also need to apply a strong test of faith: can we afford it, can put the funds into it that we would like?
And that is why the idea of perhaps collapsing some of the existing institutions into a new one, if you can make that viable and sustainable, might be the way to go. But quite clearly we need to ask ourselves some fundamental institutional and financial questions. As we move through this process we must understand that a successful state bank must be no exception to the rigorous rules that make for a successful bank.
NOMPU SIZIBA: Still with that theme, and on the theme of sustainability, one of the institutions that has been cited as a state bank is obviously the Land Bank, which has been critical in assisting emerging farmers and promoting South African agriculture. But that institution has fallen into trouble, defaulting on its bond repayments, and the state has constantly had to bail it out. Surely even a state bank needs to be very mindful around the quality of its clients so that wherever it sources its money externally, it’s in a position to actually pay back when it’s due.
Prof RAYMOND PARSONS: Well, that’s absolutely true, Nompu. At the end of the day a commercial institution like a bank has to be mindful of the quality of its clients if it is to maintain its viability and its financial stability. Understand, if we step back and we take a bird’s-eye view of what we would like to do here, why is the banking system subject to such complex regulatory rules all over the world? For very good reasons. That’s why you get banking licences only once it satisfies some very serious tests.
What’s important here is that you need to ensure that, if you are going to ……[8:40] a viable and stable state bank, that it will comply with those regulations which are there for a very good reason. And it’s why our banking system as a whole in South Africa goes by a good global reputation – because it’s seen to be well-regulated and stable. And any state bank would have to fit into that system and be subject to the same rigorous requirements.