Postbank: State bank in the making singles out customers at the bottom of the pyramid

With double the required amount of capital in hand, Postbank says it’s ready to be a fully-fledged bank, able to offer loans to a largely ignored market segment.

“We’re still a division of the Post Office, so we’re not yet a fully-fledged, separate legal bank, or a registered bank, and we don’t offer credit so in that respect we’re not completely commercial, but we operate on commercial principles. We’ve generated profits for many years [a pre-tax profit of R315m in the most recent financial year],” the acting managing director, Shaheen Adam, told Fin24 in an interview.

Postbank, which has 6.2 million accounts (fewer customers because some have more than one account), applied to the Reserve Bank for registration in June last year. Among the outstanding matters is the finalisation of the corporate structure, says Adam. Whether Postbank will be owned by the Post Office, by government or by a combination of the two, is at issue.

According to the Reserve Bank, the application is being considered, pending amendments to the Banks Act, which would allow a state-owned company to be registered as a bank.

In the meantime, Postbank is “trying to operate as a bank already despite the fact that we don’t have the banking licence. So, there’s been a definite shift in our culture and the way we operate as Postbank”.

Unlike the majority of its peers, financial inclusion is among Postbank’s core objectives.

Whereas some banks target people in Living Standards Measure (LSM) 5 and upwards, Postbank targets LSM 1 to 5. (LSM divides households into ten groups – 1 being the lowest and 10 the highest – based on their standard of living.)

For this reason, Adam doesn’t regard these banks as direct competitors.

“They tend to focus on people that have salaried incomes … And you only typically find that in LSM 5, 6 and above whereas with our target market, we find it’s largely stokvel groups; so people doing joint savings; it’s small-scale saving. We still offer a Smart Save book … On the transactional side, it’s people that are working once a year in the agricultural sector or on a short-term basis on a building project so it’s the entry point earners and [banks] don’t tend to target that bottom end of the market because they don’t earn enough to qualify for loans.”

Filling the gap 

Postbank has about R8bn in assets and investments. As Adam sees it, instead of only earning interest, that money could be used more productively in the economy – by offering loans to small start-up businesses, Small, Medium and Micro-sized Enterprises (SMMEs), small-scale agricultural operations and the like.

He says the loans available in the market are standardised. “They’re all revolving credit facilities; all based on income; all run debit orders. There’s nothing really that’s being done to uplift people’s situation, in terms of saying: ‘Can I give you a loan, so you can improve your outbuilding, so you can get more rental income [out of it]?’ as an example.”

Once its banking licence has been approved, Postbank would like to fill this gap.

Adam concedes that offering loans would come with increased risk but says Postbank “would not earn a return lower than what we are currently generating on our investments … Obviously with loans, it’s not a question of providing the loan, it’s a question of recoverability.

Everyone will take credit, but the problem is collecting the money at the end and a lot of smaller banks in South Africa have been burnt by extending credit and that’s why we want to do it in a very responsible fashion.”
Postbank is also focusing on providing government-to-citizen services. Social grant payments are a case in point.

“I don’t think we’ve sold it enough in terms of what’s been accomplished by both the Post Office and Postbank … That contract [for the payment of social grants] was only signed in December last year, which is the worst time in the year, and despite that we launched a fully interoperable card in the market on the first of May this year – four-and-a-half months later. That is an industry record: to get a fully functioning card that’s been tested by the entire industry operational on May 1. That was a huge accomplishment and it proved the government can get stuff done …”

Adam acknowledges the problems that were experienced in June when a number of beneficiaries moved from the old card to the new Postbank-issued card. “I’ll take it on the chin, but the last payment run [close to 7 million beneficiaries in October] didn’t make the headlines because it was successful.”

He says there are other opportunities for Postbank to provide government-to-citizen services.

In this way, the money stays within government, “making Postbank stronger because obviously you strengthen our balance sheet. You’re using existing infrastructure. Government is not spending more money.”

In the Eastern Cape, Postbank assisted the department of public works by providing accounts to 30 000 people who worked on roads on short-term contracts. In the past, they would have been paid in cash. It did similar work for the department of environmental affairs nationally.

Adam believes Postbank would, for example, also be able to assist with National Student Financial Aid Scheme (NSFAS) payments and open accounts for the beneficiaries of land claims.

He regards Postbank’s distribution network, through Post Office branches, as a key competitive advantage. “There are 2 400 points of representation throughout the country and none of the [other] banks come even close, so we provide access to banking in the most rural areas and this gives us an opportunity to provide services to those people.”

Postbank ATMs (customers currently use other banks’ ATMs) and digital banking – including an app – are in the works.

And there might be good news for taxpayers too.

Government recently announced a bailout of R2.9bn for the Post Office. But Adam says there won’t be a need for a government bailout for Postbank.

“We’ve got a very strong capital base so there’s no need for us to be bailed out. As an example, our capital adequacy requirement to qualify as a bank was worked out at about roughly R1.5bn … We’ve got double the amount [R3bn] of capital we actually need to operate as a bank and we’ve never needed a bailout … [Postbank is] also run by bankers; it’s not government officials. These are people that are seasoned bankers.

They’ve worked many years in the banking industry and our executive structure was cleared as fit and proper as part of the interim banking licence application,” he says.

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