Department response to the SA Postbank Limited Amendment Bill submissions; Public Protector Reports; with Minister

Meeting report

Ms D Kohler Barnard (DA) said that the Committee had received the substantial documents only at 18h20 the previous evening. She presumed that the Department on Communications and Digital Technologies (DCDT) expected the Committee to sit through the night and examine the documents. This was not treating the Committee the way it should be treated. It was not good enough. The Committee could not just sit and listen to what it had to say. The documents should be worked through to form an input.

The Chairperson said that this issue had been raised with the Department.

Minister's response to SA Postbank Limited Amendment Bill submissions

Ms Khumbudzo Ntshavheni, Minister of Communications and Digital Technologies, expressed the Department’s apologies for sending the presentation late. The public hearings on the SA Postbank Limited Amendment Bill [B 22-2022] were held only last week on Tuesday. The Department needed to ensure that it ticked all the boxes and that everything raised was considered. It needed to ensure that the documents and submissions were accurate and according to the contributions of the stakeholders.

The Minister said that the Public Protector’s report 114 of 2021/22 would not be dealt with today because it was under review. She appreciated the public hearings and the submissions from the stakeholders. It was important to emphasise that all the stakeholders who submitted supported the Postbank being established as a bank, and therefore it was supportive of the amendments to create a bank controlling company (BCC). In other aspects, there were clarity-seeking questions. A few issues had arisen, such as whether this Committee was the relevant committee to deal with this Bill. She confirmed that it was. It was an Amendment Bill, and not a money bill that would have to be dealt with by the Committee on Finance. This was a structured bill that dealt with an entity that reported to this Committee, which was why it was dealing with this Bill.

Another issue raised was whether there was a need to separate the Post Office and the Postbank. The Post Office and Postbank were separated by the South African Postbank Limited Act 9 of 2010, which came into effect on 1 April 2019. The Act confirmed that the Post Office and the Postbank were separate entities and therefore the Postbank had to be registered as a separate company. It was generally registered as that. However, even when the South African Postbank Limited Act was enacted and came into effect, the Post Office remained the shareholder and owner of the Postbank.

When the Department started to apply for the corporatisation or the banking licence of the Postbank, the National Treasury had amended the Banking Act, which was the one that was used for the prudential authority to determine who became a terminal bank and who did not become a terminal bank. The amendment was specific and categorical that only financially viable state-owned companies or state-owned entities could qualify to apply for a banking licence, or could become a BCC, which meant even though the Post Office was there, problems were created. The Post Office was not financially viable and therefore could not become a BCC or apply for a banking license. This was the reason for the current amendment to transfer the ownership of the Postbank to the Post Office and then to government to start applying for a banking licence.

She said that when the Postbank became a bank, the Minister as a shareholder, like any other shareholder, would have the right to appoint a board. These positions would be advertised, and nominations from the selection committee would be received. The selection committee would review the applications that were received and recommendations would be made to the Minister, but before the Minister approved those names, they would be sent to the Auditor-General of South Africa (AGSA) to assess whether they were fit and proper. A report would then be submitted to the Minister. The Minister would then be required to take those names through the prudential authority, which was the South African Reserve Bank (SARB), to assess those who were fit and proper in line with the SARB's own requirements, and then approve them to serve as members of the board. The Minister did not have the sole power to decide who would become part of the board of the Postbank. There would be sufficient checks and balances to ensure the process was not abused. The chief executive officer (CEO) and the chief financial officer (CFO) would also be subjected to a fit and proper assessment.

Department response to SA Postbank Limited Amendment Bill submissions

Mr Omega Shelembe, Deputy Director-General (DDG): SOE Oversight, DCDT, took the Committee through the Department’s presentation.

He said the Department welcomed the need to define financial services in line with the Financial Advisory and Intermediary Services Act 37 of 2002, and the rephrasing of sections 2(f) and 9(1)(i). The powers and approval by the Minister to appoint the Postbank’s Board members, the CEO and CFO and the concurrence of the Minister of Finance in the board appointments, had been raised as an issue. The organisations felt that there was too much power assigned to the Minister. The Department had declared that both the board and executive recruitment and appointment processes should be transparent and rigorous, involving different role players throughout as per governing legislation. There was a clear separation of duties in terms of the roles, from the initial short-listing up to the fit and proper assessment processes. In addition, the board recruitment process also included the nominations committee.

To strengthen the oversight over the banks through the composition of the BCC, there was a proposal not to have more than 50% of the bank's board members also on the board of the controlling company. This would enable the shareholder oversight body(BCC) the ability to challenge the board of the bank. The Department supported this proposal.

(Please see presentation for more details)

Discussion

Ms T Bodlani (DA) said that when the public hearings were held, there was no indication that an socio-economicl impact assessment (SEIAS) had been done. What was the reason for that omission? She had recently visited a post office, and there had been just one person there. However, there was now mention of using the structure of the Post Office for the Postbank. This was something that should be looked into.

How did the DCDT get the Department of Monitoring and Evaluation (DPME) to provide the same SEIAS, considering this was government assessing whether this was a viable entity? What was the possibility of getting an independent assessment? There was mention of the Postbank providing goodwill to the Post Office. Could the Minister elaborate on that? What selection committee was the Minister referring to? Was it this Committee? The Bill was very silent on the economic assessment and the selection of the board. She suggested that in future, this should be properly implied in the Bill so that such questions did not have to be entertained and could be found in the actual amendment bill.

Ms Kohler Barnard said it was stated in the impact assessment document that the option selected was considered to be the most viable and cost-effective to mitigate against the risk that government would be obliged to provide ongoing support to the South African Post Office to maintain its structure as a result of the ownership of Postbank. What ongoing support was this? It was talking about support for the Post Office, which was now subject to a Hawks investigation for massive fraud. What involvement would the government have here? Should the legislation go ahead, and the Postbank be separated completely from the South African Post Office?

She could not understand why this Bill was not with the Committee of Finance. It was bizarre that the Committee on Communications was overseeing a bank concept, because there was zero financial expertise in this Committee that she was aware of. She was curious about the many errors in the documents provided because of the time constraints. She failed to see why this was being rushed, with so many errors.

She said it seemed as if the Post Office was vehemently against this proposal. This was understandable, because it would be hit financially. Were there any legal means for the Post Office to fight this Bill? This was something that should be explored. She also wanted to know where a proposed budget for the creation of the Postbank would be found. The implication was that it would step in to recapitalise and support its subsidiary bank if it ran into financial difficulties. This meant that taxpayers would have to bail it out if it failed. She referred to the mass looting of the VBS Mutual Bank, and said there was little confidence that it would not happen again. If it was repeated, it would not just be the taxpayers' money that would be used to pay for bad debts, but also the pensioners sitting outside the banks hoping to get a bit of their money that they had saved over the years.

The presentation showed that there was a provision for the board members to be interviewed. Was there a provision for the board members to be interviewed by this Committee and voted for in the National Assembly? It was important that it came through this Committee. She was not saying that there should not be expert financial people on the panel, because suggesting that this Committee was not qualified was exactly what she had been saying all along -- that there was no financial expertise. This would be discussed with the Committee of Finance. However, if there was no such provision, who made this decision?

DCDT's response

Minister Ntshavheni said it seemed as if the Members of the Committee had read the socio-economic impact assessment report (SEIAS) wrongly. There was a system in government that had been established for policies and bills. This assessment was carried out by the DPME. The rules and processes of government could not change. These were the rules that had been established and the Department had to stick to them.

The selection committee referred to was not the Portfolio Committee. It was a committee that was comprised of experts. The Portfolio Committee could not oversee the appointments because of the need for independence. Government must be allowed to govern, and Parliament would then hold government to account. There could not be attempts by the Democratic Alliance to take the powers of the executive government. It therefore could not be sent through this Portfolio Committee. There were clear checks and balances to ensure that no single Minister could run amok with the bank, and that included the involvement of the AGSA and the SARB as individual institutions themselves. It could not undermine government's duty to govern.

Ms Bodlani raised a point of order. She said that when it came to the portfolio committees, it was clear that party politics were put aside. The Minister was now taking the Committee there, and this was not where the Committee wanted to go. The Committee was comprised of Members of Parliament. She asked the Minister to remember this and not refer to political parties, because the Committee was speaking on behalf of all South Africans.

The Chairperson said that the Minister should continue and take this point of order into account, and not emphasise party politics.

Ms Kohler Barnard pointed out that a lot of accusations had been made over things that were never said. At no stage had she attempted to undermine government or attack anybody. She had been talking as a Member of this Committee and would appreciate it if the Minister did not address her as a child. She simply asked the Minister to answer the questions that had been posed.

Minister Ntshavheni said that if the Members had read the SEIAS report properly, the Committee would understand that the Department had evaluated the process and was saying the establishment of the BCC was the best alternative, because if the Post Office -- which was not financially viable -- was left as a BCC, the government would have to step in to make it financially viable. The BCC was going to be constituted by 50% members of the board of the Postbank, and the bank controlling company would be registered as independent. The BBC would be independent of the Department and have its reserves in line with the Banks Act requirements. Government would be a shareholder that would be represented by the Minister. Once in a while, government would have to intervene or take decisions to ensure that the bank remained within its liquidity requirements, because that was its duty.

There was no issue that the Post Office would take to court. There were limitations on what the Postbank could do for the Post Office, because the liquidity requirements still governed the Postbank. Currently, the Postbank had a high exposure level to the Post Office, which was not good for the bank. Therefore, the Postbank must be protected from that. The sustainability of the Post Office was where the Department had requested National Treasury to assist the Post Office as it rebuilds itself. The personnel plan of the Post Office was being implemented.

Government had to deal with this, and government could be held accountable by Parliament. Government must appoint the board of the Postbank, and this process would be administered with checks and balances with the approval of the SARB. If it was Parliament, then the issue would be that the decisions by Parliament could be vetoed by the SARB, because that was the net effect. So did one want to create a situation where Parliament would be subject to being vetoed by the SARB because the appointments were incorrect? The Bill would create a structure called the BCC, so when the Postbank was established, Parliament would decide on its own where it should report to -- whether it was this Committee or the Committee on Finance. However, this was not the issue at play. The issue at play was the creation of the BCC. A bank licence should be applied for so that the Postbank could then become a fully-fledged bank that could transact like any other bank. It was currently not a fully-fledged bank, but when it did become one, Parliament should be able to determine which Committee to report to.

The Minster asked to be excused, as she had to attend a summit on gender-based violence (GBV).

Further discussion

Mr T Gumbu (ANC) said there had been support from organisations for the Bill, with some minor amendments. The Committee would like to see the Bill being finalised, with consideration given to the different inputs. It was a necessary intervention to help low-income communities, and provide access to banking services closer to where they lived.

Mr V Pambo (EFF) said he had been following the comments, and it seemed as if there was never a need to have a fully-fledged Postbank. In the Minister’s response, there had been an admission that the South African Post Office was not financially viable. It was taking this route, but what this would do was separate the South African Post Office by law when it was not necessary. The Post Office had the power for the Postbank to be fully fledged within the Post Office. What was needed from this Department was to ensure that the Post Office was in a proper financial position. The separation of the Postbank still did not make sense, and it was not justifiable through this Bill. It did not seem as if the Minister was responding to this. He was sympathetic, because the Department might not have thought this through. What did it mean that Parliament would decide which Committee to report to? What would this bank look like? Why this Bill? Why could a bank like this not exist outside the Bill? The law was no longer the issue. Why was the Bill needed for separation?

The Chairperson said there was no debating on the South African Post Office board, because this was something that had already happened. The point was the structure of who got to be on the board of the Postbank. It was also not about the separation of the Post Office and Postbank.

Mr Pambo responded that it was indeed the BCC that was being talked about when there was a mention of separation in this case. Why would one not have the South African Post Office as a BCC?

Ms Bodlani said she had been confused by the response from the Minister. She understood that the government would be the BCC, whichever way one looked at it. It was not even a question of whether the bank would need a bailout, because the government would help. She said that Mr Gumbu had made a point that this was a resolution of the governing party. She asked the Minister to explain how the ruling party saw the funding of this entity.

The Chairperson asked Ms Bodlani not to go back to the previous point of order discussion, and not to refer to the ruling party.

Minister Ntshavheni said that the Post Office and Postbank had been separated. The Postbank was a legal entity on its own. It was registered as a company. The BCC must make the decision. The Department was creating a BCC because the Banks Act stated that no state-owned company could own or apply for a banking licence when it was not financially viable. In three years, the Post Office would still not be financially viable. The Department would ensure that by the end of office of this Parliament, the Post Office would be breaking even so that it did not have to rely on bailouts. If the amendment was not improved on, and had to wait on the comments from citizens, the people who received grants and had bank accounts in the Post Office would not have access to their bank accounts. The bank accounts would have to be moved to commercial banks. This was the net effect of delaying the creation of the BCC. She was sure the Committee did not want people to suffer when there was the alternative of creating a BCC independent of the Post Office. The Postbank was mandated to extend banking to the poor, the underserved and the financially excluded. An amendment had to be passed to create a BCC so that when the Postbank applied for a licence and the SARB granted it, Parliament would be at liberty to decide to whom the bank would report. What she meant was that this was not something the Minister could decide.

Mr Shelembe said that the nominations committee was already provided for in the main legislation, which was now being amended. However, the section dealing with the nomination committee was not up for amendment, so it still remained intact. The SEIAS was part of the government system. It was actually a prerequisite that no bill came to Parliament if it had not undergone the SEIAS route to be certified and compliant in terms of its impact.

Mr Lucas Ndala, Acting Chief Executive Officer, South African Postbank, said there was something called a shareholder of reference. It was a shareholder that basically would stand in for the banks and had to ensure that the bank was managed properly and that the risk management and compliance policies were in line with the requirement of the SARB. There may be instances of capital requirements. The BCC was required to be a financially stable company, so when dividends were declared, it would decide if there was excess capital to pass over to its shareholders, which in this instance would be government. There were two steps involved for oversight, which was what management did within the bank to ensure that the bank was managed adequately and properly, and secondly, it gave the bank flexibility. Depending on how it evolved in the future, it could raise capital and provide it to the bank. In most banks in South Africa, there was this same structure where they had a BCC that would basically own all the assets underneath. It was an entity that, if it needed to make acquisitions, it could also do so. The SARB was then responsible to ensure that the operating bank was in line with all the banking requirements. He said that this was just a simplified view of a BCC.

The Chairperson said that those were the responses, and asked if the content advisors had any legal matters they wanted to raise. A meeting between this Committee and the Portfolio Committee on Finance had to take place. A formal written letter would be communicated.

Ms Kohler Barnard asked if there was any indication of when a joint sitting with the Standing Committee on Finance would occur. She felt that it could provide some expertise regarding the questions that had been raised in this meeting.

Ms Bodlani said she agreed that the issue of the BCC required banking knowledge. While this was not a money bill, there was a need to get information from the Portfolio Committee on Finance. The impact assessment that the DPME had done did not necessarily speak to the establishment of the Postbank, but to the process flow of the Bill. She said her colleague was correct -- if the Committee received documents past 18h00 the previous evening and then had to engage in a meeting the next day, it would not have thoroughly reviewed and scrutinised the documents. Hence, the Minister accused the Committee of not reading them properly. She said that in the future, documents must be received on time. The SEIAS was just a process flow of the Bill of Parliament, but not necessarily on the viability of the Postbank, and the Committee was asking how valuable this bank was.

The Chairperson said that the primary committee tasked with dealing with this structure was this [Communications] Committee, not the Standing   Committee on Finance. This has been said a number of times. This Committee would engage with the Portfolio Committee on Finance as part of the consultation process, not because this Committee was outsourcing its responsibilities. This Committee would continue to work on a meeting. Members should not forget that this task had been put before them. Broader consultations had been about enriching the discussions that this Committee had engaged in to make recommendations.

He said the Bill should be finalised, and the public participation process must be extended. An informed decision should be taken. He understood that people were not necessarily objecting to the Bill, but to the structure and the fear arising from lessons learned from some other situations. There was overwhelming support for the Bill. The Committee also wanted to take the entity's sustainability into account and the legality of the structure. Although there had been a discussion on the separation of the Post Office and the Postbank, because the Post Office would stand to lose, there had to be a balance to offset the risk of subjecting the Post Office to so many liabilities.

He was sure that the Department would go back and look at the proposals made in this meeting. The legal team would give proper feedback to the Committee on legal matters, if there were any. There would be further deliberation, but the Committee also had to be mindful of the need to act speedily.

Department's briefing on Public Protector’s report

Mr Molatlhegi Kgauwe, Acting Managing Director, State Information Technology Agency (SITA), took the Members through the presentation on the Public Protector’s Report 113 of 2021/22.

During 2017 and 2018, SITA embarked upon a clean-up process to address irregular expenditure and alleged fraud and corruption, mainly focusing on supply chain management (SCM) and human capital management. Consequence management was implemented against 55 SITA employees implicated in SITA’s investigation process, and most of them were dismissed. Whilst SITA was finalising the investigation in 2018, similar cases were reported to the Public Protector, Parliament, the Minister of Communication and Digital Technologies, and SITA’s board of directors. SITA had provided a comprehensive response to the Minister, the Public Protector and the Portfolio Committee regarding the matters. SITA had provided all information required by Public Protector to finalise both investigations (report number 113).

SITA has implemented the following improvement initiatives and consequences:

• Remedial actions to address the control deficiencies noted by Public Protector, and an action plan was submitted;
• An internal control improvement plan was being monitored on an ongoing basis by SITA’s internal audit department;
• It had considered the findings of the report and implemented consequence management against employees who were implicated in this investigation;
• SITA confirmed that consequence management against employees identified in 2017/18 had been implemented, and any irregular expenditure had been reported to, and condoned by, National Treasury, in line with applicable prescripts.

(Please see presentation for details)

Discussion

Ms Bodlani said that seeing this presentation confirmed her view that entities were falling through the cracks. Over the years, there have been 55 SITA employees with adverse findings against them. She had gone through the list, which stated that employees misrepresented themselves in their curricula vitae and watched pornographic material on their work laptops. More attention should be paid to SITA. It seemed as if there was a lax approach in terms of management. The Committee acknowledged that the entity had received a qualified audit, but more should be done. The AGSA had recommended that more training be provided to train the officials dealing with finances. Had this recommendation been implemented? What further support did the entity need from the Committee?

Ms Kohler Barnard asked if the Public Protector had set a deadline for when all of these matters had to be dealt with. Should a final report be put together to close the matters?

Responses

Mr Kgauwe said that there was not really any specific timeline for the implementation of remedial action. However, the requirements had been that within 30 days, SITA had to submit an action plan, but at that time it had already been submitted. There had been some engagements and SITA had complied with all the requirements of the report. The implementation of training of the officials had been rolled out.

Mr Shelembe said the Department did monitor the implementation and development of audit action plans by all its entities. There was also a structure that was convened by the Director-General which was called the “DG/CEO Forum,” which dealt with strategic issues across the portfolio. In this structure, a decision had been taken to create a substructure of a “CFO,” whereby they would share knowledge among themselves of the challenges pertaining to all of these issues.

The Chairperson said that the Committee had noted this Report 113, and also that Report 114 had not been served before the Committee because it was under review. He said that some legacy issues were still coming through from most entities. It was important that there were no repeat findings. Mr Shelembe had answered the question about the training in detail, and it had indicated the efforts that were being made there. SITA should see what it could do to prevent repeat findings.

He thanked the Department and SITA for coming before the Committee.

Adoption of minutes

Ms Bodlani referred to the Postbank, and said that the Department must provide the Committee with a feasibility study indicating the costs of a new entity, a new board, CEO and CFO, as well as the other financial implications of setting up the bank. This should be added to the minutes of this meeting.

She moved the adoption of the minutes of 25 October.

Ms Kohler Barnard agreed with the suggestion of Ms Bodlani, but proposed that this resolution be put in a formal letter to the Department, to prepare the costing and layout.

She seconded the motion for the adoption of the minutes.

The minutes of 25 October were adopted.

The meeting was adjourned.