Nedbank CEO Mike Brown does not believe South Africa needs a state bank at this time, especially because other state-owned enterprises (SOEs) have been badly mismanaged.
Speaking to Business Times at the release of the banking group’s financial results for the year ended 2023, Brown said running banks was not easy, and for South Africa to successfully operate a state bank, it would have to be managed differently from how most SOEs have been run.
“We already have the Postbank; we have the Industrial Development Corporation, which is the biggest development bank in Africa; and we have the Public Investment Corporation, which is the biggest asset manager in Africa.
“I do not see any need for a state bank. Banks are extraordinarily complicated and difficult businesses to run, and we certainly do not have a track record of running state-owned enterprises successfully,” he said.
In September, President Cyril Ramaphosa signed the Postbank Amendment Bill into law, formally transferring Postbank’s shareholding from the South African Post Office to the government. This allows for the creation of a Bank Controlling Company — the new holding company of a bank – opening the way for Postbank to become a fully fledged state-owned bank.
While Postbank currently accepts deposits, the expanded state-owned bank is expected to offer a full-service suite, including credit extensions to those who may not meet the strict lending criteria of commercial banks. The creation of a state bank is an ANC conference resolution.
Brown disputed the assertion that commercial banks had neglected the lower segment market and small and medium enterprises (SMMEs). Nedbank offers personal loans designed for the emerging market and also runs a large and successful SMME funding business.
Strict lending criteria were applied to ensure banks lend to those with the capacity to repay them, he said. “We would think we apply sensible criteria; I do not see how any bank which wants to survive over time can have a materially different criterion.”
Compared to emerging market peers, South Africa has a large banking penetration, Brown said. “The poor are much more looking for transactional services and for banking products to be much more inclusive. South Africa has a very high rate of bank account penetration relative to almost any other emerging market in the world.
“You simply cannot lend money to people who cannot pay you back without breaching, for example, the national credit regulations which say you have to do affordability tests.”
Brown, who has been at the helm for the last 14 years, is due to retire after the bank’s annual general meeting in May. He said the biggest threat to economic growth had been the collapse of public sector infrastructure, ramped up load-shedding and logistics constraints.
From a government point of view, the economy simply does not generate enough tax revenue to fund the large public service that we have in South Africa
— Nedbank CEO Mike Brown
The overall economic environment was challenging, especially the low levels of GDP growth. The bank expected GDP growth of 1% in 2024, up from 0.5% in 2023 and a modest rise to 1%-1.5% in 2025, he said.
“In an economy that is growing at 0.5% and 1%, it is extremely difficult across multiple fronts. From a government point of view, the economy simply does not generate enough tax revenue to fund the large public service that we have in South Africa, and to fund multiple failing state-owned enterprises, and the important safety net that we have in place.”
Stats SA on Tuesday reported that South Africa narrowly dodged a technical recession (two consecutive quarters of GDP contraction) after load-shedding slightly subsided in the final quarter of 2023, and with fourth quarter GDP growing 0.1% in line with expectations. Stats SA reported that on an annual basis, GDP grew 0.6% in 2023, with experts commenting that while 2023 growth was higher than prepandemic growth of 0.3% in 2019, excluding the pandemic years, it was the worst since 2009.
Despite the economic headwinds, Nedbank reported an 11% increase in headline earnings to R15.7bn for the year. However, the group reported a 30% rise in impairments to R9.6bn as consumers struggled.
Nedbank said consumers have been under strain, with real personal disposable income declining 1.2% year on year over the first three quarters of 2023 and higher interest rates pushing debt service costs up to 8.9% of personal disposable income quarter on quarter, up from 8% at the end of 2022. It said consumers also depleted the savings they built up during the pandemic years, leaving little to no buffer against more difficult financial conditions.
Brown said the good news in that story is that in the second half of 2023 inflation seems to have stabilised and has started to come down, which bodes well for a cut in interest rates.
“We think that interest rates in South Africa will begin to fall in the second half of 2024, and we are forecasting a 75 basis points reduction. In the banking cycle, as interest rates begin to reduce, that should start to give consumers a little more confidence. It will put some disposable income back into the pockets of consumers who are borrowers.”
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