The door is open for state-owned banks

state owned bank
19 Mar 2019

In 2018 we saw the release of the Financial Matters Amendment Bill (“FMAB”), and amongst the various proposed amendments of the FMAB, the amendments that had caught the eye of most people are the proposed amendments to the Banks Act No 94 of 1990 (“Banks Act”).

As the Banks Act is currently written it only allows for public companies, as defined in the Companies Act No 71 of 2008 (“Companies Act”), to establish a bank. According to the definition provided in the Companies Act a public company “means a profit company that is not a state-owned company…”

The first amendment proposed by the FMAB is to then amend section 1 of the Banks Act by substitution for the definition of a public company. The definition then reads as follows:

  • “public company’ has the meaning ascribed to that expression in section 1 of the Companies Act and includes a state-owned company as defined in paragraph (a) of the definition of “state-owned company” in section 1 of the Companies Act.”

This then means a state-owned company would qualify to apply for a banking license. Previously state-owned companies, such as Postbank and Land Bank, would have been required to obtain various exemptions, and would still not have been able to operate as a fully-fledged bank. The application for the banking license would then have to be done in accordance with the second amendment to the Banks Act which, inter alia, states the following:

  • “(b) A state-owned company may only with the approval of the Minister, granted with the concurrence of the executive authority, as defined in section 1 of the Public Finance Management Act, 1999 (Act No. 1 of 1999), of the state-owned company, apply for authorisation to establish a bank in terms of subsection (1).
  • (c) An application in terms of paragraph (b) shall include a declaration by the auditor of the state-owned company, contemplated in section 61, that certifies that for the period of 24 months immediately preceding the date of the application, the assets of—

(i) the state-owned company exceeded its liabilities;

(ii) the holding company of the state-owned company exceeded the holding company’s liabilities; and

(iii) the holding company of the state-owned company’s holding company exceeded the liabilities of the first-mentioned holding company (if applicable).”

In short, the provision above means that upon approval by the finance minister, acting in concurrence with the executive authority, may a financially stable state-owned company then establish a bank in term of the provisions contained in the Banking Act.

Common opinion seems to indicate that the proposed amendments have been widely accepted but as things stand more debate is required to establish how these amendments will affect aspects such as government banking service tenders once state-owned banks are established.

See also:

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

Banking & Finance Law articles on GoLegal