ECONOMY

South Africa Mulls Stake in Lender as it Covets a State Bank

South African Finance Minister Tito Mboweni wants to forge ahead with long-touted plans to establish a state bank and suggested the government take up the central bank’s stake in African Bank Holdings Ltd. and use it as a building block for the new lender.

The state bank could play a crucial role in providing support to businesses and shake up the financial-services industry, the minister said in an interview on Wednesday.

African Bank is owned by the South African Reserve Bank, the Government Employees Pension Fund and six of the nation’s largest commercial lenders, which stepped in to save it with an equity injection when its owner, African Bank Investments Ltd., went into administration in 2014. It’s undergone a revamp, offering more diverse services and additional digital products, and the time could be opportune for its existing shareholders to divest.

“The government would like to take up their shareholding of African Bank and use that license as a basis for the establishment of a state bank,” Mboweni said. “It can enter those parts of the markets which have failed in providing banking and financial services to our people. I am really excited about it and I hope that we can really get it across the line.”

Mboweni has previously said South Africa needs a new state bank to help support the emergence of Black agriculturists and Black industrialists.

While about 77% of South African banks have access to a bank account, only about 14% of them are able to obtain loans from commercial lenders, with the remainder sourcing them from non-bank institutions or family and friends, according to FinMark Trust, a Johannesburg-based non-profit.

Access to finance remains a “definite challenge” in South Africa, particularly for start-ups and smaller businesses, where demand is greatest, according to a 2018 report by the Banking Association of South Africa. It cited a study that showed a total of 44% of small businesses seek funding of up to 250,000 rand ($17,058), with a combined 73% seeking funding of up to 1 million rand, while financiers mostly offer funding from 250,000 rand to 5 million rand, “pointing to a mismatch between funding demand and supply.”

The central bank initiated the process of disposing of its stake in African Bank last year, and Mboweni said his deputy David Masondo is in talks on how it could be acquired with a view to setting up the new lender.

“This matter has the strongest support of the president, so we have to proceed,” he said.

The central bank said it has appointed external advisers for the process of disposing of its stake in African Bank. 

“The South African Reserve Bank and the transaction advisers are assessing the expressions of interest received, and due to the nature of the process we cannot, at this stage, disclose who has registered an interest,” it said in an emailed response to questions.

The government already owns Post Bank, which confines itself to taking deposits, and the Land & Agricultural Development Bank of South Africa, which mainly lends to farmers.

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