Discovery's head office in Sandton. The company says its expects its banking unit to be up and running by the middle of next year.Photo: Simphiwe Mbokazi

JOHANNESBURG - Discovery inched a step closer to running a fully fledged retail bank on Monday after the Registrar of Banks granted the group a banking licence.

The Competition Commission and the yet-to-be-disclosed ownership structure are the only hurdles facing the mooted bank. Discovery said in a statement that it was assessing the regulatory conditions attached to the licence.

“The grant of the banking licence is subject to specific regulatory conditions, including conditions relating to the proposed shareholding in the bank and Competition Commission approval. In addition, certain other regulatory approvals are still required to complete the transactions proposed.” The country’s big banks, including Standard Bank, Nedbank and FirstRand, have not had stiff competition since Capitec entered the market more than a decade ago.

Also read: Discovery awarded banking licence

The South African Reserve Bank has granted provisional licences to Tyme and the South African Post Office (Sapo), which is looking at taking over the multi-billion-rand government contract to distribute social grants to 17million South Africans from embattled Net1. In August, the Commonwealth Bank of Australia said it had sold its 10percent stake in Tyme, a Johannesburg-based lender that allows customers to access funds through their mobile phones, to Patrice Motsepe’s investment vehicle, African Rainbow Capital, for an undisclosed amount.

Asief Mohamed, the chief investment officer at Aeon Investment Management, on Monday said Discovery had kept its plans for the bank and target market very close to its chest. Mohamed said that, based on past experience, investors had very high expectations of Discovery Bank in offering a compelling value proposition to existing Discovery clients and to attract new clients from competitors.

“The banking licence is also subject to the shareholding in the Discovery Bank and Competition Commission approval. It is not clear what the shareholding will be in Discovery Bank. If Discovery Holdings holds 100percent of Discovery Bank, we do not envisage shareholder and Competition Commission approvals,” Mohamed said, adding that aspirants such as Sapo were, at this stage, not expected to be ready to compete effectively with existing banks.

Discovery’s chief executive Adrian Gore has previously said that the company’s banking unit was on track to be up and running by the middle of 2018. In the company’s 2016 annual report, Gore said Discovery had attracted senior seasoned bankers in anticipation of the bank becoming operational.

“With Discovery executives, they will lead the execution and delivery of the banking business. It is in the process of finalising operating processes. Insights are being developed that will be utilised in the design of our final product offering,” Gore said.

Last month, Moody’s maintained its negative outlook on South Africa’s banking system, reflecting the rating agency’s view that the banks’ creditworthiness will come under pressure over the next 12 to 18 months. Neelash Hansjee, a banking analyst at Old Mutual Equities, said many customers were already multi-banked and new players would have to build trust with consumers.

Hansjee said Discovery’s entry into the banking sector signalled a shift to disruptors in the financial sector. “Discovery is adding to the competitive stakes against the banks,” Hansjee said. “Discovery has a strong brand, a loyal customer base via Vitality rewards programme, which can create a compelling bank offering.”

Discovery shares rose 0.43percent on the JSE on Monday to close at R143.40.

- BUSINESS REPORT