Postbank posted a R2 billion annual loss yesterday as it yesterday complained the variation notice imposed by the South African Reserve Bank (SARB) was restricting its growth and took a massive loss from a credit loss provision relating to the SA Post Office (Sapo).
The state-owned entity yesterday, presenting its financial results before the Portfolio Committee on Communications and Digital Technologies in Parliament, reported a net loss of R2bn in 2022/23 financial year as compared to a profit of R302 million the prior year.
It attributed this to the R2.2bn expected credit loss provision relating to the R4.3bn Sapo exposure.
Postbank CEO Nikki Mbengashe said the SARB's variation notice, issued in December 2021, with several conditions, one of which was for Postbank not to on-board new customers or offer new products to existing customers, was hindering its ability to increase its deposit base and revenue.
SARB issued the variation notice to Postbank owing to its failure to implement risk mitigation measures as directed by SARB as well as non-compliance with the Designation Notice conditions.
The ministerial directive, referred to as the moratorium, prevented Postbank from entering into long-term contracts and the appointment of executives. As a result, the implementation of several strategic initiatives during FY2022/23 was delayed.
The Bank’s non-interest revenue declined by 6% to R1.5bn as a result of a decrease in transaction volumes resulting from imposed closure of the Sapo branches.
The Bank’s deposit book remained flat increasing by 1.6% to R9.7bn as a result of the Bank’s inability on board new customers or offer new products to existing ones. The Bank said its attempts to grow its deposit base and revenue were impeded by these circumstances.
The risk of not meeting the variation notice conditions might result in a possible revoking of Post Bank’s designation as a deposit taker.
“Postbank remains focused in addressing the issues raised and we are confident that we will adequately address all issues before the cut-off date,” it said.
Mbengashe said the Bank was due to meet the SARB this week for an update on the assessment to lift the variation notice and would lobby for a short timeline.
This was a hard sell to Parliamentarians, who questioned Postbank's commitment to addressing audit findings, which indicate that as at March 31, 2023, only 28% of all audit findings were resolved and 17% were overdue.
Approximately 83% of all findings were rated significant, 16% were rated material, and 2% rated minor. 51% of total audit findings relate to Information Technology, 21% Finance, and 18% Supply Chain Management . 20% of audit findings were classified as repeat from prior years. 86% of repeat findings were identified in both the Finance and Supply Chain Management business unit.
Postbank’s current operating model relies on the Sapo to service its normal core banking customers to perform cash withdrawals and deposits over the counter through its branch network.
The Bank said as a result, it was required to pre-fund Sapo to fulfil the Sassa monthly payment cycles and service Postbank’s core banking customers, resulting in Sapo owing Postbank R4.3bn as at March 31.
Consequently, Mbengashe said, Postbank had to recognise an additional impairment charge of R2.2bn in the statement of profit and loss resulting in lifetime expected losses of R3.2bn.
“This translated into a loss for the year and resulted in a reduction in equity from about R3.5bn in the 2021/22 financial year to R1.5bn in the 2022/23 financial year. Postbank’s capital adequacy ratio reduced to 27%, way below the SARB requirement of 30%," Mbengashe said.
Last month Postbank’s board last month staged a mass walkout citing interference from political principals, Communications Minister Mondli Gungubele, who countered with accusations that the board had mishandled a R140m tender.