Finance

I am not in support of the establishment of a State Bank, however it’s still important to discuss some considerations already made.

Firstly, it is important to point out that there is a rich multi-faceted history of state banking experiences across the world. State banks can play an important role in the development of a country such as a countercyclical lending role during times of crisis (as opposed to the largely procyclical role of private banks), which helps with credit stabilisation over the business cycle. Also, in times of crisis, the State often assumes ownership of private banks through public bailouts in order to stabilise the system, e.g. as in the case of the United States during the 2008 - 2009 global financial crisis.

The key question that exists is whether or not there is need for a state bank in South Africa and what role such [a] bank[s] would play. There are reasons often advanced in support of the establishment of a state bank, which in the main include the developmental role through which the State can target specific sectors. The Development Bank of South Africa (DBSA) is such an institution.

However, there is strong evidence that shows that public sector banks have performed poorly by financial measures, such as returns on equity or assets, the extent of non-performing loans, and operating with lower efficiency. Public sector banks often provide subsidized lending and directed credits to state owned enterprises, which burdens the government with large contingent liabilities arising from explicit guarantees or the implicit assumption that some of these banks are “too big to fail”. State-owned banks in practice may lend to politically connected individuals with a political purpose, leading to collusion and corruption. A state bank could suffer the same fate, resulting in catastrophic effects on the integrity of the entire financial system.

Given the above, establishment or not of a state bank should be considered against the intended objectives, but being mindful of the unintended consequences and risk associated with such a policy decision whilst mindful of the current instruments available within the South African financial system. More in-depth research and policy analysis is required in advance outlining the implications of any policy decision in this regard.