The Free Market Foundation (FMF) has expressed strong opposition to the establishment of a state bank in South Africa, arguing that the initiative is misguided and based on the misconception of a "racist" private banking sector.

Ayanda Zulu, an associate of the FMF, highlighted a survey conducted by DearSA in April 2023, which revealed that only 1% of respondents support the creation of a state bank.

This survey comes in the wake of President Cyril Ramaphosa signing the Postal Amendment Bill into law in September 2023, followed by the announcement in February 2024 that the Postbank Amendment Act would become operational from February 19.

“The act essentially paves the way for Postbank, which has operated as a subsidiary of the Post Office since its inception, to become a fully-fledged independent state bank that provides banking services,” Zulu explained.

Zulu contested the narrative that banks are systematically denying black people access to financial capital, asserting that this claim is "objectively false".

He pointed out that there has been a general improvement in the access South Africans have to financial capital and banking services over the past two decades.

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“While it is true that access to financial capital remains a challenge, particularly for black entrepreneurs, the underlying issues are not rooted in racism. Instead, they stem from the ANC's failure to create stable employment on a mass scale and to grant property rights to black citizens,” he argued.

To understand the relationship between banks and access to financial capital, Zulu emphasised the importance of assessing whether potential loan recipients can repay their loans.

“Individuals without stable incomes or sufficient collateral are considered high financial risks, which leads banks to deny them access to capital. The likelihood of non-repayment is exceptionally high, making banks cautious,” he explained.

Unemployment disproportionately affects black South Africans, which Zulu identified as a significant barrier to accessing capital. Additionally, she pointed out that the lack of property rights further compounds this issue.

“The ANC has denied millions of black people the right to property ownership,” he noted.

The FMF argued that instead of attempting to establish a state bank, the ANC and its partners in the Government of National Unity (GNU) should focus on addressing these underlying issues.

The organisation outlined two primary concerns regarding the creation of a state bank.

“First, it will likely impose an additional tax burden on an already overtaxed populace. Running a bank is expensive,” the FMF stated.

“Second, the ANC has a poor track record in bank management. Ithala Bank is facing liquidation due to mismanagement, and Postbank has consistently incurred billions in losses each financial year. Given this context, why should we trust the ANC to manage another bank?”

The FMF further argued that this reasoning overlooks the fundamental nature of government as an institution.

“The government is ill-suited to participate in the private sector because it lacks a profit motive,” they asserted.

“Without the incentive to manage institutions efficiently, the government’s primary objective becomes providing public goods rather than competing with market players. When institutions fail, they do not simply go out of business; instead, they often rely on state resources for rescue, as we have seen in our own country.”

In conclusion, the FMF called on the GNU to encourage black communities to mobilise resources to support local entrepreneurs and finance social programmes.

“Even banking giant Absa began at a community level,” the organisation noted.

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South African State Bank plans 'deeply flawed', warns Free Market Foundation