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NCR faces flak over African Bank fiasco

Cape Town - The Debt Counselling Industry portal (DCI) is calling for a probe into the National Credit Regulator (NCR), claiming that it is an accessory to the crisis of embattled African Bank [JSE:ABL] (Abil).

“We are calling on the government to launch a high level investigation into the office of the NCR to establish exactly why the regulator is not doing its job properly,” said DCI founder Deborah Solomon in a statement on Monday.

"It’s time for the regulator to now be held accountable," she said.

She said Abil's R8.5bn financial gap was no surprise, following the NCR’s finding of reckless lending last year when one of the bank’s branches in KZN was fined R20m for breaching the National Credit Act (NCA).

However, the DCI said it received reliable information that the NCR “seriously erred” in not launching a full-scale investigation into the lending practices of Abil's 630 branches when probing it for reckless lending.  

Solomon did not disclose details of the information to Fin24 when asked to elaborate on it, but she said it was independently confirmed by various industry sources.

"I lodged a complaint with the NCR, to which I am still waiting for a response," she added.

“The [NCR] is an accessory to the devastation that has occurred for millions of consumers as their only function has only ever been to enforce and uphold the NCA, both of which they have sadly failed,” said Solomon.

She said debt counsellors have lodged thousands of complaints against the country’s major credit providers, including Abil.

"These complaints have repeatedly been sent to the regulator who has chosen to ignore them and the plight of desperate consumers.”

Abil - a pyramid scheme?

Solomon said Abil operated like a pyramid scheme, adding that urgent intervention is needed to transform the entire banking sector.

“Apartheid ended 20 years ago but the devastation of debt slavery that forms the backbone of this country’s banking system has stubbornly survived to burden consumers of all races and class with unfair and reckless lending practices,” Solomon said.

The NCR, when asked for comment by Fin24 responded in a statement, that it is extremely disappointed in the comments made by Solomons.

It has termed her comments as "disparaging", said NCR company secretary Lesiba Mashapa, adding that it has brought the NCR into disrepute and is a serious breach of her conditions of registration as a debt counsellor.

"The NCR has instructed Ms Solomon to withdraw her media statement by close of business today.

"The entire gist of Ms Solomon’s argument seems to be that the problems that African Bank has now were caused only by reckless lending and the NCR’s failure to investigate such reckless lending.

"Consumer over-indebtedness is not only caused by reckless lending, but also micro and macro-economic factors that have a direct impact on the debt repayment capacity of consumers, some of which occur after the granting of credit," said Mashapa.

Trying to save Abil

Seeking to rescue Abil, the SA Reserve Bank (Sarb) on Sunday placed it under curatorship.

Governor Gill Marcus said the Sarb in consultation with Finance Minister Nhlanhla Nene decided to implement a number of support measures, including splitting the bank into two parts.

Last week, emerging markets analyst Peter Attard Montalto expressed concern as to why the NCR, the Financial Services Board and Sarb did not sound enough alarm bells in 2012 as Abil's bad loan book was being built up.

Montalto told Fin24 on Monday that the trouble Abil is in should serve as an eye-opener for regulators.

"There are lessons here for the regulators, particularly the NCR but also Sarb in being much more aggressive much earlier with situations of undiversified companies like this."
 
Montalto said good money was thrown at Abil's last capital increase, but  the bank's cycle of capital raising was not sustainable as the market eventually realised the unsustainability of the situation.

"At the time Abil made serious strides (at behest of Sarb we now know) in order to clean things up, however it was ultimately Ellerine that pushed them over the edge."

However, Nene on Monday said that no financial sector regulatory regime can prevent failure of all financial institutions.

Abil triggered alarm after announcing it needed to raise R8.5bn following a full-year loss, mostly because of bad loans, and the resignation of CEO Leon Kirkinis.

This led to investors dumping shares of the unsecured lender and the subsequent suspension of trading on the Johannesburg Stock Exchange (JSE).

 - Fin24

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