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Johannesburg - Legal and factual inaccuracies litter the Public Protector’s provisional report on the Bankorp assistance saga, says ABSA in a statement.
The saga surrounding Bankorp assistance stems to a CIEX Report, which was put together in the late 1990s, that outlined how the new South African government could recoup monies that were lost because of alleged apartheid era looting or illicit activities.
The 52-page report was drawn up by former British operative and founder of CIEX, Michael Oatlely. CIEX is based in the UK and specialises in recoveries.
The report spelled out how ABSA should repay a bailout for Bankorp, a bank that received a R1.5bn lifeboat from the South African Reserve Bank (SARB) in the 1980s and 1990s. ABSA acquired Bankorp in 1992.
The administration under former president Thabo Mbeki decided not to act on the CIEX report amid probes by both Judge Dennis Davis and Advocate Willem Heath.
However, the saga has come back into prominence amid a leaked provisional report by the public protector, which reportedly says ABSA should pay back R2.25bn to the fiscus in interest not previously paid.
And ABSA said it had responded to Public Protector Busisiwe Mkhwebane on the report in line with the February 28 deadline.
“Our response addresses several legal and factual inaccuracies contained in the provisional report,” said ABSA in a statement.
“ABSA’s position remains that all obligations relating to the SA Reserve Bank’s assistance were discharged in full by October 1995, in line with the requirements set out by the SARB as part of the assistance programme to Bankorp, both before and after ABSA’s involvement.
“In simple terms, the SARB assistance programme meant that a loan was provided to Bankorp; and that loan was immediately used mainly to purchase bonds from the SARB; and the yield on those bonds would be used only to set-off certain specified bad debts owed by customers to Bankorp,” said ABSA.
ABSA, in a note, further said that the "arrangement was terminated on 23 October 1995 when the loan was repaid".
"All interest payable on the loan (at a rate of 1% per annum) had been repaid over the course of the loan, and ABSA at this time had no further obligations to the SARB. ABSA paid the loan amount in full and all interest had already been discharged consistent with the terms of the loan agreement.
Explanation from former Reserve Bank governor
In a telephonic interview with Fin24 earlier this year, former Reserve Bank governor Dr Chris Stals explained the reasoning for extending the controversial R1.5bn bailout to Bankorp in 1985.
READ: Stals opens up on Bankorp bailout
Stals served as Reserve Bank governor between 1989 and 1999 and was director-general of the Department of Finance between 1985 and 1989.
He told Fin24 that SARB entered into an agreement with Bankorp to lend them R1.5bn at a low interest rate, variable between 0% to 2%.
Security had to be provided to the Reserve Bank for the loan - and acceptable security would be in the form of South African government bonds, said Stals.
The R1.5bn was to be used to buy SA government bonds while interest earned on the bonds, according to market rates, was 16% at the time.
The difference between the 16% earned on the bonds and the low interest (1%) paid to the Reserve Bank for the loan, was essentially the “assistance” or lifeboat provided to Bankorp by the Reserve Bank, the lender of last resort. This income earned was to be used to write off Bankorp’s bad debts, said Stals.
“We protected the South African financial system against a major collapse,” he said.
At that stage, the closure of Bankorp risked resulting in “epic” problems for the whole of South Africa, Stals said. Bankorp was the third largest bank in the country, with assets worth R32bn and over 90 000 clients.
The bank had branches in Hong Kong, London and New York, said Stals. However, it had trouble with bad debt and non-conforming loans and could no longer comply with the minimum capital requirements of the Bank’s Act.
He explained that the Reserve Bank had a commitment to assist a banking institution in that situation to maintain a “relatively stable” financial system. At the time South Africa was experiencing sanctions from the rest of the world and the withdrawal of capital.
Stals added that the actions by the Reserve Bank ensured that South Africa has a strong banking system today.
“It all worked out,” he said.
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