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Reserve Bank lifts lid on African Bank demise

May 12 2016 17:48
Carin Smith

Cape Town - Although there was no evidence that the business of African Bank Limited was conducted with the intent to defraud depositors or other creditors of the bank, the business of the bank was conducted negligently in certain respects.

This is according to the findings of the Myburgh Report on African Bank Limited, which was released by the SA Reserve Bank (Sarb) on Thursday.

The report found, among other things, that the business of the bank was conducted negligently by not making prudent, appropriate provisions from time to time, not properly managing reasonably foreseeable risks such as a poor economy, competition and labour unrest and by aggressively growing the book.

Furthermore, it was found that the board members were negligent in allowing themselves to be dominated by Leon Kirkinis, CEO of Abil and the bank.

According to the latest information provided by the Curator, the loss the bank made in the 2013 financial year might be at least R5.8bn.

In a report prepared by Sarb in March 2014 it was said that the bank was regarded as systemic to the SA banking system.

This was mainly on the basis of its extensive client base, its role in financial inclusion, the negative impact on the socio-political environment, should it fail, and the effect on foreign investor confidence, in light of the fact that part of its wholesale funding was sourced offshore. By 2013 it had a book of some R60bn, 3 million customers and about 5 700 employees.

The report adds that Kirkinis "was unrepentant and unapologetic". According to him, in 2013 and 2014 the bank had faced “a perfect storm”, but had survived, and if it had not been wrongly placed under curatorship, it would have had a rosy future in 2015 and beyond".

The report found, that above all, it was a bank providing unsecured lending. Its accounting policies should, therefore, have been prudent rather than aggressive.

"The business of the bank was conducted recklessly in making loans to Ellerines in aggregate R1.4bn without security and when there was no reasonable prospect of the loans being repaid," the report states.

The report found that Abil and the bank acted negligently in underestimating the financial implications of issues such as bad debts, impairments, the cost of funding Ellerines, the risk of the market losing confidence in Abil and the bank and the funders failing to continue to support Abil and the bank. It also noted that from the time the bank began providing financial assistance to Ellerines, the bank board and the Abil board were conflicted.

Restructured bank

On 3 May 2016, the Registrar of Banks announced that the report into the circumstances that gave rise to the previous African Bank Limited (BIABL) being placed under curatorship on August 10 2014, in terms of the Banks Act, would no longer be confidential.

The investigation which gave rise to the Myburgh Report was conducted into the affairs of the previous African Bank Limited that was successfully restructured on April 4 2016. It was restructured into the new African Bank Limited (new African Bank), the previous African Bank now having been re-named Residual Debt Services Limited.

The new African Bank is a 100% subsidiary of African Bank Holdings Limited (ABHL). ABHL is an unlisted, registered bank controlling company under the Banks Act. The shares in ABHL are privately held by the Sarb, the Government Employees Pension Fund, Barclays Africa Group, Nedbank, FirstRand Bank, Investec Bank, Standard Bank of SA and Capitec.

The new African Bank Chief Executive Officer, Brian Riley, appointed on May 6 2015 as CEO-designate, welcomed the lifting of the confidentiality on the Myburgh Report.

“The lifting of the confidentiality on the Myburgh Report will provide the public with some clarity as to what happened to the previous African Bank. The board of the new African Bank has mandated the executive team to build a better, more diversified retail bank, serving the interests of its customers under its brand purpose of ‘Humanity through Banking’, which is exactly what we will strive to do,” said Riley.

The report concludes by emphasising that, in expressing its opinion, save as appears in the report, the Commission does not make a finding that all the board members were responsible for such negligent conduct.

The Commission states that it did not have the time nor the capacity to investigate each board member's individual conduct in the period 2007 to 2014 in order to ascribe individual responsibility.

"But it must be borne in mind that in terms of the Companies Act, the business and affairs of the bank had to be managed by or under the direction of its board, which had the authority to exercise the powers and perform any of the functions of the bank," the report states.

Executive Summary of the Myburgh Report on the Rapid Decline of the Fortunes of Abil and African Bank

sarb  |  abil  |  financial services  |  banks
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