Investigation launched into collapse of African Bank

Out-Law News | 03 Sep 2014 | 2:30 pm | 1 min. read

The South Africa Reserve Bank (SARB) has launched a formal investigation into whether the country’s African Bank (ABL) was reckless‚ negligent or fraudulent in its operations prior to its collapse in August 2014.

The SARB said on 2 September that the investigation into ABL, which was placed under curatorship on 10 August, will, “among other matters, investigate the business, trade, dealings, affairs, assets and liabilities”.

John Myburgh has been appointed as commissioner to lead the investigation. Myburgh is the chairman of South Africa’s Ombudsman for Banking Services. The SARB said the commissioner is required to complete the investigation within five months from the date of his appointment and submit a written report within 30 days from completion of the investigation.

The report should indicate whether or not “it appears that any business of African Bank was conducted recklessly, negligently or with the intent to defraud depositors, other creditors or any other person for any other fraudulent purpose”, the SARB said.

In addition, the SARB said the report should consider whether the business of ABL “involved questionable management practices or material non-disclosures, with the intent to defraud depositors or other creditors”. Should this appear to be the case, the commissioner should indicate whether any person party to such questionable practices has been identified”, the SARB said.

As ABL was placed under curatorship, the SARB unveiled plans to recapitalise the bank, by raising 10 billion rand (ZAR) ($935 million) underwritten by a consortium made up of the country's leading banks and the Public Investment Corporation. The curatorship did not apply to ABL’s parent company, African Bank Investments Limited.

Credit ratings agency Moody’s said on 19 August that it had downgraded the credit ratings of South Africa’s four main banks and placed them under review in the aftermath of ABL’s collapse.

Moody’s said the move reflected its view “of the lower likelihood of systemic support from South African authorities to fully protect creditors in the event of need”. The action was prompted “by the actions taken by the SARB in response to the abrupt loss of creditor confidence” in ABL.

However, the SARB said that “notwithstanding this downgrade Moody’s has confirmed the resilience of the South African banking system”.