By Ashleigh Brown, journalist, Justmoney
The South African Reserve Bank (SARB) has set up further inquiries into African Bank Investments Ltd (Abil). SARB said it will specifically investigate the circumstances that gave rise to collapse of Abil.
“SARB recognises the importance of investigating the circumstances that gave rise to African Bank being placed under Curatorship on 10th August, 2014. It has therefore decided to institute a formal independent investigation in terms of section 69 (A) of the Banks Act No. 94 of 1990.
"The Registrar of Banks has, pursuant to this decision, appointed Adv. JF Myburgh as Commissioner in terms of the said provisions with effect from 30th August 2014. He will be assisted by Vincent Maleka, SC, and Brian Abrahams. Notice to this effect will appear in the Government Gazette of 12 September 2014,” said SARB in a statement this week.
The Commissioner will investigate the business, trade, dealings, affairs, assets and liabilities of Abil. The investigation will be completed within five months from the date of appointment. Furthermore, a written report about the findings of the investigation is required. This report will be submitted 30 days after the completion of the investigation.
Spotlight on NCR
Justmoney reported that the Debt Counselling Industry portal (DCI) had slammed the National Credit Regulator (NCR) for failing to properly investigate Abil’s reckless lending practices.
“Over the past few years, debt counsellors have lodged thousands of complaints, many relating to reckless lending and breaches against the NCA against the country’s major credit providers, including African Bank. These complaints have repeatedly been sent to the Regulator who has chosen to ignore them and the plight of desperate consumers,” said Deborah Solomon, founder of the DCI.
The SARB paid R7 billion for Abil’s bad loan book and the bank was split into two. The Reserve Bank bought the “bad” bank, and the “good” bank received a R10 billion capital injection.
The capital injection was underwritten by Standard Bank, Nedbank, Absa, FirstRand, Investec, and the Public Investment Corporation.
The fall
On Thursday 7 August, Abil’s shares plummeted by 80%. This was after the bank’s quarterly update was released on Wednesday 6 August and its CEO, Leon Kirkinis, resigned. The SARB said that Abil’s losses were in large part due to its unique business model.
“Credit losses and the drain on its resources have resulted, among others, from the inability of its furniture chain, Ellerines, to operate profitably. Abil is the only South African bank to operate a furniture chain,” said SARB.
The SARB went on to state that Abil’s unique business model also left it vulnerable to changes.
“Unlike most other banks in the country, Abil’s unique business model does not include a diverse set of products and income streams, nor does it offer transactional banking. This makes it unusually vulnerable to a changing or challenging business environment.”