Post by cjm on Jun 10, 2016 16:47:29 GMT
www.moneyweb.co.za/news/companies-and-deals/african-banks-r300m-fine-became-r20m-settlement/
How African Bank’s R300m fine became a R20m settlement
The Myburgh Report strongly suggests interference by the South African Reserve Bank.
Hanna Ziady | 7 June 2016 00:42
JOHANNESBURG – That the South African Reserve Bank (Sarb) interfered in the National Credit Regulator’s (NCR) R300 million fine against African Bank – which miraculously turned into a R20 million settlement – is strongly suggested in the Myburgh Report.
Released to the public last month, the report investigates the circumstances that led to the collapse and subsequent curatorship of African Bank, a former subsidiary of African Bank Investments Limited (Abil). Advocate John Myburgh SC led the investigation.
One of the 477-page report’s 22 chapters is dedicated to the NCR’s finding of reckless lending at the Dundee branch of African Bank.
In early February 2013, Abil issued a Sens to alert the market that the NCR had referred a case of reckless lending against African Bank to the National Consumer Tribunal (NCT) and recommended a fine of R300 million.
The bank’s share price dropped 6% on the news, as pricing on its bonds climbed some 60 basis points and it had to cancel a European Medium-Term Note (EMTN) bond issue, which was being priced in London at the time.
The bank disputed the allegations of reckless lending, saying agents at the Dundee branch granted the loans through fraudulent manipulation of the IT system, which allowed repeat customers to be granted new loans without settling existing loans.
It discovered the fraud through its own internal processes in November 2011 and moved the branch onto a different IT system, writing off more than R13.7 million in tainted loans and sacking the rogue Dundee employees.
An internal forensic investigation, which probed other branches that were using the same IT system, found that the affordability of 699 loans might have been manipulated, with 651 of these generated at the Dundee branches of African Bank and Ellerine’s.
Sarb governor gets involved
Before referring the matter to the NCT, NCR CEO, Nomsa Motshegare wrote a letter to then African Bank CEO, Leon Kirkinis in November 2012 proposing a consent order between the regulator and the bank.
Since the bank apparently did not want to comply with the terms of the consent order, the matter was referred to the NCT, where it remained unresolved for seven months before the governor of the Reserve Bank – then Gill Marcus – decided to approach the Minister of Finance.
“At a Project Phoenix meeting on 26 May 2013 it was noted that the trigger of the declining share price of Abil was the announcement that the bank was facing a possible fine by the NCR. It was agreed that the Governor would speak to the Minister of Finance to engage the Minister of the dti on the future of the market conduct regulator; the financial stability concerns; and the possible speeding up of the NCT process,” Myburgh notes in his report.
“Phoenix” was the name given to Abil and African Bank within the Sarb to protect its confidentiality.
The governor proposed an “urgent meeting” with the Minister of Finance and the Minister of the dti in September 2013.
The very next month, Abil announced that the Dundee matter had been settled with the NCR.
“The NCR and African Bank have, through a process of mutual cooperation, resolved these matters to the mutual satisfaction of both parties,” Abil said in a stock exchange filing.
This suggests that the matter was never in fact heard by the NCT, as is required in terms of the National Credit Act, and that interference by the Sarb – in consultation with the ministers of finance and trade and industry – is what ultimately led to the settlement.
Myburgh finds that the settlement between the NCR and African Bank differed in three material respects with Motshegare’s original consent order: the Dundee branch was not deregistered; a proposed audit of all the bank’s branches at the bank’s cost was not included; and the fine was settled at R20 million – less than 10% of the proposed R300 million.
Notably, the Myburgh Report makes no findings on whether or not African Bank engaged in reckless lending. In the Dundee matter, Myburgh finds that the bank’s version of what happened “does not appear to have been disputed by the NCR”.
Still, the Sarb evidently bulldozed the NCR – which did not wish to provide input to the Myburgh Commission – on the Dundee matter.
Both the NCR and the Sarb declined to comment on this article.
How African Bank’s R300m fine became a R20m settlement
The Myburgh Report strongly suggests interference by the South African Reserve Bank.
Hanna Ziady | 7 June 2016 00:42
JOHANNESBURG – That the South African Reserve Bank (Sarb) interfered in the National Credit Regulator’s (NCR) R300 million fine against African Bank – which miraculously turned into a R20 million settlement – is strongly suggested in the Myburgh Report.
Released to the public last month, the report investigates the circumstances that led to the collapse and subsequent curatorship of African Bank, a former subsidiary of African Bank Investments Limited (Abil). Advocate John Myburgh SC led the investigation.
One of the 477-page report’s 22 chapters is dedicated to the NCR’s finding of reckless lending at the Dundee branch of African Bank.
In early February 2013, Abil issued a Sens to alert the market that the NCR had referred a case of reckless lending against African Bank to the National Consumer Tribunal (NCT) and recommended a fine of R300 million.
The bank’s share price dropped 6% on the news, as pricing on its bonds climbed some 60 basis points and it had to cancel a European Medium-Term Note (EMTN) bond issue, which was being priced in London at the time.
The bank disputed the allegations of reckless lending, saying agents at the Dundee branch granted the loans through fraudulent manipulation of the IT system, which allowed repeat customers to be granted new loans without settling existing loans.
It discovered the fraud through its own internal processes in November 2011 and moved the branch onto a different IT system, writing off more than R13.7 million in tainted loans and sacking the rogue Dundee employees.
An internal forensic investigation, which probed other branches that were using the same IT system, found that the affordability of 699 loans might have been manipulated, with 651 of these generated at the Dundee branches of African Bank and Ellerine’s.
Sarb governor gets involved
Before referring the matter to the NCT, NCR CEO, Nomsa Motshegare wrote a letter to then African Bank CEO, Leon Kirkinis in November 2012 proposing a consent order between the regulator and the bank.
Since the bank apparently did not want to comply with the terms of the consent order, the matter was referred to the NCT, where it remained unresolved for seven months before the governor of the Reserve Bank – then Gill Marcus – decided to approach the Minister of Finance.
“At a Project Phoenix meeting on 26 May 2013 it was noted that the trigger of the declining share price of Abil was the announcement that the bank was facing a possible fine by the NCR. It was agreed that the Governor would speak to the Minister of Finance to engage the Minister of the dti on the future of the market conduct regulator; the financial stability concerns; and the possible speeding up of the NCT process,” Myburgh notes in his report.
“Phoenix” was the name given to Abil and African Bank within the Sarb to protect its confidentiality.
The governor proposed an “urgent meeting” with the Minister of Finance and the Minister of the dti in September 2013.
The very next month, Abil announced that the Dundee matter had been settled with the NCR.
“The NCR and African Bank have, through a process of mutual cooperation, resolved these matters to the mutual satisfaction of both parties,” Abil said in a stock exchange filing.
This suggests that the matter was never in fact heard by the NCT, as is required in terms of the National Credit Act, and that interference by the Sarb – in consultation with the ministers of finance and trade and industry – is what ultimately led to the settlement.
Myburgh finds that the settlement between the NCR and African Bank differed in three material respects with Motshegare’s original consent order: the Dundee branch was not deregistered; a proposed audit of all the bank’s branches at the bank’s cost was not included; and the fine was settled at R20 million – less than 10% of the proposed R300 million.
Notably, the Myburgh Report makes no findings on whether or not African Bank engaged in reckless lending. In the Dundee matter, Myburgh finds that the bank’s version of what happened “does not appear to have been disputed by the NCR”.
Still, the Sarb evidently bulldozed the NCR – which did not wish to provide input to the Myburgh Commission – on the Dundee matter.
Both the NCR and the Sarb declined to comment on this article.