Bank, Treasury pushed for smaller African Bank fine

The Reserve Bank, the Treasury and the Department of Trade and Industry intervened in the work of the National Credit Regulator (NCR) in 2013 and persuaded it to reduce its R300m fine on African Bank for reckless trading to R20m.

Undermining the independence of the regulator was “unwise, to say the least” and “very unfortunate”, said PanAfrican Investment & Research Services CEO Iraj Abedian.

Department of Trade and Industry director-general Lionel October confirmed the intervention in a briefing last week to Parliament’s trade and industry portfolio committee on the debt-relief measures set out in the National Credit Amendment Bill.

It prompted a call by DA spokesman for trade and industry Dean Macpherson for an investigation into the matter by Parliament’s trade and industry committee.

In 2013 it was reported that the NCR referred a case of reckless lending against African Bank to the National Consumer Tribunal with the recommendation that the bank be fined R300m. This led to a sharp drop in the African Bank share price.

The reckless lending — disputed by the bank — took place at its Dundee branch and related to fraudulent activities by the bank’s staff.

October said in an interview that the Bank had warned the department that the stability of the banking system should not be threatened by NCR’s treatment of African Bank.

Treasury deputy directorgeneral Ismail Momoniat said the key issue was “to protect financial stability and better co-ordination between the two regulators”.

The Bank said it “does not have the authority to question the decisions of the NCR”.

Abedian said that such pressure on the regulator could set a precedent, which would create a systemic risk as it would send a signal that there were no consequences for wrongful behaviour.

He said the extent of the penalties should match the level of damage that conduct such as reckless lending inflicted on the economy.

“If the regulator thought R300m was appropriate, no one should argue with that as it sends the wrong signal that you can cause damage to the economy and get away with it,” Abedian said.

He believed R300m would not have caused systemic instability for the banking sector and had to be measured against the order of magnitude of the losses caused by African Bank.

However, Intellidex executive chairman Stuart Theobald said that R300m was not a reasonable fine for what was effectively a defrauding of African Bank by some of its staff at a branch in KwaZulu-Natal.

“There was at the time concern that the NCR’s actions were systemically dangerous because they posed a risk to the stability of African Bank,” he said.

“I think it is perfectly reasonable for the systemic regulator — in this case the Reserve Bank — to approach the NCR to try and find an alternative solution than damaging public allegations and unrealistic fines.

“The fact that the NCR and [African Bank Investments] then reached the R20m settlement — at the time the largest settlement NCR had received — resolved the matter fairly, in the interests of consumers and the public interest in the systemic stability of the banking system,” Theobald said.

Macpherson said the NCR did not seem to take on big cases on behalf of consumers.

October agreed and said that he considered the interference by the Bank and the Treasury as “an incredible overreaching of their authority” to protect the bank instead of protecting consumers.