Reserve Bank was asking‘hard questions’

Although questions have been asked about the role of the bank’s regulator, the South African Reserve Bank, the Myburgh report revealed the extent to which the regulator was working behind the scenes and was aware of the problems developing at African Bank.

The Reserve Bank’s supervision department had raised its concerns about the rising level of impairments with Abil’s executive management and board as far back as August 2011. It also raised its concerns about the quality of the loan book and its “view of the level of impairment”, which were brought to the attention of Abil and Deloitte.

From August 2013, it began mon- itoring the bank’s liquidity position daily, according to the report. In September 2013, when Abil and African Bank ran into difficulties because of losses as a result of impaired loans, the Reserve Bank required Abil to develop a credible liquidity and capital plan, which resulted in a successful rights offer.

The objective of the regulatory and supervisory authority can “never be to avoid the failure of banking institutions and, even in a sound system, there may still be failures”, the registrar of banks, Rene van Wyk, said. Nevertheless, he said, the report offered the opportunity to assess and consider the need for any amendments to or the strength- ening of supervisory practices, policies and the regulatory framework that applied to his office.

It was clear from the report that the Reserve Bank was involved behind the scenes and asking “hard questions”, said an analyst who asked not to be named.

Before a bank is placed under curatorship, “the regulator can only regulate” and cannot intervene directly, he said.

The Reserve Bank’s actions in ultimately placing the bank under curatorship prevented a far wider crisis in the market, which could have resulted in far greater damage for investors, he said.