The business of African Bank was conducted negligently before being placed into curatorship in August 2014‚ the Myburgh Commission has found.
“However‚ there was no evidence that the business of the bank was conducted with the intent to defraud depositors or other creditors of the bank or any other person or for any other fraudulent purpose.”
The commission‚ whose report came out on Thursday and about a year after completion‚ found the directors of African Bank acted in breach of their fiduciary and other duties to the bank with the takeover of furniture group Ellerines.
The commission refrained from making any announcement of the possible further prosecution of former CEO Leon Kirkinis or any other board members.
“The commission did not have the time nor the capacity to investigate each board member’s individual conduct in the period 2007 to 2014 in order to ascribe individual responsibility‚” it said.
Parent company Abil bought Ellerines for R9.1bn in late 2007/2008. The purchase consideration included R5.3bn for goodwill. In September 2010 the bank bought the financial services division of Ellerines for R7.3bn. The bank paid R4bn for goodwill‚ which was subsequently written off.
From the time that the bank began providing financial assistance to Ellerines‚ the bank board and the Abil board were conflicted by not making prudent‚ appropriate provisions from time to time and in not properly managing reasonably foreseeable risks such as a poor economy‚ competition and labour unrest.
“It also aggressively grew the lending book by allowing themselves to be dominated by Mr Kirkinis‚” the commission found.
The major cause of the bad-debt impairments was the rapid growth of the book in 2012 from R33.4bn to R44.8bn‚ a growth which was conceded to be too rapid.
The poor quality of the loans granted‚ the difficulty in collecting repayments‚ and the growth in non-performing loans‚ can squarely be laid at the door of the bank. The bank had a sophisticated lending procedure. To whom it lent was entirely under its control‚ the commission said.
The business of the bank was conducted recklessly in making loans to Ellerines in aggregate R1.4bn without security when there was no reasonable prospect of the loans being repaid.
The commission said Abil and the bank acted negligently in underestimating the financial implications of issues such as bad debt‚ impairments‚ the cost of funding Ellerines‚ the risk of the market losing confidence in Abil and the bank‚ and the funders failing to continue to support Abil and the bank.
The commission also elucidated the circumstances surrounding Mr Kirkinis’ resignation in August 2014‚ just before the curatorship was announced. Mr Kirkinis was apparently reluctant to leave the group.
The commission found that on August 5 2014 the board eventually stood up to Mr Kirkinis. An additional R3bn in impairments were announced on August 6.
Mr Kirkinis was then asked to resign and the bank was placed under curatorship on August 10.
Mr Kirkinis‚ both in his affidavit and in his evidence‚ expressed his strong disagreement with the board and auditor PwC‚ who had recommended the additional R3bn impairment.
“Mr Kirkinis contended that‚ but for the announcement of 6 August 2014‚ the bank could have continued to conduct business.”
But by early August 2014‚ Mr Kirkinis enjoyed no support from either the boards of Abil and the bank‚ the governor of the Reserve Bank or the Registrar of Banks.
“By then the bank had faced a financial crisis since early 2013 and the share price of Abil had declined dramatically‚” the commission said.
African Bank conducted its business negligently
The business of African Bank was conducted negligently before being placed into curatorship in August 2014‚ the Myburgh Commission has found.
“However‚ there was no evidence that the business of the bank was conducted with the intent to defraud depositors or other creditors of the bank or any other person or for any other fraudulent purpose.”
The commission‚ whose report came out on Thursday and about a year after completion‚ found the directors of African Bank acted in breach of their fiduciary and other duties to the bank with the takeover of furniture group Ellerines.
The commission refrained from making any announcement of the possible further prosecution of former CEO Leon Kirkinis or any other board members.
Why was African Bank report not referred to NDPP? asks DA
“The commission did not have the time nor the capacity to investigate each board member’s individual conduct in the period 2007 to 2014 in order to ascribe individual responsibility‚” it said.
Parent company Abil bought Ellerines for R9.1bn in late 2007/2008. The purchase consideration included R5.3bn for goodwill. In September 2010 the bank bought the financial services division of Ellerines for R7.3bn. The bank paid R4bn for goodwill‚ which was subsequently written off.
From the time that the bank began providing financial assistance to Ellerines‚ the bank board and the Abil board were conflicted by not making prudent‚ appropriate provisions from time to time and in not properly managing reasonably foreseeable risks such as a poor economy‚ competition and labour unrest.
“It also aggressively grew the lending book by allowing themselves to be dominated by Mr Kirkinis‚” the commission found.
The major cause of the bad-debt impairments was the rapid growth of the book in 2012 from R33.4bn to R44.8bn‚ a growth which was conceded to be too rapid.
The poor quality of the loans granted‚ the difficulty in collecting repayments‚ and the growth in non-performing loans‚ can squarely be laid at the door of the bank. The bank had a sophisticated lending procedure. To whom it lent was entirely under its control‚ the commission said.
The business of the bank was conducted recklessly in making loans to Ellerines in aggregate R1.4bn without security when there was no reasonable prospect of the loans being repaid.
The commission said Abil and the bank acted negligently in underestimating the financial implications of issues such as bad debt‚ impairments‚ the cost of funding Ellerines‚ the risk of the market losing confidence in Abil and the bank‚ and the funders failing to continue to support Abil and the bank.
The commission also elucidated the circumstances surrounding Mr Kirkinis’ resignation in August 2014‚ just before the curatorship was announced. Mr Kirkinis was apparently reluctant to leave the group.
The commission found that on August 5 2014 the board eventually stood up to Mr Kirkinis. An additional R3bn in impairments were announced on August 6.
Mr Kirkinis was then asked to resign and the bank was placed under curatorship on August 10.
Mr Kirkinis‚ both in his affidavit and in his evidence‚ expressed his strong disagreement with the board and auditor PwC‚ who had recommended the additional R3bn impairment.
“Mr Kirkinis contended that‚ but for the announcement of 6 August 2014‚ the bank could have continued to conduct business.”
But by early August 2014‚ Mr Kirkinis enjoyed no support from either the boards of Abil and the bank‚ the governor of the Reserve Bank or the Registrar of Banks.
“By then the bank had faced a financial crisis since early 2013 and the share price of Abil had declined dramatically‚” the commission said.
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