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Credit regulator’s shocking silence on reckless lending at African Bank

Why did the NCR refuse to give information to the Myburgh Commission?

JOHANNESBURG – It is staggering – and deeply concerning – that the body in charge of regulating South Africa’s credit industry refused to provide information to an inquiry into the collapse of one of the country’s largest lenders.

With a loan book of some R60 billion at the time of its demise, African Bank was receiving 60 to 80 complaints of reckless lending a month, mostly from debt counsellors, and was granting between 100 000 and 120 000 loans monthly prior to August 2014, according to the Myburgh Report.

The report, which was led by advocate John Myburgh SC and investigates the circumstances that led to the curatorship of African Bank, finds that the bank’s risk appetite was “higher” than peer banks.

Concluding that the business of the bank was conducted recklessly and negligently – by, for example, failing to provide adequately for bad debts – Myburgh makes no definitive finding on whether the 513 branches of the bank in fact engaged in reckless lending.

“The one body whose duty it is to investigate alleged contravention of the NCA [National Credit Act] is the NCR [National Credit Regulator],” Myburgh notes.

But when the commission sent questions to NCR CEO, Nomsa Motshegare, requesting, among others, details of the bank’s alleged reckless lending activities, Motshegare refused to respond.

“Instead, [Motshegare] wrote a letter to the Registrar in which she expressed the view that the letter not only undermined the NCR’s regulatory authority and decision-making powers but also exceeded the scope of the investigation given to this Commission by the Registrar,” Myburgh notes in his report.

“The NCR did not take the opportunity offered to her of putting her case to the Commission.”

Incredibly, the regulator of African Bank’s lending activities would have nothing to do with an inquiry that sought to get to the bottom of the causes of the bank’s collapse.

It makes no sense. Particularly considering the fact that the NCR came out guns blazing and recommended in 2013 that the bank be slapped with a R300 million fine for reckless lending.

Yet when given the opportunity to answer questions pertaining to the fine, the subsequent R20 million settlement and reckless lending at the bank generally, the NCR refused to be engaged.

When asked by Moneyweb why it declined to respond to Myburgh’s questions, the NCR had no comment.

As a direct result of the NCR’s cold shoulder, the most the Myburgh Report could say was that it was “possible” that the bank had been guilty of reckless lending, given the rapid growth in its loan book and the difficulty in collecting on these loans.

A R75 billion loans target

According to former executive at the bank, Charles Chemel, loans were approved centrally based on information from a customer’s payslip and expense declaration.

There were “five or six queues” – including affordability, fraud and employment confirmation – that a loan application had to pass through, Chemel told the commission.

The whole process took two to three days and loan applications were assessed according to scorecards and rules, which were “designed to prevent reckless lending”, he said.

Branch audits took place once every year or two years.

As long as staff complied with the loan approval policy, the bank would not have had reckless lending, explained another executive, George Rossous. “Staff did not comply if data was captured wrongfully either by overstating income or understating expenditure,” he said.

Certainly, comments made by the South African Reserve Bank (Sarb) in the report suggest possible reckless lending. In its submission to the Commission, the Sarb notes that the bank’s lending criteria were “not appropriate” for the market conditions, listing this as one of 11 primary reasons for the collapse of the bank.

External auditors, Deloitte refer to the bank’s “high risk appetite and aggressive loan book growth” as part of the cause of its distress.

Similarly, the explanation given by former independent non-executive director, Sam Sithole for his resignation from the board in 2013 points to aggressive, if not reckless, lending.

Sithole speaks of a “preoccupation with sales over profitability” manifesting itself in a R75 billion advances target despite an increase in bad debts.

“The drive for the R75 billion target resulted in longer term sizes and larger loans to the same customers, which notched up the risk for the business,” he says.

COMMENTS   14

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I trust we will get follow up articles on this one Hanna. Does it now become a political process, ie opposition parties raising questions in parliament?

The ANC forced banks to “include the masses of our people in the banking system”. The ” ANC Economic Transformation Committee workshop” reported the following in 2005.

“Millions of black people who could not access loans and other financial services before can now do so, providing them with the opportunity to accumulate income-generating assets.” – http://www.anc.org.za/show.php?id=2362

How can this government that forced banks to lend to people without collateral, now fine these banks for reckless lending? The actions of this government is confusing to say the least.

Ha! This is just another racist article.

Hi Troy Ounce, thanks for your comment. Please elaborate on why you think this article is racist as opposed to a criticism of the NCR’s actions with respect to the Myburgh Report and African Bank?

Double wink.

The rat I smelt yesterday under a similar article has just got a lot bigger. And it’s a day older and is beginning to stink to high heaven. That difference of 280 million will provide a lot of Bisto for the gravy. And we will never know where it went. The ANC, if nothing else, is brilliant at corruption.

Why is the “difference of R280m” relevant? The NCR recommended a R300m fine but they settled for a R20m fine. Therefore African Bank only paid R20m. The “R280m” was never paid to anyone and could therefore not “go” anywhere. Don’t jump to silly conclusions.

The NCR settled for a R20m fine, R30m under the table, and Abil emerges with R250m in reserve.

You really believe they only paid R20m? @24750 agree.

Me thinks the NCR got political by withholding information.

Shocked. Shocking. This word and its variations appear so regularly in headlines and statements about SA. Are people really shocked when it comes to anything related to government and how it influences the country in all aspects of life? If it has anthing to do with corruption, maladministration or incompetence there is inevitably an attempt to cover this up. Can anyone really and honestly say they are shocked?

The SARB contributed to the collapse of Africa bank by being fast asleep. They prefer to gloat that none of the SA banks required a bailout by believing that their regulations were responsible.

They forget that none of the SA banks had a significant exposure to sub prime as their ROE’s were high enough without the need to get involved in risky products and that it had very little to do with their regulations.

Hannah, this takes me back to about 2010 when a friend needed debt counselling and in the process of helping her, I discovered a strange connection between African Bank and the NCR.

Cape Town newspapers at the time were full of articles saying the NCR was driving a project to help people in debt get hold of their credit bureau rating free of charge. (In stead of one free statement a year.) Media articles showed photos of NCR management, etc.
The office from where to obtain assistance was in Main Rd, Wynberg. Staff there did an elementary financial literacy test on new clients and gave printouts of the credit records to the client.
The woman who assisted us was a lawyer – she said it was a pilot program of 6 months. One could also sign documents for them to represent one if one wanted debt counselling and protection from creditors in terms of the NCA.

While the media punted it as a NCR initiative, I learnt from the lawyer lady in Wynberg who did the scrutiny of documents, that the project was funded by none other than AFRICAN BANK!
I couldn’t figure how it was that the NCR was using money from a BANK to “help” consumers – and I STILL can’t figure it out!
Does anyone have any thoughts about this?

Quite clearly the National Credit Regulator is trying to hide its own incompetence and culpability in letting African Bank trade in the way it did.

The NCR has no credibility after this.

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