The next round of hearings on a bill to amend the Banks Act could be crucial to the restructuring of African Bank, which, in turn, will affect when trading in the bank’s debt instruments can resume.
The South African Reserve Bank (SARB) placed African Bank under curatorship on August 10 last year. Trading in African Bank debt instruments was suspended the following day. As a result, some managers of money market and fixed-interest funds with exposure to African Bank debt instruments moved these instruments to side-pocket (or retention) funds.
The Banks Act Amendment Bill was presented to Parliament’s Standing Committee of Finance in February. It is expected that the next hearing on the bill will take place later this month.
The restructuring of African Bank envisages creating a new “good bank”, which will be capitalised with R10 billion raised by a consortium of six banks and the Public Investment Corporation. The amendment bill gives the curator of African Bank the power to transfer assets and liabilities of African Bank to the “good bank”.
The consortium has made funding for the “good bank” conditional on the creation of a new entity.
“The successful restructuring of African Bank, as is currently envisaged, is dependent on the passing into law of the bill,” Tom Winterboer, the curator, said in a statement released on Tuesday.
Some of African Bank’s creditors opposed the amendment bill at the public hearings in February, saying it would be detrimental to pensioners and investors.
Among other things, the bill gives the curator of a collapsed bank the power to sell or transfer the bank’s assets and liabilities without consulting investors. The Minister of Finance or the Registrar of Banks must approve the transfer of these assets and liabilities.
Momentum Investments, which is one of the largest holders of African Bank debt, said this week that it is “still in consultation with the curator and the SARB, and would prefer not to comment [on the curator’s latest announcement] at this stage”.
Another asset manager that side-pocketed investors’ funds, Stanlib, says it “is satisfied that the process to find a resolution remains on track”.
Bongani Mageba, the managing director of Stanlib Retail, says “Stanlib will continue to engage with the curator and other industry players on behalf of all of our affected investors, including those clients with side-pockets”.
In the meantime, Winterboer and his team are working on the assumption that the Banks Act will be amended. It will take about three months from the promulgation of the amendment Act for the “good bank” to be set up.
Winterboer says African Bank granted loans of between R550 million and R750 million a month between August 2014 and January 2015. He says this is below the sustainable level for the “core bank” that will be used to create the “good bank”, and “efforts continue to target improved, risk-appropriate and profitable disbursements”.
Total monthly collections on loans were between R2.075 million and R2.475 million between August 2014 and January 2015, Winterboer says.
Louis von Zeuner, the former deputy chief executive of Absa, has been named as the chairman designate of the “good bank”. Winterboer says that Von Zeuner has worked closely with him since August 2014 and will continue to advise him until the “good bank” is established.
It is believed that the commission of inquiry into whether African Bank had been reckless‚ negligent or fraudulent before it collapsed has completed its investigation. However, the SARB would neither deny nor confirm that the commission’s report has been submitted to the Governor of the Reserve Bank.