African Bank to Be Probed by Central Bank Following Collapse

Sep 02, 2014 10:00 am ET

(Updates with board information in sixth paragraph.)

Sept. 2 (Bloomberg) -- African Bank Investments Ltd., the South African unsecured lender which collapsed last month after mounting losses, will be investigated by the central bank for evidence of fraud, reckless lending and lack of disclosure.

JF Myburgh, a lawyer, will lead the investigation of the Johannesburg-based bank and be assisted by Vincent Maleka and Brian Abrahams, the Pretoria-based South African Reserve Bank said on its website today. The investigation will take five months, with a written report due a month after that, it said.

The probe will seek to determine if “any business of African Bank was conducted recklessly, negligently or with the intent to defraud depositors,” the central bank said. It will also probe any “questionable management practices or material non-disclosures, with the intent to defraud depositors.”

Abil, as the lender is known, collapsed after forecasting a record loss and saying it needed at least 8.5 billion rand ($792 million) to survive. The central bank stepped in four days later and appointed a curator to save its performing loan book. Senior debt holders were told they would lose 10 cents on the rand while subordinated debtholders, preference shareholders and ordinary shareholders may lose everything.

If management practices were questionable and there was an intent to defraud investors, Myburgh “should indicate whether any person party to such questionable practices has been identified,” the central bank said.

Board Experience

Leon Kirkinis, 54, co-founded and ran the bank from 1999 until Aug. 6, when he resigned. Nithia Nalliah, chief financial officer, was appointed acting CEO after Kirkinis left. Of the bank’s 11 board members detailed in last year’s annual report, seven had no banking experience before joining the lender.

Tom Winterboer, named as Abil’s curator, declined to comment on African Bank today.

The central bank stepped with a rescue after Abil’s share plummeted more than 95 percent, prompting Moody’s Investors Service to lower its credit ratings on the largest South African banks. Money-market funds, including those run by Barclays Plc’s South African unit, imposed losses on investors, while companies like Toyota South Africa (Pty.) Ltd. were forced to cancel bond sales as investors shied away.