African Bank: A disgraceful failure of the regulatory system

Everyone is quick to blame the management of African Bank for their failures, and rightly so. I have already pointed out some of their failures here.

But much of the blame should be put on the regulators.

We supposedly have one of the best regulated financial systems in the world, yet African Bank’s troubles of the past 3 years were not picked up by anyone in government, by anyone at the reserve bank, or even by their own auditors. The ‘system’ has failed the shareholders, management, employees, and clients who are dependent on the company.

Has the reserve bank been asleep for the past 3 or 4 years? What is the point of having a registrar of banks if they can’t regulate? We have seen dozens of articles and comments over the past week stating that this crisis was entirely foreseeable. Yet no one in government, and no one at the privately owned reserve bank saw this coming and sounded the alarm bells.

In our opinion, the financial statements present fairly, in all material respects, the financial position of African Bank Limited as at 30 September 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. ~ Deloitte Audit Team

The auditors opinion is blatantly incorrect. It came out mere months later that the provisions for bad debt were entirely underestimated. Whether this is due to incompetence or fraud is a good question. It misled shareholders credit providers. Surely SAICA should hold an enquiry and take action? The prestigious ‘Chartered Accountant’ title is being brought into disrepute.

South Africa’s banking sector remains healthy and robust. There have been no indications that other South African banks have been affected negatively by ABIL’s trading update or African Bank’s current situation. ~ Gill Marcus

How can we trust this statement? We have witnessed such blatant regulatory failure, yet we should take their word for it that the rest of the sector is ok.

African Bank’s business model is not that complex. It is not like some American investment bank with billions in tangled webs of volatile off-balance sheet derivatives. The business itself is simple, and should be easy to regulate.

If I were an investor, I would no longer place my trust in the unaccountable, politically appointed ‘authorities’.

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