African Bank: A Disgraceful Failure Of The Regulatory System

By Christiaan van Huyssteen (@cvh23)

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

 

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8 Step Rescue Plan For African Bank

By Christiaan van Huyssteen (@cvh23)

Time for African Bank to start from scratch.

The actions taken in the following weeks will determine what the future holds for the bank.

1. Bring In New Management

The current management have failed dismally. This may be easy to say looking back, but there were clear errors of judgement. You get the feeling that management were very casual and laissez faire in their duties. This may work at Google, but not at a bread and butter business like a short term lender.

  • They were responsible for the ill-fated Ellerines purchase in 2008, (at an arguably overvalued price) overlooking the fact that the world was entering a recession.
  • They failed to respond strategically to the worsening economy by not adjusting credit policy and standards.
  • They did not see the consumer debt bubble coming.
  • They underestimated the value of non performing loans year after year, making insufficient provisions for bad debt, thereby impairing their ability to identify problems and adequately manage capital requirements.

It is important to note that borrowers should take some of the blame. They are not coerced into taking out loans.

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Privatising ESKOM

By Christiaan van Huyssteen (@cvh23)

From iAfrica:

The government is reportedly considering roping in private-sector capital to cover struggling power utility Eskom’s R225-billion funding shortfall.

“There has been serious public speculation about public-sector equity injection, assets being sold, private-sector equity and tariff hikes,” Reuters quoted Public Enterprises Minister Lynne Brown as saying.

“These are levers which must be considered in any serious discussion.”

 

Privatisation has this stigma of being a means whereby public assets is sold off at knock down prices to a bunch of greedy corrupt businessmen who are somehow going to use their new investment to enrich themselves and exploit the poor. That is what the likes of COSATU, the SACP, and the EFF would have you believe.

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