The Reserve Bank is tightening up its supervision of appointments of bank executives and board members based on lessons learnt from the spectacular collapse of African Bank.

The Reserve Bank had to ensure that only fit and proper individuals were appointed to key positions in the banking sector and had on occasion exercised its power of veto to withhold approval of some appointments, the acting deputy head of the bank supervision department of the Reserve Bank, Denzel Bostander, said on Tuesday.

Bostander and deputy Reserve Bank governor Kuben Naidoo briefed Parliament’s standing committee on finance on the collapse of the bank, which was placed under curatorship in 2014.

“Yes we must tighten our fit and proper tests, and we have done,” Naidoo said.

Bostander said: “The scrutiny from the Reserve Bank’s perspective is much deeper.

“Vetting goes beyond determining whether the person is qualified and has the necessary experience.

“We have also met with the board of directors and CEOs in some instances to find out what processes were followed in selecting the chosen candidate and in deciding whether he or she was fit and proper.”

The collapse of African Bank was the subject of an inquiry led by advocate John Myburgh, who found that some aspects of the business were conducted negligently or recklessly. The bank was restructured, with a consortium of banks, including the Reserve Bank, providing financial support for the new “good” bank, which started operations in April.

Naidoo conceded under questioning by DA finance spokesman David Maynier that in hindsight the Reserve Bank had erred in endorsing the appointment of Thami Sokutu, African Bank’s chief risk officer between 2004 and 2014. Sokutu was found by the Myburgh commission to be unqualified for the job and unable to deal with the crisis that unfolded.

Naidoo said it was also a mistake for the Reserve Bank to have approved African Bank’s acquisition of furniture retailer Ellerines.

He said there were a number of reasons why African Bank was put under intensive supervision by the Bank after 2011.

These included that it was a monoline bank with a single product offering unsecured loans or insurance related to these loans and furniture sales.

“We thought this was risky,” Naidoo said.

He stressed that the role of the Reserve Bank was to maintain the stability of the financial system and to supervise banks. It could, however, not get involved in the management of banks.

A proposal for a scheme that would guarantee bank deposits below a certain level would be presented later this year.

Bostander told MPs that of the R3.3bn loan the Reserve Bank

had injected into the bad bank, R1.45bn had been repaid by the curator. The bank was confident that the loan would be fully recovered.

The Reserve Bank has also invested R5bn in the new “good” bank, in which it has a 50% stake. The remainder of the shares is equally split between a consortium of banks and the Public Investment Corporation.

Naidoo said the Reserve Bank had no interest in retaining its investment in the new bank and would dispose of its shareholding once it was sustainable and on a sound footing.

He did not want to put a time frame to this.

•Text courtesy of BusinessDAY South Africa.

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