The South African government has placed Habib Overseas Bank under curatorship with immediate effect to deal with “governance, compliance and operational failures” and protect the bank’s depositors.
Enoch Godongwana, the country’s minister of finance made the decision based on a recommendation by the South Africa Reserve Bank’s (SARB) Prudential Authority (PA).
The PA had identified weaknesses in the bank’s governance process and its internal control environment over the past four years, the SARB said in a statement on Monday.
Part of the statement read: “various investigations and reviews” found that Habib Overseas Bank was flouting financial sector regulations, including SA’s strict exchange control rules.
“The continuing failure of the bank’s board of directors and management to deal effectively with the weaknesses in controls and its poor regulatory compliance, as well as the growing risks over its ability to meet future obligatios.”
Six years ago, Vardospan, a company linked to Gupta associate Salim Essa, tried and failed to buy a controlling stake in Habib Overseas Bank for about R450 million.
Vardospan went to court in early 2017 in an attempt to force the SARB, and the registrar of banks to rule on whether it could buy the stake before the purchase offer from Habib’s parent company ran out.
While the Competition Commission had given the merger between Vardospan and Habib the green light, the deal effectively stalled after the court threw out Vardospan’s urgent bid.
The SARB described Habib Overseas Bank as a “small financial institution” that was first licensed as a bank in SA in 1990. It has five branches in SA and about 90 employees.
It will continue to operate during the period of curatorship. PwC has been appointed as the bank’s curator.
“The curator will assume the powers of the board and management and will make decisions regarding the bank’s continued granting of loans and sound banking activities generally,” said the central bank. “The curator is also required to recover and take possession of all the assets of Habib Overseas Bank.”
In an announcement on Monday, Craig Du Plessis of PwC, the bank’s curator, said that the bank would be closed for (at least) 72 hours.
“The bank will not be open for any banking activity, either online or in the branches during this period. This action is necessary to protect all stakeholders of the bank,” he said.
“Customers who have credit facilities from the Bank are legally obliged to continue to pay their monthly instalments in accordance with the terms of their agreements with the Bank,” he added.
SARB added that the bank remains liquid, and there were no “immediate concerns for depositors, which means their funds remain safe at the bank”.
“South Africa’s banking sector remains healthy and robust, and it is unlikely that other South African banks will be negatively affected by Habib Overseas Bank’s current situation,” it said. “The governance challenges and reasons for this curatorship are not related to the recent difficulties with banks in the United States and Switzerland.”
Habib Overseas Bank is unrelated to Habib Bank AG Zurich, which also operates in South Africa.