The SA Reserve Bank will pay qualifying depositors of Habib Overseas Bank (HOB), which is in curatorship, up to R100,000 each after the local unit of the Pakistan-based lender was found to be in far worse financial shape than initially feared.
The Bank will make the payments from June 12 — based on a guarantee issued by the National Treasury — to assist depositors who have money tied up with the troubled lender whose branches remain closed since the curatorship order. FirstRand-owned FNB was selected to facilitate the repayment to depositors based on the recommendation of the curator as well as other criteria, including proximity to depositors, cost structure and the ability to execute the process speedily.
“Since the commencement of the curatorship, in-depth investigations and analysis undertaken by the curator found that HOB’s financial position was significantly worse than initially anticipated,” the Reserve Bank said in a statement on Thursday. “The curator and FNB will provide the necessary information regarding access to the funds, what will be required from depositors as well as the specific FNB branches to visit.”
Depositors with HOB, which was once a buyout target by associates of the Gupta family, will be able to claim their funds from FNB up to the specified R100,000 for up to three years. However, account holders who have more than R100,000 deposited will not be able to access their funds through FNB over and above that stipulated amount.
Deposits in excess of R100,000 will continue to be counted as deposits at HOB, and the Reserve Bank said customers who have outstanding loans with HOB are still legally obliged to continue repaying their debt. Those failing to repay may be liable for penalties or other sanctions.
“These deposits will remain valid and depositors may receive part or all of their amounts above R100,000 in future, depending on the financial position of Habib Overseas Bank,” the Bank said. “This is, however, not certain nor guaranteed, as the financial position of HOB is still being assessed.”
The payout mechanism established for HOB depositors comes less than three months after the Reserve Bank set up SA’s first deposit insurance body — the Corporation for Deposit Insurance (Codi) — which aims to provide R100,000 in cover for customers of banks placed into resolution. A bank resolution occurs when a failing bank has no prospect of recovery and authorities determine that it cannot go through the normal insolvency proceedings without causing financial instability.
Finance Minister Enoch Godongwana placed HOB, which received an SA banking licence in 1990, under curatorship on March 26 based on the recommendation of the Prudential Authority (PA), the financial regulator that falls under the authority of the Reserve Bank. The reasons cited for the curatorship, which has been led by PwC’s Craig Du Plessis, were governance, compliance and operational failures on the part of HOB.
In November 2016, the Mail & Guardian reported that HOB became the target of an audacious buyout attempt by individuals linked to the Guptas, the family that has become synonymous with state capture. At the time, the Guptas were struggling to access financial services after several SA banks closed their accounts due to allegations of illicit financial activity in then public protector Thuli Madonsela’s state capture report.
“The Reserve Bank would like to thank the curator for his work done so far,” the Bank said. “The Bank would also like to thank FNB for agreeing to partner with the Bank to facilitate the return of part of HOB depositors’ funds. The repayment of depositors will go some way towards easing the hardships suffered by many people over the past two months.”
HOB’s parent was founded in India in 1941 before relocating to Pakistan, and is not linked to Habib Bank AG Zurich, which also operates in SA.
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