Sunday, January 15, 2017

South African Ombudsman Pushes Bank to Repay Apartheid-era Loan
Barclays-owned Absa says public protector’s report contains ‘inaccuracies’

Busisiwe Mkhwebane, the new South African public protector, says in a preliminary report that a central bank loan was unconstituitional © Reuters

JANUARY 13, 2017
by Joseph Cotterill
Financial Times

Absa, the South African lender owned by Barclays, has been pushed by a government ombudsman to pay back an allegedly corrupt apartheid-era bailout in a sign of the growing political fallout for banks from scandals rocking the ruling African National Congress.

Busisiwe Mkhwebane, the new South African public protector, recommended Absa repay R2.25bn ($166m) after concluding in a preliminary report that central bank lending to a bank it took over 25 years ago was unconstitutional, the Johannesburg-based Mail & Guardian newspaper reported on Friday.

Absa, which said in a statement that the public protector’s preliminary report contained “several factual and legal inaccuracies” and “perpetuates an incorrect view” that it had unduly benefited from the loans, has until next month to respond to the claims.

But the report, which reopens claims over the extent of corruption during white-minority rule that ended in 1994, will raise fears that South Africa’s banks are becoming political targets as a power struggle within the ruling African National Congress intensifies ahead of a contest this year to succeed President Jacob Zuma as leader.

Absa was among a group of South African banks that cut ties last year to companies owned by the Guptas, a business family accused of using its friendship with Mr Zuma and his relatives to influence ministerial appointments and win public contracts.

Standard Bank, the country’s largest lender, said in December that it had come under “unprecedented” political pressure to re-establish ties.

The Guptas and Mr Zuma have denied the allegations. Allies of Mr Zuma’s have countered the claims by accusing “white monopoly capital” of undermining the government.

Mr Zuma’s presidency has been dogged by scandal and alleged corruption. Critics have accused ANC factions of fighting for control of institutions, including the country’s Treasury.

According to people familiar with the matter, both the Treasury and South African Reserve Bank — and their alleged failings in the bailout — are also an area of focus in Ms Mkhwebane’s draft report.

Bankorp, a politically connected lender damaged by a financial crisis, received a “lifeboat” loan from the Reserve Bank in 1985.

Absa bought Bankorp in 1992, repaying the loans three years later. Since the ANC took power in 1994, allegations have circulated that the loans were at unduly favourable rates and subsidised Bankorp’s investors.

In 2000, a report led by a South African judge found that the Bankorp bailout was “seriously flawed” but did not improperly benefit Absa shareholders.

Andile Mngxitama of the Black Land Foundation, which has campaigned for the public protector to investigate an alleged R26bn in apartheid-era corruption, said: “There has been a problem of protecting white capital and powerful families.”

Mr Mngxitama, who has defended the Guptas in the past, added that there is a “political narrative that wants white capital to continue to loot with impunity”.

Barclays is seeking to reduce its stake in Absa to below 50 per cent as part of its planned exit from operations in Africa.

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