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ABSA files papers against Public Protector, Ramos warns of downgrades

Cape Town – Barclays Africa CEO Maria Ramos on Friday filed an urgent application in support of the SA Reserve Bank's application, which has sought to review and set aside the Public Protector’s remedial action regarding her report on the Bankorp bailout that occurred during apartheid.

Public Protector Busisiwe Mkhwebane ordered ABSA – which is owned by Barclay Africa – to repay R1.125bn that was used to bail out Bankorp in 1985; Absa bought the bank in 1992.

The SA Reserve Bank (SARB) earlier this week filed its papers against the same report, after Mkhwebane controversially recommended the mandate of the SARB be altered.

Barclays Africa said in court papers that it wants the court to add ABSA as a co-applicant with SARB against the Public Protector.

“ABSA intends to institute a review application concerning the remaining remedial action which impacts on ABSA in due course,” Barclays Africa CEO Maria Ramos said in her founding affidavit filed on Friday.

Referring to the change of the SARB’s mandate, she said: “The remedial action requiring an amendment to the Constitution has already had a deleterious effect on the economy and threatens to adversely impact on South Africa's credit rating.”

She said ABSA “had no prior indication that the Public Protector was contemplating an amendment to the Constitution and thus was not called upon and did not make any representations in regard thereto”.

“Had it known that an amendment to the Constitution was in the offing, it would most certainly have done so.”

Reserve Bank Governor Lesetja Kganyago, who filed papers on behalf of SARB, said Mkhwebane does not have power to amend the Constitution.

“In the impugned remedial action, the Public Protector instructs Parliament to amend the Constitution to strip the Reserve Bank of its primary function – to protect the value of the currency.

“The Public Protector has no power to amend the Constitution, let alone instruct Parliament to do so,” said Kganyago.

Kganyago went on to explain that her actions had damaging consequences for the country, especially in terms of investor confidence.

“From the moment it was announced it had a serious and detrimental effect on the economy and for as long as it remains in place, it holds the risk of causing further rand depreciation, further ratings downgrades and further capital outflows.”

Protecting the value of the currency in the interest of “balanced and sustainable” economic growth is a key function of central banks, recognised worldwide, Kganyago explained. “There was a general consensus that low and stable inflation provides the foundation for high, sustainable real growth, and this is a goal central banks can be reasonably expected to achieve.”

Last week, ABSA said it is under no obligation to pay anything to the SA government.

"ABSA met all its obligations in respect of the loan provided by the SA Reserve Bank by October 1995. It is our firm position that there is no obligation to pay anything to the SA government."

Mkhwebane said two investigations into the matter established that the financial aid given to Bankorp Limited/ABSA Bank was irregular. She found that in granting the financial aid to Bankorp the SARB failed to comply with the South African Reserve Bank Act. Furthermore, she said the Ministry of Finance had a duty in terms of the act to ensure compliance by SARB, something she claims it failed to do.

She also found that the government failed to adhere to section 195 of the Constitution by failing to promote efficient and effective public administration.

Cancelling Bankorp’s licence at the time would have led to “serious implications” for the South African banking system, former SARB governor Dr Chris Stals told Fin24 in January this year.

He explained the reasoning for extending the controversial R1.5bn bailout to Bankorp in 1985.
 
“We protected the South African financial system against a major collapse,” he said. At that stage, the closure of Bankorp risked resulting in “epic” problems for the whole of South Africa, Stals said.

Bankorp was the third largest bank in the country, with assets worth R32bn and over 90 000 clients.

The ABSA takeover of Bankorp helped clear its debt and the money had been repaid to the Reserve Bank, he said.

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