Ubank has been placed under curatorship effective immediately as it grapples with capital challenges.
Reserve Bank governor Lesetja Kganyago told a media briefing on Monday that the financial institution was being placed under curatorship to mitigate the adverse consequences on depositors and preserve the stability of the South African banking and financial services sector.
Ubank, founded in 1975, has a long history of providing basic financial services to mine workers and their families and has over 4.7 million accounts.
Kganyago said during the last couple of years, the Prudential Authority — which supervises the financial services sector — had intensified its supervision of Ubank due to corporate governance concerns, a high number of internal control weaknesses and the prolonged period it had taken to ensure the sufficient injection of capital to comply with the minimum capital requirements to diversify the bank business model and ensure the future sustainability of the bank.
Audit and accounting firm KPMG has been appointed as the curator with director Zola Beseti as the representative.
When the curator steps in, the board of the bank will step aside and the curator will work with the management of Ubank to ensure that the institution is stabilised and the interests of depositors are protected.
Kganyago stressed that Ubank does not have a liquidity problem and “remains highly liquid”, but it has a capital problem. He said the bank should have a capital adequacy ratio of 20% but sits only at 3%.
Capital adequacy ratio measures a bank’s financial strength by valuing how much capital it has available.
Because Ubank does not have a liquidity problem, it will continue to operate during the period of curatorship — depositors will have access to their money —and the curator will make a decision regarding the continued granting of loans and will ensure sound banking activities.
Kganyago said the Ubank situation was “strange” because normally when a bank faces a crisis it usually has enough capital but has a liquidity challenge.
“Here we have a situation where there is enough liquidity that the depositor base is stable and there is enough liquidity to meet that growth [depositor base growth] in the short run. The problem here is that this is a bank that has eroded capital,” he said.
The net asset value of the bank is around R208-million whereas at the very minimum it should be at R215m, Kganyago said.
How long the curatorship process will take depends on “how deep the hole is” but in this case there are interested parties, that the Prudential Authority is aware of, who are in discussions to invest in Ubank. If the discussions are concluded, the issues at Ubank will be resolved, Kganyago said.
Anathi Madubela is an Adamela Trust business reporter at the M&G.