Nicola Mawson
Finbond Mutual Bank’s application to have an administrative fine of R10 million, R5m of which was suspended for five years, levied by the Prudential Authority reversed has been thrown out by the higher body, the Financial Services Tribunal after the “applicant has been found to have committed a serious offence”.
The issue dated back to 2012, when the bank lent its parent company, Finbond Group, R155.9m in an unsecured loan. By 2018, the Prudential Authority had become worried about the loan because of the bank’s apparent exposure, given the size of its loan when compared with its net qualifying capital.
Finbond Mutual Bank was registered in South Africa in 2012, according to the group’s latest annual report for the 2024 year.
Based on the recent ruling handed down by the Tribunal, the Prudential Authority then engaged with Finbond’s auditors, KPMG, to review the loan for the year to end-February 2018, at which point it was worth R141.1m.
KPMG stated that Finbond Group “intends to repay the loan in full, from cash derived in the normal course of operations in the short- to medium-term”.
The auditors also noted that the fact that Finbond was publicly traded, and a much sought-after share, allowed it to quickly raise additional cash if needed.
Finbond Group’s shares were not changing hands as of Thursday this week and were stagnant at 48 cents a share, giving it a market capitalisation of R314.8m. Over the past five years, its stock is down 80.67%.
The companies, in March of 2019, informed the Prudential Authority that the loan had been settled, which a subsequent investigation by Mazars, appointed to investigate the matter by the Authority, found was not the case.
Eventually, the ruling noted, the loan was settled via a cash transaction towards the end of February 2020. Four years later, the Authority levied an administrative penalty on the company to the tune of R10m, “of which R5m was suspended for a period of three years, subject to the applicant not committing a similar contravention during this period,” the judgement noted.
The Prudential Authority found that Finbond Mutual Bank misrepresented its accounting records when it claimed it had been repaid in 2019. In its application to the Tribunal, Finbond Mutual Bank argued that it had not contravened any financial sector law, and, as such, the fine should be overturned.
However, the Tribunal – under Judge DM Davis – stated that “in seeking to terminate the loan by way of journal entries, the applicant clearly sought to mislead the respondent [the Prudential Authority]”.
“There was no basis put before this Tribunal to justify a conclusion that a fine of R10 million, of which R5 million was suspended, was inappropriate within the context of this case or disproportionate to the conduct of the applicant,” read the judgement.
“The suspension of 50% of the penalty shows that the respondent was cognisant of the financial burden of the penalty.”
Judge Davis noted that the Prudential Authority had considered the bank’s loss-making position in 2021 and 2022 when penalising it.
Finbond Group reported a headline loss per share of 2 cents at the interim stage, compared with a decline of 0.4 cents as at its year end to February 2024.
Upon being asked for comment, the bank shared a letter to stakeholders with Business Report.
It stated that it now “considers the matter closed and remains fully committed to advancing our business in the best interests of our depositors”. The bank “continues to maintain a healthy risk profile and fosters a positive, cooperative relationship with the Prudential Authority,” it said.
BUSINESS REPORT