18/01/2017 10:31 SAST | Updated 18/01/2017 15:24 SAST

Ex-Reserve Bank Head Stals Rubbishes Public Protector's Absa Apartheid Report

Chris Stals says he was misunderstood and Absa has paid back the loan.

Former Reserve Bank governor Chris Stals has expressed dissatisfaction with the public protector's preliminary report into Bankorp, and claims that he was misunderstood during his interview, Business Day reported on Wednesday.

In the ongoing tussle to see Absa pay back the money that was loaned to Bankorp during apartheid, which it later acquired, Stals's interview raises many questions regarding the report. Billions looted from the government prior to 1994 is back on the news agenda after the release of the report, with many saying the repayments need to be dealt with as a whole because it was not just Absa who benefitted at the time.

The report indicates the evidence presented by Stals suggested the Bank had an agreement with Absa to repay both the capital amount and the interest. Absa apparently failed to do so and only repaid the capital amount.

But Stals told Business Day that the finding, which was a result of his interview with then public protector Thuli Madinsela, was incorrect or showed a lack of understanding of how the lifeboat worked.

"I made it very clear to her in my interview that there [is] no way the bank can claim anything from Absa. Absa settled all its obligations in 1995 and to think that a successful claim against it can now be made is naïve," he reportedly said.

He warned that he would wait for the final report to see if it changes, and would take action if it didn't.

Stals said there was a possibility that the drafters of the report had misunderstood what was meant by the interest on the capital amount. The Reserve Bank is said to have made three loans to Bankorp amounting to R1.5bn at interest rates of between 0% and 2%. Bankorp allegedly used the cash to buy government bonds with a yield of 16%.

Stals said the contract amount for the loan would have been around 1%, which was repaid.

In her preliminary report, which was published by the Mail and Guardian, Mkhwebane recommends that Absa must pay back R2,25 billion to the Reserve Bank, allegedly due to an illegal and improper loan, donation or so-called lifeboat made to a now-defunct bank, Bankorp, which Absa acquired in the early 1990s.

The M&G's report indicated that the public protector relied quite heavily on the so-called Ciex Report, and not on a similar investigation headed by Judge Dennis Davis.

The Ciex report targets Absa for recovery, while the Davis investigation lets the bank off the hook. Ciex was a British company founded by former spies, that approached the South African government in August 1997 and said it can help the democratic government recover "billions" looted from state coffers during apartheid.

It sold an operation called "Spear" to the government, which claimed it could recover an amount of R3,2 billion from Absa, between R3 billion and R6 billion from Sanlam and the then Rembrandt Cigarette Company and up to R5,5 billion from Aerospatiale/Daimler-Chrysler.

Ciex would only have been paid if it recovered money. In a document, drawn up by Ciex and titled "Operations on behalf of the South African government, August 1997 to December 1999", Ciex sets out details of all its investigations into various entities, including Absa, Sanlam, Armscor, the infamous Pagad (People Against Gangsterism and Drugs) and a rogue minister identified as "Gnome".

It also alleged that the Dutch Reformed Church and KWV, the Paarl-based wine co-operative, illegally benefited from the apartheid government.

The Davis inquiry, officially called "the SARB Governor's panel of experts to investigate the SARB's role with regards to the financial assistance package to Bankorp Limited".

The report of more than 150 pages, including annexures and a list of source documents, the panel found the loan or donation by the SARB to Absa/Bankorp was improper and illegal. It also specifically says the conclusions drawn by Heath are mistaken. It found Absa and its shareholders weren't beneficiaries and that although recovery is theoretically possible, it would be difficult and costly.

The report doesn't mention systemic risks to the banking system should the recovery operation go ahead, merely that the Bankorp intervention by the SARB was justified to prevent systemic contagion.