S African Reserve Bank applies to court to liquidate Habib Overseas Bank

The South African Reserve Bank (SARB) on Friday launched proceedings in the High Court for an order for the final winding up of the local subsidiary of Pakistan-based Habib Overseas Bank Limited (HOB).

The application, brought by SARB together with the Prudential Authority (PA), is to be heard on August 8, 2023, or as soon thereafter as determined by the Court, SARB confirmed in a statement.

This follows the decision by the Minister of Finance, on the recommendation by the PA, to place HOB under curatorship in March 2023.

HOB was placed under curatorship to deal with its governance, compliance and operational failures.

Since the curatorship, in-depth assessments undertaken by the curator found that HOB's financial position was significantly worse than that reported by the bank's management.

The findings by the curator concluded that HOB is insolvent.

In accordance with the requirements of the Banks Act 94 of 1990 (Banks Act), Craig du Plessis, who is the appointed representative of the curator of HOB, notified the PA that there was no reasonable probability that the continuation of the curatorship would enable the bank to pay its debts or meet its obligations and become a successful concern.

The curator further recommended an investigation into the affairs of HOB. HOB's total assets are significantly less than its liabilities, the statement said.

In the curator's view, having regard to the current position of HOB, it is highly unlikely that HOB would be able to attract an alternative equity investor to recapitalise the bank.

The curator has also highlighted serious concerns regarding HOB's ability to function effectively as a banking institution and has found its business model to be unsustainable.

In light of this, a decision was taken by the PA and the SARB that it would be in the best interests of the creditors of HOB, which in the main are its depositors, for HOB be placed in final winding up, as a matter of urgency, SARB said.

This would then allow a liquidator to preserve the bank's assets for the benefit of its creditors and to undertake the necessary investigations into the affairs of HOB.

On June 8, 2023, the SARB, with the support of National Treasury, announced a mechanism whereby qualifying depositors of HOB could have access to, and be repaid amounts deposited by them with HOB, up to a maximum of 100,000 Rands per depositor.

This mechanism remains in place, notwithstanding the potential liquidation of HOB. These payments to depositors, of up to 100,000 Rands per eligible depositor, are being paid by the SARB, and not by HOB, to assist depositors.

Depositors with more than 100,000 Rands in their accounts will continue to have a claim against HOB (in liquidation) for the remaining balance after the payment of 100,000 Rands.

HOB established a branch in Johannesburg in 1990 amid growing international attention as democracy dawned after the release of Nelson Mandela, who became the country's first democratically-elected President.

Established by the Habib Group of companies in 1941 in the then Bombay, the bank moved its head office to Karachi before the partition of India into the separate state of Pakistan in 1947.

According to its website, HOB has 875 branches in Pakistan and 44 branches abroad, including 20 in the UK.