‘Hopelessly insolvent’ Habib Overseas Bank liquidated

The embattled Habib Overseas Bank has been liquidated a year after the National Treasury placed it under curatorship over governance issues which included allegations that it fragrantly breached SA’s exchange control rules and facilitated money laundering activities.

The SA Reserve Bank’s Prudential Authority (PA), successfully brought the liquidation application after finding that the bank’s books were in a perilous position and could not be rescued. This is after the bank’s curator found the lender was “hopelessly insolvent”.

Acting judge Shami Kholong said banks had an important role to play in the economy as they could be the principal depository for the liquid funds of the public and that the safety and ready availability of these funds was essential to the stability and efficiency of the financial system.

“In the light of the a foregoing, this court is satisfied that the first respondent is, as a matter of fact, commercially insolvent. It is also satisfied that due notices to interested parties have been made. This court, on the evidence presented, is satisfied that applicants have made out a case for final winding up of first respondent,” reads the judgment.

Habib’s curator Zeenath Kajee will not be appointed as its liquidator. Kajee in his role as curator found that the bank, which has had a banking licence since 1990, had its net asset value decline from R137.8m in December 2018 to a negative net asset value of minus R114m by May 2023.

The depositor and customer base decreased from R1.3bn in 2018 to R692m in 2023, while net loans and advances declined from R518m in 2019 to R253m in 2023.

Habib’s operating cost to income ratio doubled from 84% in 2018 to 195% in 2022.

Kajee raised a myriad of challenges experienced by the bank, including governance challenges; internal controls challenges; and systems, IT and operational challenges.

Habib argued that potential buyers were lined up to buy it and that a liquidation would derail these efforts.

“Applicants (PA) contend that no meaningful details or information relating to prospective purchasers had been disclosed. That vague and unsupported information is provided, and which can at best be said to be a list of suitors or middlemen who would be interested in looking for potential suitors,” Kholong said.

“That allegations contained in the answering affidavit constitute hearsay as no confirmatory affidavits have been filed. That the answering affidavit cannot therefore be said to be truly, an affidavit in opposition to the final winding up of first respondent.”

Habib Overseas has five branches including Oriental Plaza, Laudium, Lenasia, Cape Town and Durban.

The local unit of the Pakistani bank has more often than not courted controversy in the past few years. In 2017, the Gupta family fixer Salim Essa and another businessperson Hamza Farooqui tried to buy Habib as the country’s biggest banks started shutting down the family’s banking facilities.

Investigative journalism outfit amaBhungane last week reported that about R1.7bn was laundered via Habib by some of SA’s biggest gold smugglers.

khumalok@businesslive.co.za