The Financial Services Tribunal (FST) has dismissed an application by African Bank and African Bank Holdings to overturn a Prudential Authority (PA) directive, finding that a multi-step intra-group transaction used to bolster the bank’s capital position was “simulated” and not conducted in the ordinary course of business.
The decision, handed down on 9 April 2026, relates to a January 2025 transaction undertaken as the bank faced a shortfall in its common equity tier 1 (CET1) capital ahead of submitting its BA 700 regulatory returns.
According to the Tribunal, African Bank “required additional capital injection to satisfy its capital adequacy ratio” at the time it was required to report its position for January and February 2025.
To address this, the bank implemented a three-step intra-group structure involving African Insurance Group (AIG), a fellow subsidiary, and its parent company, African Bank Holdings.
The bank advanced a R725-million loan to AIG. AIG, in turn, declared and distributed a special dividend of R685m to African Bank Holdings. The holding company then used the proceeds to subscribe for one ordinary share in the bank for R685m.
The Tribunal noted that the remaining R40m difference between the loan and the dividend “was not advanced by the bank but was retained as interest earned or to be earned on the loan”, reflecting income generated within the structure itself.
‘One indivisible’ transaction
A central issue before the Tribunal was whether these steps constituted separate, legitimate transactions or a single, pre-arranged scheme.
The FST rejected the applicants’ characterisation of the steps as discrete, finding instead that “it is apparent that it was one indivisible transaction”.
It added, with reference to established case law, that the agreements were “plainly interdependent to the extent that none of them would have been concluded unless all the others were also signed”, and they were executed “almost simultaneously”.
Describing the economic effect of the arrangement, the Tribunal stated: “By means of simultaneous electronic entries, the amount that left the bank returned to it under another name, rather reminiscent of kite flying when we still had cheques.”
No genuine liquidity and regulatory capital concerns
The PA argued that the transaction should not be recognised as regulatory capital capable of absorbing losses.
The Tribunal, focusing on the substance of the arrangement, agreed with the Authority’s characterisation.
It endorsed the Authority’s detailed assessment of the transaction’s features, including:
- that “not a single rand remained with AIG” and its liquidity position was unchanged;
- that the transaction formed part of a “single indivisible design” with no independent commercial purpose;
- that the bank effectively funded its own interest income;
- that the arrangement was not conducted at arm’s length and lacked security; and
- that the loan was structured solely to enable an intra-group dividend.
On this basis, the Tribunal concluded that the arrangement amounted to “a classic example of a simulated transaction”, meaning it could not qualify as a transaction concluded in the ordinary course of business.
The Tribunal also questioned the valuation underpinning the recapitalisation, noting that “the subscription price of one ordinary share of R685m in a bank that is undercapitalised is remarkable”, and recording that no explanation was provided when this was raised during argument.
Regulatory framework and reversal
The PA found that the transaction was not in the ordinary course of business and did not comply with applicable legal and regulatory requirements, including section 44 of the Companies Act and banking regulations governing capital and intra-group exposures.
It ordered African Bank to reverse the transaction and resubmit its BA 700 returns. The bank complied with the directive under protest.
The Tribunal recorded that the transaction was reversed, the bank’s position restored, and corrected regulatory returns submitted. It also noted that subsequent funding arrangements involving third-party syndicated financing were implemented, but these were not under consideration in the case.
Tribunal’s scope and conclusion
The Tribunal emphasised that its role was limited to reconsidering the specific decision of the PA, and the case turned on its particular facts.
It stated that the Authority “did not decide in abstract that the bank may not lend money in the ordinary course of business to a related company to subscribe to its shares” but assessed the specific features of this transaction.
The Tribunal further noted that the applicants did not meaningfully engage with the Authority’s specific criticisms of the transaction and did not demonstrate that similar arrangements formed part of the bank’s ordinary course of business.
Having found no basis to interfere with the regulator’s decision and noting that any such order would in any event be academic given that the transaction had already been reversed, the Tribunal dismissed the reconsideration application.
The bank responds
African Bank said it respected the Tribunal’s decision, noting that the ruling relates to the specific facts of the transaction and its capital treatment involving AIG.
It said that, at the time, it and the PA held differing views on the nature of the transaction, and its board obtained independent legal advice before referring the matter to Tribunal.
The bank added that it had complied fully with the PA’s directive to reverse the transaction and disclosed its engagement with the regulator during investor presentations following its interim results for the six months to the end of March 2025.
