This is to determine if it engaged in reckless conduct or questionable management practices.
[DATA ABL:African Bank Investments], known as ABIL, was rescued in a 1.6 billion dollar bailout led by the central bank last month after being hit by waves of bad debt as its core market of low-income borrowers failed to pay back loans.
The reserve bank has appointed lawyer, JF Myburgh, to head up an independent probe into whether ABIL's business “was conducted recklessly, negligently or with the intent to defraud depositors, other creditors or any other person”, the regulator said in a statement.
(READ MORE: How aggressive lending came back to bite S.African bank ABIL)
It will also examine whether ABIL was involved in “questionable management practices or material non-disclosures, with the intent to defraud depositors or other creditors”.
Myburgh was appointed on August 30 and has five months to complete the investigation and another 30 days to submit a report.
Following the central bank rescue, Reuters examined more than two dozen court filings by ABIL against defaulters. The documents revealed that the bank had made loans despite holding evidence that borrowers had under-reported expenses.
ABIL's failure has raised questions among investors about levels of disclosure at the bank and whether regulators did enough to monitor its lending.
The National Credit Regulator has defended its oversight of ABIL, saying that some problems - such as the worsening economic outlook - happened after it granted loans and were beyond its control.
(READ MORE: SARB to introduce support measures for ABIL)
As part of the rescue, the central bank has also appointed a PricewaterhouseCoopers executive as ABIL's curator.