The bailout of African Bank Investments Limited (Abil) by the Reserve Bank smacked of part-nationalisation and had the hallmarks of political intervention, economists said yesterday.
Russell Lamberti, an economist at ETM Analytics, said African Bank should have been left to the markets to fail if necessary. He said it had been allowed to fail by the authorities and the Reserve Bank was going down the wrong path with its bailout.
“Government is protecting its favoured corporates,” Lamberti said yesterday on Candid Business, a weekly radio show on CliffCentral.com, hosted by Business Report editor Ellis Mnyandu.
He said the failure was not due to lack of oversight. The government had been very keen to get cheap loans for poor South Africans. “I was shocked to see it quite so keen to step in. It seems it is ready to get more involved in banking.
“Regulators can almost never keep up. In South Africa it has been proven that regulators struggle to keep up with the market.”
Economics consultancy Econometrix said the Reserve Bank’s move appeared to be politically motivated and bank nationalisation was a hotly discussed topic in the ANC.
“Tito Mboweni, the former Reserve Bank governor, recently said the state should begin buying equity in one of South Africa’s banks. This dovetails perfectly with the ANC’s ‘development finance’ objectives, which aim to provide subsidised finance to black entrepreneurs and increase access to mortgage finance,” the consultancy said.
Peter Attard Montalto, a London-based research analyst at Japanese investment bank Nomura, said: “This is a sound move by the Reserve Bank but sets difficult precedents for the future for the market to digest.”
Reserve Bank governor Gill Marcus announced on Sunday that Abil’s retail bank, African Bank, would be placed under curatorship with immediate effect. She named Tom Winterboer, the financial services leader at PwC, as the curator.
African Bank was to be stripped into a good and bad bank. The good bank would be recapitalised by a consortium of other banks and the Public Investment Corporation, and the bad bank, with an asset book worth R17 billion, would be bought by the Reserve Bank for R7bn.
Abil was also in the process of finalising a deal with South Africa’s biggest clothing retailer, Edcon, as its second credit provider.
Edcon, which had 130 000 fewer credit customers in the year to March than the previous year, was on the lookout for a second credit provider for customers who did not meet Absa’s credit criteria.
Absa bought the retailer’s book for R10bn in 2012.
Edcon said yesterday that it was in contact with Abil and was evaluating the situation.
Finance Minister Nhlanhla Nene said that no financial sector regulatory regime could prevent failure of all financial institutions, in reference to African Bank being put under curatorship on Sunday.
He said that the National Treasury had, in 2012, begun the process of further strengthening oversight of the financial sector and that the events that culminated in the curatorship of African Bank were a powerful reminder of the urgency of this work.
Addressing the 17th southern African internal audit conference, he said effective policy included the resolution of financial firms in trouble in a way that imposed losses on those investors who profited from that firm’s activities, and who were in a position to exercise influence over that firm’s management.
Meanwhile, trade in shares and bonds in the troubled parent company, Abil, was suspended yesterday on the JSE, the firm said in a statement.
The Financial Services Board (FSB) said only a small proportion of the total assets of money market funds were exposed to Abil debt. “There are 43 market funds active in South Africa, with assets valued at R270bn, of which 1.3 percent is exposed to Abil,” it said.
The FSB was responding to those investors who expressed concern regarding their exposure to Abil debt instruments.
The Association for Savings and Investment SA told collective investment scheme investors not to panic about the woes facing Abil.
Leon Campher, the chief executive of the association, said the exposure of local equity and fixed interest portfolios to the bank’s stock and debt instruments was minimal.
“Since equity portfolios are priced daily, the unit price you see today has already factored in the decline in the value of the Abil share price. Therefore, there is no point in selling your units in reaction to developments at African Bank.”
Campher said fixed interest investors should therefore avoid knee-jerk reactions and remember that they invested for a high-yield return which would not be materially affected by the challenges facing African Bank.
Deborah Solomon, the founder of the debt counselling industry portal, DCI.co. za, and a registered debt counsellor, said the National Credit Regulator (NCR) must be taken to task for its failure to properly investigate African Bank for its reckless lending practices, which had left the bank with an R8.5bn financial gap.
“We are calling on the government to launch a high-level investigation into the office of the NCR to establish exactly why the regulator is not doing its job properly,” she said.
She said debt counsellors had now received information that the NCR had “seriously erred” in not launching a full-scale investigation into the lending practices of the bank’s 630 branches.
She referred to a fine of R20 million that was imposed on African Bank last year while the regulator had initially had recommended a fine of R300m for “at least 700” loans recklessly granted to consumers.
“The reduction of the proposed R300m fine”to just R20m was also not acceptable and amounted to a slap on the wrist,” Solomon said.
Solomon said that over the past few years, debt counsellors had lodged thousands of complaints, many relating to reckless lending in breach of the National Credit Act against the country’s major credit providers, including African Bank.