African Bank faces failure

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African BankThornTree Independent Newspapers Photo: Simphiwe Mbokazi.

Johannesburg - African Bank Investments Ltd, which plummeted this week after surprising investors with the need for more funding, is now counting on shareholders or the government to stave off collapse.

South Africa’s largest supplier of unsecured loans slumped 90 percent since saying on August 6 its chief executive officer and founder resigned, losses will be at a record this year and it requires about R8.5 billion of new capital.

The bank has cut funding to its loss-making Ellerines furniture retailer to shore up returns.

“If the top three shareholders get together and will put in the money, calculations show that Abil will survive,” Kokkie Kooyman, the head of Cape Town-based Sanlam Global Investments, which has $900 million (R9.7 billion) under management, said yesterday in a phone interview.

“I’m amazed that regulators and auditors didn’t step in earlier and warn of this.”

The speed and magnitude of the decline highlights the prospect of a second banking bailout in less than a week after Portugal’s Banco Espirito Santo SA required about $6.6 billion of government funds following a 73 percent stock plunge.

Bank of Portugal Governor Carlos Costa had sought private investors to inject the cash, with government funds being a last resort.

The South African Reserve Bank is in talks with Abil, Hlengani Mathebula, an SARB spokesman, said yesterday by phone from Pretoria, without giving more details.

There’s “no indications that other South African banks have been affected negatively by Abil’s trading update,” SARB said on August 6.

 

Shareholder Demands

 

Public Investment Corporation, the South African pension fund which is Abil’s second-largest shareholder, said it will only invest more in the bank if it develops other sources of revenue to become more like a traditional bank and changes its board.

“If we rescue, it will depend on management’s plan, or we’ll be throwing good money after bad,” chief investment officer Daniel Matjila said yesterday by phone.

Abil has about a week to finalise a turnaround plan, Johannesburg-based business newspaper reported today, citing him.

Abil, which offers loans to individuals who might not be able to obtain them from traditional banks, survived a 2002 crisis among small lenders in South Africa that caused Saambou and Unifer to fail.

Bad loans have increased amid rising South African unemployment and inflation.

“Even if you accept Abil is relatively small in a systemic sense, you have to consider the huge impact on a section of the population that can’t otherwise get funding,” Adenaan Hardien, chief economist at Cadiz Asset Management, said by phone from Cape Town yesterday.

“The country can ill afford to cut these people out of the loan market.”

 

Abil Falters

 

Abil started to falter in March last year after South Africa’s National Credit Regulator said the Johannesburg-based lender had been involved in reckless lending, forcing the bank to abandon plans to raise $300 million in foreign debt markets.

The bank relies on market funding for its business instead of deposits, meaning if it failed there would be no need to compensate angry savers.

Coronation Fund Managers and Stanlib are Abil’s two other biggest shareholders.

Neither returned calls and messages seeking comment.

South African Finance Minister Nhlanhla Nene said in Pretoria that while the government is “keeping an eye” on African Bank, the banking system remains robust and there’s no indication other lenders are affected.

“When the US banks were collapsing in 2008, they went to the Fed and no one left the room until they solved it,” said Kooyman, who has twice been voted fund manager of the year by Investment Week, a British industry publication.

“Abil and the Reserve Bank should have done that.”

Much of Abil’s troubles stem from the purchase of furniture retailer Ellerine Holdings in 2008 for 9.2 billion rand, a move intended to help the bank find new clients and boost lending.

After a series of writedowns and losses, which Abil had to fund by selling debt or equity because it doesn’t take deposits, it tried unsuccessfully to sell the unit.

Ellerines, in a statement late last night, said that there’s a “reasonable prospect” that the the business rescue process will help preserve as many of the company’s 8,000 jobs as possible and help its return to solvency. - Bloomberg News



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