Watchdog shakes unsecured lenders

Independent Newspapers.

African Bank faces a possible R300 million fine from the National Consumer Tribunal for reckless lending practices. Photo: Simphiwe Mbokazi.

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The share price of African Bank Investments Limited (Abil), at R30.91 at the close of trade on Friday, was 40c stronger than it had been a week earlier when it first announced the R300 million fine it was facing from the National Consumer Tribunal because of “reckless lending”.

By contrast Capitec, the other major listed player in the unsecured lending market, was down R2.80 on the week, although it had not been fingered by the National Credit Regulator (NCR).

Analysts said it was unclear what was the primary influence on the share prices as growing concerns around the unsecured market had led to a significant re-rating of the shares during the past six to 12 months. Although Abil was firmer on the week, over the past 12 months its share price is down 17 percent.

It is on a forward price-to-earnings rating of 8 times and a dividend yield of 6.3 percent. Abil has a market capitalisation of R25 billion, a return on equity of 17.8 percent and a return on assets of 15.7 percent.

By contrast, although Capitec was down on the week and 12.3 percent lower than it was six months ago, it is up 3.5 percent on the year. Its preferential position among investors is evident in its forward price-to-earnings ratio of 13.96 times and dividend yield of 0.84 percent. It has a market capitalisation of R21.7bn, a return on equity of 24.87 percent and a return on assets of 6.41 percent.

Analysts are expecting Capitec to receive some form of attention from the NCR given that in October last year Capitec was speculated to be one of the unsecured lenders that the NCR was investigating.

There is also considerable political pressure to ensure there is no reckless lending in the unsecured debt market. Last October Trade and Industry Minister Rob Davies said the government “will act without fear or favour against whoever is involved in reckless lending and preying on vulnerable members of our society”.

At the time he commended the NCR for its more aggressive engagement with the industry.

In the past week that more aggressive engagement was evident not only in the R300m fine that was recommended but also in Friday’s announcement that the tribunal had imposed an administrative fine of R900 000 on Free State-based Werlan Cash Loans and had declared its credit agreements unlawful.

The fine followed an investigation by the NCR that established that Werlan did not have the necessary registration at the time that it concluded the credit agreements.

On the day it informed shareholders about the possible fine, Abil proclaimed its innocence and gave its side of the story. The bank is adamant it is not guilty of reckless lending.

As with every other bank in the world, African Bank’s scope for righteous indignation has been considerably restricted by the ongoing revelations of unsavoury practices by powerful EU and US banks, not only in the run up to the 2008 global financial crisis but also in the years since.

In the court of public opinion, financial institutions are now likely to be regarded as guilty until proven innocent.

Of course, to the extent that African Bank and any of the other major listed players in this market are able to establish their innocence, then a more aggressive NCR would significantly benefit their ability to grow market share at the expense of smaller players that are less easily able to prove their innocence.