Seoul - The fallout from African Bank Investments Ltd’s failure is contained to South Africa’s largest provider of unsecured loans and won’t spread to other lenders, according to Mark Mobius.
“Other banks are in pretty good shape,” the executive chairman of Templeton Emerging Markets Group, which oversees about $40 billion (R428 billion), said in an interview in Seoul today.
“I wouldn’t say it’s symptomatic of the whole banking system.”
Trading in African Bank shares was suspended today after the Johannesburg-based company was placed under protection from creditors by the central bank.
Standard Bank, Barclays Africa, FirstRand and Nedbank are among lenders that agreed to underwrite a R10 billion capital raising for African Bank as part of a plan that will split the company’s good and bad loans.
“Because it is spread across all the other banks, the amount each one will have to contribute is small in the grand scheme of things,” Nerina Visser, head of beta solutions at Johannesburg-based Nedbank Capital, said by phone.
“African Bank had a unique business model so contagion to the other banks will be very limited.”
African Bank’s situation became critical after the bank said August 6 that chief executive and founder Leon Kirkinis resigned, losses will be at a record this year and it would need to tap investors for a fresh capital injection of at least 8.5 billion rand, eight months after raising 5.48 billion rand in a rights offering.
African Bank will be split into good and bad banks, with the former receiving the recapitalisation funds, South African Reserve Bank Governor Gill Marcus told reporters in Pretoria yesterday.
The stock dropped 95 percent in Johannesburg last week to 31 cents for a market value of 465.3 million rand.
“The worst of the damage has been done,” Visser said.
“The Reserve Bank’s actions will help bring stability, which will help sentiment toward South Africa.” - Bloomberg News