Johannesburg - South Africa’s deteriorating economy may lead to an increase in bad loans, according to the administrator of African Bank Investments, the South African lender which plans to restart operations in two months after being nursed back to health since its collapse in August 2014.

“There’s been no unexpected uptick in bad debts, but one is obviously concerned,” Tom Winterboer, African Bank’s administrator, said by phone from Johannesburg on Thursday. The company’s lending practices are now “a lot more conservative,” non-performing loans have improved and the bank is looking at diversifying its clients and its products, all of which may protect it from any large increase in bad debts, he said.

The continent’s most-industrialised economy risks falling into recession this year as plunging commodity prices, weak demand from China and the worst drought in more than a century curbs output and pushes up food prices. At the same time, a 28 percent decline in the rand against the dollar over the past 12 months threatens to fuel inflation, which the central bank has tried to offset by raising interest rates to their highest level since March 2010, further crimping the disposable income of consumers.

African Bank, which in the past targeted low-income earners seeking unsecured loans, is preparing for tougher economic times by aiming for wealthier customers, while considering offering transactional banking in 2017, allowing clients to have their salaries deposited into accounts at the lender. Other Johannesburg-based banks, including FirstRand and Nedbank Group, are looking at ways to cut costs to shore up profit amid an expected rise in bad debts.

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Good bank

African Bank is forecasting a profit in 2017 even after a predicted loss of about R258 million ($16 million) for the six months to September this year, Winterboer said. The so-called good bank, which starts on April 4 and will be made up of African Bank’s viable assets, will have about R23 billion in cash, R21 billion in net loans and R1.7 billion in goodwill, which will be paid off in its first year, he said.

As April draws near, African Bank made a final offer to bondholders who lost money after the lender crashed, giving them the opportunity to switch their claims against the company for new debt and some cash, with senior creditors able to recoup about 90 percent of their investments, African Bank said in a statement on Thursday. According to the offer, which is little changed from previous drafts, subordinated bondholders can exchange claims against the company for a proportionate share of a new 10-year subordinated debt instrument or an equivalent amount of shares in the new bank.

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Acceptable offer

“We’ve spoken to various creditors groups and believe that what we’ve got is acceptable for them, ” Winterboer said. “We’re keen for creditors to vote now, they need to vote in the week of February 22 and maybe sooner” because local central securities depository participants may demand that investors register their choices earlier than African Bank requires, he said.

The remaining viable assets of the South African lender are able to start operating after banking laws were changed, a new insurance unit was created, a new board was put in place and authorities granted the company a banking license.

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Meetings for bondholders are scheduled to be held in Johannesburg at the end of this month and in London on March 1, African Bank said.

Bloomberg