ANOTHER week, another bank bail-in. On August 3, Portugal pumped e4.4 billion (R63bn) into Banco Espirito Santo (BES), gave creditor debt a haircut, and split BES into good and bad banks.

Seven days later, South Africa put R10bn into African Bank Investments Limited (Abil) and divided it in much the same way. On balance, Pretoria has done a better job than Lisbon.

The Reserve Bank stepped in on Sunday to rescue Abil after the bank was hit by rising non-performing loans and was unable to raise capital.

Under the curatorship, the Reserve Bank will buy Abil’s non-performing loans for R7bn, a 59 percent discount to their book value after impairments.

The bank’s other assets and operations will be transferred to a new entity, which will be recapitalised through a rights issue underwritten by six banks and the Public Investment Corporation. Abil’s senior creditors will take a 10 percent haircut and will be transferred to the new bank.

Besides both receiving state assistance, Abil and BES have several similarities. Reckless lending in Africa is one – the Portuguese bank through its Angolan subsidiary, the South African institution as an entity dedicated to using flighty wholesale money to fund unsecured loans to hard-up domestic customers.

Another common theme is the haemorrhage of cash to other parts of their groups: BES to parent entities that could not roll over commercial paper, and Abil to its wholly owned furniture offshoot, Ellerines, which it was funding to the tune of R70 million a month.

The main difference is in the treatment of senior debtholders. Abil’s R40bn of senior debt will receive a 10 percent haircut, while junior bonds will be converted into equity. A consortium of public sector funds and private sector banks will recapitalise the good bank.

BES’s e8bn of senior debt escaped intact, leaving the Portuguese state with a higher potential bill.

Abil’s rescue is not perfect. Although the bad bank is buying the good bank’s worst assets at a 60 percent discount, the taxpayer will be on the hook if losses are greater. Portugal avoided this by placing shareholders and junior debt in BES’s bad bank, forcing them to potentially suffer total wipe-outs. Also, Pretoria could have made a larger write-down on senior debt.

Still, taxpayer funds are supposed to be used for the public good. Had regulators simply pushed Abil into bankruptcy, domestic wholesale markets could have been disrupted. Besides, most South Africans do not have the assets to borrow on a secured basis, so unsecured lending has a big political constituency. Considering the different circumstances, Abil’s rescue looks like a small step forwards.

Abil said last week it expected to make a R6.4bn headline loss in the year to the end of September and needed to raise R8.5bn of additional capital. The bank raised R5.5bn in December last year.

n The Financial Times explains a “bail-in” as a process that takes place before a bankruptcy. It requires bondholders to forfeit part of their investment to “bail in” a bank before taxpayers are called on to bail it out.

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.