THE IMPLOSION of African Bank Investments Limited (Abil) has been a disaster long waiting to happen. That it comes so soon after the bank had raised hopes about a turnaround goes to show how out of touch with reality its management has been.

Nowhere in the world can you keep lending money to anybody with a pulse and expect to continue thinking it is business as usual.

Abil represents all that can go wrong with unchecked lending. Nobody is saying low-tier borrowers do not deserve to be served but Abil’s aggressive tactics have clearly been a bridge too far. The bank ought to have known the risks involved.

Although we are unlikely to see a run on Abil, its demise will serve to further entrench persistent suspicion about banking in general – and that is because people are well aware of the damage wrought by reckless banking practices back in 2008 and 2009 in the US and in Europe.

South Africa, with its strong and tightly regulated banking sector, sailed through the global banking storm unscathed but that did not mean that its banking industry was therefore exceptional.

Just as anywhere else, there will always be those who would push their luck by taking on excessive risk or, in other words, playing with other people’s money. The lesson for Abil is simple: though it could run, it thought it could also hide. Its management knew this, as did the South African regulators.

The question arising from this saga is this: why did the regulators not act on Abil when all the toxic telltale signs of trouble were there for all to see? From the mining strikes to a moribund economy, there was just enough evidence suggesting that sooner rather than later, some of the 3.2 million people who relied on Abil for loans would struggle to pay up.

In the end, the dumping of Abil’s stock all of last week, which saw more than R7 billion of the bank’s market value wiped off over a 48-hour period, had to prompt the Reserve Bank, which regulates the commercial banks, to act.

At a hastily convened press conference yesterday, governor Gill Marcus tried to reassure Abil customers that their money was safe and she announced that the bank had been placed under curatorship.

In simple speak: Abil, which saw its founder and chief executive Leon Kirkinis jump ship last week, has finally hit the iceberg, and thus the curator’s task is to ensure that it does not take on excessive water so he can steer it into the port of safety.

That port of safety will most possibly involve jettisoning Abil’s bad loan book so that one of the major banks can take on the healthier part of its debt book.

And what about Abil’s bondholders? They will most possibly have to take the proverbial “hair cut” as the Reserve Bank now works to shore up the lender and help it raise the requisite funding, which unfortunately will not come cheap.

The lesson for South Africa from the Abil episode is that we must never assume that we are an exception. The market is always ready to remind us of this at each and every turn. At a macro level, Abil’s woes signify the sorry state of the baseline consumer: living large but on the edge.

Ellis Mnyandu is editor of Business Report. Follow him on Twitter @Ellis_Mnyandu