African Bank slides 16% on R3bn loss

2014-05-04 15:00

The share price of African Bank Investments Limited (Abil) tanked by more than 16% on Friday after it shocked shareholders with the news it would report a headline loss of between R3.1?billion and R3.3?billion for the six months to March.

To make matters worse, Abil took the decision to significantly increase its performing loans’ credit impairment provision by about R2.5?billion, which was “unusual”, according to Patrice Rassou, the head of the equities division at Sanlam Investment Management.

“They are basically sending a message they expect people not to repay. It was not expected at all,” he said.

Rassou said the share price slump indicated investors didn’t expect the results to be “this bad, especially after the rights issue” in November, which raised R5.5?billion.

“People are probably paying less, not repaying the full amount of loans or are expecting things to get worse, so African Bank is looking ahead of the curve and making provisions for performing loans six months in advance.”

Both Rassou and Miyelani Mkhabela, the executive director of Antswisa Management Group, said Abil’s large unsecured lending portfolio was the main cause of its problems.

Rassou said: “When unsecured lending went through a surge, African Bank was the largest unsecured lender. They were very aggressive with long-term loans of three to five years. They took too long to realise the economy was under pressure and people would be unable to repay their loans.”

Another root cause is furniture retailer Ellerines, which Abil bought at the wrong time and for too much. It is now trying to sell Ellerines.

But Mkhabela believes it is not all doom and gloom, and this could be a good time to buy Abil stock.

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