African Bank warns of losses, price plunges

2014-08-07 00:00

AFRICAN Bank’s (Abil) share price plunged more than 60% yesterday and the country’s biggest unsecured lender warned of a R4,6 billion loss for the year as its low-income customers struggle against the weak economy.

The share price traded at 267 cents by 1 pm yesterday, 421 cents off the opening price in the morning.

State pension fund, the Public Investment Corporation (PIC), said Abil is “almost like a bottomless pit”.

Abil said it will launch its second big capital raising in about a year.

“We have really been spending a lot of money on this company. It’s almost like a bottomless pit now and we need to find a way of closing it,” said Dan Matjila, chief investment officer at PIC.

The PIC is the second-biggest shareholder in Abil, with about a 15% stake.

Abil warned of a full-year loss of R6,4 billion and said its chief executive Leon Kirkinis has stepped down after 20 years in the business and chief financial officer Nithia Nalliah has been appointed acting chief executive.

Abil made a headline loss of R365 million the previous year.

It has been hammered by rising bad debts as its core market of low-income borrowers comes under strain from a weakening economy and higher inflation.

“Customers are finding that their disposable income and their ability to service debt continues to be under pressure, driven by above inflationary cost of living increases, higher relative debt servicing costs and lower growth in gross income,” the bank said.

In the banking unit, the non-performing loan formation for the quarter decreased by 7,1% from the quarter ended March 2014.

“This level of improvement was, in the opinion of the board, not adequate to achieve the targeted returns, particularly against the deteriorating economic outlook.”

Abil implemented further risk cutbacks and may take further steps in the future.

Disbursements for the nine months ended June 2014 declined to R14,1 billion, which is 20% lower than disbursements of R17,7 billion for the comparable period.

The average net loan size fell to R13 331 this quarter, compared with R13 868 in the first half of 2014.

Retail unit Ellerine recorded merchandise sales of R2,8 billion for the nine months ended June 30, 2014, a 12% decline relative to the comparative period.

The board has decided to implement steps to secure the future of its banking business.

These include growing the “good” bank, insulating the group from further exposure to Ellerines, a further tightening of risk parameters around new credit business, strengthening the provisioning on the existing advances book, increasing Tier I capital and securing additional longer-term liquidity.

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