African Bank returns to profit

AFRICAN Bank Limited which was saved from bankruptcy last year through taxpayers’ money following a R10 billion capital injection swung to a profit in the six months to March.

The lender yesterday said that swept back to R315 million in profits from a R1.6bn loss last year.

African Bank restarted trading in April last year following its collapse in 2014.

Last year, the company impaired R1.9bn in goodwill to make way for the commencement of its operations in line with accounting standards.

It said that the difference between the fair value of assets acquired and liabilities gave rise to the goodwill amount.

African Bank is 50 percent owned by the SA Reserve Bank (SARB), with 25 percent owned by the Public Investment Corporation (PIC) through the Government Employees Pension Fund.

The remaining 25 percent is owned by a consortium of six banks including FirstRand Limited.

African Bank said yesterday that earnings from insurance operations shot up R280m from R33m in the previous year.

Chief executive Brian Riley said in a statement that the results reflected a core loans business that continued to improve in the context of a tough environment.

“Credit risk remains firmly under control in the context of understandably muted new business volumes due to the bank’s conservative approach to credit in a struggling economy and the impact of regulatory changes,” Riley said.

“We are gaining traction on executing our diversification strategy, albeit with a slight delay in Credit Direct, which launched successfully on May 15, 2017.”

Delivering He added that while the business operated in a climate of increasing economic and regulatory headwinds, it had the continued support of all of stakeholders.

“There is increasing evidence that we are delivering on our strategy,” he said.

The company also said return on investment would be lower than previously expected.

It said that a lower yield on advances than forecast in the Offer Information Memorandum (OIM), given the bank’s reduced risk appetite, favouring lower-risk customers that command larger loans over longer periods at lower yields.

“This reduced risk appetite is deemed necessary as a result of a deteriorating economy and the introduction of regulatory caps on interest and insurance rates,” the company said.

Unlisted African Bank was hived off from the good bank.

The bank’s failure in 2014 followed a series of unforeseen material provisions being created against the loan book.

The company said that the impairments had a significant adverse effect on its capital and caused a shortage of liquidity, which was exacerbated by a loss of confidence among creditors, resulting in an inability to refinance the bank.

The micro-lender’s failure presented not only the potential for systemic risk to the South African banking environment, but also risk to the its customer base and more than 5 000 employees.

The bank, which was under curatorship, has been restructured with a revised strategy to diversify its portfolio.