African Bank ‘best capitalised’
• African Bank in strong capital position and stable
African Bank, which had its credit outlook revised from negative to stable by S&P Global Ratings this week, is SA’s best-capitalised bank, according to the ratings agency.
African Bank, which had its credit outlook revised from negative to stable by S&P Global Ratings this week, is SA’s bestcapitalised bank, according to the ratings agency.
African Bank’s strong capital position and stable outlook demonstrates the bank’s turnaround following a 20month curatorship and subsequent relaunch in April 2016.
The bank’s risk-adjusted capital ratio was expected to remain above 20%, making it the best-capitalised bank in the country, S&P said.
This was appropriate for the higher level of risk to which it was exposed as a result of its unsecured retail loan book. The Reserve Bank placed it in curatorship in August 2014 after it collapsed under bad debt and needed a R10bn capital injection from the private sector to keep its performing debt book afloat.
It has separated from former parent African Bank Investments Limited (Abil), which resumed trading on the JSE in February as African Phoenix.
Under the leadership of Brian Riley, African Bank is now diversifying into insurance and investments, with plans to launch a transactional banking product later this year.
S&P affirmed African Bank’s B+ global-scale rating, which places it four notches below investment grade. Its local-scale rating was raised from BB- to BB, placing it two notches below investment grade.
The revision to African Bank’s outlook and upgraded national-scale rating reflected better-than-expected earnings and an improvement in capitalisation because of a reduced balance sheet, S&P said.
The bank had a loan book of about R30bn in January, down from Abil’s precuratorship peak of around R60bn.
For the five months to the end of September 2016, African Bank reported profit after tax of R269m, which was particularly pleasing considering that it had forecast a loss of R280m.
African Bank’s risk position, however, remained weak, S&P said, reflecting its focus on unsecured consumer loans, which led to greater losses.
Impairment charges and write-downs were expected to be about 11% and 10% of its gross loan book over the next few years. These could worsen in the event of a spike in inflation or unemployment, but this was not S&P’s base case scenario.
While African Bank had strong levels of liquidity and limited medium-term refinancing risks, low investor confidence could threaten the bank’s wholesale-funded balance sheet in the longer term, said S&P.
A positive ratings action would require an improvement in the funding profile of the bank and evidence that actions to diversify the business model were taking shape. The S&P announcement was a “directional improvement for African Bank debt”, said Gavin Jones, African Bank’s head of treasury.
African Bank will report interim results for the six months to March 31 on May 23.