African Bank warns of more pain ahead as it cuts back risk

BAILED-OUT African Bank plunged to an annual loss of R9.3 billion and warned of more pain ahead as it cut back on the risky lending that had forced South Africa to orchestrate a rescue last year.

The unsecured lender crumbled under a mountain of bad debt in August, forcing the government to appoint external administrators to oversee a restructuring that included carving out a “good bank” using its healthy loan book – worth R26bn.

Its parent, African Bank Investments Limited, which also owns an insurance business and failed furniture retailer Ellerines, is under business rescue and protection from creditors.

African Bank said it lost R9.3bn in the year to September 2014 compared with a loss of R6bn a year earlier.

Full-year results were affected “by a weak operational performance on the advances book” and “certain one-off impairments”, the bank said.

It shortened the time horizon on cash-flow projections to 60 months from 120 months before. This drove up provisions for defaulted accounts – where customers have missed more than four payments – to 80 percent from a restated 64 percent, it said.

Unsecured

It also flagged as much as R2.8bn in 2015 losses.

“Unsecured lending is a long-term annuity business. It is going to take time to reflect better results and we don’t anticipate substantively improved operational results for the year ended September 30,” external administrator and PWC executive Tom Winterboer said.

The bank made loans worth about R600 million a month from August 2014 to March 31, way below the more than R1.2bn between October 2013 and July 2014.

‘Good bank’

Winterboer said the company, which had applied for a new banking licence, was on track to create a “good bank” by October. But it would take about two years for it to build a track record acceptable to potential equity investors, before a stock market flotation on the Johannesburg bourse, he said.

The bank has reached an agreement in principle with bondholders, including an offer of R1.65bn on junior creditors’