Reviving African Bank

African Bank is a brand many would love to own. For many of its clients it is still the bank started by Sam Motsuenyane and other entrepreneurs in 1964, decades before the Financial Sector Charter.

Most have now forgotten the wheeler-dealer days of African Bank under Leon Kirkinis, when it drove SA’S bestrun furniture chain, Ellerines, into the ground. The bank was placed under curatorship in 2014.

But the current CEO, Basani Maluleke, has the integrity and dynamism to bring the bank into a new phase. The Myworld transactional account, which she has launched, has brought in 258,000 customers since going live in May 2019.

And of these, just 43% had a loan or any other product with the bank. In the first six months of the year, which ended on March 31, it was signing up 1,000 new accounts a day.

Without Covid-19, African Bank was probably three to five years away from a listing. Its largest shareholder, the SA Reserve Bank, is not a long-term holder. There is an obvious conflict of interest between the Bank’s role as regulator (the Prudential Authority doesn’t even pretend to be autonomous from the Bank) and as shareholder of one of the banks it regulates.

The Government Employees Pension Fund was also brought in as a shareholder in a kind of disguised state intervention, but it isn’t appropriate for it to become a national-policy instrument.

Still, it has a better chance of a decent return from African Bank under Maluleke’s leadership than from SAA, Eskom or some of the overpriced technology investments it has made.

For a start, African Bank is well capitalised with capital adequacy of 40%, while the big banks are comfortable with 11%-12% on their own balance sheets.

The consortium of banks that make up the rest of the shareholding (the big four plus Investec and Capitec) still haven’t received any kind of dividend from African Bank.

Capitec is African Bank’s fiercest competitor so it is time that it left the controlling consortium.

Tough conditions

That’s not to say that African Bank is sailing in smooth waters right now. Maluleke says that even before the Covid adjustments, trading was tough, with net profit down 6% to R503m.

After the adjustment it recorded a net loss after tax of R111m.

And even before the adjustment, African Bank was making a loss on its transactional business — which remains subscale.

Maluleke readily admits that most people come to African Bank for loans only after their primary bank turns them down, which explains the eyewatering 8.8% credit loss pre-adjustment and 12.5% afterwards.

But Maluleke says 85% of loans are now given to low-risk groups. African Bank has a more complex definition of low risk than Capitec, which considers everyone earning more than R15,000 a month to be in the low-risk bucket. Maluleke has her own secret recipe, which doesn’t assume people with higher pay are going to be lower risk.

It will be an interesting listing when it finally goes ahead, giving the option to invest in a midsized retail bank now that Capitec has joined the ranks of the mammoths.

But we will need to see the future of banks after Covid 19. The pandemic could well have an impact on the sector that will be far larger than the 2008 global financial crisis.

Capitec is African Bank’s fiercest competitor. It’s time it left the controlling consortium