African Bank’s plight could hurt pensions of many of us

SHOULD South Africans panic over African Bank’s lurch to the brink of ruin? Well, yes — but perhaps not in the way that you might think. Whenever a bank hits the skids, there’s cause for alarm, partly because it’s bound to put an iron fist through the fragile confidence on which lenders make their fortunes. Not many people would forget the scenes at Saambou more than a decade ago, when people queued desperately at ATMs to withdraw whatever they could before it went under.

But African Bank’s problems — which resulted in CEO Leon Kirkinis quitting and the bank going to investors cap in hand for R8.5-billion — is different for a number of reasons.

First, it does not take deposits, so it is not as if one’s savings are tied up in the bank. Second, the numerous warnings from just about any place you looked about the “overheated” unsecured lending almost became tedious.

This newspaper, among others, wrote repeatedly about how African Bank had lent far too enthusiastically to a market that could not repay, and would now reap the whirlwind.

And it probably won’t fail: the government would have to think pretty deeply about letting a major lender collapse so soon after credit agencies had downgraded the country’s fragile economy.

The Public Investment Corporation, which invests government pensioners’ money and holds 12% of African Bank, could be persuaded to come to its rescue and pump in more cash. But even if that happens, there is still reason for deep concern. The impact of African Bank’s near-collapse goes far beyond the investors who have now ploughed billions into the bank and already lost 95% of it.

It’s a narrative of millions of South Africans who have borrowed money they shouldn’t have, and were sucked into a debt spiral of onerous garnishee orders and interest rates far exceeding 40% a year.

The big private institutions that invest your pension money — the likes of Coronation, Old Mutual, Sanlam Investment Management and Stanlib — have all bought into the African Bank “story” of how it helps people to build better lives by lending where the big banks won’t.

You might not know it, but the collapse in the unsecured lending bubble, which has towed African Bank to the bottom, has probably also dragged your retirement savings along with it.

The events at African Bank this week have left many people, besides investors and gigantic institutions, so much poorer off. For everyone, it seems, unsecured lending was never the great panacea it was originally claimed to be.