Reserve Bank urged to cut loose African Bank
The South African Reserve Bank’s impairment loss of R982m due to its investment in African Bank Holdings has prompted economists to urge the central bank to dispose of its 50% stake.
The Bank announced the impairment in its annual report for the 2023/24 financial year released in June.
Efficient Group economist Dawie Roodt said the Bank should sell its holding in African Bank as soon as possible as there was no benefit to it or its mandate.
“The Reserve Bank needs to sell this as quickly as possible. The Reserve Bank is not in the business of banking. The Reserve Bank is in the business of central banking, and that is completely different. They acquired this asset ... by accident. They should have liquidated the bank to start with.”
Roodt said the impairment itself would not necessarily hurt the Reserve Bank’s balance sheet as the financial impact of the impairment was relatively minor.
“A billion rand is quite a significant impairment and a huge amount of money, but in the bigger scheme of things, it’s really not that much. It’s not as if the Reserve Bank is going to get into trouble in any way whatsoever.”
In the annual report, Bank governor Lesetja Kganyago said the investment in African Bank Holdings was impaired by R982m with the net result being a profit after taxation of R13bn for the year ended March 31.
“At the time of reporting, the Sarb (South
African Reserve Bank) planned to dispose of its holding in African Bank Holdings through an initial public offering ... An impairment test for the investment in associate is only required when there is an indicator of impairment.
“Due to the purpose of this investment being linked to the mandate of the Sarb, an annual impairment test is performed periodically to closely monitor the investment. The performance of African Bank Holdings declined in the current financial year and resulted in a more conservative outlook on estimated future cash flows.”
The Bank holds a 50% shareholding in African Bank after placing it in curatorship in 2014. The Government Employees Pension
Fund (GEPF) owns 25%. A consortium of five South African banks holds the other 25% on a pro-rata basis: Capitec (1%), Investec (2%), Nedbank (4%), Absa Trading and Investment (5%), Standard Bank (6%) and FirstRand (7%).
Today, African Bank Holdings is the public holding company of African Insurance Group and African Bank, with operations in retail banking and insurance products. In the six months to June, African Bank reported a 35% rise in customers to 5.7-million.
In June, it emerged that the Sam Motsuenyane Consortium wanted to acquire 50% of the bank and make it black-owned.
The Bank said on Friday it was in the process of exiting its holding in African Bank through an initial public offering.
It has delegated the African Bank board to determine the way forward on a listing or acquisition, depending on market conditions.
African Bank group CEO Kennedy Bungane said: “The next phases of the preIPO will include alignment with management, black entrepreneurs and black women entrepreneurs aimed at derisking the final phase of the IPO and remove any BBBEE overhang at the eventual JSE listing of the bank.”
Antswisa Capital chief economist and director Miyelani Mkhabela said the Bank and other banks should exit the African Bank deal and sell the entire stake to a consortium that would continue with the implementation of the commercial and retail strategy.
“The central bank and the consortium of banks played a pivotal role in saving the bank from its collapse. However, they have overstayed [for] an unexpected period.
“The bank can be regarded as one of the most highly regulated entities in the country at the moment, but the central bank and other commercial banks cannot be shareholders of the bank, as that makes it impossible to realise good governance and accountability principles.”
He said the Reserve Bank would make its money through the mergers and acquisitions transaction and the value of the R5bn invested would increase as a result of the integration of newly acquired entities increasing the value of African Bank.
“Long-term investments aren’t focused on the quarterly or annual profit decline. The exit value will be above inflation, and that will be enough for the Reserve Bank, and they must exit.”
Independent analyst Simon Brown said while the impairment figure was significant it was unlikely to have a material impact on the central bank as African Bank CEO Kennedy Bungane planned a potential listing in the future.
“It’s a big number. But it’s not a big deal. It’s not like they literally lost the money. They have African Bank on the balance sheet as a value. It goes out via the income statement, but it is a non-cash deal. The key thing is in time the CEO wants to list and they will then realise the value of what they hold, but right now it is a matter of accounting procedures.”
While he agreed that the central bank should part ways with African Bank, Brown said it had been the right decision to assist African Bank when it went into business rescue. But, he said, it was “a weird thing for a central bank to have a 50% holding in a bank it oversees”.
The central bank and the consortium of banks played a pivotal role in saving the bank from its collapse. However, they have overstayed
Miyelani Mkhabela
Antswisa Capital chief economist and director