African Bank has been placed under curatorship but it will continue to operate and be open for business, says the South African Reserve Bank.
"The first important measure has been the conclusion reached by the Registrar of Banks and the decision by the Minister of Finance to place African Bank under curatorship with effect from 4 pm today," Reserve Bank Governor Gill Marcus said on Sunday 11 August.
This comes as African Bank announced that its Chief Executive Officer and founder, Leon Kirkinis, has resigned and that in the six-month period to March 2014, African Bank Investment Limited (Abil) posted a headline loss of ZAR 3.1 billion.
At the time, Abil assured the market that the book written after June 2013 was significantly better and forecast that they would return to profitability in the second half of the year. Abil's trading statement for the third quarter that was released on 6 June was worse than what the market expected.
The Abil board announced its decision to sell Ellerine (its wholly owned subsidiary) as Ellerine Furnishers has been a significant drain on Abil requiring funding support of a minimum ZAR 70 million a month.
"The problems that have beset African Bank are, in our view, largely specific to their current business model, which does not include a diversified set of products and income streams, nor does it offer transactional banking services.
"This has made African Bank and the Abil Group uniquely vulnerable to a changing and challenging business environment. It is against this backdrop that the decision has been taken to introduce a range of support measures for African Bank," said Marcus.
African Bank does not oppose the curatorship.
Finance Minister Nhlanhla Nene has appointed Tom Winterboer as the curator. Winterboer is the financial services industry leader for Africa and a member of the global financial services leadership team at PriceWaterhouseCoopers (PwC). He will be assisted by a team of experts, including Peter Spratt and David Gard of PwC London. Other team members will be announced by Winterboer.
The curatorship is a protection procedure that gives the Reserve Bank the legal means to create the necessary space to implement a resolution plan.
The curatorship and resolution process will ensure that the regulator operations and collection of African Bank continue effectively and efficiently; identify performing loans and assets to be maintained in a good bank; and involve the purchase by the Reserve Bank of a substantial portion of the non- and under-performing assets and other high risk loans from African Bank in order to separate them from the good bank and also as a first step towards resolution of the challenges. Abil will also receive a ZAR 10 billion capital injection by a range of banks such as Capitec Bank and Investec Bank Limited, which have formed a consortium to underwrite the ZAR 10 billion capital raising.
The Reserve Bank said it would pay ZAR 7 billion of African Bank's bad loan book. The bad book comprises a substantial portion of the non- and under-performing assets. The bad book currently has a book value net of specific impairments of ZAR 17 billion.
"I want to emphasise that African Bank continues to operate during the curatorship and that Winterboer will make decisions regarding the continued granting of loans and sound banking activities," said Marcus.