African Bank has experienced a disastrous time of late, with its share price falling to unprecedented levels, its CEO of 23 years stepping down and the trade of its debt and equity being suspended on the JSE. The downward spiral resulted in the Reserve Bank announcing that it would pay R7bn for Abil’s bad loan book. Allowing the troubled bank to continue operating. Alec Hogg was joined by Cas Coovadia from the Banking Association of South Africa on CNBC Africa’s Power Lunch to analyse the position that Abil is in and what can be expected of its future. Is Abil the next Saambou or is there hope? – LF
ALEC HOGG: We will indeed have insight into the banking story now because the Reserve Bank has announced that it will pay R7bn for R17bn bad loan book. That will allow it to continue lending in Abil and safeguards the deposits of retail investors. Joining us on the line to discuss this is Cas Coovadia from the Banking Association of South Africa. The most important thing in the banking field Cas, is confidence. You can now open the doors or rather; the industry can open the doors at Abil, given what happened over the weekend. Were you involved at the Reserve Bank?
CAS COOVADIA: No, the industry body wasn’t involved. This was primarily between African Bank, the Regulator, and the reserve Bank.
ALEC HOGG: Does it remind you much of what happened at the time of Saambou?
CAS COOVADIA: Yes and no. I think that Saambou’s story was probably a bit more precipitous. African Bank has been in the news for a while. There’s been talk about problems at the bank etcetera, so to a certain extent, I don’t think it’s the same story but obviously, any bank that gets into distress is an issue of concern and so it’s similar from that point of view.
ALEC HOGG: And the appointment of Tom Winterboer from PwC…you couldn’t really have asked for a safer pair of hands.
CAS COOVADIA: Absolutely. I think Tom is excellent. I think he will do a very good job of the curatorship. I think the separation of the two business – the bad and the good business – is a good thing to do, and we need to re-instil confidence in that part of the bank that does good business. African Bank had reacted to a market, a heavy unsecured market that is not going to go away, unfortunately. For the Reserve Bank to have intervened and taken the steps they’ve taken, is quite appropriate.
ALEC HOGG: What happens from here?
CAS COOVADIA: What happens from here is that Tom takes over. He looks at the underlying business models. He looks at how to grow the good part of the business significantly, so that we re-instil confidence. The Reserve Bank will obviously ask him to manage, as best he can, the best part of the business. They would obviously want to recover as much of the debt that they’ve taken over as possible, so that the exposure of the public’s money to the Reserve Bank is minimised. It’s a question of the curator managing this thing properly, and steering the ship in a way that does not cause any ripples in the sector itself. I think that a number of the other banks underwriting some of the debt are also showing confidence in the system itself, and showing confidence that between the Regulator, the bank, and the curator, we can rescue this and put it back on track.
It’s a question of type and careful management. It’s a question of interacting with creditors, interacting with borrowers, and ensuring that this does not create a situation where borrowers are under the impression that they do need to repay the funds. It’s managing this thing, getting it out of the hole it got into, optimising the good business, and minimising the impacts of the bad business.
GUGULETHU MFUPHI: Cas, it’s Gugu here with Alec at the desk. What about the renewed focus on unsecured lenders – the others in the industry?
CAS COOVADIA: Well, as we know, unsecured lending has been going up. It stabilised in the last couple of quarters. I don’t think the demand for unsecured lending will necessarily simply stop because of what’s happened at African Bank. The important thing here is that we need to learn from these lessons. Other banks that are involved in unsecured lending need to understand what happened at African Bank and ensure that if there’ve been any aggressive types of lending, if some of the business models that African Bank has contributed to the situation that African Bank finds itself in, the other banks need to run from it. One of the lessons from this is that we need a better conversation if you like, between the industry and particularly, the Credit Regulator, so that we sit down together and identify those areas of the unsecured lending market – particularly, in the banking market – that really need to be regulated.
We need to work together in these areas to see how we can enable this business to grow in a responsible way.
ALEC HOGG: That was Cas Coovadia from the Banking Association of South Africa. The reality of that was last Wednesday, the Board of Directors were instructed that they had to get rid of the leader, otherwise more money would not be pumped in by the shareholders. They got rid of the leader and confidence evaporated so beyond Kirkinis, they were damned if they did and they were damned if they didn’t.
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