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A big chunk of African Bank might go up for sale — an...

Business Maverick

BUSINESS MAVERICK

A big chunk of African Bank might go up for sale — and buyers are plentiful

The SA Reserve Bank wants to sell its majority shareholding in African Bank in the next year or two.

The SA Reserve Bank recently announced it might sell its 50% shareholding in African Bank in the next year or two. It is tight-lipped about the potential buyer. But market watchers speculate that the Public Investment Corporation and commercial banks might snap up the central bank’s shareholding.

In South Africa’s competitive banking industry, it’s rare to have a big chunk of a commercial bank for sale, especially one that is stable and profitable.

This is because banking is highly regulated by the SA Reserve Bank, which keeps a close eye on the industry for any failures that can cause systemic and financial risk to the country. And commercial banks usually come to the market for sale when they are distressed due to a financial crisis. There isn’t a banking or financial crisis in South Africa, at least not on the magnitude of the one seen globally in 2007.

However, a big portion of a commercial bank might come for sale in the next two years.

The SA Reserve Bank wants to sell its majority shareholding in African Bank in the next year or two, a move that could see the bank privately owned after it was placed under curatorship in 2014 by the central bank.

To recap: African Bank collapsed under a weight of soured loans and needed a R10-billion capital injection from the private sector and commercial banking peers – mainly the Public Investment Corporation (PIC), Absa, Nedbank, Capitec, First Rand, Investec, and Standard Bank – to keep its performing debt book afloat.

The SA Reserve Bank injected R7-billion into African Bank, securing it a 50% shareholding in the bank. The PIC, South Africa’s biggest pension fund manager with about R1.8-trillion of state workers’ funds, owns 25% of African Bank, and the balance is held by a consortium of commercial banks that bailed it out.

Kuben Naidoo, the deputy governor of the SA Reserve Bank, said the central bank will sell its African Bank shareholding only if it believes that the bank, which is in year four of its five-year turnaround strategy, is stable and financially sound. It will also sell its shareholding if market conditions are favourable and there is an appetite among investors, he added.

It is unclear who will snap up the SA Reserve Bank’s shareholding because Naidoo is tight-lipped about the bank’s suitors.

Potential buyers

Whoever buys the shareholding will be buying into a restructured bank that has pencilled in a rise in profits every year since 2016, has a debt book that is below R30-billion, a customer base that has remained between 1 million and 1.25 million, and a positive liquidity and capital adequacy profile.

Under the leadership of Brian Riley and current CEO Basani Maluleke, African Bank has diversified its business into insurance, investments and transactional banking – relying less on its unsecured lending.

Maluleke has ruled out the possibility of African Bank buying the SA Reserve Bank shareholding.

African Bank is not considering buying back the 50% SA Reserve Bank shareholding. The SA Reserve Bank has been a supportive shareholder and regulator throughout the curatorship of the old African Bank and African Bank’s last three years since its successful restructuring. We have always understood that the SA Reserve Bank is not a long-term shareholder,” she told Business Maverick.

It’s possible that African Bank’s existing shareholders such as commercial banks and the PIC might increase their shareholding in the bank by buying a portion of the central bank’s shares. FNB Wealth and Investments’ Wayne McCurrie said this is a plausible possibility.

It is unclear how much the SA Reserve Bank’s African Bank shareholding is worth. Whatever valuation is attached to the shares, the value achieved through the sale will immediately go to the central bank’s profit pool and ultimately, the government. South Africa’s government receives 90% of the central bank’s profits.

Another potential buyer might be African Bank’s former parent, African Bank Investments Limited (Abil), the JSE-listed entity now known as African Phoenix Investments with an entirely different executive team. During its curatorship, African Bank was separated from Abil. A successful purchase of the SA Reserve Bank shares might see African Phoenix return to the banking industry, as it owns only insurance company Stangen, furniture group Ellerines and Residual Debt Services.

Unlikely buyers of the SA Reserve Bank’s shareholding are Patrice Motsepe’s TymeBank, Adrian Gore’s Discovery Bank and Michael Jordaan’s Bank Zero, said Reuben Beelders, chief investment officer at Gryphon Asset Management.

The operating model of new banks TymeBank, Discovery Bank and Bank Zero are underpinned by technology, which will be used to drive banking costs down. Meanwhile, African Bank and the big five retail banks – Absa, Standard Bank, Nedbank, FNB and Capitec – still distribute most of their banking products and services through brick-and-mortar branch networks.

Most of them [new banks] seem to be ‘branchless’ and so I’m not sure what African Bank’s branch system would add to them,” said Beelders. BM

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