JSE listed African Bank has been placed under curatorship with effect from just a few minutes ago (16h00 on 10 August 2014), the SA Reserve Bank (SARB) announced. “SARB in consultation with the Minister of Finance, has decided to implement a number of support measures,” said SARB governor Gill Marcus. “This will further strengthen the resilience of the banking system as a whole, and, importantly, these will further strengthen the resilience of the banking system as a whole, and, importantly, they will provide African Bank with the best chance of a viable future.”
According to Marcus the curatorship and resolution process will ensure that the regular operations and collections of Abil continue effectively and efficiently. It will also identify performing loans and positive assets to be maintained in a good bank. “SARB will purchase a substantial portion of the non- and under-performing assets and other high risk loans from Abil in order to separate them from the good bank,” said Marcus. She said a new entity created in the process will be recapitalised by a capital raising of some ZAR 10bn underwritten by a consortium. In this way current shareholders will get an opportunity to participate in the recapitalisation of the new entity.
h3. Abil split into Two
The resolution of Abil will see the bank split into two parts. On the one hand a good bank, which will be recapitalised. “Let me emphasise here that the R10bn recapitalisation is for the good bank, which has a book value of ZAR 26bn net of portfolio impairments,” said Marcus. On the other hand, the bad book, which comprises a substantial portion of the non- and under-performing assets, will be housed in a vehicle with the support of the SARB in order to separate these from the good bank.
As a result, the bad book will no longer form part of Abil. The bad book currently has a book value net of specific impairments of ZAR 17bn for which the SARB will pay ZAR 7bn.
“Collection against the bad book will be continued, and indeed strengthened: There is no payment holiday for anyone owing on a loan from African Bank,” said Marcus. Abil’s board does not oppose curatorship and has taken the appropriate resolutions to facilitate the process.
h3. PwC Curator appointed
The minister has appointed Tom Winterboer of PwC as the curator. He will be responsible for African Bank with immediate effect. “The curatorship is a protection procedure which gives Sarb the legal means to create the necessary space to implement a resolution plan capable of ensuring that the business of Abil gains a secure perspective for the future as a lending institution with a transformed business model,” said Marcus.
An important aspect of the curatorship is that the curator has the discretion to suspend payments of interest. “While interest continues to accrue, he is expected to suspend interest payments generally with immediate effect, except for interest payments on retail deposits,” said Marcus. “The measures that have been taken are, in our view, in the best interest of all stakeholders, whether depositors, shareholders, creditors or clients.”
h3. Retail Depositors
Retail depositors represent less than 1% of Abil’s creditors. “We are, therefore, able to make an unequivocal commitment to all existing retail depositors that their money is safe and that they can continue with African Bank as their bank without fear that their deposits will be frozen or lost,” said Marcus. “They will have full access to their money in the ordinary course of business.”
Marcus said despite what is happening to Abil, SA’s banking sector remains healthy and robust. “There have been no indications that other South African banks have been affected negatively by Abil’s trading update or current situation,” she said.
Leon Kirkinis, co-founder of Abil, resigned with immediate effect on Wednesday.