Wednesday, January 19

African Bank charts a slow course back to the JSE

When the Reserve Bank of South Africa (Sarb) took a stake in the African Bank, after the fast-growing African Bank hit the wall in spectacular fashion in 2014, it became clear that this was a temporary arrangement.

At the time that the Reserve Bank acquired 50% of the shares as part of a rescue operation, its governor pointed out that it presented a huge conflict of interest for the central bank to own the majority stake in a commercial bank that was supposed to regulate. .

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He still owns the stock about seven years later, and the search for a new investor to take him off his books is finally picking up speed.

Read: SA analyzes participation in lender while coveting a state bank

The bank could return to the JSE

Presenting results for the year to the end of September 2021, African Bank Group CEO Kennedy Bungane said the bank has made great strides in its aspiration to become “a potentially listed entity” on the JSE.

“Our investment proposition is attractive to a broader shareholder base that includes our African bankers, partners and clients,” he noted.

Apart from the Reserve Bank with 50%, the Public Investment Corporation owns 25% of the shares and a consortium of banks owns the rest.

The banks that helped recapitalize African Bank ended up with interest ranging from 7% (FirstRand) to 1% (Capitec). Standard Bank owns 6%, Absa 5%, Nedbank 4% and Investec 2%.

Everyone would appreciate a list to see how much these shares are worth and, if necessary, to be able to sell some of their shares.

The fact that African Bank made a profit of R534 million in the last financial year makes the process go a little further, as does the way African Bank made the profit.

Chief Financial Officer Gustav Raubenheimer notes that the main factor driving the African Bank from a loss of R27 million in fiscal 2020 to recent earnings is that the bad and doubtful debt charge has dropped significantly from the year. previous.

The income statement shows that the credit impairment charge decreased from R3.4 billion in 2020 to R1.3 billion in fiscal 2021. Bungane says the reasons for this are lower credit disbursements and better past due debt collections. .

This is important to potential investors, as it was easy credit and the inability to collect arrears that tripped the African Bank a decade ago.

The subsequent investigation into the bank’s failure found that risk management was almost non-existent at the time.

Read: African Bank: The Good, The Bad, And The Worrying

Despite the improvement in profitability, potential investors could be put off by the relatively high and rising operating costs. Operating expenses increased 16% to R3.07 billion, absorbing almost 82% of net income after credit impairments.

New strategy

Still, management believes that African Bank has potential. Bungane, the new CEO (took over in April), revealed a new direction for the bank.

“We have to see where we are and where we want to be,” he says, “and how to get there.”

It states that African Bank has adopted a new vision of building a scalable and sustainable organization with a diverse product offering and service delivery model, articulating its medium-term aspiration to be a JSE-listed entity.

He put it in numbers: a bank with 3.5 million customers that can make an after-tax profit of R2.5 billion and achieve a return on equity of 3% to 6% above the yield of the RSA bond at 10 years.

Bungane says that African Bank already has a strong core, a strong balance sheet, as well as products, people, customers and digital capabilities, but adds: “We are very clear that this is not enough, we need to expand the core.”

It continued to outline a comprehensive strategy to expand the product range and partner with other players in the financial services industry, as well as mobile phone companies looking to expand their financial product offerings.


Bank Zero vs TymeBank vs African Bank – fee comparison

Hurry up

You get the idea that the Reserve Bank expects things to move a little faster.

African Bank notes in its annual report that during fiscal year 2020, the Reserve Bank reported that it intends to relinquish its shareholding.

“The Sarb had previously stated publicly that it was never its intention to hold this equity interest indefinitely, particularly as its participation creates a potential conflict of interest between its role as regulator of the African Bank and as majority shareholder of ABHL (African Bank Holdings Limited).

“In 2020, Sarb appointed advisors to begin Sarb’s divestment process and to identify a shareholder or shareholders who are best aligned with African Bank’s strategy and long-term growth aspirations. On June 1, 2021, the Sarb announced the extension of an invitation to local and international stakeholders to submit their formal expressions of interest ”.

However, the report also cautions that the takedown process is anticipated to be completed only 18-24 months after the identification of a suitable buyer.

The prospect of returning to the JSE is mentioned again: “We see this development as an opportunity to move closer to our vision of becoming a listable entity in the foreseeable future,” the report commentary reads.

While it takes time to prepare something for sale, everything has its price. A very rough estimate would value the African Bank at something between R5 billion (representing a price-earnings ratio of 10 times its recent earnings) or R25 billion (based on 10 times its potential earnings of R2.5 billion).

Everything will depend on how investors measure their future.

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