African Bank is in the final stages of developing a digital lending product aimed at small, medium and micro enterprises (SMMEs), with the offering expected to go to market in the first quarter of 2024.
Zweli Manyathi, head of African Bank business banking, said last week that the company has selected a fintech company to design its digital lending platform.
“We will in the first quarter of 2024 launch a digital lending business aimed at those businesses with a minimum turnover of R5m. This minimum threshold will be gradually reduced so we can also reach smaller entities, particularly players in the township economy,” Manyathi said.
TymeBank, controlled by Patrice Motsepe’s African Rainbow Capital Investment, a year ago bought Retail Capital, a fintech company that provides funding to small and medium-sized businesses, in a R1.5bn deal.
Manyathi said competition is good for business. “Yes, business banking is increasingly becoming a contested space, but the ethos and entrepreneurial nature of African Bank gives us the edge.”
African Bank on Friday beefed up its fledgling business banking proposition after buying Sasfin Bank’s commercial equipment finance (CEF) and commercial property finance (CPF) units in a R3.2bn deal.
Strategy
Kennedy Bungane, CEO African Bank, said the transaction is part of offering a more compelling listing proposition to the investor market before the lender’s mooted 2025 listing on the JSE.
“After months of engagement, we are pleased to have signed the deal, which enables us to further sustainably scale, diversify revenue and client base while derisking our balance sheet. This further delivers on our ‘Excelerate25’ strategy to expand our core and establish our footprint in the business banking market leveraging African Bank’s balance sheet and strong capital levels,” said Bungane.
Sasfin Bank’s gross CPF lending book was valued at about R820m at end-February, while the CEF had a loan book value of R2.4bn.
Sasfin said it has started implementing a strategy to become a more focused and streamlined business.
“Over the past year Sasfin has undertaken a detailed strategic review of its business. Our strategy is to focus on our core businesses where we have strong capabilities and competitive advantages. This has resulted in us entering into this mutually beneficial transaction,” Michael Sassoon, CEO of Sasfin Holdings, said.
Competition in the business banking sector in SA is heating up. Business banking generally refers to the services used by small companies, while commercial or corporate banking refers to the services used by large enterprises with a high turnover.
Capitec, the country’s biggest retail bank by customer size, in 2019 bought Mercantile Bank from Portuguese state-owned banking group Caixa Geral de Depósitos in a R3.5bn deal. It has since rebranded the entity into Capitec Business.
Investec, known for its commercial banking prowess, has also indicated its plans to double its market share in the business banking space in the next two years.
Re-entry
Launched in 2021, African Bank’s Excelerate25 strategy makes a case for a scalable, diversified and sustainable business with a compelling listing proposition.
To this end, the lender has made a re-entry in business banking. The company in May 2022 bought Grindrod Bank for R1.5bn, accelerating its entry into the SA business banking sector. The deal introduced more than R12.5bn in funding liabilities, with most being business deposits, which are new to the group.
Makwe Masilela of Makwe Fund Managers said the spate of acquisitions before the mooted initial public offering (IPO), pencilled in for 2025, underlines Bungane’s business acumen.
“The anticipated IPO will be well received as their product offering is getting more compelling and bearing in mind that this is an opportunity for the current CEO to prove that he’s definitely bank CEO material as the likes of Absa and Standard Bank couldn’t give him that opportunity,” Masilela said. “There’s definitely a space for them to play and they still have a good name out there.”
Positive ratings
African Bank has over the past three months received positive ratings from Moody’s and S&P.
S&P Global Ratings in August revised the bank’s outlook to positive from stable, saying it expects the bank’s franchise and funding profile to strengthen “while it sustains strong capitalisation and improves or maintains asset quality indicators”.
Moody’s last week said the lender has good capital buffers and an improving funding and liquidity profile. The ratings agency also commended African Bank for broadening its funding base.
The bank is funded by three main sources, including bonds raised under its domestic medium-term note programme that are listed on the JSE. It also raises bonds under the euro medium-term note programme. Most of that paper is listed on the London and Swiss stock exchanges.
The “new African Bank” emerged from the ashes of African Bank Investments (Abil) in 2016 — after going into curatorship in 2014 — a process in which the Reserve Bank took a 50% stake in the lender.
The planned IPO will give investors an opportunity to buy the 50% stake owned by the central bank, which under normal circumstances is not allowed to own banks.
The Government Employees Pension Fund holds a 25% stake in the bank, and a consortium of SA’s five largest banks holds the remaining 25% on a pro rata basis.
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