Five years ago this week African Bank was placed under curatorship. The Reserve Bank and the other big lenders stumped up the money to prevent the total collapse of the bank. It was big news. And its collapse could have resulted in systemic risk for SA's banking industry.
The bank was the face of the unsecured lending boom that engulfed SA in the wake of the global financial crisis of 2008 and the recession that followed it. These loans were in high demand as the big four banks in SA closed the taps on mortgage loans and generally took a more conservative approach to lending.
Unsecured loans, a more general term for personal loans not backed by assets, were good business. Along with the loan itself, financial institutions could sell insurance to cover the amount outstanding — an important sweetener for banks involved.
But the recession of 2008-09 was the start of a new normal for SA. Whereas business owners and consumers had become accustomed to growth rates of more than 4% in the preceding decade, they would not see such rates in the following decade.
This eventually broke African Bank's back. The holding company that controlled African Bank — confusingly called African Bank Investments Limited (Abil) — had geared itself for a long boom, buying furniture retailer Ellerine Holdings in 2007 for more than R9bn. And African Bank continued lending at a steady clip.
— We want 100,000 [accounts] by end of year ... We don’t have the legacy issues of thelarger banks
African Bank was a retail lender, but a wholesale borrower. It tapped local and international markets for funds at low interest rates, which it would then lend out to South Africans at higher interest rates.
It was different from other banks in that it did not take deposits from clients — only towards the final throes before curatorship did it try to raise funds by offering savings products.
The accounting treatment of outstanding loans, and when they should be treated as assets and when written off, was complex. And in the books of Abil and African Bank a big debt hole lay hidden. This was a hole that only economic growth, stable credit ratings and secure jobs in manufacturing and mining could fill.
But in 2012 the death of 34 striking Lonmin workers and the killing of several other people on the platinum belt spilt over into violence and instability in several mining communities, where important clients for unsecured loans resided.
Rival Capitec said at the time that the affected mining areas represented about 6% of its loan book.
More important, the violence and instability led to a credit ratings downgrade — a serious wobble for a wholesale borrower such as African Bank.
By 2014 — after a devastating five-month strike by platinum mineworkers — the hole in the bank's books would become big enough to swallow everything else. Curatorship was the result.
In the years that followed, African Bank quietly worked through the process. It split off all the toxic and unrelated assets into a "bad bank" and kept the lucrative ones in a "good bank". Abil was restructured and renamed African Phoenix. The "bad bank" is now an entity known as Residual Debt Services, which steadily rakes in old loans.
African Bank kept trading, though more conservatively than before, and the brand remained a fixture in many cities and town centres while plans were being made in the background.
The number of people who can be accommodated on a shared African Bank account.
— 10
Now, a new-look African Bank has repositioned itself. It is no longer simply an unsecured lender, but a real bank. It has had to change from a "monoline" business that only offered microloans to a "multiline" business with a full transactional banking platform, CEO Basani Maluleke told Business Times.
Part of the journey was to set up a contact centre to drive sales. Over the past six months the web and contact centre contributed 11% to sales - a much cheaper way to get new clients than having everyone walk into a branch.
"The sweet spot is when people call you. Then they want the loan. The majority of the call centre's traffic is inbound," says Maluleke.
But transactional banking is the most important part of the transformation. Attracting more deposits lowers the cost of funding. African Bank now has 50,000 accounts, up from only 10,000 in May.
"We want to be at 100,000 by the end of the financial year," says Maluleke.
The bank is positioning itself as a low-price option and claims to have the highest savings rate in the market.
And it is willing to try new things, such as a shared account that can accommodate as many as 10 people.
After looking at the way South Africans transact, the shared account just made sense, says Maluleke. With families spread out geographically, it is a different way of approaching remittances from breadwinners in other parts of the country.
Having built its system from scratch, African Bank is hoping to leapfrog other financial institutions.
"We don't have the legacy issues of the larger banks," says Maluleke.
But it is wading into choppy waters. Not only is the economy in a worse state than it was when the bank went into curatorship five years ago, but a handful of competitors are after the same clients.
African Bank will have to prove itself against the other big, unsecured lender, Capitec, which has transformed itself into a transactional bank. Not to mention newcomers TymeBank and Zero.
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