MIDRAND – African Bank needs to broaden its customer base and will be offering different products in future in order to move beyond the mass market, CEO designate, Brian Riley told journalists on Thursday.
Riley, who was addressing media at African Bank’s head office in Midrand, would not comment on what these products might be. He said customers will soon be able to access loans without having to go into a branch, presumably via online and telephonic channels, and that this will appeal to a broader customer base.
“I’ve been employed to run a good bank and I’m confident that we’ve really got our arms around the numbers, [so that] when we start we at least start with accurate numbers,” Riley, who worked at Lloyds and Barclays in the UK prior to a seven-year stint as CEO of WesBank, said.
Riley was speaking hours after African Bank reported a R9.3 billion loss for the 12 months to September 2014, a 58% increase on its restated R5.9 billion loss for the 2013 financial year.
The restated 2013 loss climbed from a previously published R4.5 billion loss.
News of the losses comes almost ten months to the day when the South African Reserve Bank (Sarb) placed African Bank under curatorship due to a sea of bad debts. It appointed Tom Winterboer as curator, to collect on the bad book of loans (approximately R17 billion) and restructure the good book (approximately R26 billion) into a Good Bank.
The main reason behind such significant losses across two years is a change in African Bank’s provisioning policy. Previously, provisioning for loans began only when debtors had defaulted on four instalments or more. This has now been changed to reflect impairment even where only one loan is missed or any amount less than the full instalment has been paid.
For the 2014 financial year, African Bank increased its coverage of specifically impaired loans from 64% to 80%, resulting in a R3.1 billion pre-tax impact on its bottom line.
With improved credit criteria in place, new loans have fallen to R600 million a month, from levels above R1.2 billion a month from October 2013 to July 2014. The bank’s stated target is R1 billion a month, but Winterboer said it was unlikely to reach this figure by October 1 – the date targeted for creation of Good Bank.
“Loans must be more customer centric. If we do things the same way we know where that will take us,” Riley remarked. “I’ve created an enormous amount of dissatisfaction with the status quo. We have to change and do things differently.”
Riley has selected a CFO to join his team and awaits approval from the Sarb on his appointee. He said he was pleased to have Louis von Zeuner, former deputy group CEO of Absa, on board. “He knows a lot more about broad banking than I would know and I think he will give me a lot of guidance and a hard time, which is what you want from a board,” he said.
It is hoped that Good Bank, which will continue to trade under the name African Bank, will be created by October, although Winterboer cautioned a “health warning” saying this was dependent on a number of factors, including the gazetting of the Banks Amendment Bill.
Once the restructuring is complete, Winterboer will continue to handle the assets of ‘bad bank’, with Riley and his team focusing on Good Bank and deriving what revenue they can from collections on the bad book.
The consortium of banks that underwrote the R10 billion capital raise for Abil, along with the Public Investment Corporation and the Sarb, will own Good Bank. A listing on the JSE will take roughly two years, Winterboer said.
Kirkinis paid R2.1 million in 2014
African Bank’s financial results reveal that former CEO, Leon Kirkinis was paid R2.1 million in 2014, a 4% drop on his R2.18 million 2013 pay package. CFO Nithia Nalliah received R3.4 million in 2014, while chief risk officer, the late Tami Sokutu who resigned in February 2014, received R736 000.
Winterboer said African Bank has not addressed whether Kirkinis’s pay package is repayable but said it was “probably at the lower end of the CEO package [spectrum]”.
He said the Myburgh Report, which comes after an extensive investigation into African Bank’s business dealings, has been submitted to the Sarb and “the ball is in their court” as to what they do with it further.