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African Bank plans to diversify products, channels

Good Bank’s launch date set for April 4.

JOHANNESBURG – African Bank Good Bank – which will officially launch in April – has been issued its banking licence on the basis that it diversifies, says CEO designate, Brian Riley. He says the diversification will take the form of new products, customers and channels.

Speaking to media on Tuesday at the release of the bank’s financial results to September 2015, Riley said that lower-income groups would be the core of African Bank’s business for “quite some time to come”, but that channel diversification puts the bank in good stead to enter a slightly higher LSM market in the new year.

African Bank now grants loans to customers via contact centres and will set up a digital disbursement model next year. “This opens up the ability to do business with different types of customers,” he said.

Caps on interest rates and credit life insurance mean African Bank will write some 30% less business in its current target market, highlighting the need to diversify its customer base, Riley said.

He said that African Bank would branch out into transactional banking and new insurance products, although the former was unlikely to happen in the next 12 to 18 months.

“We need time to restore the credibility of African Bank and convince clients that we are a viable company and in this for the long haul,” he said.

African Bank plans to offer more than only credit life and funeral insurance products, Riley added, noting that it hadn’t yet “pushed the pedal” on investments and deposits either.

The bank is considering partnerships in order to access products and expertise that it doesn’t currently have. “We’re a loan company selling FAIS-light products. When you’re selling more advisory-type products you require a different level of skill and compliance, so the chances are that we would partner or use someone else’s product,” he explained.

After African Bank’s plan to buy insurance company, Stangen from its former parent, African Bank Investments Limited (Abil) fell through – following an urgent interdict brought by Abil’s BEE shareholders who considered the offer price of R1.4 billion to be too low – African Bank is now establishing its own cell captive insurance arrangement.

It is in talks with Guardrisk to establish a joint venture, said David Gard, a member of the curatorship team. He said this arrangement would be operational before the start of Good Bank.

Loan book growing

For the year to September 2015, African Bank reported a R7.2 billion loss – 22% less than the R9.3 billion loss it reported for the prior period.

“Adjustments to a more conservative provisioning methodology negatively impacted the results by R2.4 billion,” said African Bank curator, Tom Winterboer.

African Bank was placed into curatorship in August 2014 after it collapsed under a mountain of non-performing loans. Good Bank, or the bank’s performing loan book, was separated out from the bank’s bad loan book.

Good Bank will officially launch on April 4 2016, but Winterboer said it is already up and running under the management of Riley and that “nothing special needs to happen apart from the legal process”.

Disbursements of new loans and credit cards for the 12-month period amounted to R8.2 billion, compared to the R16.4 billion reported in 2014. Disbursement trends improved in the second half of the financial year, averaging R800 million a month for the quarter to September, from a low R540 million a month for the quarter from January to March 2015.

“Collections were in line with expectations and against the background of a decreasing book remained stable at just under R2 billion per month,” Winterboer said.

A supplement to the Information Memorandum, which details proposed offers to creditors, was released on Tuesday and creditors have until January 8 to comment.

In terms of the supplement, offers to senior and subordinated debt holders now include a 10% cash portion.

“We recognised that the liquidity level was realistically larger than the bank needed to grow for the initial period,” explained Gard. “Even after the partial cash offer, the amount of liquidity the bank starts with is slightly larger than the size of the Good Bank,” he said.

The bank will have an opening cash balance of R24 billion, preventing it from needing to access capital markets for up to three years and giving it time to grow, reduce debts and look for other opportunities, Gard said.

Good Bank will continue to collect on the old book – termed Residual Collections – which is likely to remain under curatorship for two or three years to maximise collections, Winterboer said.

Good Bank is expected to return to profitability in the 2017 financial year, driven primarily by a decreasing impairment charge reflecting better quality business. Financial projections estimate a profit of R458 million for the year to September 2017.

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