Rands and sense: African Bank chief executive Kennedy Bungane says it is on target to realise its aim of being a broad-based black bank, set out nearly 60 years ago. (Delwyn Verasamy/M&G)
The dream behind African Bank refuses to die.
So says the chief executive Kennedy Bungane, who earlier this week presented annual results which boasted another year of organic growth as the bank forges ahead with plans to rapidly expand its business.
During the presentation, Bungane revealed that African Bank would open a pre-initial public offering (IPO) placement next year, ahead of its eventual listing on the JSE.
The details of the anticipated size of the pre-IPO are still being fleshed out. Nevertheless, the public listing, Bungane said in an interview with the Mail & Guardian, is an opportunity to realise African Bank’s vision of a black-owned bank, dreamed up 58 years ago.
“This is just the start,” he said.
“We are quite chuffed with the mandate that we have got from our majority shareholders that enables us to list African Bank on the JSE with a broad-based retail offering, which will allow for the entrepreneurs we support and our customers to also own this bank. And so the dream of a broad-based black bank has not died.”
Earlier this year, the South African Reserve Bank announced it had hit a snag in its efforts to dispose of its shareholding in African Bank.
The bank was placed under curatorship in 2014, after which the Reserve Bank stepped in by acquiring a 50% stake. However, as the regulator and lender of last resort, the central bank decided to dispose of its shareholding to clear a potential conflict of interest.
When the Reserve Bank failed to find a suitable investor, it decided to go ahead with the alternative option — the JSE listing.
But before African Bank is listed, it has to show that it is reaping the benefits of its turnaround strategy, becoming a compelling investment proposition as a result. For a bank whose identity as a microlender nearly sank it, this is a tall order.
According to Bungane, the bank has started proving itself. It reported a 38% growth in its net profits, which increased to R736 million for the year ended 30 September, compared with R543 million last year.
Underlying this growth was an increase in retail loan disbursements, which almost doubled to R14 billion from R7.5 billion last year.
Moreover, the bank benefited from more than 500 000 more customers opening MyWorld transactional accounts.
MyWorld transactional balances increased by 54% to R1.4 billion.
But growth in African Bank’s core business is only the beginning.
For the bank to achieve its ambitious 2025 strategic targets — which include more than tripling its profit to R2.5 billion, more than doubling its retail customers as well as increasing its small business customers to 100 000 from zero — it has to expand and diversify.
To this end, African Bank recently concluded the acquisition of Grindrod Bank, which will give it a foothold in the competitive business banking market.
Speaking about the significance of the Grindrod acquisition, Bungane said: “We have said from the outset that succeeding with this business will get us somewhere but nowhere close to our ambitious goals.
“We have said that we need to expand the core … The acquisition of a mid-sized commercial bank such as Grindrod, which is successful, is profitable and well run, gives us a rare opportunity to fast-track our entry into business banking.”
African Bank’s foray into business banking, backed by Grindrod’s expertise, has the added benefit of helping it to realise its initial vision, allowing it to extend funding to black small business owners who might otherwise be sidelined by big banks.
But there is no shortage of competition in business banking. In 2019, Capitec finalised its acquisition of Mercantile Bank, allowing it to branch into the market. More recently, the Competition Tribunal approved TymeBank’s acquisition of small business financier Retail Capital.
Entering the business banking market without Grindrod would be near-impossible, Bungane suggested.
“It is very competitive. But that is not what we are doing.”
The merger will allow Grindrod to draw from African Bank’s balance sheet in order to grow its business, which largely caters to the middle segment of the market. Meanwhile, African Bank intends to target small and medium enterprises (SMEs), using its digital offering to lower the barriers to entry.
“Our founders, our heritage, comes from businessmen and -women who wanted to establish a bank that would support entrepreneurs. That heritage inspires us to bring together an ecosystem for SMEs and businessmen and women to support them,” Bungane said.
African Bank intends to differentiate itself from its competitors by creating an “ecosystem” of service providers to help small business owners navigate administrative and regulatory hurdles.
African Bank chief executive Kennedy Bungane
African Bank’s new tagline is “the audacity to believe”, harking back to the vision of its founders who in 1964 embarked on the seemingly insurmountable task of raising the R1 million they needed to register the bank.
Though big ambitions are somewhat baked into this vision, Bungane is confident every target African Bank has set is well within reach.
“We are custodians of a bank who collected R71 in 1964 and look where they are today. I promise you we are nowhere as audacious as they were.
“We have exceeded just about all of our targets for the 2022 financial year. I think our audacious goals for 2025 are within reach. We have got renewed courage and a belief that this is achievable, albeit the markets are tough. The economy has been tough on our customers and households and it is starting to show.”
Nolwandle Mthombeni, senior banks analyst at Intellidex, said it was necessary for African Bank to set ambitious targets in order to present itself as a compelling investment proposition ahead of the IPO.
“I think the environment will always be tough, especially considering the market they are in and the number of players now. The pie is still the same size. It is not getting any bigger,” Mthombeni said.
“But the management team has to come along with ambitious targets. I don’t think there is any other way, especially because on listing you need to be seen as a real competitor. So, their targets are ambitious and I think that is the right thing to do.”
African Bank’s management team, Mthombeni added, had the benefit of the Covid-related economic headwinds being behind them, meaning they were less encumbered in executing their targets.
That said, some of African Bank’s 2025 targets are more of a stretch than others. Bringing the bank’s cost-to-income ratio below 40%, from 55.1% currently, will be very challenging, Mthombeni said.
So too will raising its return on equity from 6.4% to between 14% and 16%, considering a number of banks have only reached 15% very recently. Reaching this target will be easier once African Bank is listed, given that it would have lower capital ratios, Mthombeni noted.
The Grindrod acquisition will also allow the bank to lower its capital ratios. But it will have to make more acquisitions, which might be limited as long as it has to go through the Reserve Bank for approval.
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