African Bank Investments, South Africa's largest provider of unsecured loans, plans to raise as much as R4-billion in equity to strengthen its balance sheet after an increase in bad debts.
The bank is working with Goldman Sachs Group on "a rights issue of up to R4-billion" and plans to accelerate the sale of its furniture retail business "to ensure a robust financial position for the coming years", the Johannesburg-based company said on Monday.
African Bank, which does not take deposits to fund its lending, has been unable to sell bonds overseas this year after a proposed regulatory fine and ratings downgrade. The South African economy has slowed and consumer bad debts have risen, forcing the bank to curb lending and increase bad loan provisions.
African Bank bought Ellerines in 2008 and has not met profit targets for the retail business, which sells furniture on credit. The bank says Ellerines no longer fits into its strategy.
Fiscal third-quarter loans increased by 19% to R60.3-billion on the year compared with 25% growth in the previous quarter, while the number of loans fell by 10% to R17.7-billion from a year earlier. Non-performing loans rose to 30.2% in the quarter to June from 29.2% a year earlier. "The banking unit earnings for the second half of 2013 are expected to be lower than the first half of 2013," the bank said on Monday. This follows a 26% drop in earnings in the first half of the year.
African Bank's share price tumbled in May after profit decreased and the bank cut its dividend by 71%. The bank's share price has fallen by 55% this year, more than any other bank in South Africa, and closed trading at R14.39/share on Friday August 2. The share price fell by around 10% early on Monday morning before recouping losses. – Bloomberg, Reuters