/ 4 July 2019

Reserve Bank could sell its stake in African Bank in two years

The Reserve Bank.
In January, the South African Reserve Bank came out with its dire prognosis for the health of the country’s economy — forecasting GDP growth of just 0.3% in 2023

The South Africa Reserve Bank (SARB) is likely to sell its stake of African Bank in the coming two years, provided the bank is financially sound and there is sufficient market appetite to take up the central bank’s stake.

This is according to chief executive of the Prudential Authority Kuben Naidoo, who was speaking at the release of the authority’s first annual report on Thursday. The authority is housed within the SARB is responsible for regulating, among other things, banks, insurance companies, co-operative financial institutions.

The Reserve Bank owns 50% of African Bank, the Public Investment Corporation (PIC) owns 25% and a consortium of private banks own the remaining 25%.

“[African Bank] is in year four of at least a five year turnaround, and is operating successfully,” Naidoo said at a press briefing.

“At some point we do intend to dispose of our stake. It is not the intention of the Reserve Bank to hold the shares for a very long time, but we do want to ensure the bank is sound and stable before we [take that step].

“Probably, in the next year or two the Reserve Bank will be looking to dispose of its stake,” said Naidoo.

African Bank was placed into curatorship in 2014, after it collapsed under the weight of bad debts. As part of the curatorship process the Reserve Bank, the PIC and a number of private banks took up a stake and recapitalised the “good” bank, while the worst of its loans were hived off into an entity that is now known as Residual Debt Services.

The “new” African Bank was launched in 2016, and according to the authority, it continues to operate in a stable manner. As at March 2019 it held assets of R28.2-billion, while its total deposits sat at R17.9-billion.

But in the last year South Africa has seen the launch or announcement of several new bank offerings — including the likes of TymeBank, Discovery Bank and Bank Zero — all of which are expected to heighten competition in the sector.

When asked whether there will be sufficient market appetite to purchase African Bank Naidoo said: “We will of course assess market conditions and if market conditions are favourable we will seek to sell it and if market conditions are not favourable we can delay that.”

Optimism on rising competition

Despite several new arrivals into the banking space, the country’s biggest five banks still hold 90.5% of all assets according to the report. Total assets in the sector reached almost R5.7-trillion by March 2019, an 8.7% increase on the previous year.

Naidoo was however optimistic that this concentration in the sector will start to decline in the coming years as new entrants find their feet.

“I’m fairly optimistic that if you look forward ten years that figure of the big five banks at a 90% market share will probably come down,” Naidoo said.

“I’m quite optimistic that newer players, with the right levels of economic growth and in the right regulatory environment will begin to gain market share and we will see a more competitive sector.”

Although the prudential authority’s primary mandate is about ensuring the safety and soundness of the financial system — it does have to consider issues such as transformation, financial inclusion and competition when issuing new banking licenses, Naidoo said.

Several of the new banks licensed had “significant black ownership” Naidoo added.

But transformation of the sector was not only about ownership, he continued. It also included considerations relating to management, training and supplier development programmes — such as how banks were integrating small black owned businesses into their value chains.