SARB to introduce support measures for ABIL - CNBC Africa

SARB to introduce support measures for ABIL

Southern Africa

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ABIL comprises of African Bank and Ellerine Holdings.

One of the measures will see ABIL, which reported on Wednesday that it was expecting a headline loss of at least 6.4 billion rand, placed under curatorship with effect from 10th August 2014.

(READ MORE: ABIL’s woes worsen as group expects FY headline loss of R6.4 bln)

“The curatorship provides the legal framework within which the necessary initiatives to enable resolution can take place. The [Finance] Minister has appointed Tom Winterboer as the curator. He will be responsible for African Bank with immediate effect, with the full authority the law confers on the curator,” said SARB Govenor, Gill Marcus.

[DATA ABL:African Bank Limited]’s board has, after due consideration, advised the Registrar that it does not oppose curatorship and has taken the appropriate resolutions to facilitate the process.”

Winterboer, who is the financial services industry leader for Africa and a member of the global financial services leadership team at PricewaterhouseCoopers (PwC), will be assisted in this endeavour by a team of experts, including Peter Spratt and David Gard from PwC London.

“The curatorship is a protection procedure which gives the SARB the legal means to create the necessary space to implement a resolution plan capable of ensuring that the business of African Bank gains a secure perspective for the future as a lending institution with a transformed business model,” said Marcus.

“The measures that have been taken are, in our view, in the best interest of all stakeholders, whether depositors, shareholders, creditors or clients.”

The process is expected to ensure that that the regular operations and collections of African Bank continue effectively and efficiently as well as identify performing loans and assets to be maintained in a good bank.

It would also involve a purchase by the SARB of a substantial portion of the non- and underperforming assets and other high risk loans from African Bank in order to separate them from the good bank and recapitalise the new entity by a capital raising of some 10 billion rand underwritten by a consortium.

The consortium has been put together by the private sector and comprises of Absa Bank Limited, Capitec Bank, FirstRand Bank Limited, Investec Bank Limited, Nedbank Limited, Standard Bank Limited, and the Public Investment Corporation (PIC).

“[The] resolution will see African Bank split into two parts. On the one hand a good bank which will be recapitalised. Let me emphasise here that the 10 billion rand recapitalisation is for the good bank, which has a book value of 26 billion rand net of portfolio impairments,” Marcus said.

“On the other hand the bad book, which comprises of a substantial portion of the non- and underperforming assets, will be housed in a vehicle with the support of the SARB in order to separate these from the good bank.”

According to the SARB, the bad book will no longer form part of African Bank. The bad book currently has a book value net of specific impairments of 17 billion rand for which the SARB will pay seven billion rand.

“Collection against the bad book will be continued, and indeed strengthened. There is no payment holiday for anyone owing on a loan from African Bank,” added Marcus.

She also alluded to the fact that Ellerine Furnishers has been a significant drain on ABIL and that the problems that have beset it are largely specific to its current business model.

(READ MORE: ABIL’s B-BBEE shares under threat)

“The ABIL board announced its decision to sell Ellerine and endeavoured to find a buyer. African Bank is the only South African bank exposed in this way to a furniture chain,” said Marcus.

“Ellerine Furnishers was placed into a business rescue process on 7 August 2014. One of the outcomes of this is that the significant monthly financial support required from ABIL and African Bank has ended.”

Marcus added that the SARB was greatly encouraged by the active and committed response by the private sector in seeking a resolution for African Bank.

(READ MORE: African Bank's Ellerines applies for business rescue)

“We believe that the package that has been put together with the support of the consortium is workable and substantive. Shareholders will have an opportunity, by following their rights in the capital raising, to participate in the recapitalisation,” she said.

“The role of banking supervisors is to make every effort to ensure that South Africa’s banks have adequate capital, liquidity, and leverage ratios, as well as sound governance and appropriate policies. We are, and will remain, an active supervisor.”