“African Bank has been in the news for a while. There’s been talk about problems at the bank and so on, but any bank that gets into distress is an issue of concern. For the [South African Reserve Bank] to have intervened, to have taken the steps they have taken, is quite appropriate,” Cas Coovadia, managing director of the Banking Association of South Africa, told CNBC Africa.
On Saturday, the South African Reserve Bank (SARB) announced that [DATA ABL:African Bank Investments Limited] (Abil) would be placed under curatorship after the bank reported it would be expecting a headline loss of at least 6.4 billion rand for the financial year.
The Johannesburg Stock Exchange thereafter suspended Abil's trading of ordinary and preference shares, as well as African Bank debt instruments.
(READ MORE: SARB to introduce support measures for Abil)
According to Gill Marcus, the SARB governor, the decision to provide support measures for African Bank was to give it with the best chance for a viable future.
“The problems that have beset African Bank are, in our view, largely specific to their current business model, which does not include a diversified set of products and income streams, nor does it offer transactional banking services,” Marcus said in a statement.
“This has made African Bank and the ABIL Group uniquely vulnerable to a changing or challenging business environment, such as currently prevails.”
(READ MORE: Abil's B-BBEE shares under threat)
Tom Winterboer from PricewaterhouseCoopers has since been entrusted as curator to examine African Bank’s underlying business model, how to grow the good part of the business and restore confidence in it.
According to Coovadia, the reserve bank could also request Winterboer to also manage the faltering part of African Bank’s business, and try to recover as much of the debt as possible.
“It’s a question of the curator now managing properly, steering the ship in a way that does not cause any ripple effect. I think a number of the other banks underwriting some of the debt is also showing confidence in the system itself, also showing confidence that we can actually, between the regulator and other banks and the curator to be rescued,” said Coovadia.
“So it’s a question of tight and careful management, it’s a question of interacting with the creditors, interacting with borrowers. It’s getting [African Bank] out of the hole it got into, optimising the good business and minimising the impacts of the bad business.”