They will also not be able to receive any interest payments while the unsecured lender is under outside supervision as part of its $1.6 billion bailout.
South Africa's central bank stepped in to rescue [DATA ABL:African Bank], known as Abil, over the weekend after the lender said it would need a large capital injection to cover losses from a wave of bad loans.
(READ MORE: SARB to introduce support measures for Abil)
To pay for the bailout, the central bank is imposing a 10 percent loss on senior debt holders and wholesale depositors, usually other banks, large companies or institutional investors. Junior bondholders will see their investment converted into equity.
Abil's retail depositors will be protected and can continue to receive interest and access their funds while the bank is under outside supervision.
Abil was almost exclusively focused on selling unsecured loans - which are not backed by collateral - to customers who often did not have an established credit history. It took few deposits and did not offer many traditional banking services.
(READ MORE: Trade of Abil shares and debt suspended on Johannesburg bourse)
The central bank's decision to impose losses on senior bonds, one of the highest ranking forms of unsecured debt, contrasts with the recent decision by Portuguese authorities to shield such investors in their bailout this month of Banco Espirito Santo, once the country's largest listed bank.
Under new European rules on dealing with failing banks, losses could be imposed on senior bondholders and large depositors from 2016 to avoid a repeat of the financial crisis, when taxpayers shelled out 1.6 trillion euros to recapitalise banks and guarantee their liabilities.
Under the Abil bailout, South Africa's central bank will acquire its 17 billion rand bad loan portfolio and local banks will underwrite a $940 million capital injection.
Abil is under the curatorship, or outside supervision, of Tom Winterboer, an executive from PricewaterhouseCoopers while its restructuring is being worked out.