African Bank has no plans to dip into R8bn yet, says CFO

African Bank recently announced a major development in its efforts to re-enter South Africa's wholesale funding market. The bank's shareholders have pledged to inject R8 billion into the bank, providing a safety net for potential funding shortfalls. This move is a significant step towards establishing African Bank as a reliable and competitive player in the market. Gustav Raubenheimer, the CFO of African Bank, shed light on this groundbreaking transaction in an exclusive interview with CNBC Africa. Raubenheimer emphasized the strategic importance of this shareholder support, highlighting that it would offer a guarantee for future wholesale funding needs. He explained that if the bank were to issue a bond and encounter an undersubscription scenario, the shareholders would step in to cover the shortfall. This level of backing instills confidence in African Bank's ability to navigate the market with the necessary financial support. The groundwork for this transaction was laid well before the current global challenges posed by the COVID-19 pandemic. Since its relaunch in 2016, African Bank has been focused on rebuilding its brand and regaining trust in the wholesale funding market. Raubenheimer noted that the recent support from shareholders serves as a final push needed to reassure wholesale funders of African Bank's stability and potential for growth. Despite the tumultuous economic landscape, African Bank has made significant strides in growing its retail deposit book, reporting a 157% increase over the past two years. This success in retail funding has positioned the bank strongly, reducing the immediate need for wholesale funding. Raubenheimer indicated that while the bank currently does not require the full R8 billion pledged by shareholders, having access to this capital provides valuable flexibility for future strategic initiatives. In response to concerns about the challenging environment for lending activities, Raubenheimer acknowledged the need to tighten underwriting criteria in light of reduced risk appetite and the need to manage bad debts effectively. He anticipates a decline in loan books in the near term, with a potential normalization of the economic environment not expected before 2022. Looking ahead, Raubenheimer underscored African Bank's commitment to standing on its own in the market. He mentioned that the bank has already engaged with the wholesale funding market and listed bonds totaling 800 million rand in response to investor interest. While African Bank remains open to further opportunities in the wholesale market, Raubenheimer emphasized that any future forays into wholesale funding would be driven by strategic growth and balance sheet optimization, rather than immediate funding needs. As South Africa grapples with economic challenges exacerbated by the global health crisis, Raubenheimer highlighted the importance of managing risk, particularly credit risk, and maintaining productivity in a remote work environment. The bank's primary focus remains on aligning with its risk appetite, while staying agile in the face of ongoing uncertainties. In conclusion, African Bank's secured R8 billion in shareholder funds marks a pivotal moment in its journey towards sustainable growth and stability in the financial sector. The injection of capital not only shores up the bank's funding position but also positions it for strategic opportunities as the market evolves. With a strong foundation in retail deposits and a proactive approach to risk management, African Bank is poised to navigate the current economic challenges and emerge stronger in the post-pandemic landscape.