“I suppose the surprise is just the demise of [DATA ABL:African Bank Investments Limited], and the value of Eyomhlaba and Hlumisa was in the African Bank exposure, or the exposure to ABIL shares. Those shares are practically worthless but Eyomhlaba and Hlumisa [are] having to carry some significant debt on their balance sheets now,” Craig Gradidge, co-founder of Gradidge-Mahura Investments, told CNBC Africa.
African Bank Investments Limited’s (ABIL) Eyomhlaba and Hlumisa Broad-Based Black Economic Empowerment (B-BBEE) share schemes are trade over the counter. Gradidge added that despite ABIL’s current tough circumstances, it’s still too early to predict the firm’s end.
(WATCH VIDEO: African Bank on the downhill)
Financial services firm Nomura takes a similar view, and sites a lack of diversification on ABIL’s part as a reason for its current failing.
“We view ABIL as systemically interesting, but given its size and links to the banks, it’s not ‘too big to fail’,” Nomura said in a statement.
“However, that clearly doesn’t mean it can’t be subject to volatility events felt through the banking and asset management industry; we just don’t view as likely its macro-financial stability being affected.”
Nomura also compared Capitec Bank, another bank within South Africa’s unsecured lending industry, with ABIL, adding that Capitec’s better risk profiling and larger amount of deposit funding continues to keep it in the green. ABIL, on the other hand, lacked the same factors.
(WATCH VIDEO: African Bank and usnecured lending)
With the Financial Services Board now investigating over-the-counter trading platforms, where Eyomhlaba and Hlumisa trade, more questions will need to be answered in order to trace ABIL’s journey before its plummeting.
“There are serious questions to be raised why the National Credit Regulator, FSB, and even the South African Reserve Bank, did not sound enough alarm bells into 2012 as the bad loan book was being built up,” said Nomura.
“Such questions are necessary to remain credible around what we still very much believe to be sound and conservative regulation of the wider banking system.”
Gradidge added that a significant hole in ABIL and its B-BBEE shares that needs to be filled, whether through institutional shareholders provide some sort of recapitalisation to ABIL, or through other means.
“There aren’t any buyers on either scheme. At this stage you’ve got to wait and see what the large shareholders of African Bank decide. Even if you’re able to exit, you’re probably going to exit at a cent.”