African Bank (Abil) began its life as a small commercial bank in South Africa in the 1970s before transforming itself into a stalwart in the 1990s by handing out high-interest loans to some of South Africa’s poorest sectors. Yet, as with so many institutions, problems surfaced when the financial crisis hit. Fresh cash fuelled Abil’s modus operandi after the South Africa Reserve Bank, like many other central banks, printed money to stimulate the economy.
In May 2013, the bank’s share price collapsed after an announcement that a third of its unsecured loan book was non-performing. This sudden crash came on top of a five-year slide: in 2008, Abil shares traded as high as R30.22 ($2.46). In the year to August 2014, the highest the shares traded was R14.48. The average was R10.46. Senior debt holders were told to expect at least a 10-cent loss on every rand invested. Other creditors were warned they could lose everything.
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Investors will remain very cautious following Abil’s collapse. They may stay on the sidelines and keep watch, or they may demand higher premiums Rob Hamer, |
The soaring losses finally led to a bailout.