The crisis sweeping through African Bank and the subsequent bailout plan seems to have caused widespread anxieties among stakeholders and mainly depositors who are concerned that they might lose their monies.
While some holders of African Bank loans seem to think that the developments presents an opportunity to escape their obligations. This is not the case.
Here follows a brief summary of how the developments around African Bank affect different stakeholders.
African Bank has not collapsed but has been placed under curatorship by order of the South African Reserve Bank. This means African Bank’s executive powers have been taken away from management and placed under the leadership of an independent administrator while the bank is working on a sustainable plan. Tom Winterbroer, the independent administrator (curator) appointed by the Reserve Bank will work with the existing African Bank management. According to the Reserve Bank, the African Bank management has agreed to cooperate. Reserve Bank governor Gill Marcus stated African Bank continues to be open for business.
South African Reserve Bank governor, Gill Marcus, has assured depositors that their monies are safe. She said “retail depositors and specified sundry creditors will be transferred at full value”. This simply means 100% of monies deposited with African Bank are safe. Note that depositors are categorised as creditors whose fate is further explained below.
Marcus emphasised that collection of all African Bank loans will continue as usual if not with more gusto. “Collection against the bad book will be continued, and indeed strengthened: there is no payment holiday for anyone owing on a loan from African Bank. Every effort will be made to ensure that collections continue with the goal of avoiding any cost to the taxpayer arising out of this measure.”
Marcus said “existing depositors, specified sundry creditors and instrument holders will be restructured and assumed by the good bank as follows:
- retail depositors and specified sundry creditors will be transferred at full value.
- senior debt instruments and wholesale deposits (excluding subordinated debt holders) will be transferred at 90% of face value following the restructuring (the absolute interest rate will be based on the revised face value). Note that this category excludes depositors.
- all other liabilities will remain in African Bank
- existing ordinary shareholders and subordinated debt holders will be afforded the opportunity to participate in the good bank
- it is intended that the good bank holding company will be listed on the JSE in due course, and will include the acquisition at fair value of the various insurance entities within the ABIL Group.
Marcus said “An important aspect of the curatorship is that the curator has the discretion to suspend payments of interest. While interest continues to accrue, he is expected to suspend interest payments generally with immediate effect except for interest payments on retail deposits.”
The fate if African Bank employees largely depends on the outcome of the restructuring plan that will come out of curatorship process. With Marcus saying it is business as usual, there is no immediate implication for employees. However African Bank is set to emerge out of this process in a different form and as a much smaller operation in the short term. This may require restructuring or reduction of the workforce. The curator will keep employees abreast.
Good Bank vs Bad Bank
The Reserve Bank has resolved to split African Bank’s loan book into two. The bad loan book valued at about R17 billion will be removed from the bank and taken over by the Reserve Bank. African Bank will continue with a good loan book valued at R26 billion (Good Bank).