African Bank Investments Ltd., South Africa’s largest provider of unsecured consumer loans, said it may face a 300 million rand ($34 million) fraud fine, prompting the company to delay a bond sale and sending the stock sliding.
The National Credit Regulator requested that a tribunal impose the fine after it found that loan agents at an African Bank branch in Dundee, South Africa, colluded with customers to lower lending standards in exchange for cash, the Johannesburg-based firm said in a statement today.
African Bank shares fell 0.3 percent to 30.50 rand in Johannesburg, after earlier declining as much as 6.4 percent. Yields on the bank’s $350 million of 8.125 percent bonds due 2017 soared 35 basis points to the highest since Sept. 17.
“African Bank has handed the matter over to its attorneys and contests the reckless lending allegation,” the company said. “Given that this was an isolated incident as a result of fraudulent activities and the organization has suffered a consequential financial loss, African Bank believes that the proposed fine is unwarranted.”
The NCR said in October that it was probing firms including African Bank for inappropriate lending as consumer indebtedness soared. South African consumer loans not backed by assets surged fourfold between 2009 and last year, according to research from the Johannesburg-based securities unit of Australia’s Macquarie Group Ltd.
After receiving the NCR’s documents on Feb. 6, African Bank decided to postpone the sale of a $300 million bond maturing in 2018, Chief Executive Officer Leon Kirkinis said in a phone interview today. That same day, African Bank and its lead advisers on the sale, including Credit Suisse Group AG and Standard Chartered Plc, had completed a series of presentations to investors in Europe, the Middle East and Asia.
“It’s never advisable to be at war with your regulator,” Kirkinis said. “We will engage with them and have requested a meeting.” Without the bond sale, the lender will still have enough capital for the next three months, he said.
African Bank’s closest competitor in unsecured lending, Capitec Bank Holdings Ltd., fell 0.9 percent to 192.80 rand.