South Africa’s biggest lenders are likely to remain immune to the fallout from the collapse of African Bank Investments Ltd., according to Mark Mobius, the executive chairman of Templeton Emerging Markets Group.
“Other banks are in pretty good shape,” Mobius, who helps oversee about $40 billion, said in an interview in Seoul today. “I wouldn’t say it’s symptomatic of the whole banking system. You have companies like Nedbank and other ones that are pretty good.”
Trading in African Bank was suspended after South Africa’s largest provider of unsecured credit was placed under protection from creditors by Reserve Bank Governor Gill Marcus amid plans to split the business and create a bad bank for soured loans. Standard Bank Group Ltd., Barclays Africa Group Ltd., FirstRand Ltd., Nedbank Group Ltd. and Capitec Bank Ltd. are among lenders that will underwrite a 10 billion-rand ($938 million) capital raising for the remaining good bank, Marcus said yesterday.
The seven-member FTSE/JSE Africa Banks Index gained 1.1 percent as of 10:37 a.m. in Johannesburg, with FirstRand adding 1.8 percent to 44.18 rand. Capitec, Johannesburg-based African Bank’s biggest competitor, jumped 1.2 percent to 222.15 rand, snapping three days of losses.
“African Bank had a unique business model so contagion to the other banks will be very limited,” Nerina Visser, head of beta solutions at Johannesburg-based Nedbank Capital, said by phone. “The worst of the damage has been done. The Reserve Bank’s actions will help bring stability.”
African Bank’s situation became critical after the bank said Aug. 6 that Chief Executive Officer and founder Leon Kirkinis resigned, losses will be at a record this year and it would need to tap investors for a fresh capital injection of at least 8.5 billion rand, eight months after raising 5.48 billion rand in a rights offering. The stock dropped 95 percent in Johannesburg last week to 31 cents for a market value of 465.3 million rand.
“The rest of the banks will be able to raise about 1 billion rand each,” Owen Nkomo, founder of Johannesburg-based brokerage Inkunzi Investments Ltd, said by phone yesterday. “It won’t have a negative impact on the banks.”
African Bank doesn’t take deposits and typically disburses small loans not backed by assets to low-income earners. Many customers are struggling to keep up with repayments as South Africa’s economy contracted 0.6 percent in the three months through March during a five-month strike at platinum mines that slashed mining output. Rising unemployment and inflation are also weighing on consumers.
“In South Africa, consumer finance has gotten out of control and the household debt is very, very high,” Mobius said. Templeton is focusing on South African companies companies that have operations all over Africa, including MTN Group Ltd., the continent’s largest mobile-phone operator, and Remgro Ltd., a holding company controlled by billionaire Johann Rupert, he said.
“The reason why we’re interested in South Africa is mainly because what companies are doing north of them,” Mobius said.