African Bank Plummets as Bad Debts Increase: Johannesburg Mover

African Bank Investments Ltd., South Africa’s largest provider of unsecured loans, fell the most in 11 weeks after it said full-year profit will decline as bad debts rise and the company curbs lending growth.

The shares slumped 4.5 percent to 15.26 rand in Johannesburg. The stock has lost 53 percent this year, making it the worst performer on the 165-company FTSE/JSE Africa All Share Index.

Earnings excluding one-time items will probably drop as much as 63 percent in the year through September, the Johannesburg-based lender said in a statement today. Retail unit Ellerines may post a loss excluding one-time items of about 200 million rand ($20.4 million), while a 2.5 percent to 3.5 percent increase in bad-loan provisions will reduce bank earnings by as much as 500 million rand, African Bank said.

“I don’t think anyone expected it to be that bad,” Harry Botha, an analyst at Avior Research, said by phone from Johannesburg today. “It’s a tough time for them and the ratings agencies will be taking note.”

Consumer spending has been under pressure as inflation accelerated to the fastest pace in four years in August and economic growth slowed. African Bank also has to make provisions for staff incentives, which will cost the company as much as 220 million rand after the share price slumped, it said. The lender plans to boost capital with a rights issue of as much as 4 billion rand.

Regulatory Fine

The bank is also facing a fine for as much as 300 million rand for what the National Credit Regulator terms reckless lending. The charge forced African Bank to abandon plans to raise $300 million in foreign markets earlier this year. It may try to sell three rand bonds this week, according to documents the lender lodged with Johannesburg’s stock exchange.

“The South African economy and operating environment within which both the retail and credit businesses operate continues to prove challenging with little respite expected in the next year,” the bank said. Earnings may start to recover in the second half of the next financial year, it said.

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