African Bank Drops Most in Three Months After Full-Year Loss

African Bank Investments Ltd., South Africa’s largest provider of unsecured loans, fell the most in almost three months in Johannesburg after a 4.6 billion rand ($468 million) goodwill impairment resulted in a full-year loss.

The loss of as much as 4.3 billion rand for the 12 months through September compares with a profit of 3 billion rand a year earlier, the Johannesburg-based bank said in a statement today. The stock dropped as much as 7.9 percent.

The impairment relates to the lender’s unprofitable Ellerines furniture-retailing business, which African Bank is trying to sell. African Bank, which targets low-income earners with credit not backed by assets, increased bad-loan provisions as consumers struggle to repay debt amid higher fuel and power prices and a slowing economy.

The losses, write-offs and impairments are worse than expected Patrice Rassou, head of research at Sanlam Investment Management in Cape Town, said in an e-mailed response to questions. “It seems that it is taking some major corrective measures and being more conservative in its accounting.”

African Bank fell 6.8 percent to 15.75 rand as of 1:59 p.m. in Johannesburg trading, bringing this year’s decline to 51 percent, the second-worst performer on the 165-company FTSE/JSE Africa All Share Index after Harmony Gold Mining Co.

Specific Issues

“The revised conservative write-off criteria of impaired loans will provide the potential for recoveries in future years,” African Bank said. Increasing the non-performing loan coverage to 66 percent and boosting capital ratios “will strengthen the balance sheet,” it said.

To maintain capital levels, African Bank said it will increase a planned rights offer, fully underwritten by Goldman Sachs Group Inc., to 5.5 billion rand from 4 billion rand. Tier 1 and total capital ratios are expected to increase to as much as 26 percent and 34 percent respectively, it said.

The pricing of the rights offer will be announced on Nov. 1 with the new shares starting to trade in Johannesburg on Dec. 2, the lender said in a separate statement today.

African Bank will release full results for the year through September on Nov. 11.

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