The African Bank blues

African Bank will have to scramble to raise R8.5-billion to stay afloat - almost twice as much as its market value - as it now expects massive losses this year.

Shareholders sold off in a flurry after a dismal trading update yesterday, pushing the share price down 62% in early trading.

The lender said it expects losses of more than R6-billion this year and announced that its long-time CEO will step down.

African Bank is South Africa's biggest unsecured lender, granting loans mostly to lower-income groups at interest rates substantially higher than prime and without assets backing the debt.

Many of its clients have felt their disposable income squeezed by sharp price rises in consumer goods and are struggling to pay up.

"The group continues to face tough trading conditions against a deteriorating economic environment negatively impacted by lowered GDP growth expectations, increasing inflation, and loss of customer income through strike action and increased unemployment," African Bank said yesterday.

The Reserve Bank said yesterday that it is monitoring the situation and engaging African Bank's management "in search of viable long- term solutions".

What these would be is not clear but it needs a large capital injection from somewhere to stay afloat.

African Bank raised more than R5-billion in capital from its own shareholders with a rights issue late last year. But this was not enough for the turnaround CEO Leon Kirkinis had in mind.

Kirkinis, one of African Bank's founders, resigned yesterday after 23 years at the bank.

CFO Nithia Nalliah will serve as acting CEO.

Jan van Niekerk, CEO of RECM, a bondholder in African Bank, said raising that much capital was "very big in the context of the size of the business".

He said Kirkinis's departure was "the logical thing as shareholders and financiers thought top management had lost credibility after such bad results".

African Bank wants to get rid of Ellerines, a furniture retail unit that has been dragging down what it calls its "good banking unit".

Shares closed at R2.70. In November it was trading around R12 and in April 2012 it was above R30.