Struggling Abil in the line of fire

Analysts forecast stormy future for the microlender

How much bad news can come out of African Bank Limited (Abil), the country's largest unsecured loans lender?

At this point it seems to be anyone's guess because no other banking group raises as many concerns - not even its closest rival, Capitec Bank.

At its annual meeting on Thursday, the group's boss, Leon Kirkinis, put on a brave face - again - and told shareholders he had the "best interest of the company at heart" as he pleaded for patience - a day after its share price fell almost 5% due to a profit warning. Kirkinis' company has published a slew of shocking financial numbers recently.

And adding to its woes, the National Credit Regulator (NCR) called for a fine of R300-million to be imposed on it for alleged reckless lending practices.

The group settled with the NCR, by paying a R20-million fine, with no admission of guilt.

On the day of the shareholders' meeting, the stock continued its downward spiral, falling 7.5%, a sign that investors have lost patience.

The executive board was also left with egg on its face when frustrated shareholders also did not approve the proposed changes to bonus pay.

The group's head of balance-sheet management, Markus Bower, said that did not necessarily mean there was a shareholder revolt.

Abil plans to discuss the issues with shareholders and also hold a special shareholder meeting in May.

But this time round, shareholders are not buying Kirkinis's "glossy presentation", which according to them fails to deliver tangible solutions to safeguard their investments.

The board was also taken to task for its lack of disclosure and not taking shareholders' comments or suggestions into consideration at these meetings. The group's chairman, Mutle Mogase, who seemed taken aback, reassured them their views were taken seriously.

Meanwhile, the investment community continues to be perplexed by the ongoing spin by management that things will get better in the second half of the year when more bad news is expected. First Avenue Asset Management's head of financials, Matthew Warren, said the group was still in the middle of the storm. He wondered why its executives were so optimistic.

Sasha Neryshkine, an analyst and MD at Vestact Asset Management, said "things are ugly", referring to the latest developments at the group.

New loans fell 25% to R5.56-billion in the December quarter after it adopted more stringent lending criteria.

Abil said that non-performing loans and bad-debt provisions were higher than in the previous period. It decided to change its policy on bad debt and increased provisions. It is also writing off bad loans faster, a strategy that Capitec has been using for a while now.

Abil has been the reigning champion of unsecured loans, but its business model seems to be broken. Its shareholders have questioned its sustainability. Warren struggles to understand why some fund managers have a long-term view on the company if it is "broken".

But some investors have high pain tolerance. For instance, the Public Investment Corporation has increased its shareholding to 15%. Its executive, Elias Masilela, attended the AGM and said he was there to understand the business's situation, but declined to saying if he was shocked by the recent profit-warning update.

The unsecured loans sector has boosted the growing middle class, most of which never had access to credit 20 years ago, due to the previous regime's policies.

Now the sector faces a reputational risk, while Kirkinis bemoaned the oversupply of credit to consumers that ended up in a debt hole, which gave rise to non-performing loans.