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African Bank unveiled plans this week to move from being mainly an unsecured lender to becoming a diversified retail bank that offers a range of services, including transactional banking.
Brian Riley, African Bank’s CEO designate and the former chief executive of FirstRand’s WesBank, said some of the new products offered by the bank, which has been under curatorship since August 2014, include funeral insurance, a stokvel product and transactional banking, which is set to be launched in 2017.
Greg Saffy, a banking analyst and head of Cast Iron Capital, said Capitec dominates the full-services banking market that African Bank is aiming at.
“Capitec has a good lead in the market space, so African Bank has got some catching up to do,” he said.
Capitec also had an advantage over African Bank when it came to funding because the latter sourced its money mainly from institutional investors, whereas Capitec had a broader base of funding sources – including money deposited by its customers, Saffy added.
Since the bank was placed into curatorship about 18 months ago, it has been split into “good bank” and “residual debt services”, which will hold African Bank’s bad debt.
The newly established good bank falls under the auspices of the Public Investment Corporation, a consortium of banks which together own 50% of African Bank, and the SA Reserve Bank, which owns the remaining 50%.
In August 2014, African Bank Limited, which was listed on the JSE and owned African Bank, announced that it expected an annual headline loss of R6.4 billion and that it would need to raise R8.5 billion. This sent its share price plunging to a fraction of its previous value.
Part of the restructuring work that had been done at African Bank, which has about 2 million customers, was the revision of its strategy, mission and values, Riley said.
Included in the mission is the transformation of African Bank into a “successful retail bank offering a wide range of products and services”, said Riley.
A key issue that the company needed to fix, he added, was its funding costs, which are higher than those of other major banks in the sector.
“We have a disadvantage on funding,” Riley said.
“The development of transactional banking services will also bring a new pillar of funding to the bank – the ability to attract a significant amount of retail deposit funding,” said African Bank.
The bank was unlikely to be a dominant player in transactional banking within the next three to five years, Riley added.
“We will need to take customers from the competitors. It will be a gradual process of building confidence and attracting people to transactional banking,” Riley said.
The bank has set up a board with former Absa CEO Louis von Zeuner as chairman, together with five other board members. Another two members, including one with actuarial skills,
are set to join soon. The board has no representative from any of the consortium banks that will have a stake in the resurrected bank.
A new venture that African Bank is piloting is a partnership with Sanlam, which will offer financial advice and insurance products to the bank’s clients.
Since being placed under curatorship, the bank’s staff turnover rate has been high, totalling 40%. This allowed the lossmaking entity to reduce its staff count by 21% to 4 391 at the end of February.
Riley said that African Bank would like to continue to cut its costs and that the firm could reduce its employee numbers further via natural attrition.
In another development, Finance Minister Pravin Gordhan this week consented to the bank’s restructuring strategy, which is set to be effected from April 4.
The Registrar of Banks also approved the registration of good bank.
At the April launch date, African Bank expects to have an equity base of R10 billion and a cash position of about R24 billion.
