Unsecured Loans at Abil Bank Runs Investors Away in SA

Unsecured Loans at Abil Bank Runs Investors Away in SA

Written by David Dolan and Ed Cropley | From Reuters

Investors fled African Bank Investments on Thursday, as the South African lender faced a $790 million hole from a flood of unsecured loans gone bad and its furniture retail business applied for creditor protection.

The bank, widely known as Abil, shocked the market on Wednesday when it said it needed to raise 8.5 billion rand ($790 million) in new capital after warning of a massive annual loss, after which its chief executive quit.

On Thursday its furniture retailing arm – which Abil acquired in 2008 in a disastrous attempt to sell sofas on credit – applied for temporary protection from creditors.

Any attempt by the bank to raise the funds to survive looks near-impossible – Abil needs several times more capital than it is currently worth. Its stock plunged to a record low of 20 African cents on Thursday and ended the day at 50 cents, valuing it at $102 million. It was a precipitous fall for a company worth more than $2 billion at its height.

“Equity investors have thrown in the towel. It’s literally uninvestable,” said one Johannesburg-based trader, who declined to be identified. “The South African consumer credit bubble has burst.”

The bank’s troubles stem from its reliance on unsecured lending – high-margin loans not backed by collateral – which it marketed aggressively to low-income borrowers. But those clients have been hit by rising unemployment, food and fuel costs, and Abil has been slammed by their bad debts.

Read more at Reuters