Issued by: Ministry of Finance
News Editor
STATEMENT ON THE AFRICAN BANK 23 NOVEMBER 1995
Now that the agreement with the new owners of the African Bank has been formalised, the Government is in a position to make a full statement on its decision to facilitate the rescue of the African Bank. At the request of government, the South African Reserve Bank has agreed to participate with the Government in the rescue operation.
At the outset, let us state that it is NOT government policy to step in with taxpayer funds to rescue failed businesses. However, there ARE circumstances in which special consideration has to be given to the wider social and economic impact that the failed business would cause.
The case of the African Bank ("the bank") has proved to be such an instance. There are very strong social, economic and practical factors that have led government to believe that assistance to facilitate the rescue of the bank would be justified.
The African Bank addresses a very special niche in the banking market. Firstly, it has very significant numbers of small customers, and secondly operates extensively in the rural areas, often where there are no other banking facilities available. Although a liquidation of the bank would not pose a systemic risk to the banking industry, it could easily be seen as a social risk to the bank's clients and the broader community. The particular geographic concentrations of the African Bank's activities would have placed additional social and economic pressure on areas that are already badly strained. On a wide front, the effects of a liquidation of the bank to both depositors and debtors would have been extremely serious.
Moreover, with R262 million of deposits by the Transkei Public Debt Commissioners and other parastatals, government is the bank's largest creditor. If the bank had been allowed to go into liquidation, there would in any event have been a very considerable write-off to government, who would have had to cover these losses.
For these reasons, government is prepared to assist in the rescue of the bank. During the preliminary due diligence audit of the bank's financial position, it became clear that the perceived quality of the bank's debtors was much worse than anticipated, and that losses could extend to approximately R200 million. This necessitated a restructuring of the originally intended rescue package.
Under the new rescue package, it has been agreed that the Government, with participation by the South African Reserve Bank, will assist the bank with funding pending the collection of questionable debts that were on the books as at 25 October 1995. Every effort will be made by the new owners to actively pursue the collection of these debts.
A detailed audit will now proceed to establish the exact debt position. Because of the nature of the records kept by African Bank, this is only likely to be completed towards the middle of 1996.
As a result of government's assistance, the shareholding in the bank will now be adjusted as follows: NAIL-NBS-METLIFE consortium - 80% Government or its nominee - 14-20%
It is government's intention to distribute its shareholding in time, in order to further facilitate black economic empowerment. The method of distribution and price will be announced at the appropriate time.
The restructuring will be done in a manner which will avoid the creation of any tax loss benefits to the new owners.
The extent of government involvement will be determined by 31 July 1996. It will then be accounted for in a manner that is fully transparent - either in Budget allocations or in the Budget Review as a contingent liability.