African Bank Investments Limited (Abil), South Africa’s largest unsecured lender, extended its losses on the JSE on Monday, with its market capitalisation falling by about R5-billion as the market stressed over the scale of soured debt held by the bank.
The extended decline in Abil’s share price puts pressure on its management to provide a fuller picture of the bad debts, and its reasons for increasing its provisions for bad debt. Abil shocked the market on Thursday, saying it expected earnings to fall by up to 28%.
A Johannesburg-based analyst said it would be difficult for Abil’s share price to recover and regain the R5-billion lost before it releases interim results on May 20.
Paul Theron, CEO of equities asset manager Vestact, said his company had spent a "couple of million" rand buying Abil shares on Friday and on Monday, as investors capitalised on the decline. Abil plummeted more than 17% on Friday and a further 4% on Monday, with its share settling at about R22.74 compared with just under R29 on Thursday afternoon.
"We don’t know what’s causing this, whether they are becoming super-conservative (on provisions) or that things are bad," said Avior Research analyst Harry Botha.
Mr Theron said some traditional shareholders were scared and sold the stock, while others were short-sellers who were benefiting.
"We are long-term investors and there is an opportunity to pile in now," Mr Theron said. Asked what would prompt a recovery, he said: "All it will take is a big shareholder, probably a big foreign investor, to start accumulating."
Abil’s trading update on Thursday stunned the market because its first-quarter trading update, covering September to December, had given no hint then of the troubles that lay ahead.
In that earlier trading update, Abil said that nonperforming loans as a percentage of advances had improved marginally, and that its total credit disbursements were flat versus the previous comparable period "mainly as a result of risk-reduction measures and further refinements to Abil’s customer segmentation in this period".
Abil indicated there was a slowdown in appetite for unsecured lending due to reduced affordability.
Capitec was also not spared on Monday, with its share falling 1.23% to R201.50 and extending its market capitalisation losses to about R2-billion.
Capitec spokesperson Charl Nel said Abil’s trading update had been "read by the market to indicate a bigger problem in the entire unsecured credit market with all other role players in the industry".
He insisted Capitec differed from Abil in several respects, among them that almost half of Capitec’s 4,7-million active clients use its transactional banking platform and not only its credit offer, which provided a fee income stream.
Mr Nel said the timing of Capitec’s decision to raise more than R1.2-billion in the bond market recently, to cover lending activities, was unrelated to Abil’s trading update.