African Bank receives $938m capital injection placed under creditor protection

African Bank Investments Limited will receive a 10-billion rand ($938m) capital injection to stave off collapse and creditor protection after the South African Reserve Bank stepped in to help save the business.

A group of banks, including Barclays Africa Group Ltd, FirstRand Ltd., and fund administrator the Public Investment Corp. agreed to underwrite the capital raising, Gill Marcus, governor of the Pretoria-based central bank, said in a presentation to reporters in the city. African Bank was also put under curatorship, or administration, as “a protection procedure to give the bank time to come up with rescue plan.”

The lender’s situation became critical after the bank said Aug. 6 that CEO/founder Leon Kirkinis resigned, losses will be at a record this year and it would need to tap investors for a fresh capital injection of at least 8.5 billion rand less than a year after raising 5.48 billion rand in a December rights issue.

The bank is being put under “curatorship,” a legal protection measure that gives SARB the “necessary space” to implement a resolution plan, according to the central bank. African Bank will be split into a good and a bad bank, with the former receiving the recapitalisation funds, Marcus said.

Part of African Bank’s troubles stemmed from its 9.2 billion-rand acquisition of furniture retailer Ellerine Holdings Ltd. in 2008, which prompted losses and writedowns after sales dropped. Abil, as African Bank is known, doesn’t take deposits and typically disburses small loans not backed by assets to low-income earners. Many customers are struggling to keep up with repayments amid rising unemployment and inflation.

Abil had 101 million rand in depositors’ money at the end of May, according to central bank information, with that money guaranteed.