Editorial & Advertiser Disclosure Global Banking And Finance Review is an independent publisher which offers News, information, Analysis, Opinion, Press Releases, Reviews, Research reports covering various economies, industries, products, services and companies. The content available on globalbankingandfinance.com is sourced by a mixture of different methods which is not limited to content produced and supplied by various staff writers, journalists, freelancers, individuals, organizations, companies, PR agencies Sponsored Posts etc. The information available on this website is purely for educational and informational purposes only. We cannot guarantee the accuracy or applicability of any of the information provided at globalbankingandfinance.com with respect to your individual or personal circumstances. Please seek professional advice from a qualified professional before making any financial decisions. Globalbankingandfinance.com also links to various third party websites and we cannot guarantee the accuracy or applicability of the information provided by third party websites. Links from various articles on our site to third party websites are a mixture of non-sponsored links and sponsored links. Only a very small fraction of the links which point to external websites are affiliate links. Some of the links which you may click on our website may link to various products and services from our partners who may compensate us if you buy a service or product or fill a form or install an app. This will not incur additional cost to you. A very few articles on our website are sponsored posts or paid advertorials. These are marked as sponsored posts at the bottom of each post. For avoidance of any doubts and to make it easier for you to differentiate sponsored or non-sponsored articles or links, you may consider all articles on our site or all links to external websites as sponsored . Please note that some of the services or products which we talk about carry a high level of risk and may not be suitable for everyone. These may be complex services or products and we request the readers to consider this purely from an educational standpoint. The information provided on this website is general in nature. Global Banking & Finance Review expressly disclaims any liability without any limitation which may arise directly or indirectly from the use of such information.


The resolution of African Bank Limited (unrated) sets a precedent for senior bail-ins, Fitch Ratings says. We believe that the authorities may take confidence from their ability to impose losses on senior creditors of a small bank in an orderly fashion should a larger institution get into trouble in the future.

Fitch RatingsThe South African Reserve Bank (SARB) is providing support by paying ZAR7bn (USD655m) for a bad-loan book with a net book value of ZAR17bn. There is also private sector involvement with a ZAR10bn capital raising, and, importantly, a 10% haircut for senior debt instruments and wholesale deposits that are to be transferred to the good bank. We expect most senior creditors to accept the haircut and move to the good bank, leaving other liabilities such as subordinated debt and shareholders behind to bear losses.

South Africa has bailed-in senior creditors using existing powers to place the bank in curatorship in the absence of formal resolution legislation, which is still being finalised. This is striking because a 2013 Financial Stability Board (FSB) peer report identified several gaps in South Africa’s resolution framework, including a lack of bail-in powers. The SARB appears to have been guided by the internationally agreed FSB Key Attributes and the principle that no creditor should be worse off than in liquidation.

South Africa’s approach with both bail-out and bail-in elements and a split between a good and bad book is in line with our rating support path classification of 2 for South African banks, for which we believe sovereign support is still possible, although it is weakening.

South Africa’s banking system is unlikely to be materially affected by African Bank’s problems as the SARB took swift action. The five largest banks we rate (Barclays Africa, FirstRand, Investec, Nedbank and Standard Bank) have small exposures to the lender. The five are also part of the consortium underwriting new capital in the good bank. But the underwriting exposure is not significant relative to each participant bank’s capital or balance sheet.

Retail depositors, representing less than 1% of African Bank’s creditors, are protected, reducing systemic risks in a country without deposit insurance. Losses imposed on senior creditors are unlikely to materially disrupt wholesale funding markets because of the size of the bank and strong rand liquidity in the system, but it could have some implications for funding costs.

The problems at African Bank highlight the risks in unsecured personal lending, if not appropriately managed. In South Africa, this market grew rapidly in 2011 and 2012, but slowed significantly in 2013 and in 2014 as banks pulled back from the segment. Unsecured personal loan exposures (including credit cards) are limited in the four major banks, forming 10% or less of gross loans (Investec’s high net worth focus means it is not exposed to this type of lending). We expect the major banks non-performing unsecured personal loans to increase gradually over the next 12-18 months in light of South Africa’s weakening operating and economic environment, rising interest rates and the high level of household debt, even though it is clear the major banks were not necessarily targeting low income groups and did not have a high risk appetite, like African Bank and other niche lenders in this space,