African Bank 10.5 Interest Rate
Like most South Africans, I hadn’t paid much attention to African Bank since it hit a brick wall in 2014. Big enough to pose a “systemic risk”, the SA Reserve Bank stepped in, splitting out the worst performing loans and injecting half the R10bn in new capital required to keep the bank going. The PIC and SA’s big six banks put in the rest.
After yesterday’s interim results, I had a close look at African Bank’s numbers. And got a pleasant surprise. Suddenly the billboards offering a market topping 10.5% interest rate make sense. Because the bank’s Five Year plan is to attract a quarter of its funding from retail savers by 2021. Despite a near doubling in the six months to end March, the current contribution is just 3%.
There’s no doubting the appeal of that juicy interest rate. But trust takes time to rebuild in a bank that went belly up. So is it worth taking advantage of that 10.5%? I believe so. There’s a golden thread in the numbers showing how African Bank’s funders adopted a “never again” approach after putting it back into business two years ago.
The company has the highest relative reserves of any SA bank, reflected in a capital adequacy ratio almost three times the regulated level. It now has a strong executive team and is being very conservatively managed. The high interest rate offered is a function of a strategic decision, not because it poses any higher risk than other SA banks. Definitely worth having another look.