WINDHOEK – African Bank Investment Limited (Abil), the owners of Ellerines Furnishers and the African Bank, are the latest reminder of just how easy a multi-billion dollar empire crumbles when the executives refuse to wake up and smell the coffee. Or executives too comfortable to realise that the business model that made the bank worth billions has become a dinosaur and a new model in sync with evolving market is urgently needed.
Thus, Abil, which in 2010 was valued at N$31 billion, was put into curatorship last week Friday, at that time with a market value of less than half a billion dollar, of N$465 million. Most, or about 90 percent of its share value depreciated in about three days, the fastest downward spiral spurned by the announcement days earlier that its once fledging furniture unit, Ellerines, is halfway down the drain, and requiring a monthly bail out of N$70 million just to stay afloat.
It was indeed a spectacular fall, that saw a group of private banks rushing to extend a N$10 billion lifebuoy to Abil in less than 48 hours from Friday – the specifics were announced on Sunday – in an attempt to salvage the “good” part of the embattled bank from the “bad” bank, as Gill Marcus, the South African Reserve Bank (SARB) governor, put it the statement issued on Sunday.
The reasons for Abil’s failure, says Marcus, were “largely specific to their current business model, which does not include a diversified set of products and income streams, nor does it offer transactional banking services. This has made African Bank and the ABIL Group uniquely vulnerable to a changing or challenging business environment, such as currently prevailing.”
It is still not clear what is the level of exposure is there for Namibia’s commercial interests, direct or indirect, if any, through Namibian fund managers with money market funds that had exposure to Abil via their parent South African holding companies, who all shared the risk with SARB in Abil. The rescue plan came from the consortium made up of SARB, Absa Bank Limited, Capitec Bank, First Rand Bank Limited, Investec Bank Limited, Nedbank Limited, Standard Bank Limited and the Public Investment Corporation.
“The curatorship means that the bad portion of the bank, which consists of substantial portion of the non and under-performing assets with N$17 billion in impairments, would be housed in special vehicle, and the South African Reserve Bank (SARB) has undertaken to pay N$7 billion, as collection of the debts continue,” Gill Marcus, SARB governor said in a statement over the weekend.
The woes are largely owed to the sinking ship, Ellerines Furnishers, which has operated on the model of funding the sales of furniture to the public with favourable instalment credit, in the hope of people paying on time, with interests. Until the retail market conditions conspire with the gods to deliver, unavoidable strikes, people not able to pay on time, and slow sales every other quarter. “Ellerines Furnishers has been a significant drain on ABIL, requiring funding support of a minimum of N$70 million per month,” said Marcus in the statement issued last Sunday.
Abil’s trading statement for the third quarter released on August 06 was worse than what the market expected, with an estimated headline loss for the full year to September 2014 financial year of N$6.4, billion. The losses follow the bank’s already headline losses of N$3.1-billion in the six-month period to March 2014.
This is despite the assurances from the bank’s managers that “the book written after June 2013 was significantly better and forecast that they would return to profitability in the second half of the year,” noted Marcus.
By Desie Heita