Capitec competitor spending billions in South Africa
African Bank is spending billions of rands on acquisitions as the Capitec competitor prepares for an Initial Public Offering (IPO).
African Bank has significantly expanded its operations since 2022, with multi-billion-rand deals involving Grindrod Bank, Sasfin and Eskom.
African Bank’s primary business is unsecured micro-lending. This type of lending is high-risk and high-reward and typically leads to high credit impairments. Capitec dominates this market segment.
However, with its multi-billion-rand acquisitions, African Bank is expanding into commercial, business and property-focused banking.
In 2022, African Bank announced it would purchase business-focused Grindrod Bank from Grindrod Limited for R1.5 billion.
The deal marked African Bank’s entry into the South African business banking sector. Its goal was to develop a fully-fledged middle-of-the-pyramid business banking offering.
Grindrod’s business forms the foundation of African Bank’s Business and Commercial Division, which was transferred to African Bank in August 2024.
On top of the Grindrod deal, African Bank further bolstered its diversification into business banking after taking over the Capital Equipment Finance and Commercial Property Finance loan books from Sasfin.
The deal, valued at R3.25 billion, saw Sasfin’s employees move to African Bank, with the latter shifting out of banking to focus on its core wealth business.
The deal received the necessary regulatory approvals on 1 August 2024, and the two operations were united under the African Bank banner.
In late 2024, African Bank also announced its move into the secured home loan lending market, planning to take over Eskom’s staff home loan book.
Through its Finance Company, Eskom has offered home loans to its employees, with instalments deducted from their salaries.
As part of a roughly R250 billion bailout from the National Treasury, Eskom was told that it would need to dispose of the book.
African Bank previously said that it expects the deal to be concluded by 31 May 2025, but this could vary due to the agreement’s regulatory needs.
Why the big push
The massive deals form part of African Bank’s Excelerate25 strategy, with the diversification done ahead of the group’s scheduled listing on the JSE.
This comes 10 years after the bank was placed under curatorship by the South African Reserve Bank (SARB) due to poor lending practices, resulting in heavy write-downs of bad loans.
The Reserve Bank now owns 50% of African Bank, with other major commercial banks, including its rival Capitec, and the Government Employee Pension Fund owning the remaining 50%.
However, the Reserve Bank is the regulator of South Africa’s banking sector. African Bank will soon undergo an IPO so the Reserve Bank can sell its stake in the bank.
Despite its title as Excelerate25, African Bank has delayed its proposed listing on the JSE from 2025 to late 2027.
The delay in the listing comes after the bank scanned market and investor sentiments on the prevailing market conditions and critical factors for a successful IPO.
Upon review, the group’s board decided to prioritise the de-risking of the IPO via a much larger pre-IPO set of transactions that would remove the BEE overhang on the listing.
The bank also announced that it will list a much smaller portion of its shareholding as per the rescheduling of the listing date.
The IPO journey was thus broken down into four main phases, namely:
- Securing the Government Employee Pension Fund (GEPF) as an anchor shareholder with a much longer investment horizon beyond the IPO;
- The implementation of staff and management ownership schemes.
- The implementation of a black retail scheme; and
- The final listing on the JSE will be done using the FY27 financial results, market conditions permitting.
Ahead of the listing, several financial metrics showed improvement for the year ended 30 September 2024.
Although net profit remained unchanged at R521 million in FY23 and R523 million in FY24, the group’s credit impairment charges improved by 20% to R2,709 million (FY23: R3,262 million).
This led to a drop in the group’s credit loss ratio from 8.0% to 6.3%, partly linked to the book’s diversification to secured lending.
For comparison, Capitec’s credit loss ratio improved from 8.7% to 6.9% in its most recent financial results amidst an improved economic outlook for South Africa.
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