Not many know that African Bank — the microlender that spiralled out of control under charismatic then CEO Leon Kirkinis — was actually formed in 1964 by a group of black entrepreneurs, becoming the first black-owned bank in South Africa in 1974, before its identity changed in the 1990s. Under curatorship since its implosion in 2014, the bank is set to relist on the JSE in 2025. The FM spoke to CEO Kennedy Bungane.
You’ve been very busy buying companies: Ubank, Grindrod Bank and now Sasfin’s capital equipment and commercial property finance businesses. Why?
The key driver here is to accelerate our diversification from a monoline, unsecured consumer lending business to a diversified, fully fledged retail and business bank.
You want to list in 2025 and you probably feel under pressure to scale up the business. For example, with the Sasfin deal, you seem to have paid a lot of money.
In almost three decades of banking I spent 16 years as an investment banker, and I learnt a thing or two about acquisitions. My rules of thumb are the following: First, they must be strategic. Second, they must be commercially sound, so don’t overpay. Third, there must be a clear line of sight to value accretion. Fourth, you must be in a position to integrate them fast. And last, there must be cultural alignment.
I think all three of the acquisitions we’ve made have ticked those boxes. Ubank was opportunistic; it was loss-making, and at half-year not only had we turned it to a profit, it had in the first six months of acquisition already paid for itself. Grindrod Bank we acquired for R1.5bn. It’s a business that was generating more than R120m in profit; we had over R400m of the seller’s warranties on certain risk items, and that was a fallback position for what we paid. We gained more than R14bn of assets and R12bn of deposits, and we have kept them. It was a very good deal.
Sasfin derisks our book and balance sheet. Now, this is where headlines throw us under the bus. The headline is that we paid R3.26bn for these two businesses — but R2.3bn buys the actual capital equipment book. And it’s very clear: R2.3bn minus an impairment that is soon to be determined. In the commercial property book, R820m minus that impairment will be the complete amount.
The actual money that goes to Sasfin is R100m. That should have been the headline. That pays for the people who are coming along, the IT systems, the intellectual property. Now look at that price tag: it’s plus or minus the one-year profits of the commercial property book.
OK. But you have NAV of R2.29bn on one book, and that made profit of only R35m. That’s small — so why would you want this?
The R35m of earnings is for the half-year. A significant part of return on equity (ROE) isn’t just a return, it’s also the E in ROE — which is the cost of equity. My ROE is different from Sasfin’s. This is key, because it speaks to the value of this asset to me, versus the value it has in Sasfin’s book.
Are you not trying to integrate three totally different businesses so that you become merely an unfocused, smaller version of the big four banks, without your own identity?
This bank was established as a retail bank almost 50 years ago by black entrepreneurs who were obsessed about the lot of entrepreneurs in our economy. What happened was that we lost our way in the 1990s, and all I’m doing is to return us to our core, that is the DNA of this bank. All I’ve done with these acquisitions and with organic growth is to add capability and a new product suite. MTN, for example, again chose us as its partner for Mobile Money — that is huge. Everyone wants to play in that space, and we defended that.
What do you think when various government ministers say they want a state bank? Do you think it’s a dangerous idea they’re toying with? Not to mention unnecessary?
If you cut through it, and you ask: “But what do you mean?”, what you hear is that people are talking about the fact that almost 30 years after democracy, our banking sector still fails our communities in terms of full banking access. Yes, they might have a bank account they did not have previously, but jeez, when it comes to having access to resources for expansion or growth in places outside large cities, they battle.
When you go to other emerging markets, such as India or Latin America, you find banks that are huge because of banking the small guy — and that is, for me, the real cry for help here. That, I think, is the essence of what people are trying to articulate.
You know, in 1964, at the height of our worst hour in this country, 67 entrepreneurs gathered in Soweto to address this same problem; they didn’t call it a state bank or a black bank; they just called it a bank for the people.
In May 1974, Sam Motsuenyane announced that he had received a licence from the then minister of finance. The headline was: a black bank is born — that was in 1974! And today you have people asking for a black bank to be established. I say: guys here is a bank of purpose, established to serve these needs. It’s a bank today that promises that it will be owned by all South Africans. So that, I think, is the right answer here.