African Bank has come to the rescue of the troubled Ubank. The bank announced on Friday that it is the successful bidder to acquire the majority of Ubank’s disclosed assets and liabilities. It will also take Ubank’s employees on a going concern basis.
African Bank will pay R80 million for the deal. But it won’t be acquiring the Ubank legal entity and any residual assets and liabilities that will remain with it.
This means that African Bank will only acquire Ubank’s customers, deposits, and loans. But it won’t acquire the Ubank brand or its banking license since it has its own. The clause about leaving out any residual assets and liabilities was also to protect African Bank should there be any information the curator didn’t disclose or wasn’t aware of during the due diligence process.
“This is quite common to do when you have a situation like this, a company that is under curatorship and is no longer under its management and shareholders who would know more in terms of disclosures to the potential buyer,” said African Bank CEO, Kennedy Bungane.
He said the curator approached African Bank towards the end of May. While it was unlikely that there were any liabilities not disclosed, African Bank wanted to make sure that should something come up in the future, they’d be the problem of the legal entity, not African Bank’s.
African Bank will get a foothold in the mining sector, where Ubank has a strong market position and distribution footprint. African Bank is also looking to migrate Ubank’s customers to its transactional bank account, MyWORLD.
Bungane said that while the lack of capitalisation in Ubank and the fact that it was making losses made the company unattractive to a certain extent, African Bank believed that its strong retail deposits, transactional accounts and partnership with MTN’s Mobile Money would accelerate the diversification and growth of its business.
“Their abilities, which are largely deposits from customers, are quite attractive at about R4.7 billion. They are quite sticky. They’ve got very loyal customers, largely mineworkers. They’re very attractive to us in terms of helping African Bank in its mission to reduce its cost of funding and diversify its funding mix, in favour of retail deposit over and above wholesale funding,” said Bungane.
He said Ubank’s loan book was also “very good” but significantly small. African Bank can easily digest it into its balance sheet.
“To a buyer like ourselves, who doesn’t have to pay up billions of rands to capitalise that business, can simply take it to a much larger balance sheet and solve the capitalization problem,” said Bungane. “We think we can sort out the operating issues within a short period of time,” he added.
The SA Reserve Bank’s Prudential Authority put Ubank under curatorship in May, citing concerns about its capital adequacy and weak corporate governance. Ubank’s capital adequacy ratio had fallen to just around 3%, critically below the minimum regulatory requirement the SARB set for it.
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Reserve Bank Governor Lesetja Kganyago, later revealed that the bank had struggled to find another shareholder to help it raise capital to alleviate its capital adequacy woes for more than two years.
But it seems that the Reserve Bank’s decision to place it under curatorship – though criticised by the National Union of Mineworkers (NUM), which administered the Teba Fund Trust at the time – might have helped the bank get suitors after all.
On Friday, African Bank said Ubank continued to operate in the ordinary course of business all the months that it has been under curatorship.
Bungane said this proposed transaction fits into African Bank’s Excelerate25 strategy of building a scalable, diversified and sustainable banking business. Ubank is the second acquisition by African Bank this year. It also agreed to acquire Grindrod Bank for R1.5 billion in May in a deal still subject to various regulatory and competition authorities’ approvals.
Source: News 24
