ABC Bank set for Sh1.5bn private placement before end of the year

What you need to know:

South African rating agency, GCR, said the lender will do the fundraising before the end of the year, to give it headroom to grow its loan book and support additional customer savings.
GCR accorded the bank a BBB long-term rating with a stable outlook.
Its core capital to total deposits ratio was 11.8 per cent compared to the mandatory 10.5 per cent, indicating a rapid growth in customer savings would also force it to reject some of the business in order to remain compliant.

ABC Bank plans to raise an additional Sh1.5 billion through a private placement to strengthen its capital base, a credit rating report has revealed.

South African rating agency, GCR, said the lender will do the fundraising before the end of the year, to give it headroom to grow its loan book and support additional customer savings.

GCR accorded the bank a BBB long-term rating with a stable outlook.

“Shareholders intend to further strengthen the capital base via a private placement of [between] Sh1 billion and Sh1.5 billion tier I capital (core capital) before end-2015,” reads the rating report.

As at the end of June the lender was operating on thin capital margins, with its core capital to total risk-weighted assets ratio at 10.7 per cent, only 0.2 percentage points above the statutory minimum of 10.5 per cent.

The ratio leaves it with little space to expand its loan book while forcing it to consider less risky investments such as Treasury bills and bonds.

Its core capital to total deposits ratio was 11.8 per cent compared to the mandatory 10.5 per cent, indicating a rapid growth in customer savings would also force it to reject some of the business in order to remain compliant.

ABC raised Sh1 billion from a corporate bond last year that was 157 per cent oversubscribed.

The bank was looking for Sh650 million from the bond but was offered Sh1.02 billion by investors allowing it to exercise a green-shoe option to take Sh1 billion.

ABC Bank recorded a 16.3 per cent profit growth in the past half year, with Sh132 million after tax profit. Its loan book stood at Sh13.5 billion in June while customer deposits were Sh16.8 billion.

ABC will be joining a growing list of banks intending to raise additional capital by the end of the year to support their growth.

Medium-sized lender Chase Bank plans to raise Sh2.5 billion through a private placement while Commercial Bank of Africa aims to conduct a rights issue estimated at Sh4 billion.

Other lenders that have raised capital during the year are Housing Finance, Family Bank and the ill-fated Imperial Bank.