African Bank used to be one of the most successful lenders in South Africa. However, the problems connected to the South African economy that has not subsided over the years, left it in desperate need of additional capital.
The immediate problem was the fact that borrowers that took out quite a significant chunk of the company defaulted on their debts, which later left the bank scrambling for additional income. The only thing that could have been done at that point was the investors to inject massive amounts of equity, just to keep the bank afloat for a while.
What caused the collapse?
The collapse was due to hundreds of South African borrowers not being able to pay back their debts, as already mentioned. However, that was just the outcome of an already existing problem. The bank did not have any monitoring systems on who they were lending to and how much. The screening process was inefficient, which brought the result we see now.
The CEO of African Bank mentioned that unsupervised lending was the primary contributor to financial turmoil for the bank, and because of slow economic development in the country, it will continue to do so.
What we can understand from this statement is that the lending system cannot be helped at this moment, therefore, in order to mitigate the losses from that particular branch of operations, the bank had to come up with a new source of revenue.
The salvation for the losses could be the bank’s new Transactional banking service, according to the CEO. The bank will also offer various other services such as insurance. This is believed to clog the hole that unsupervised lending has created, but it may not be enough.
According to reports, the bank is still desperate for new revenue sources. There is not too much a bank can do during a recession, but there is one opportunity they are not considering. You see, South Africa, despite the economic turmoil it is going through right now, has extremely high private equity indicators. This is due to the implementation of cryptocurrencies in the country. BTC trading in South African has been on the rise for the last couple of years, and the testimony to that is the survey conducted last month.
According to the survey, South Africa is the #1 country in the world in terms of cryptocurrency ownership population percentage. This should definitely be a wake-up call for South African financial firms to start adapting to the new digital world. The fact that African Bank is already knee-deep in their digital plan, should also be a call to action from crypto enthusiasts.
Thanks to the light regulation on cryptocurrencies in the country, African Bank would be able to feature a crypto trading desk on without any problems. This would definitely attract Blockchain enthusiasts.
If the establishment of the trading desk proves to be too costly, then all they need to do is just allow cryptocurrency transactions. This is guaranteed to garner the attention of every crypto holder not only in the country but on the whole continent of Africa. Having even a 0.001% commission on those transactions would guarantee a significant revenue source.
Unfortunately, the bank has different plans for now. The digital transaction plan seems to have high hopes with the higher-ups of the company. The estimated increase of revenue from non-interest loans is R500 million ($35 million), and a growth in the customer base by twice its current size of 1.2 million.