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African Bank confirms 'junk' status

Cape Town - African Bank Investments [JSE:ABL] (Abil) confirmed in a SENS report on Wednesday that Moody's Investors Service downgraded its credit rating status.

"African Bank announced a headline loss for the six months ended March 2014 and this rating action reflects Moody's assessment of the deterioration in African Bank's asset quality."

The bank's local national scale issuer ratings was dropped by one notch to A3.za/P-2.za from A2.za/P-1.za and its global senior debt and deposit ratings also by one notch to Ba1/Not Prime, from Baa3/Prime- 3, it said.

The news also sent Abil's share price down -2.32% at R8.00, making it the worst performer on the JSE by lunch time.

African Bank maintained its national scale investment grade rating, while the long term ratings have been placed on review.

It said the conclusion of this review will likely follow the publication of the bank's trading update for the nine months ending June 2014.

It stated in its recent interim earnings results that the group has raised a general provision of R2.5bn to deal with the higher level of expected non-performing loan emergence.

"The significantly improved quality business written since July 2013, when stricter underwriting interventions were implemented, is growing in proportion of the total book and is expected to start positively impacting future financial results."

The bank said it continues to be adequately capitalised and liquid.

Shares of the struggling bank tumbled nearly 5% on Friday after Moody's cut its international debt rating to "junk" status on concerns about it spiralling bad loans, reported Reuters.

According to Reuters data, Abil had total debt of around R46bn as of September last year.

Abil CEO Leon Kirkinis said in a statement after the Moody's downgrade that the bank does not expect dramatically higher funding costs.

"The overall cost of funding for the bank will not change significantly, just because new funding over the next few months will be slightly more expensive," he said, reported Reuters.


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