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'Junk' status for African Bank

Johannesburg - Shares of struggling African Bank Investments [JSE:ABL] (Abil) tumbled nearly 5% on Friday after Moody's cut its international debt rating to "junk" status on concerns about it spiralling bad loans.

Abil has been hammered as its target market of low-income borrowers have been squeezed by stubborn inflation, high levels of indebtedness and labour strife in the platinum mines, forcing many to default on payments.

Abil this month reported a first-half loss of R3.1bn and said it would not pay a dividend as non-performing loans totalled R600m more than expected.

The bank, which makes most of its money from unsecured loans - lucrative, higher risk loans that are not backed by collateral - last year raised R5.5bn through a rights offer and investors are worried it may need to raise more capital.

Abil has traditionally funded itself through the debt markets, meaning a credit downgrade would likely drive up the cost of its international borrowing.

Moody's cut Aril's global senior debt and deposit ratings by one notch to "Ba1/Not Prime," which is considered below investment grade.

It also cut its national ratings by one notch to "A3.za/P-2/za," which is still investment grade.

"This rating action reflects Moody's assessment of the deterioration in African Bank's asset quality," the bank said in a statement, citing the Moody's report.

Moody's has also placed the bank's long-term ratings on review and is likely to conclude that review following the release of a nine-month trading update later this year.

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

Shares of Abil, which have lost 70% of their value over the last two years, were down 4.33% at R8.62 at 11:20.

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