African Bank rescue rekindles bailout fears

South Africa's decision to rescue a small lender seen as neither ‘too big’ nor ‘too interconnected’ to fail shows that taxpayers worldwide may have to accept that bank bailouts are here to stay. When South Africa's central bank recently announced a $700 million (520 million euro) rescue of faltering African Bank Investments Limited, it scarcely made a splash outside the country. The bottom line, at least for the rest of the world, was that African Bank is not very big and not very important. The bank's managers made far too many bad loans to too many South Africans who could not afford to pay them back. Because it had not asked borrowers to put up their car or any other asset as collateral, it was left with a massive hole in its balance sheet when they failed to pay. African Bank is not one of South Africa's ‘big-four’ -- Standard Bank, FNB, Nedbank or ABSA (Barclays Africa) -- which are deeply enmeshed in the global financial system. While many South African banks had made similar ‘non-secured’ loans, most notably Capitec, they have profitable lines of business that should cover any losses, according to AFP.