Jaegur

An Extract from pages 43-45

Chris Oosthuizen, who later became a founding director at Capitec Bank, started at Boland Bank in 1976. He had extensive practical experience rolling out banking systems from scratch. In 1990, the Bank of Windhoek acquired eight branches from Volkskas and partnered with Boland Bank to maintain them. Oosthuizen flew to Namibia and spent several months with a team, ensuring everything was operational. Oosthuizen was also responsible for the IT system that managed the microlending division.

Oosthuizen and other insiders were likely aware that the software system they used for the microlending book had problems. They struggled to reconcile the individual loans, plagued by accounts that continued to accrue interest despite being written off or handed over for collections. The book’s real value was a black hole of uncertainty, but they originally stated it at a nominal value of R872 million and were looking for a buyer.

Enter the Theta Group, listed on the JSE, helmed by Leon Kirkinis, a man with ambitions as big as his appetite for risk, but usually found wearing jeans, a golf shirt, and sneakers.  By September 1997, Theta had acquired controlling interests in several financial entities, including Alternative Finance, King Finance, and Unity Financial Services, which were later consolidated into its operations. Theta’s ambition was to expand its footprint within the microlending segment, and it already had a network of approximately 100 branches, which it sought to further develop. NAIL shareholders in Theta Group had also acquired a stake in African Bank with NBS. Now, Kirkinis was interested in purchasing the remainder of African Bank, which included the brand, banking license, and loan book from BoE. During the negotiation process, Wiese made Kirkinis an offer he couldn’t refuse.

Behind the scenes, Wiese was also busy orchestrating the financing for Theta’s purchase. He had agreed to sell R500 million of Pepgro shares to Old Mutual, and BoE had decided to lend Theta R500 million to purchase the book. Not only was Wiese offering Kirkinis a loan book for 57 cents in the rand, but he had essentially arranged the finance for him upfront — it appeared to be a sweet deal.

Theta agreed to buy the loan book, but there was a catch: They insisted that Boland PKS guarantee an after-tax profit of R167 million by September 1999, with a brutal penalty clause (20:1) that could decimate Boland’s year-end earnings. Wiese hadn’t anticipated this, but he wouldn’t allow the condition to stall the momentum necessary to achieve his larger ambitions.

These transactions occurred in 1998, and it was only in 1999 that Theta rebranded as African Bank Investments Limited. The grand ambitions that started with payroll deductions and unregulated interest rates would eventually unravel under the weight of bad debt and misplaced trust. But for now, they had a different kind of problem. Wiese had discarded his rubbish, leaving African Bank to clean up the mess.

A particularly alarming discovery was that the existing provisions for bad debts in this loan book were insufficient. There was a material discrepancy between the bank’s internal accounting records and the actual risk profile of its loan portfolio. The provisions did not accurately reflect the expected losses, implying a significant overstatement of the book’s value. Theta had overpaid for the book, but they still didn’t know by how much. 

Theta’s management needed help reconciling one section of the microlending book they purchased from Boland PKS. The book had more than seven thousand accounts. I recall conversing with investors who knew Gawie Cillie, a diligent and astute individual. They indicated that he had already spent months trying to reconcile the mess of a loan book. However, Cillie could not unravel it. Of course, the error in the loan book was not in African Bank’s favour, but Boland Bank had managed to overstate the values. Theta knew that they wouldn’t be making R167 million in 1999.¹

1. Welz, M (2000), BoE Gets A Boland Hangover, Noseweek. Accessed at:  https://noseweek.co.za/wp/article/boe-gets-a-boland-hangover/ Accessed on: 14 December 2024

1. Welz, M (2000), BoE Gets A Boland Hangover, Noseweek. Accessed at:  https://noseweek.co.za/wp/article/boe-gets-a-boland-hangover/ Accessed on: 14 December 2024 ↩︎