Johannesburg — AFRICAN Bank MD David Woollam hailed "an important vote of confidence from foreign investors" after the bank secured a R150m subordinated loan from German development finance institution DEG.

The loan, which qualifies as Tier II capital under the Basel II Accord, has a seven-year term, and is priced at the three- month Johannesburg interbank agreed rate plus 538 basis points. African Bank has hedged its exposure to the floating rate via an interest rate swap.

Woollam said yesterday: "This qualifies as Tier II capital, which is important, as we need to optimise the weighted average cost of credit. On the domestic markets we would typically raise three- or five-year loans; this long- term funding gives us a long-term base to provide loans to people who have historically found it difficult to get credit."

African Bank is SA's largest provider of loans to people on low and medium incomes.

This is the last in a R600m tranche of three subordinated loans it has secured from development finance institutions. It follows a R350m loan from the International Finance Corporation in January, and a R100m loan from French institution Procarpo in September. Both previous loans have 12-year terms, but can be called by African Bank after seven years.

Woollam said: "R150m is a relatively small loan in the grand scheme of things, but it's important for our credibility."

African Bank reported a 10% year-on-year fall in new loans in the three months to June, reporting a "cautious underwriting appetite". However, Woollam said the bank had not been seriously affected by the economic downturn.

DEG, a member of KfW Bankengruppe, is among the largest European development finance institutions .