UPDATE 1-S.Africa's Abil faces $34 mln fine for "reckless" loans

Fri Feb 8, 2013 7:35am EST

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JOHANNESBURG Feb 8 (Reuters) - South Africa's biggest unsecured credit lender, African Bank Limited, said on Friday the national credit watchdog had proposed a 300 million rand ($34 million) fine following an industry-wide probe into possible reckless lending.

The bank said it was contesting the allegation of reckless lending made by the regulator, but its shares fell nearly 5 percent to 29.10 rand by 1232 GMT.

African Bank, also known as Abil, said its own investigation in November 2011 showed that 15.5 million rand of loans were fraudulently granted.

"Given that this was an isolated incident as a result of fraudulent activities and the organisation has suffered a consequential financial loss, African Bank believes that the proposed fine is unwarranted given the facts and circumstances," it said in a statement.

The lender helped pioneer the booming South African market for unsecured lending - highly profitable but risky credit that is not backed by collateral.

Abil does not take deposits but owns furniture chain Ellerines, where it sells bedroom suites and dining tables on credit, alongside personal loans.

Unsecured credit has surged in Africa's biggest economy, growing 21 percent to $43 billion in the year to June, according to central bank data. The loans have underpinned consumer spending, especially among the poor. ($1 = 8.9040 South African rand) (Reporting by Tiisetso Motsoeneng; Editing by Ed Cropley)

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