African Bank will continue to be cautious with the extension of credit in the current environment as just under half of its clients have missed payments.
The bank swung from an interim loss of R158m in 2020 to a net profit after tax of R152m for the six months ending March, as bad debt expenses fell by more than half.
“We saw retrenchments increase during the pandemic. The figures are now stabilising, but at a higher level, indicating that jobs are still in short supply. Our more stringent credit criteria has protected us over the reporting period, but this is still a time to be cautious,” said African Bank CFO Gustav Raubenheimer.
However, there was an increase in clients unable to fully service their obligations, which rose from 37% to 43% of the lending book.
This was partly as a result of the overall lending book getting smaller. Total loans outstanding at the end of the period declined by 8% to R27.1bn vs the corresponding period in 2020, as the bank became more conservative with lending.
Disbursements (new loans extended) during the period were almost R1bn lower than the prior corresponding period.
The worst performing loans, referred to as stage 3, increased from R11bn to R11.7bn over the period.
These are the first results presented by the bank’s new CEO Kennedy Bungane, who succeeded Basani Maluleke in April.
On the positive side, profits from insurance rose 71% to R251m, and the group continues to grow deposits, with the book up 126% to R8.6bn at the end of the period. Retail deposits now account for about half the bank’s funding base, a different scenario to the model employed under the “old” African Bank that depended on wholesale markets for the majority of its funding.
The bank has also recently returned to the bond market for the first time since its collapse in August 2014 that required the intervention of the Reserve Bank, which remains a 50% shareholder.
Raubenheimer said the auction was 60% oversubscribed and allows the bank to source funding at a rate below the cost of its retail deposits.
“This gives us options to optimise our balance sheet, in effect, using different funding sources to lower our overall cost of funding. We can now be more circumspect on the rates we pay,” said Raubenheimer.
Retail funding is expected to stay in a range of between 50% and 70% of the overall requirement.
The effect of the bank’s rationalisation programme, which led to a reduction of 429 staff through voluntary severance and early retirement packages, can still be seen in the 12% rise in operating costs.
Raubenheimer expects that increases will revert to rates below consumer price inflation over the short term.
“African Bank is here to serve the largely underserved and marginalised groups in our society. To ensure we can provide fit-for-purpose, swift and low-cost retail banking solutions and products. Given the volatile and strained macroeconomic backdrop, we will continue to manage the factors in our control while proactively seeking out organic and acquisitive growth opportunities,” said Bungane.
The bank said it was not yet ready to make an announcement regarding a potential acquisition, but was involved with due diligence on a potential target that would bring scale to both its lending and deposit book.
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