African Bank, the entity that arose from one of SA’s biggest banking collapses, said on Tuesday it was closely monitoring the trajectory of inflation that has a potential to erode the disposable income of its retail customers and their ability to repay debt timely.
Labelling inflation as an emerging threat, CEO Kennedy Bungane told Business Day that potential increases in taxi and bus fares were likely to erode the income of its low-income target market.
“Our customers’ disposable income gets under threat quickly when these inflation cycles grow. We are watching the space, but from the bank’s point of view, we have provisioned properly for the eventuality [of inflation] hitting our customers and their ability to repay [debt] timely,” he said.
Last week, the SA Reserve Bank hiked rates by 50 basis points to 4.25%, the biggest increase in six years, and signalled that more could be in the offing as it tries to slow the rate of consumer price increases.
The threat of higher inflation comes as African Bank is pushing through an ambitious growth strategy aimed at more than doubling its retail clients to 3.5-million by the 2025 financial year.
It is also looking to lend to the potentially lucrative but risky small business market, where it would target businesses with an annual turnover of less R250m. The bank aims to lend to 100,000 of these potential clients by 2025. Now, the bank has none of these customers.
The plan to get a bigger slice of the small business market puts it in competition with larger rival Capitec, which is trying to make inroads after the acquisition of Mercantile Bank. Sasfin, as well as the big four banks, is also one the biggest names in the small business lending market.
Bungane’s interview came as the bank more than doubled its half-year profit in the six months to end-March, after it eased tougher credit-granting criteria that was implemented during the height of the Covid-19 pandemic.
Group profit rose 145% to R372m and gross loans and advancements were up 11% to R30bn, which follows the gradual normalising of credit-granting criteria from February 2021.
The group’s credit-loss ratio declined to 4.6% from 6.1% previously, a measure of how protected a bank is against future losses, while its credit impairment charge fell 23% to R658m. This was partly due to it extending the period after which it writes off non-performing loans to 12 months of no payments, from eight previously.
African Bank was formed in 2016 with a R10bn injection from the SA Reserve Bank, the Public Investment Corporation (PIC) and a number of other SA banks that followed African Bank Investments’ collapse under a mountain of bad debt in 2014.
The central bank took a 50% stake and the PIC 25%, while numerous other banks also provided capital.
Part of African Bank’s new strategy is to become a compelling proposition for a JSE listing, and the central bank, concerned about potential conflicts of interest, is looking to exit through a public offering. The timing of the public offering will be dependent on prevailing market conditions, African Bank said on Tuesday.
The bank said it continues to attract retail deposits and savings, and has grown this deposit book 27% to R10.9bn, including R1.04bn in deposits from transactional MyWORLD accounts, an increase of 57%.
The number of retail savings and investment accounts grew by 30% from 94,865 to end-March, while the average deposit moderated from R132,000 to R108,000.
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