African Bank Holdings, the group that was resurrected from the ashes of its former parent African Bank Investments (Abil) after its near collapse in 2014, posted an interim loss as retail customers came under pressure from the rising cost of living.
On Wednesday the group reported a total net loss after tax of R44m for the six-months to end-March 2023, which compared to an interim profit of R372m for the corresponding period the previous year, thanks largely to soaring impairments in its consumer banking division.
Total credit impairment charges on loans and advances surged to R2.240bn in its financial first half, more than triple the size of the R658m impairment charges it booked in the previous half-year.
That saw the group’s overall credit loss ratio widen 11.1%, up from 4.8% in the prior year’s interim period.
“The increase in food and transport inflation have had a devastating effect on household disposable income ... putting pressure on customers’ ability to repay their debt,” African Bank CEO Kennedy Bungane said. “This has resulted in significant customer defaults that have led to a net loss in our six-month reporting period.”
Though the group grew its gross loans and advances by 52% year-on-year to R43.575bn in the financial first half, partly on the back of the acquisitions of Grindrod Bank and Ubank which helped swell its customer base to 4.2m, its consumer banking unit is under strain. Credit impairment charges on the Consumer Banking division accounted for 99.5% of the group’s total R2.240bn in impairments as SA’s floundering economy hurt the ability of retail customers to repay debt.
African Bank described its Consumer Banking division’s credit loss ratio of 13.6% as “elevated¨ saying retail consumers were suffering most from the worse-than-expected poor economic climate, which was exacerbated by high food and fuel inflation and negatively affected their ability to service debt.
Nevertheless, the group said demand for credit still rose 34% year on year, with about 818,000 applicants requesting loans in the interim period. However, due to tightened lending criteria the group only offered debt to about 35% of those applicants, with just over half the loans offered accepted.
The net result was that only 19% of applicants actually received a loan in the interim period.
While the group’s impairment charges for the half-year period included the Grindrod Bank advances book, which is now housed in its Business Banking division, the majority of loans in this unit are secured and performing well. The result is that the Business Banking unit’s credit loss ratio was only 0.3%.
In response to the rising impairments, African Bank has proactively increased provision coverage for its loan books while tightening lending requirements through stricter credit scoring, particularly for its retail banking clients. It has also targeted more rapid growth in loans on its less risky business banking book.
“The group remains well capitalised and with solid liquidity surpluses to support our franchise and customers through these difficult times,” said Bungane. “We are cautiously optimistic about still meeting our financial year profit targets when reporting full-year results.”
Despite the poor interim performance African Bank said it expects to return to profitability when it reports its full-year results. Bungane said African Bank was also still on track with plans for a pre-initial public offering (IPO), though that would now be pushed back towards the end of 2023.
In November 2022, Bungane told Business Day the pre-IPO was targeted for the end of the first half of 2023, with the aim of getting a staff shareholding scheme in place with potential additional shareholder participation, possibly from mineworkers’ collective investment schemes.
“We are hard at work to conclude, by the end of this calendar year, a pre-IPO exercise,” Bungane said on Wednesday.
The pre-IPO is focused on locking down existing shareholders that wish to remain as anchor investors in the group while allowing new stakeholders “to come on board” and ensure African Bank fulfils its mandate of being a bank for the people, Bungane added. A full listing is still expected to take place in 2025, to allow those shareholders that wish to exit their investments in the group to do so.
“That is what we hope to achieve both with the pre-IPO this year and the IPO in 2025, market conditions allowing,” said Bungane.
African Bank is still 50% owned by the Reserve Bank and 25% by the Government Employees Pension Fund (GEPF), a legacy of the rescue plan hatched by regulators and rival banks in 2014 when the near collapse of its former parent, Abil, threatened to upend SA’s financial system.
A consortium of banks holds the remaining 25% shareholding on a pro-rata basis: FirstRand (7%), Standard Bank (6%), Absa Trading and Investment (5%), Nedbank (4%), Investec (2%) and Capitec (1%).
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