African Bank, rescued from collapse by the Reserve Bank a decade ago, disbursed 33% less in loans in the financial year ended September 2023 as it tightened its lending criteria.
The bank said its consumer banking division provided R9.4bn in new loans and advances, dropping from R14bn a year earlier in response to a weaker economy and rising fuel and food inflation, as consumers buckled under elevated living costs.
Demand for credit rose 10%, with 1.4-million applications, but only 16% of those who applied were granted a loan. This was down from 34% a year earlier, the bank said.
Sibongiseni Ngundze, group executive for consumer banking, said major lenders had introduced stricter lending criteria given the economic headwinds. Interest rates at a 14-year high had put consumer banking customers under severe economic pressure, compounded by rising food and transport costs and load-shedding.
“The normal customer on the street spends between 60% to 80% of their income on what we call basic necessities — food, public transport, education and telecommunications," he said. "Now, with inflation running at the levels it has been, the purchasing power of those customers is being eroded consistently, so that is what we see hitting lending institutions.
“It has manifested in households in distress. That is where we believe the trigger is; it is a matter of survival, and therefore individuals and households are having to make a trade-off between food, public transport, going to work, or servicing debt,” he said.
The escalating living costs resulted in the group’s credit impairment on loans and advances increasing 127% to R3.2bn from R1.43bn a year earlier. This resulted in an 8% credit loss ratio from 4.9% in 2022.
Despite these tough economic conditions, the consumer banking segment is aiming to advance home loans to the public in 2024 after a trial of the home loan product among employees.
Ngundze said offering home loans to lower income earners was a historic milestone for the Bank.
“Our African Bank home loans will make it easier for the underserved low to middle-income earners to own homes,” he said.
Highlights for the group in the year under review included a 158% increase in active customers to 4-million and a 92% increase in insurance revenue. Net advances grew to R32bn. The group also acquired Grindrod Bank and Ubank as part of diversifying from being a credit lender and growing its customer base.
African Bank, which is aiming for an initial public offering by 2025, last month announced an intention to acquire Sasfin Bank’s commercial property and capital equipment finance businesses as part of expanding its business banking segment.
The group reported a net profit after tax of R505m, down from R736m in 2022. Newly appointed CFO Anbann Chetti said the higher impairment rate was in line with industry trends.
“Our consumers are under pressure, we are doing work to improve the credit granting model and the collection. We are going to focus on credit risk in the future,” he said.
Chetti said the group remained focused on driving sustainable growth while diversifying further and ensuring it builds on its strong balance sheet and liquidity. “Our focus is on growing our business banking footprint, consumer transactional and insurance revenues by cultivating strong relationships with our customers and expanding into new markets,” he said.
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