African Bank is targeting middle to high-income public servants for home loans and vehicle finance in line with its strategic shift towards lending offerings that go beyond traditional unsecured personal loans.
The bank, whose net advances increased 8% to R34.4bn in the year ended September, will become the latest to offer a home loan product after Discovery Bank in May announced its entry into the market with a promise of an interest rate saving of up to 1%.
The CEO of African Bank's personal banking division, Sibongiseni Ngundze, said they were specifically after middle to high-income earners.
He told Business Times that in the 2024 financial year African Bank entered into an agreement with mortgage finance company SA Home Loans to offer pilot products to staff members. The pilot was successful and is now ready to be rolled out to customers in the first quarter of 2025.
Ngundze said they hadn't set a lending cap and the amount that can be advanced to a client will be determined by affordability relative to the quality of assets they own.
“Where we think the sweet spot for our typical client base is the R800,000 to R1.5m zone. That is typically the middle market that is typically at the bottom of that range you are looking at; professionals who are employed as public servants. We believe that ... will give us the sweet spot and we have seen how people are embracing the brand.”
People who are either underserviced because no one has spent ... efforts to better understand the aspirations and limitations and ... how do we best serve that market
The shift to home loan and vehicle asset finance comes as 92% of the bank's funding now comes from customer deposits.
For vehicle finance, it is looking to play in the R300,000 to R600,000 price range.
The vehicle and asset finance product they are designing aims to target the lower tier of the middle-income market — commonly known as the missing middle.
“People who are either underserviced because no one has spent ... efforts to better understand the aspirations and limitations and ... how do we best serve that market. If you think of someone who earns R400,000 per annum, they generally battle to access vehicle and asset finance, and we think with the combination of solutions that we bring out those are segments we are going to serve,” he said.
The bank, previously an unsecured lender, this week reported a net profit after taxation of R523m from R521m a year ago, and a 20% reduction in its credit impairment charge.
It also announced it was pushing its initial public offering, set for 2025, three years forward to 2028.
African Bank was saved from going under when the Reserve Bank placed it under curatorship in 2014 as it faced a severe liquidity crisis brought about by years of reckless lending. It is 50% owned by the Reserve Bank. The Government Employees Pension Fund (GEPF), on behalf of the PIC, holds a 25% stake, while a consortium of banks holds the remainder — FirstRand (6.55%), Standard Bank (5.95%), Absa (4.95%), Nedbank (4.10%), Investec (2.45%) and Capitec (1%).
The GEPF and the Reserve Bank have agreed to slightly dilute their shareholding to enable a staff ownership scheme that will see employees hold 10% of the bank. The GEPF will also help fund the acquisition of shares held by the Reserve Bank and commercial banks to allow empowerment groups to have a stake.
Asief Mohamed, CIO at Aeon Investment Management, said competition in the South African banking sector had intensified with the entry of new banks over the past decade.
“This development is beneficial to consumers, as the big four banks previously enjoyed an oligopoly, supported by the National Treasury's four-pillar approach.”
He said African Bank may seek to aggressively gain market share.
“The bank may also target growth in the housing finance market. Time will tell if African Bank's strategy facilitates its delayed listing, now scheduled for three years hence,” he said.
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