African Bank reports interim loss, but expects ‘returning to profitability’ for full year

Unlisted African Bank has moved to cut back on lending after reporting half-year losses of R44 million and a surge in impairment charges to cushion against bad debts.

The bank, released its interim results on Tuesday, showing an increase in impairment charges of 35%, sending its bad debt provisions to R2.2 billion.

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Despite reporting an interim loss, the group “anticipates returning to profitability” when it publishes its full year results to 30 September 2023 in November.

African Bank’s bad loans provision is the latest sign of the financial stress that South African consumers have come under in the wake of high inflation and interest rates.

Speaking after the release of the company’s latest results for the six-month period to the end of March, African Bank CEO Kennedy Bungane, said credit risks have escalated and began to emerge late last year.

He noted that the credit risks have been occasioned by the general stress in SA’s macro environment, which has rendered its customers unable to meet obligations as they become due.

Disposable income

“The current economic climate has presented challenges to household disposable income and extensive pressure on customer affordability, and this has brought about a sharp increase in consumer credit impairments,” said Bungane.

As such, the bank has begun curtailing lending and has adjusted its risk appetite towards being more selective in granting loans.

African Bank’s joint CFO Chrisanthi Michaelides said the bank’s credit loss charge has been affected by a tough economic environment, with its credit loss ratio at 11.1%.

Meanwhile, Stage 3 loans (defined by loans held by consumers in financial distress) now makes up 35% of its loan book.

“Hyper food inflation, transport inflation, and [the] energy crisis… is affecting our customer’s ability to repay their loans. This is coming through our existing book,” she said.

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In its core consumer banking unit, the bank’s coverage ratio sits at 33%, Michaelides added.

“We recognised that our impairments and our credit risk could increase, and we have purposefully embarked on a strategy to improve that coverage ratio,” she said.

“The new business we have written… is actually trending downwards and this is due to our credit tightening [strategy] that we have implemented,” she explained.

Despite the challenges, African Bank managed to increase operating income before credit impairments by 47% to R3.9 billion, from R2.7 billion previously, while non-interest income more than doubled to R668 million.

“The strong increase in operating income was offset by a deterioration in the credit quality reporting an increase in impairment of 240%,” the bank said.