This South African bank’s lending business is flying – and it’s growing even faster in the US

Mutual and savings bank Finbond on Wednesday delivered a strong set of results for the 12 months ended February 2018, increasing headline earnings per share by 81.2%, while operating profit from continuing operations increased by 57.3%.

“Our continued successful expansion into the United States, strong focus on our core short term lending business, conservative lending practices, strict upfront credit scoring procedures, effective collections, an increased distribution footprint and a strong focus on customer service helped us achieve these exceptional results,” the group said.

Salient features:

  • Headline earnings per share increased by 81.2% to 33.7 cents per share.
  • Operating profit from continuing operations increased by 57.3% to R439.5 million.
  • Loan and other fee income increased by 46.3% to R841.3 million.
  • Earnings before interest, taxation, depreciation and amortisation (EBITDA) increased by 52.2% to R704.5 million.
  • Revenue from continuing operations increased by 53.5% to R2.38 billion.
  • Number of loans advanced grew by 26.6% to 1,880,108 (Feb 2017: 1,484,973).
  • Value of loans advanced increased by 31.7% to R5.4 billion (Feb 2017: R4.1 billion).

Finbond said it expanded its overall branch network by 22.2% to 672 branches, of which 415 branches are in South Africa, up from 379 a year ago, while the group also has a strong presence in the US with 257 branches (Feb 2017: 171).

“We increased our presence in the North American short term lending market with the acquisition of a further 86 short term lending stores in the United States of America,” it said.

Finbond said it remains focused on small, short-term loans. “Despite continued strong competition in the short term loan market over the past 12 months we still have a 30% market share of all two and three month loans in South Africa.”

“Finbond’s consistent conservative approach has ensured sustainable growth in the micro credit portfolio that is not driven by advancing larger loans or increasing the term of loans,” it said.

During the period under review Finbond’s average loan size was R1,479 with an average tenure of 3.7 months. For the twelve months ended 28 February 2018, it granted R1.6 billion worth of loans and received cash payments of R2.5 billion from customers.

Finbond pointed out that its average loan period is significantly shorter than its larger competitors and its average loan size significantly smaller.

“Given this conservative approach, Finbond does not have any exposure to the 25 – 84 month, R21,000 – R180,000 long term unsecured lending market that continues to cause significantly increased write offs, bad debts and forced rescheduling of loans.

“Finbond’s historic data and vintage curves indicate that shorter term loans offer lower risk as consumers are more likely to repay these loans as opposed to longer term loans.”

Looking Ahead, the group said that its evolution from a short term micro finance institution to a bank in South Africa and its continued expansion into the North American Short Term Lending market in the implementation of its strategic action plan will ensure that it achieves good results in the medium to long term.

“Sustained focus on our core competencies will keep us on course to become the best short term instalment lender in the world,” it said.

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This South African bank’s lending business is flying – and it’s growing even faster in the US