African Bank warns over increase in defaults on loans amid Covid-19 pandemic

African Bank says its 2020 interim results have been adversely impacted by a worsening South African economic outlook, and the national lock down that began in March 2020 to contain the spread of Covid-19 across South Africa.

For the six months ended March 2020, the financial services provider reported a net loss after tax of R311 million, compared to a R69 million profit reported at our 2019 half-year. A significant Covid-19 specific provision, amounting to R550 million, was processed in this reporting period, increasing the credit impairment charge, it said.

The Covid-19 specific provision is a best estimate calculated on the information, such as collection data, available to the end of May 2020.

Excluding the Covid-19 specific adjustment, the bank said it recorded a net profit after tax of R85 million on a pre-Covid-19 adjustment basis.

The bank’s transactional banking proposition, MyWORLD, which was launched on 21 May 2019, continues to grow steadily, with over 258,000 accounts opened in the past 10 months.

“We are also extremely pleased with the increasing number of retail deposit customers who continue to show trust in the bank, as evidenced by the significant increase in savings and investments deposits of 158% on a year-on-year basis to R3.8 billion.

“These deposits have continued to grow notwithstanding the Covid-19 lockdown,” it said.

The bank pointed to a 10% increase in total customers, to 1.2 million over the past six months.

Due to the macroeconomic environment, African Bank said it implemented further conservative credit-granting measures in September 2019.

It said that management continues to focus on the disbursement of loans to low risk customers and above 85% of disbursements were made to this low risk category.

Given the tough operating environment, African Bank noted that customer credit balances are conservatively provided for with a coverage ratio of 36.4% on a post-Covid-19 adjustment basis, and 34.7% on pre-Covid-19 adjustment (H1 2019: 34.5%).

“The Covid-19 pandemic is expected to increase defaults on loans as well as negatively impact collections, hence further additional conservative credit granting measures were implemented in April 2020,” it warned.

Robust balance sheet

The group said its balance sheet remains robust with high available cash resources of R5.4 billion.

“Our strong balance sheet and liquidity profile continues to provide our stakeholders with a solid investment proposition,” said chief executive officer, Basani Maluleke.

The bank also pointed to a 79% and 51% reduction in new loan applications in April and May 2020 respectively, due to the national lockdown, although the digital platforms are seeing increased activity, it said.

Non-performing loans have seen a slight upward trend during April and May, to 39.8%, the bank said.

Collections have reduced 25% in April and May as a result of short-time implemented by employers, the macroeconomic stresses experienced by the bank’s customers and customers taking up the payment break offers.

The bank’s retail savings and investment deposits witnessed a surge in May inflows, possibly as a result of a segment of the customer base holding back on discretionary spending and in preparation for further leaner times, it said.

Looking ahead, Maluleke said: “The biggest unknown factor in assessing our outlook will be the impact of Covid-19. The group will remain adaptable and resilient to effectively manage the factors in our control.

“We will continue to ensure a safe environment for our people and our customers, engage in robust short-term and longer term scenario-planning exercises, manage liquidity, review and update conservative credit-granting criteria, drive prudent liability management and carefully manage costs and discretionary spending.”

Read: Reserve Bank to sell its 50% stake in African Bank

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African Bank warns over increase in defaults on loans amid Covid-19 pandemic