African Bank swings into a loss amid reduced credit activity

African Bank has published it financial results for the year ended September 2020, reporting a net loss of R27 million, against a R1.2 billion profit previously, citing higher credit impairments and reduced insurance income.

African Bank reported a second half improvement in earnings of R84 million for April to September, as lower risk emerged and operating costs and net interest expenses were reduced, it said.

“The full year loss was negatively impacted as a result of increased provisioning and lower insurance income received, due to reduced credit activity and tightened credit underwriting especially in the second half of the year, being April to September,” it said in a statement on Tuesday (26 January).

Total net revenue, including insurance income, reduced by 9% to R6.1 billion from R6.7 billion for the year ended September 2019, while return on equity (RoE) was negative 0.3% (FY19: 11.6%).

Total number of customers increased to 1.35 million, it said.

Outgoing chief executive officer, Basani Maluleke said: “Over the last three years, we have made good progress on our strategic direction. Our transition from a single-product business, operating through a single channel, to a diversified financial services business, has enabled us to grow and attract new customers.

“Unfortunately, our financial numbers have not withstood the worsened economic climate and the overlay of the effects of the Covid-19 pandemic. We are however heartened by the second half of the full year, which reported signs of reduced risk, improved earnings and a steady increase of usage of MyWORLD.”

Impact of the Covid-19 pandemic

The pandemic and resultant economic lockdown had a significant impact on insurance returns, with Covid-19 related claims up by 27% to R638 million (FY19:R502 million).

The bank said it assisted customers with various debt-relief measures, in an effort to support the most vulnerable, with instalments to the value of R304 million being deferred.

Credit life insurance cover also provided customers with financial relief and at the end of September 2020, R134 million had been claimed by customers who experienced short-time or unpaid leave.

MyWORLD

The MyWORLD transactional product marks the transition from a largely credit-focused bank to a diversified retail bank in which customers are anticipated to hold a range of products.

Central to its credit-led strategy, MyWORLD is seen as an anchor tenant for the bank. Priced with low fees, over 368,000 accounts have been opened since the launch of MyWORLD in May 2019.

During the current financial year, the bank said it processed some 8.9 million transactions with a value of R8.9 billion.

Continued conservative credit-granting measures

African Bank said that management took proactive steps to tighten various credit granting criteria in September 2019. Further tightening measures were taken in April and August 2020 as a result of the pandemic.

The key outcome was reduced disbursements, resulting in a decline of 37% to R6.8 billion from R10.8 billion in the prior year.

“The bank continues to focus on lower risk customers, which constituted 87% of the loans advanced during the year. Non-performing loans increased to 41% (FY19: 35.2%) as a result of the adverse economy and effects from the Covid-19 lock down,” it said.

Looking ahead, the group said it will continue to ‘future-proof’ the organisation such that the business competes across the fintech and banking landscape in terms of value provided, low price offerings and digital innovation.

“The group will continue to evaluate mergers and acquisitions to drive growth and diversification, with the intention being to leverage economies of scale.”


Read: African Bank chief executive steps down

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African Bank swings into a loss amid reduced credit activity