Discovery Bank narrows operating loss as it gains traction

On Thursday (2 September), Discovery Bank reported an operating loss for the year ended June 2021 of R1 094 million, 7% lower than the prior period.

The bank continued to gain traction with 362,000 clients and 649,000 accounts, versus 274,000 clients and 505,000 accounts in July 2020.

The group expanded its existing Discovery and non-Discovery client base and achieved 500 average daily new-to-bank sales, in line with the medium-term forecast, it said.

The group said that there was a steady improvement in product mix over the year, with transaction accounts and credit cards making up over 80% of new business. Retail deposits grew by 167% to R8.18 billion.

“A deliberate decision to pursue a prudent credit strategy resulted in moderate advances growth of 5% to R3.83 billion at 30 June 2021. The quality-focused credit strategy was evidenced by the low credit loss ratio of 4.6%, which includes a Covid-19 overlay, and high average client non-interest revenue (NIR) levels,” Discovery said.

The bank continued to focus on product innovation and building a differentiated and sophisticated digital platform.

This included the rollout of payment platforms like Apple Pay and Discovery Pay; an enhanced account origination journey with unique features such as Virtual Cards; a more valuable Discovery Miles currency; enhancements to travel benefits; and more differentiated products in the pipeline, Discovery said.

There was a big improvement in utilisation over the period. Compared to July 2020, clients depositing their salary, initiating debit orders and making digital payments grew substantially, it added.

For the group, Discovery reported a 7% increase in normalised profit from operations to R6 494 million, notwithstanding a R2.4 billion Covid-19-related impact for Discovery Life (R1.1 billion in the prior year).

“The impact of Covid-19 has been significantly worse than expected in SA, and we estimate that the SA epidemic has turned out to be five times more severe, on a risk-adjusted basis, than in the UK,” the financial services firm said.

Normalised headline earnings (NHE), however, decreased by 9% to R3 406 million.  This growth was impacted by R389 million pre-tax mark-to-market foreign currency losses (R578 million pre-tax gains in the prior year)  arising from a rand recovery during the year under review.

  • Headline earnings per share increased 910% to 454.7 cents per share
  • Normalised headline earnings per share decreased by 9% to 518.7 cents per share
  • Embedded value per share increased 5% to R113.65 per share
  • Diluted embedded value per share increased 4% to R112.23

Due to the uncertain and potentially volatile economic environment caused by the Covid-19 pandemic, Discovery has not declared a final ordinary share dividend. “The reintroduction of dividends will be considered when appropriate,” it said.

Read: Discovery Bank reports ‘pleasing progress’ in difficult trading period

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Discovery Bank narrows operating loss as it gains traction