African Bank sounds the alarm on high food and fuel prices

African Bank says the tough economic climate has led to an increase in credit impairment charges.

In the group’s interim financial results for the six months ended 31 March 2023, African Bank reported improvements in its net interest margin and non-interest revenue.

However, the group, which primarily caters for the lower-income segment, said that its credit impairments had a serious negative effect on the group’s financials.

The group’s credit impairment charges on loans and advances blew up by a staggering 240% to R2,240 million (H1 22: R658 million) for the period, which resulted in a credit loss ratio of 11.1% (H1 22: 4.8%).

The consumer banking division was the area of concern, with the division’s credit loss ratio totalling an elevated 13.6%.

African Bank said that retail consumers are suffering the most from the poor economic climate due to high food prices and fuel inflation, which is affecting their ability to service their debt.

However, the group’s business banking division, which includes Grindrod Bank advances book following acquisition, loans are secured and performing well, with a credit loss ratio of 0.3%.

The group did try and highlight some positives, such as interest revenue growing to R3,914 million (H1 22: R2,716 million) , with a net interest margin ratio of 11.7% (H1 22 14.1%).

However, the group made a net loss after tax of R44.4 million for the reporting period, down from the R372 million profit from H1 22.

Below are some of the group’s key financial results:

Outlook 

The bank said that its Excelerate25 strategy is focused on getting it ready for an IPO in several years’ time, adding that it wants to give customers, staff, and critical stakeholders a share in the group.

However, it said that it has only started with the consolidation and integration of the businesses that it just acquired – including Grindrod and microlenders Ubank – with the focus shifting to improving the group’s financial performance.

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