African Bank reports a nearly 40% increase in full-year profit

Lender African Bank reported nearly 40% profit growth as the number of loans given to retail customers increased to pre-pandemic levels, increasing interest revenue.

The bank released its full-year financial results through September 30, 2022, revealing that profits after tax increased 38% to R736 million, up from R534 million previously.

It disbursed more than R14 billion in retail loans, an increase of 87% over the previous year, when it loaned R7.5 billion to customers.

After relaxing lending criteria early last year, the bank was able to significantly increase its loan book. When the Covid-19 pandemic hit, it took a cautious approach and tightened loan-granting criteria, citing an increase in bad loans.

Kennedy Bungane, CEO of African Bank, stated that the results demonstrate the bank’s efforts to strengthen its presence in the retail banking market.

That, he said, is “underpinned by our driving philosophy of building a South African bank rooted in customer-centricity – truly a bank for the people, by the people and serving the people.”

The company’s gross advances balance increased by 26%, which bodes well for interest income. This, combined with lower funding costs, resulted in a 19% increase in net interest margin to R4.7 billion.

“The strong retail disbursements growth, together with the inaugural issuance of a corporate loan to a strategic business partner, has successfully addressed the declining gross advances trend of prior years,” the bank said.

The net customer advances balance increased 38% year on year to R22.6 billion, while retail savings and investment deposits increased 15% year on year to R10.8 billion. It increased its transactional MyWorld balances by 54% to R1.4 billion.

In light of this, the group’s credit impairment charge rose by 7% to R1.4 billion, up from R1.3 billion the previous year.

It also stated that collections have deteriorated, owing in part to the industry-wide implementation of DebiCheck in October 2021, which has resulted in increased credit loss charges. DebiCheck is a new system that allows customers to electronically confirm debit orders. It was implemented to protect against debit order abuse and to give consumers control over how money is taken out of their accounts.

“This increase has been offset by additional insurance benefit payments received from the insurance entity, which together with the change in the write-off policy, and curing of qualifying debt counselling loans, have decreased the charge,” the banks said.

As a result, the credit loss ratio of average advances improved to 4.8% from 4.9% the previous year. According to African Bank, customer balances are still conservatively provided at a coverage ratio of 31.7%.