African Bank warns of increase in loan defaults amid the Covid-19 pandemic
The African Bank says its 2020 interim results have been negatively impacted by the deteriorating South African economic outlook and the national lockdown that began in March 2020 to contain the spread of Covid-19 in South Africa.
For the six months to March 2020, the financial services provider posted a net loss after taxes of $ 311 million. During this reporting period, a significant Covid-19-specific provision of R550 million was processed, increasing the loan loss allowance, it said.
The Covid-19-specific determination is a best possible estimate calculated on the basis of information such as survey data available by the end of May 2020.
Excluding the Covid-19-specific adjustment, the bank said it had net income after tax of 85 million ren on a pre-Covid-19 adjustment basis.
The bank’s transaction banking service, MyWORLD, launched on May 21, 2019, is growing steadily with over 258,000 accounts opened in the last 10 months.
“We are also very pleased about the increasing number of private customers who continue to place their trust in the bank, which is reflected in the significant increase in savings and investment deposits by 158% year-on-year to R3.8 billion.
“These deposits have continued to grow despite the Covid-19 lockdown,” it said.
The bank pointed to a 10% increase in total customers to 1.2 million in the past six months.
Due to the macroeconomic environment, African Bank introduced further conservative lending measures in September 2019.
It is said that management continues to focus on disbursing loans to low risk customers and that over 85% of disbursements have been made to this low risk category.
Given the difficult business environment, African Bank found that customer balances were conservative with a coverage ratio of 36.4% on a post-Covid-19 adjustment basis and 34.7% on a pre-Covid-19 adjustment basis (H1 2019: 34.5%) .
“The Covid-19 pandemic is expected to increase loan defaults and negatively impact collections, so additional additional conservative lending measures were taken in April 2020,” she warned.
Robust balance sheet
The group said its balance sheet remains robust with high cash available 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% decrease in new loan applications, respectively, in April and May 2020 due to the national lockdown, although digital platforms are seeing increased activity, it said.
Bad loans saw a slight upward trend to 39.8% in April and May, the bank said.
Due to the short-time working of employers, the overall economic burdens on bank customers and the use of payment break offers, collection payments fell by 25% in April and May.
The bank’s retail savings and investment deposits saw a surge in inflows in May, possibly due to a reluctance of part of the customer base to spend discretionary and in preparation for further leaner times, it said.
Looking ahead, Maluleke said, “The biggest unknown factor in evaluating our outlook will be the impact of Covid-19. The group will remain adaptable and resilient to effectively manage the factors within our control.
“We will continue to ensure a safe environment for our employees and our customers, carry out solid short- and long-term scenario planning, manage liquidity, review and update conservative lending criteria, promote prudent liability management and carefully manage costs.” And discretionary spending. “