Good year for African Bank
Pleasant surprise for shareholders as financial institution posts profit
AFRICAN Bank posted R335-million in operating profit for its 2016 financial year, pleasantly surprising shareholders and other affected parties, who would have been expecting millions of rand in losses forecast by the curator of its predecessor bank, which had failed in 2014.
The bank, which was relaunched in April, released its maiden results on Tuesday.
“It was much better than planned, which is great,” CEO Brian Riley said. “We got involved with the buyback plan, we saved on interest … the cost of financing reduced.”
Tom Winterboer, who was appointed curator of the former African Bank after it hit a liquidity crisis in 2014, said earlier this year in a memorandum to investors, who wished to swap their debt in the old African Bank for bonds in the new bank that the new bank was expected to make an operating loss of R280-million in its first year.
The bank has bought back bonds – mainly listed on foreign markets – worth R11.7-billion as part of its liability management plan, saving R2.3billion in interest charges through to 2022. Its interest savings for the year were R251-million. But its largest saving came from lower-than-forecast credit impairments, as its stricter lending policy kicked in, and it tightened lending to underperforming borrowers.
Early in November, ratings agency Moody’s said it expected non-performing loans in the domestic banking system to increase to about 4% by the end of next year, from 3.2% in June this year. This is expected to affect profitability as banks increased bad-debt provision.
African Bank has covered 63.7% of its R27.6-billion gross loan book against impairments, with nonperforming loans – accounts in arrears for more than four months – standing at 31.5% of the book. It incurred R362-million in credit impairment charges for the year.
The bank reported a pretax loss of R1.6-billion for the period, R312-million better than forecast.
It has amassed R12.9-billion in cash, which finance chief Gustav Raubenheimer says it may spend on buying back debt.
“We sit with cash, now we would be interested in buying back early-maturity debt if the price is good for us [and] if there is no other use for the cash,” he said.
African Bank has just more than R10-billion in debt due to mature in the next 18 to 30 months. Raubenheimer said most of it was held locally.
“This could unlock further profit in liability management,” he said.
The bank also planned to invest in scaling up its direct credit business by early next year, with the launch of its transactional banking offering following late in that year.
It has already clinched a number of partnerships – a key enabler for its five-year performance plan.
African Bank branches offer extravalue loans to customers in partnership with retail groups Edcon and Hi-Fi Corporation.
“Let’s say in the most extreme case, you take a R20 000 loan. Then R10 000 would be cash, R5 000 would be loaded on an Edcon card, and R5 000 on a Hi-Fi Corporation card,” Riley said.
The bank distributes the cards on behalf of the retail groups as a secondary credit provider. It is looking to expand the offering from its current client base of 3 000 customers.
It also planned to launch a “broader range” of insurance products, expanding from its current credit life offering, but Riley was unable to go into further detail. — BDLive