African Bank group on track
• It expects to deliver net profit for the year of more than R2.5bn
African Bank Holdings says it is on track to more than triple its net profit in the next three years as it gears up for a listing that it has said will take place by 2025. The group, which houses lender African Bank and sells credit life insurance and funeral policies, expects to deliver net profit upwards of R2.5bn.
African Bank Holdings says it is on track to more than triple its net profit in the next three years as it gears up for a listing that it has said will take place by 2025.
The group, which houses lender African Bank and sells credit life insurance and funeral policies, expects to deliver net profit upwards of R2.5bn when it presents its full-year results in 2025. That would be more than three times the R736m in aftertax net profit it reported for the year to end-December.
“We believe that a compelling listing proposition in 2025 would need us to have a net profit of over R2.5bn,” CEO Kennedy Bungane said in the group’s 2022 financial results presentation on Tuesday.
“[We are] very much on track, if not slightly ahead, of plans in terms of profitability.”
African Bank is now 50% owned by the Reserve Bank, with the Government Employees Pension Fund (GEPF) holding 25%. A consortium of SA’s five largest bank holds the remaining 25% on a pro-rata basis: FirstRand (7%), Standard Bank (6%), Absa Trading and Investment (5%), Nedbank (4%), Investec (2%) and Capitec (1%).
In a follow-up interview with Business Day Bungane said that the listing is planned to occur “by 2025 — not necessarily in 2025”. “We’ll be looking at what’s happening in the market,” said Bungane. He said that the group also plans a pre-initial public offering (IPO) towards the end of the first half of 2023 to allow shareholding by staff and mineworkers.
PRIVATE PLACEMENT
“The aim is to get a staff scheme in place, and if we are successful, a few stakeholder and equity players,” said Bungane.
“We’d love to target the collective schemes of mineworkers so that they feel that they are part of African Bank.”
Bungane said African Bank had not yet decided how it would bring staff and mineworkers in as shareholders. When pressed he said this may either involve existing shareholders ceding a portion of their stakes or potentially a private placement of new shares.
“We haven’t settled on the mechanism that would be best to achieve that. said Bungane.
“Shareholders will have the right to decide whether they like the terms or whether they want to exit then or ultimately at the listing.” The group’s net profit for the 2022 financial year was a 38% improvement on the R534m in after-tax net profit it delivered the previous year and came after strong retail loan disbursements and growing net interest income that was boosted by rising borrowing costs.
The Reserve Bank has hiked interest rates a cumulative 325 basis points (bps) so far this year to rein in above-target inflation, something that helps lenders earn higher revenue from the loans they disburse to customers.
Though African Bank tightened its credit criteria in 2020 as the onset of Covid-19 and accompanying lockdowns dented economic activity, it began relaxing its lending conditions in 2021 as the pandemic eased.
The normalisation of its lending continued in 2022, helping retail loan disbursements jump 87% to R14.02bn in the 2022 financial year, up from R7.51bn the previous year.
Retail savings and investment deposits rose 15% to R10.84bn while net customer advances climbed 38% to R22.65bn.
While the group booked a credit impairment charge of just less than R1.44bn, up 7% from the R1.34bn recorded the previous year, it said it views this as “stable” given the postpandemic normalisation in lending criteria.
“These results demonstrate the bank’s continuing growth trajectory and increasing penetration into the important retail banking market,” said Bungane.
Higher loan advances had a positive effect on the group’s interest income, which with a reduction in the group’s cost of funding, caused its net interest margin to increase 19% year on year to R4.77bn.
Insurance profit after tax fell 26% to R366m while the group’s total capital adequacy ratio remained steady at 43.4%. The profits of African Bank’s lending entity, which excludes insurance activities such as credit life and insurance policies, reported a net profit after tax of R341m in the period.
The group’s latest results follow its acquisition of Grindrod Bank, as well as the assets and liabilities of Ubank, transactions that became effective on November 1, though they are not reflected in the 2022 results. Bungane said the group will be “laser focused” in 2023 in integrating Ubank and Grindrod Bank into its operations.
AGGRESSIVE EXPANSION
As part of the group’s 2025 listing strategy, “Excelerate25”, it is planning to more than double its retail customer numbers to 3.5million, from 1.54-million now. It is also targeting 100,000 SME business clients by 2025, a strategy that will be driven through the Grindrod Bank acquisition.
The aggressive expansion of its core business to include business banking while expanding the depth of its retail client base is likely to come with higher delinquencies.
The group is pencilling in a targeted credit loss ratio of 12% for its 2025 fiscal year, more than double the 4.8% reported in 2022.
African Bank Holdings CFO Gustav Raubenheimer said the group is planning a capital market issuance in the middle of 2023.
“We also think it’s time to start thinking the tier two subordinated debt issuance, so watch this space,” he said during the group’s results presentation.
BUNGANE SAID AFRICAN BANK HAD NOT YET DECIDED HOW IT WOULD BRING STAFF AND MINEWORKERS IN AS SHAREHOLDERS