African Bank eases its lending criteria

The mass market lender said in a trading update for the first quarter to December that a continuing cautious approach to credit underwriting in the recent past resulted in new loan sales falling 12% to R2,6bn compared with the first quarter a year previously.

Earnings at most banks have declined in the past 18 months due to rising bad debts after recession last year led to job losses and less consumer spending.

The shift at Abil to lower-risk clients and market segments also caused the average loan size in the quarter to increase 11% compared with the equivalent period in 2008, to R7600.

The average term of the loans increased to 39 months, compared with the 33-month average for full-year 2009.

The bank had started to relax credit underwriting criteria for clients in the riskier segment of the market, as economic conditions had begun to stabilise and it was important to be “relevant” to all customer segments.

Gross advances increased 4% over the quarter to R21,9bn, translating to an annualised 17% on a year-to-date basis, a little behind the targeted 25% growth for the year. Targets would be reviewed at the interim stage as the trading pattern became more predictable, the bank said. Nonperforming loans increased in line with expectations. The bad debt charge was expected to moderate over the rest of the year. The funding and liquidity position remained sound, the bank said.

Sales at furniture retailing arm Ellerines were up 1.4% in the quarter to R1,4bn, while like-for-like sales grew 5.3%. Notably, Geen and Richards increased sales 22%, Dial-a-Bed 22%, while Bears' sales increased 20%. Group retail gross profit margins were slightly firmer in the quarter.

The integration of the financial services of Ellerines into African Bank was expected to be complete by 30 September.

Source: Business Day