Non-performing loans as a percentage of gross advances and non-performing loan provision coverage were slightly higher in the quarter ended December than that reported in the September quarter‚ the bank said in a trading update on Wednesday (5 February).
"The negative impact of the higher bad debt charge on the larger volume of business written pre-June 2013 will continue to outweigh the positive impact of the lower-volume‚ better-quality business written after that date‚" Abil said.
This would result in "a significant reduction in profitability" for the first half of its 2014 financial year.
The bank expects to return to profitability in the second half of 2014 as the tighter credit-granting measures it implemented last year take effect.
The bank sharply curbed its lending as a result of a tough financial year to end-September‚ in which its earnings dropped 88%. Its target market of low-income consumers took strain from slow economic growth and high unemployment.
Sasfin Securities portfolio manager Nicholas Sorour said the quarterly update for the first quarter ended December did "not look that bad".
"The loan business is flattening and not seemingly getting any worse. It looks as if all the skeletons are out of the closet‚" he said.
Last year‚ Abil boosted its balance sheet by raising nearly R5.5bn in a rights issue and announced plans to sell loss-making furniture retail unit Ellerines‚ on which it took a R4.6bn impairment in goodwill.
Sorour said he did not expect the business to dramatically turnaround any time soon.
"But the question is‚ will it get any better soon? The fact is the lending environment is difficult at the moment. So one should not expect any dramatic improvement soon‚" he said.
Abil said the economy would continue to weigh on the business‚ particularly given the increases in fuel prices‚ interest rates and food prices‚ combined with the weakened rand.
For the quarter under review‚ average loan sizes and payback loan terms shrank marginally from the previous quarter but were still up on a year earlier‚ evidence of the strong lending at the beginning of 2013‚ which was curtailed later in the year.
The average loan size in the first quarter of 2014 was R13‚559‚ down from R13‚845 at the end of 2013. The loan term has fallen from 54 months to 53 months.
Abil said the quality of new business written had improved. While collections remained challenging‚ particularly over December and January‚ the stabilising trend over the past few months remained intact.
Merchandise sales declined 21% but the group said it expected the overall credit quality of the lending book to increase in the second half of the 2014 financial year.
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