African Bank Tightens Lending Criteria After Swinging Into Loss

African Bank Holdings Ltd. will continue to tighten its credit criteria after increased impairment charges related to the Covid-19 pandemic pushed the South African lender into a first-half loss.

“We have to manage credit a lot more conservatively,” Chief Executive Officer Basani Maluleke said. “Very prudent credit management is a big deal.”

Provisions for an expected increase in loan defaults and a slowdown in sales resulting from lockdown measures taken by South Africa to curb the spread of the coronavirus weighed on African Bank’s financial performance. Profitability would in any case have suffered as the country’s economy was already in a recession before the outbreak, she said.

African Bank reported a net loss of 311 million rand ($18 million) for the six months through March from a year-ago profit of 69 million rand, the Johannesburg-based lender said in a statement on Wednesday. On the plus side, retail-customer deposits, including transactional banking balances, rose to 3.8 billion rand from 1.5 billion rand a year earlier.

South Africa’s central bank expects the economy to contract 7% this year, while unemployment rose to a 17-year high in the first quarter, chipping away at the income base of African Bank’s customers.

With revenues expected to continue falling, African Bank will review its strategy and put in place further cost-cutting initiatives, which could affect staff, Maluleke said. “Nothing is off the table,” she said. “But we have left the question around retrenchment as an absolute last resort because we believe the economy will recover and we don’t want to be caught flat-footed when it does.”

African Bank is unlikely to meet its credit-loss ratio and return on equity targets for 2021, Maluleke said. The bank intended to report return on equity of at least 15% and a credit-loss ratio of less than 9% by next year.

Plans by the South African Reserve Bank to dispose of its stake in African Bank are still underway with the central bank expected to appoint an adviser to guide the process, Maluleke said.

©2020 Bloomberg L.P.

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