African Bank is making steady progress. The lender, which had to be revived after it went into curatorship in August 2014, is now building up its deposit base, improving the quality of its loan book and strengthening its digital offering.
During its results presentation for the year to September 30, the group reported a third successive year of increased profits.
It achieved triple-digit growth in retail deposits, which increased 115% to R2.4 billion from last year’s R1.1 billion. This funding base now represents 12% of total funding liabilities. Basani Maluleke, African Bank CEO, says the group is optimistic that it will reach its 2021 funding base target of 25%.
She says the group’s aim is to be a leader in savings and investment rates. “The core strategy that we have adopted is to be one of the highest paying [interest] rate [banks] in South Africa – so we have SA’s best rates.”
The group offers an interest rate of 13.33% on a five-year fixed deposit, calculated at the end of the period – thus 10.75% per annum.
WATCH: Maluleke discusses African Bank’s conservative approach, new product development, increasing retail growth deposits, and building trust.
Maluleke says the group has nonetheless adopted a conservative lending approach to improving the quality of its loan book.
“We have to be conservative in our lending because we want to be seen as one of South Africa’s prudent lenders, especially considering the changes that we have seen in economic growth.
“The fact that the South African consumer is under increasing pressure means we have to be much more conservative in who we choose to lend to.”
She says that about 84% of the new customers the bank lent money to in this financial year are classified as lower-risk customers, a slight improvement on the previous year’s 83%.
The gross advances book has grown by 9% to R30 billion, with the bank reporting that it maintained a significantly increased overall coverage level of 34% (2018: 30%) as a result of the increased provisions under International Financial Reporting Standards (IFRS) 9.
The group lost the trust of many South Africans after it was placed under curatorship and delisted from the JSE.
Rescue efforts saw various parties making investments into the bank, including the South African Reserve Bank (50%) and the Government Employees Pension Fund (25%), with the big six banks – FirstRand, Standard Bank, Absa, Nedbank, Investec and Capitec – owning the remaining 25% in various proportions.
Maluleke says these investors have been practising good oversight to ensure that the bank adheres to the principles of good governance and manages risk appropriately.
Net profit after tax was up 13% to R1.15 billion.
“In a low-growth environment to achieve 13% growth is an enormous achievement,” she says.
The collection of outstanding balances of R787 million was a contributing factor.
She says the group has spent a lot of time trying to better understand its customers and deliver on their key needs this year.
“We have started to receive some great feedback,” she says, adding that some of the products speak to the fact that customers appreciate the new channels and enjoy some of the things the bank is doing in terms of customer empowerment.
Denker Capital portfolio manager Jan Meintjes says the bank is making good progress in diversifying its revenue sources, improving its distribution channels and enhancing its funding base.
“Compared to some of the listed competition, they have more to do on the diversification front, but it is great to see that they have put in place a number of the building blocks,” says Meintjes.
He says the group does, however, need a more balanced funding base and proof that the transactional banking offering and insurance products are sustainably competitive.
He says that for a successful listing on the JSE, these are essential elements.