SA's major banks tap entry-level segment
Johannesburg - South Africa's big three banks on Tuesday reported a significant surge in personal loan books, indicating big players are lending aggressively to the entry level market previously dominated by small players Capitec Bank Holdings [JSE:CPI] and African Bank Investments [JSE:ABL].
Absa Group [JSE:ASA], South Africa's biggest retail bank, on Tuesday announced 12.4% growth in its personal loan book to R12.6bn.
Standard Bank Group [JSE:SBK], Africa's biggest bank by market capitalisation, said its personal loan book had surged 33% year-on-year (y/y).
FNB, a subsidiary of FirstRand [JSE:FSR], South Africa's third-biggest bank, said its personal loan book, including its low cost banking unit EasyPlan, has seen 24.4% growth y/y.
Analysts said this meant profit "margins were getting ever wider" in SA's unsecured lending space.
However, they said this growth did not necessarily mean that the banking sector, which experienced depressed profits since the onset of the 2009 recession, could be turning around.
Safs Narker, a banking analyst at Metropolitan Asset Managers, said secured lending has become "mooted" while unsecured lending has seen "double-digit" growth in the past few years.
Secured lending is when the borrower pledges collateral to the lender to secure repayment of the loan. Unsecured lending is not attached to any collateral. This type of loan is called "unsecured" because the bank has nothing to go after if clients default.
"Big banks have successfully exploited the double-digit growth in unsecured lending. They now see unsecured lending as an avenue to make more profits," Narker said.
Steve Meintjes, a senior analyst at Imara SP Reid, said it was too early to talk of a turnaround in the banking sector.
"Growth in personal loan books is very good. But one swallow does not make a spring," said Meintjes. He added major banks were expanding aggressively in the unsecured lending space.
"Our improved performance can largely be attributed to this," said Tshiwela Mhlantla, managing executive of Absa personal loans.
She expects lending to grow faster than industry average of 15% a year. "The bank has strong growth plans over the next few years, particularly in the entry level market," Mhlantla said.
Peter Schlebusch, CEO of personal banking at Standard Bank, told Fin24 the company moved into the entry level market because of the slowdown in the secured lending market. "We found the unsecured lending market to attractive as well," he said.
Peter du Toit, the head of FNB Smart Product House, said: "The establishment of our EasyPlan branch network has contributed significantly to the successful growth of our book. Since launching in 2009, FNB EasyPlan has disbursed more than R1bn in loans." - Fin24