African Bank Investments posted a 26% drop in first-half earnings, hit by rising bad debts from its heavily leveraged customers. (Shutterstock)
Cape Town - African Bank Investments [JSE:ABL] said that trading conditions would remain difficult for the rest of the year after writing off R445m of non-performing loans in March, the lender said on Monday.
Trading conditions were expected to remain difficult for the remainder of the year and possibly deteriorate further in the retail environment, the lender said in a statement.
"There's likely to be a small loss in the retail business," Chief Financial Officer Nithia Nalliah told reporters during a conference call.
The bank targets millions of low-income
South Africans through loans and furniture, which it sells on credit.
Abil, the worst performing bank stock so far this year, and its rivals are seeing a spike in
bad loans after years of aggressive lending in South Africa.
Investors punished the lender on Monday, with the share price dropping 18.09%.
Household debt levels currently stand at
around a record of 76% of disposable income.
The largest provider of unsecured loans in the country recorded a 26% drop in first-half earnings, hit by rising bad debts from its heavily leveraged customers.
"The drop in earnings was impacted by a combination of a sharper than expected decline in the macro-economic landscape and some once
off business related factors," Abil said.
Abil listed its challenges ahead as, among others, subdued economic outlook; slowing consumer demand; tough collections environment; regulatory uncertainty and growing the customer base.
Headline earnings for the six months to March totalled 125.7 cents, compared with 170.4 cents a year earlier. Advances increased 25% to R59bn.
Headline earnings in the banking unit declined by 20% to R1bn.
Headline earnings in the retail unit plunged to R18m from R191m at the same time last year‚ due to a 11% decline in sales and the high fixed cost nature of the furniture retail business.
The bank said that a significant increase in unsecured lending in the market introduced unacceptable risk in certain segments of the bank's customer base.
“Abil's response was to forego volume growth for risk reduction through lower offer rates‚ smaller loan sizes and increased pricing."
The bank said these measures have substantially curbed credit offers.
"The bad debt charge is expected to remain elevated for the rest of the year‚ but risk reduction measures were expected to benefit the charge from 2014."