Turning the tide for African Bank

Nearly four years after African Bank Investments (Abil) was placed under curatorship, the “good bank” that arose from that process is making steady progress to build its deposit base, improve the quality of its loan book and improve its digital offering.  

The “good bank”, rebranded African Bank after it was spun out of the curatorship process, remains unlisted. 

The Reserve Bank owns 50%, the Government Employees Pension Fund 25%, and the big six banks – FirstRand, Standard Bank, Absa, Nedbank, Investec and Capitec – own the remaining 25% in various proportions. 

The “bad bank”, which remains in curatorship, is now known as Residual Debt Services.  

At the helm of African Bank since April is Basani Maluleke, a trained accountant and former lawyer and investment banker. 

Maluleke, who originally joined the board as a non-executive director in 2015, served as operations head since July 2017 and can take some credit for the unsecured lender’s improving fortunes.  

The bank reported an after-tax profit of R448m in the six months to end-March, up 42% from the same period ended March 2017. While it has been growing its loan book, write-offs of bad debts have dropped significantly, totaling about R1.9bn in the period under review (2017: R4.877bn). 

Its credit loss ratio improved to 11.1% from 13.8%. Retail deposits have grown by 90% to R680m, no doubt reeled in by the 10.5% interest on 60-month deposits.   

De-risking the bank

African Bank has also made progress in paying off long-term debt and luring depositors, which is important as a stronger deposit base will reduce its reliance on external funders, and can help lower its cost of debt. 

It believes its transactional offering, My World, which is set to be launched later this year, will help grow this base.  

“We are very proud of the results; I think a 42% increase in operating income speaks to how well the bank is positioned to do good things,” Maluleke says.

“The bulk of the uplift comes from the release of our impairments, due to the fact that the book is starting to mature and that we are now writing a lot more of our business with low-risk customers.”  

She believes the bank is now starting to do the right business with the right customers with the right risk profiles, which de-risks the bank. 

“More than 80% of our loans today are to low-risk customers. It’s a different audience than the bank typically targeted.”  

About a third of the bank’s customers over the reported period are new to African Bank, according to Maluleke. 

“We have R680m in deposits, held in 13 000 bank accounts,” she says. This is up from deposits of R204m at the end of March 2017.  

“When people trust us with their money, then we have turned around. We are not naïve about the journey we have to tread to be seen as trustworthy by a broad spectrum of society,” she adds.  

Improved culture  

Maluleke says African Bank went through a voluntary severance process in 2017 and about 500 staffers took up the offer. 

This allowed African Bank to get new blood into the bank, particularly at the branch manager and regional manager levels, she says.  

Maluleke insists there has been a culture change within the bank and that the team that remains is determined to stay at the bank to see it emerge from the crisis. 

People learn more from their failures than their successes, and it is therefore important to walk through the “valley of death”, as she terms it.  

“If you talk to the guys here at African Bank, about what happened with the curatorship and the lessons learned, you will see that,” she says. The team having been through that makes them a stronger business today, she believes.  

There has been much progress, but Maluleke still faces an intimidating to-do list, with aggressive financial and customer targets set for the 2021 financial year. 

The bank aims to improve return on equity to over 15% by 2021, for example, up from 9.6% in the interim period. It also wants to increase its non-interest revenue from the current R14m to more than R300m, mainly through increasing the volumes of its funeral insurance policies. 

It also wants to build its customer base from the current 1.1m to more than 2.5m by 2021, according to the group’s financial results.  

Diversifying operations

As part of the drive to diversify and de-risk the bank, African Bank has invested in the development of a transactional banking platform called My World.

By the end of the interim period, more than 1 800 staff members have signed up for the My World transactional account, which is expected to be launched to customers towards the end of the year.  

“There is an amazing opportunity there to be competitive and grow,” she says.  

Despite the expected increase in competition in the local banking sector – Discovery is set to launch its bank this year, while other niche operators such as Michael Jordaan’s Bank Zero is also set to start operations soon – Maluleke believes African Bank already has a loyal customer base, and has no legacy systems to contend with.  

Transactional banking will also allow African Bank to get a fuller picture of its customers and what they spend their money on. 

These insights can assist with credit and risk management, as well as the cross-selling of products, she says.  

“The digital story is all about sexy tech, big data and a personalised user experience,” says Maluleke. “We are developing skills within the bank to get us to be a competitive digital bank.”  

Because African Bank has always been positioned as a bank of the people, the transactional banking platform will be geared towards use on a mobile phone, she says. 

The bank is also still looking at further rollout of its physical branch network.  

A key issue is the cost of data and how this will impact the uptake of digital banking services.

“We hope data costs will come down,” she says. “We can hope, but we can’t control it.”  

Another attempt to diversify African Bank is the relationship with insurance company MMI, which began in the second half of 2017. 

The tie-up sees MMI selling its products to African Bank customers and using African Bank’s banking license to offer unsecured loans to its own customers.

These numbers are steadily growing, says Maluleke.

This article originally appeared in the 5 July edition offinweek. Buy and download the magazine here or subscribe to our newsletter here.

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