African Bank is tightening its credit risk appetite again, saying that the current economic environment is putting strain on households' financial health.
The bank was just starting to open the lending taps again after adopting a cautious stance during the Covid-19 lockdowns.
The bank's chief financial officer Gustav Raubenheimer, said the bank introduced tightening measures in August and further tightened them again in October as interest rates, food prices, and other costs of living continue to climb rapidly.
"During Covid-19, we reduced our risk appetite significantly," he said. "During the last financial year, we started to normalise our risk appetite and our underwriting criteria. [But] we remain concerned about the macroeconomic environment," he said.
African Bank CEO, Kennedy Bungane, said the bank thought it was better to take a prudent approach rather than wait for the economic picture to deteriorate further. But African Bank has not yet seen a steep increase in delinquencies.
On Tuesday, the group reported its annual financial results, which saw a 7% growth in its impairments to R1.4 billion. But the bank said that was more a function of the growth in its loan book as it initially relaxed its lending appetite at the beginning of the year.
African Bank reported a 38% increase in net profit after tax to R736 million. The bank grew its loan book to R33.6 billion in the year that ended on 30 September, boosted by an 87% increase in new retail advances and the expansion to business banking, which has seen it build a R1.76 billion corporate loans book.
"But with inflation, food inflation, the impact of load shedding and high interest rates, it's clear that there's a lot of pain still for customers out there," said Bungane.
Bungane said the bank's impairment coverage is comfortably high as it anticipates a deteriorating macroeconomic environment in the next few months until the interest rates and inflation start declining again. He said the group will change its stance when it starts seeing more flexibility in households' disposable incomes.
"When that happens, we will review our current tightening stance again," he told News24.
African Bank's risk and capital management committee meets quarterly to review the bank's appetite towards risk. The bank's cautious stance comes after the old African Bank came close to collapsing under the management of former CEO Leon Kirkinis.
Raubenheimer, who was the bank's executive head of credit during Kirkinis' tenure, previously told the auditing watchdog, the Independent Regulatory Board for Auditors, that the former CEO ignored the bank's under-provision for bad debts.
The Myburgh Commission report into the bank's near-collapse also blamed reckless lending and a spiral in bad debt. It found that the old African Bank Limited (ABIL) was not properly managing reasonably foreseeable risks, such as the impact of the deteriorating macro-economic environment on its debtors' book, and it was aggressively growing the book.