African Bank Holdings Limited (ABHL) and its subsidiary, African Bank Limited (ABL), recently released their unaudited interim financial results for the six months ending 31 March 2024 (H1 24). Despite operating in a tough economic environment, ABHL has showcased a commendable performance, marked by strategic growth and diversification efforts. This article delves into the key highlights of ABHL’s financial performance, the impact of their strategic initiatives, and future prospects.
Financial Performance Overview
Steady Financial Performance and Customer Growth
ABHL has demonstrated steady financial performance, despite subdued balance sheet growth. The Group’s Excelerate25 strategy has significantly contributed to this stability. This strategy focuses on building a fully-fledged bank with both Consumer and Business Banking divisions. As a result, ABHL’s customer base has grown, leading to a more diversified business with multiple revenue streams.
Subdued Growth in Unsecured Lending
The Group has made strides in derisking and diversifying its business. This was achieved by offering additional secured lending products and enhancing credit scoring methodologies. Consequently, there was subdued growth in unsecured lending during the period. However, the integration of Grindrod Bank into the Business Banking division has advanced significantly, promising enhanced services to Small, Medium, and Micro Enterprises (SMMEs) and entrepreneurs.
Consumer Banking Expansion
The Consumer Banking division has expanded its product suite, including the piloting of home loans to staff and financing tech-deals. This includes finance for handset subscriptions offered by the telecommunications industry. The retail customer base has grown, attracted by affordable banking fees, unique transactional banking opportunities through MyWORLD account, and superior customer service.
Diversification of the Balance Sheet
ABHL’s balance sheet diversification is progressing well, following last year’s acquisitions. Key highlights include:
- Net Advances: R32.7 billion (H1 23: R32.4 billion), with 1% growth.
- Funding Base: Business and retail deposits make up 91% (H1 23: 85%) of total funding of R33.5 billion (H1 23: R33.9 billion).
- Liquidity: Cash reserves total R7.9 billion (H1 23: R8.5 billion).
- Capital Adequacy: Total capital adequacy ratio stands at 32.5% (H1 23: 29.4%).
Table 1: Key Financial Metrics
| Metric | H1 24 | H1 23 |
|---|---|---|
| Net Advances | R32.7 billion | R32.4 billion |
| Total Funding | R33.5 billion | R33.9 billion |
| Business & Retail Deposits | 91% | 85% |
| Cash Reserves | R7.9 billion | R8.5 billion |
| Capital Adequacy Ratio | 32.5% | 29.4% |
Group’s Operational Performance
Interest Income and Cost of Funding
Interest income declined by 10% to R3.5 billion (H1 23: R3.9 billion), mainly due to reduced retail unsecured lending advances. The cost of funding was well managed at 7.8% (H1 23: 7.4%), despite a 150 basis points rise in the average repo rate.
Growth in Non-Interest Income
Non-interest income grew by 26% to R839 million (H1 23: R668 million), driven by increased usage of MyWORLD and Credit Card accounts. The expanding Alliance Partnership customer base also contributed to this growth.
Insurance Profit and Operating Expenses
Insurance profit decreased by 8% to R313 million (H1 23: R340 million), aligning with subdued growth in the retail Consumer Banking advances book. However, operating expenses were well contained, reducing by 3% over the prior period, with a cost-to-income ratio of 58.3% (H1 23: 58.0%).
Improved Credit Impairment Charge
The credit impairment charge improved by 40% to R1,355 million (H1 23: R2,240 million), resulting in a reduced credit loss ratio of 6.6% (H1 23: 11.1%). This improvement is attributed to enhanced credit granting criteria and better collections and rehabilitation processes.
Growing Customer Base
ABHL’s customer base continues to expand. The Group services 5.7 million customers (H1 23: 4.2 million), a 38% increase from the previous year. The Consumer Banking division alone services 1.9 million customers. Additionally, the Alliance Partner network has facilitated access for 3.8 million customers, a 70% increase from the comparable period.
Table 2: Customer Base Growth
| Customer Segment | H1 24 | H1 23 | Growth |
|---|---|---|---|
| Total Customers | 5.7 million | 4.2 million | 38% |
| Consumer Banking | 1.9 million | – | – |
| Alliance Partner Network | 3.8 million | – | 70% |
Digital and Data-Enabled Business Strategy
A key element of ABHL’s mission is to build a scalable, diversified, and sustainable digital and data-enabled business. The MyWORLD transactional bank account, with its shared banking features, now serves 1.5 million customers, a 75% year-on-year increase. Transactional volumes have risen by 51% to 39.5 million transactions, representing R46.2 billion in value over the past six months.
Future Prospects
The acquisition of Sasfin’s capital equipment and commercial property finance advances books, pending regulatory approval, will further strengthen ABHL’s Business Banking strategy. This acquisition is expected to be completed in the second half of FY24.
Conclusion
African Bank Holdings Limited has demonstrated resilience and strategic growth amidst challenging economic conditions. The Group’s focus on diversification, derisking, and digital transformation has positioned it for sustainable growth. With a growing customer base, expanding product offerings, and strong financial metrics, ABHL is poised to continue its upward trajectory. The upcoming acquisition of Sasfin’s capital equipment and commercial property finance operations is set to further enhance ABHL’s market position, making it a formidable player in South Africa’s banking sector.