African Bank. Picture: FREDDY MAVUNDA
African Bank. Picture: FREDDY MAVUNDA

African Bank, rescued from failure by the central bank four years ago, plans to offer overdrafts and expand its insurance business as a drop in customer numbers threatens its turnaround strategy.

The bank is losing clients after it tightened lending criteria following its relaunch into a competitive banking sector made tougher by under-pressure consumers in a sluggish economy.

The first bank to be placed under Reserve Bank curatorship in more than  a decade after nearly collapsing under the weight of bad loans in 2014, African Bank says it wants to make a comeback as a safer institution with a base of retail deposits and less focus on risky unsecured credit.

It has made strides towards a set of ambitious 2021 targets, but its customer numbers have fallen from 1.25-million in 2016 to 1.04-million in March, some way from its 2.5-million goal.

Low-fee digital accounts

“That is the one we are concerned about, and I think we do have a very solid plan in terms of how we can address that,” CEO Basani Maluleke said. The bank expects the trend to reverse following the launch of its low-fee digital account in May, she said.

In 2020 it plans to launch an overdraft facility in a bid to make the new account, called MyWorld and which it says is already the cheapest on the market, more attractive. MyWorld has  20,000 customers so far.

There are few overdrafts available to the bank’s low-income target market where credit card penetration is also low, CFO Gustav Raubenheimer said.

The bank also plans to expand its short-term insurance product beyond funeral policies and relaunch its credit card.

If it struggles, it could push  a central bank exit, as well as that of its other shareholders — six of SA’s biggest banks — further into the future.

The central bank has said it wants African Bank to be viable and sustainable before it exits. It hived the bank off from listed parent African Bank Investments (Abil) when the company started to fail. Abil’s share price tumbled from R28 to 31c, before trading was suspended.

African Bank retained a portion of its old loan book, which it hoped to use as a springboard for MyWorld but tighter lending criteria led it to lose some customers.

The bank should capitalise on its access to clients from its former lending book, said Stuart Theobald, chairman of financial consultancy Intellidex. Highly competitive rates have also given it an edge in savings and investments, where it grew deposits by 119% in the first half of 2019.

MyWorld, however, does not  stand out against rival offerings, said Theobald. It launched amid the arrival of an array of new, largely digital-only lenders, some of which are growing much faster and whose arrival has also forced big banks to up their game.

“The level of competition there is quite aggressive,” Theobald said.

In the longer term, Maluleke said African Bank planned to establish a digital marketplace where customers could buy a wide array of products, including from third parties. But for the next 18 months, it is focusing on stemming customer losses.