Bloomberg News

African Bank Tightens Loan Criteria on Credit Oversupply

January 22, 2013

African Bank Investments Ltd. (ABL)’s chief executive officer said South Africa’s biggest provider of unsecured loans is assessing who it lends to more carefully because of an oversupply of credit to its target market.

The value of consumer loans not backed by assets surged 39 percent in the year through September to 140 billion rand ($15.8 billion), according to the most recent data available from the country’s National Credit Regulator.

“We pulled back in August last year when we saw an oversupply of credit,” Leon Kirkinis, CEO of the Midrand, South Africa-based lender, said in an interview at the bank’s head office on Jan. 18. “There has been a herd mentality and the growth in credit has been supply-side driven.”

African Bank’s biggest rival, Capitec Bank Holdings Ltd., this month said a third of people applying for credit are too over-committed to be considered for loans. Bayport Ltd. cut the number of new loans by 29 percent in November from the month earlier.

“Eighteen months ago we’d approve 80 out of 100 loans and then in 2012 it was 77 out of 100 and by the end of last year it was 68 out of 100,” Kirkinis, 53, said. The bank is prepared to tighten its lending criteria again as consumer indebtedness rises, he said.

African Bank is applying more stringent criteria to mine and government workers because too much credit is being afforded to employees in those industries without adequate assessments being done on their ability to repay loans, Kirkinis said.

‘Good Thing’

“The industry is slowing down and that’s a good thing,” he said. “People realized it was going too far. There was an exuberance.”

African Bank boosted its gross advances by 33 percent in the year ended Sept. 30 to 53 billion rand.

Its stock has declined 17 percent over the past year in Johannesburg, the second-worst performance on the 52-member FTSE JSE/Africa Financials Index. The shares fell 1.2 percent to 30.58 rand by the close of trade, giving the company a market value of 25.5 billion rand.

Still, there are many people in South Africa who cannot access secured credit and that provides room for growth for African Bank, Kirkinis said. The company isn’t considering expanding outside the country, he said.

The bank is seeking to provide funeral policies and to extend credit to entrepreneurs who own small businesses but have few assets with which to secure loans.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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