UPDATE 2-S.Africa's Abil puts the brakes on consumer loans
* Full-year earnings up 18 pct, but short of forecast
* Interest income jumps 36 pct, dividend up
* Shares up 3 pct, down about 10 pct this year (Adds quotes, details)
JOHANNESBURG, Nov 19 (Reuters) - African Bank Investments is slowing down its lending after years of rapid growth, the first sign South African banks may be turning more cautious about lucrative, but high-risk loans to increasingly indebted consumers.
African Bank, also known as Abil, helped pioneer the booming South African market for unsecured lending - highly profitable, though risky, credit that is not backed by collateral.
Abil, which fell short of expectations with an 18 percent rise in full-year profit on Monday, is now seeing competition from South Africa's big banks, which are also lending to low-income consumers.
"We have cut back slightly on our credit and more importantly we're being more selective about who and how much we give following the excessive supply in the market," Chief Financial Officer Nithia Nalliah told Reuters.
The central bank has said it is not unduly worried about the rise in unsecured loans, but some analysts disagree. Unsecured credit surged 21 percent to $43 billion in the year to June, according to central bank data.
The loans have helped underpin consumer spending, especially among the poor. However, there is also vast potential for default, given that South Africa's household debt stands at 76 percent of disposable income.
"The fact that they are aware of the dangers of the unsecured lending is positive," said Viv Govender, analyst at Vunani Private Clients.
"People have been nervous about this sector as a whole. There's been talk about the possibility of a bubble in unsecured lending."
Abil's non-performing loans total nearly 28 percent of its 50 billion rand ($5.6 billion) loan book, Nalliah said. Yet it is still making money, as its average interest rate is just below 21 percent, well above the central bank's benchmark rate of 5 percent.
Abil also owns furniture chain Ellerines, where it sells dining room sets and sofas on credit, and offers personal loans inside its stores.
Loans have grown at an annual rate of 25 percent in recent years, but the company sees that slowing to about 15 percent.
Abil plans to raise 15 billion rand this year, a third of it from international markets, Nalliah said. It issued 125 million Swiss francs in a four-year bond earlier this month.
Abil missed market expectations with diluted headline earnings per share at 342.5 cents in the year to end-September, compared with 291 cents a year earlier.
A poll of 12 analysts had expected earnings to increase 25 percent to 362 cents, according to Thomson Reuters data.
Earnings were held back by growing competition.
Headline EPS, which excludes some one-time and financial items, is the main measure of profit in South Africa.
The company increased dividends by 5 percent to 195 cents, higher than the 183 cents expected in the poll of analysts.
Interest income rose 36 percent to 9.9 billion rand and non-interest income rose 12 percent to 3.3 billion rand.
Helped by the higher dividend, shares of Abil were up around 3 percent at 1245 GMT. However, they are down about 10 percent so far this year, compared with over 15 percent growth in the benchmark Johannesburg Top-40 index.