UPDATE 1-Bad loans to hit African Bank's first-half profits
* To replace Ellerines head
* Disbursements down 25 pct (Adds details)
JOHANNESBURG Feb 5 (Reuters) - South African unsecured lender African Bank warned of a sharp fall in first-half profits on Wednesday, hit by rising bad loans as debt-laden consumers struggle to meet their payments.
The lender commonly known as Abil has been scaling back new loans after it reported a nearly 90 percent drop in profit last year as its core market of low-income borrowers grappled with inflation and a weak economy.
In November it issued 5.5 billion rand ($494 million) in new shares to shore up a battered balance sheet.
"The consolidated impact of the fuel price hikes, interest rate increases and food inflation against the backdrop of a weakened rand has and will continue to present challenges," Abil said in a filing, adding it would see a "significant reduction" in first-half profits.
New loans declined by 25 percent to 5.56 billion rand in the three months to end-December after it adopted more stringent lending criteria.
Abil said both non-performing loans and bad-debt provisions were higher than a year earlier. It has changed its policy on bad debts, increasing provisions and writing off bad loans sooner.
"It seems things are tough out there," said Johann Scholtz, head of research at Afrifocus Securities. "Earnings are going to be weak once again as a result of quite a sharp reduction in new business production and (non-performing loan) formations still remain elevated."
The bank also owns a retail furniture unit, where sales were 21 percent lower at 1.18 billion rand. Abil said it would announce a new chief executive at the Ellerines unit in a few weeks' time. It had earlier announced plans to dispose of the furniture retailer.