May 19, 2014 / 6:02 AM / in 4 years

S.Africa's Abil swings to headline loss of 240.7 cents per share

(Adds details)

JOHANNESBURG, May 19 (Reuters) - African Bank Investments swung to an expected six-month headline loss of 240.7 cents per share after the South African lender booked more bad loans.

The bank commonly known as Abil had already flagged that non-performing loans were 600 million rand higher than had been expected, compelling the lender to set aside 2.5 billion more for future loans.

Abil had aggressively pushed unsecured loans to the mass market but stubborn inflation, high levels of indebtedness and labour strife in the platinum mines have crippled the ability of many borrowers to meet their obligations.

“The success of an unsecured lending business is based on the future ability of customers to timeously meet their contractual repayment on loans granted and their credit card debt,” Abil said in a stock exchange filing.

“Notwithstanding stricter underwriting standards and periodic pullbacks in risk, tough economic cycles negatively impact this ability.”

Interest income was up 7 percent to 6 billion rand ($580 million) and non-interest income, or revenue from fees and commissions, declined by 10 percent to 1.47 billion rand.

The credit impairment charge more than doubled to 8 billion rand from 3.89 billion rand a year ago.

South African banks face an increase in bad loans due to rising interest rates and the prevalence of unsecured lending, according to ratings agency Moody‘s.

Abil shares have extended losses this year, dropping 30 percent after a 50 percent plunge in 2013.

South Africa’s five biggest banks have reported a decline in impaired loans, which fell to 84 billion rand in December 2013, or 3.1 percent of total loans, according to the central bank.

But impaired credit is a bigger problem at smaller banks, ballooning to a peak of 24 billion rand, or 17.4 percent of their total loans, in July 2013.

Unsecured lending accounts for almost 12 percent of total gross credit exposure in the banking sector, according to central bank data. ($1 = 10.3510 South African Rand) (Reporting by Helen Nyambura-Mwaura; Editing by Ed Cropley)

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