The South African bank taking on the big dogs

African Bank is leveraging its Excelerate25 strategy to stake a claim among South Africa’s leading financial players by diversifying its business and scaling it for future growth.

African Bank released its results for the year through September 2024 on Tuesday, which showed mixed results for the company.

Its net profit grew to R523 million for the year. With a capital adequacy ratio of 31.4% and liquidity reserves of R7.1 billion, the bank’s financial health remains a strong foundation for growth. 

The bank also reported that its personal banking division continued to attract customers, contributing to a 36% year-on-year increase in its customer base, which now totals 5.4 million.

However, it also revealed significant expected credit losses. Out of the bank’s R31.2 billion in gross advances in its personal banking portfolio, almost R10 billion is likely to result in expected credit losses. 

However, it should be noted that this is R1 billion lower than the previous year.

In the bank’s investor presentation, CEO Kennedy Bungane said the company is on the right track and its Excelerate25 strategy is going as planned.

“This year’s performance affirms African Bank’s ability to deliver value even in a constrained environment,” he said.

In an interview with Daily Investor, African Bank’s Consumer Banking CEO Sibongiseni Ngundze said the Excelerate25 strategy, introduced in 2021, focuses on two core tenets – diversification and scalability. 

He explained that diversification is a multifaceted focus area for the bank, as it positions the business to diversify in terms of its client base, balance sheet, funding, and capital.

One of the most important aspects of this plan is balance sheet diversification.

Ngundze explained that the bank is deliberately transitioning from predominantly an unsecured lender to offering secured lending solutions. 

He said this strategic shift is already yielding results, with secured lending, such as renewable energy and home loans, playing a pivotal role in the bank’s growth.

According to Ngundze, this shift is not just about managing risk but also about building a robust balance sheet capable of withstanding economic shocks while delivering long-term value. 

The most recent results affirm this approach: interest income declined by 4% to R7 billion, and non-interest income grew by 14% to R1.54 billion.

The company said this was fueled by increased adoption of its MyWORLD transactional accounts and an expanding insurance portfolio.

While a decline in interest income may not sound like good news, Ngundze said this was due to a deliberate pivot towards subdued growth in unsecured personal loans.

Furthermore, the bank shifted to lower-yielding credit card and overdraft products and integrated lower-yielding secured lending in its Business & Commercial division. Its net interest margin declined to 9.7% from 10.9%. 

The second core tenet of the Excelerate25 strategy is scaling. 

Ngundze explained that the bank had signed itself up for “a very clear and ambitious plan to run hard at growing our main bank customers and run fast at rolling out key propositions”.

Success in this factor requires the bank to identify the core capability it needs to complete the bank’s franchise – both from a business, banking and personal point of view.

Following that, Ngundze said he and other executives in the company have advocated for either incubating, partnering or acquiring businesses that help the bank accelerate these capabilities.

“We always tell both our investors and the board that they should see the acquisitions, not in the context of the balance sheet, but in the context of the capabilities that we are building,” he said.

In a market dominated by legacy banks, Ngundze said African Bank sets itself apart through its nuanced understanding of customer needs. 

He highlighted how many South Africans grapple with spending up to 80% of their income on necessities.

Therefore, the bank’s solutions are designed not just to meet financial needs but to empower individuals and businesses to participate in the broader economy.

He said the bank’s focus on financial inclusion is evident in its efforts to support underserved communities and small-, medium-, and macro-enterprises, offering a pathway for growth and economic participation. 

Ngundze said one of the bank’s ambitions is to help South Africans realise that the economy is something they can participate in and that their fortunes are tied to the economy.