Absa and Standard Bank have reported increases in home loans and vehicle finance books at a time when peers have been tightening their risk appetite. (File, Supplied)
- Absa grew its market share in the home loans market to 22% from 21% in 2019 and vehicle finance market share from 20% to 22%.
- However, because of this lending book growth, the payment holidays that the bank provided to customers as well as increased delinquencies, Absa’s credit impairments increased by 163% to R20.6 billion.
- The bank’s financial director says this growth had been “very targeted”, and Absa was comfortable that the level of risk it has assumed is manageable.
Absa grew its home loans by 5% and vehicle finance by 9% in 2020, despite the crippling effect the Covid-19 pandemic.
Absa Group financial director Jason Quinn said the bank grew its market share in the home loans market to 22% from 21% in 2019 and vehicle finance market share from 20% to 22%.
Absa is the second bank after Standard Bank to report what’s considered high growth in both mortgage and car finance in an environment where peers have been tightening their credit appetite.
Quinn said that the bank’s growth had been “very targeted”, and Absa was comfortable that the level of risk it has assumed is manageable. He said the bank didn’t increase its risk profile to price these loans aggressively to gain the market share it did.
The buoyant demand from first-time homebuyers and better-than-anticipated recovery in both new and used vehicle sales coincided with the improvement of Absa’s relationship with bond originators and car dealers, as well as the reduction in turnaround times on applications. This meant that it was better positioned to take up those opportunities than it may have been in the past, added Quinn.
“Our growth has actually been very targeted. If you go through the various asset classes in retail banking, we’ve reduced the risk appetite for personal loans. Where we are going has been very consistent with the strategies that we were busy with before the crisis hit us,” said Quinn.
The FD added that there has been a huge demand from homes priced less than R3 million from people aged around 35 years old who have risk profiles that the bank was happy with.
“In fact, the vintages we wrote last year are performing very much in line with our expectations. Of course, we also priced for the risk. It’s quite similar in vehicle and asset finance,” he said.
Increase in credit impairments
However, because of this lending book growth, the payment holidays that the bank provided to customers as well as increased delinquencies, Absa’s credit impairments increased by 163% to R20.6 billion.
Stage 2 and stage 3 loans that are in arrears and nonperforming loans increased materially to 11% and 6.28% respectively. All this severely ate into the bank’s earnings, which tanked 51% to R8 billion.
Quinn said the level of credit impairments that it had to raise was, however, owing to using more conservative UK standards.
“There are some definitional differences between Absa and the peers in South Africa … We move accounts into stage 2 and stage 3 quicker,” explained Quinn.
Absa Group CEO Daniel Mminele said the high level of impairments and its impact on the bank’s headline earnings masked a lot of good progress that the bank recorded, especially in the second half of the year.
“Considering the unprecedented impact of Covid-19 and the related economic downturn, many aspects of our 2020 performance were resilient, despite our earnings halving,” said Mminele.
The CEO said the 2% growth in revenue and 5% increase in net interest income that the bank recorded were “respectable”.