African Bank's first move when it got into the driving seat of furniture retail chain Ellerines in January was to slam the credit extension brakes hard.
Loan applications approved for the retailer's "low price" brands' customers dived from 76percent to just over half. Abil subsequently eased off to allow the application approval rate to rise to around 57percent.
Abil chief executive Leon Kirkinis said at the results presentation yesterday: "In retrospect, we may have pulled the handbrake too hard."
Ellerines salesmen seem to have gone on a reckless binge before the takeover took effect, leading to a R450million bad debt hangover for the new owner. Though this took the bad debt to advances ratio to 10,1percent, Kirkinis said that was only a fraction above his 10percent target.
It is too early to see from the September year end results if a bank marrying a furniture retailer is a good idea.
They do not include Ellerines' peak December trading period.
These results saw the enlarged Abil posting lower earnings and dividends than last year due to the dilution from its all share takeover. The exchange of 255 Abil shares for 100 Ellerines shares along with a black empowerment deal saw the number of Abil shares in issue at the September year end jump 62percent to nearly 804million.
Ellerines hopes to gain a competitive advantage over rival retailers JD Group and Lewis by sourcing money to lend more cheaply from its owner bank. Abil in turn hopes to turn Ellerines customers into account holders.