Johannesburg — MASS market lender African Bank said yesterday its year-to-date sales to June rose 40% to R7,1bn despite a drop in the loan approval rate, and it expected annual sales to rise up to 40% in the year to September.

The bank, SA's largest lender of unsecured debt, said strategies to reduce the cost of borrowing and to extend loan repayment periods were helping to grow sales despite the downturn caused by high personal and household debt, and rising food and fuel prices.

Last week, three major banking groups, Absa, Standard Bank and Nedbank, said their customers were under pressure from high lending rates.

In its update, African Bank (ABL) said the growth of 39% in new loans granted for the quarter to June translated into R2,4bn. Year-to-date sales soared 40% to R7,1bn.

This was achieved despite a reduction in the loan approval rate from 70% in June last year to 61% in June this year "as a result of the continued tightening of the underwriting models".

"The economic environment has been characterised by growing inflation, leading to higher interest rates. While certain consumer segments -- mainly the middle to higher -- are experiencing pressure from both these factors, African Bank's clients primarily carry only fixed-rate debt and therefore are relatively immune to interest rate movements," the bank said.

"Inflation, however, erodes affordability and therefore the ability to service debt."

These inflationary pressures had, however, been somewhat countered by wage increases, tighter minimum living expense thresholds being implemented in the underwriting models and more affordable instalments.

The bank had managed to hold down monthly repayments for its clients and, on average, the repayments for new loans granted fell by R10 to R560 in June compared with June last year.

Gross advances in the nine months to June grew an annualised 42% to R14,3bn, up from R10,9bn, mainly due to higher sales.

The bank is now expecting the growth in gross advances for the full year to September to be "at the higher end of the 38%-43%" target.

But the continued shift to the weighting of sales to medium-risk and low-risk clients should result in a decline in the total average yield of 6%-7%.

The bank said sales at Ellerines, SA's second-largest furniture retailer, which the bank acquired this year, fell by more than 4% in the six months to June.

"After adjusting for new and closed stores, the like-for-like decrease in sales was 5,2%."

Sales within brands targeted at lower-end consumers were particularly hit, falling nearly 12% in the period, while sales to middle and upper-end buyers rose 1,4% and 0,1% respectively.

The bank said it would continue to focus on strategies "to compensate for the difficult trading conditions".