Edward West
2 October 2009
Johannesburg — THE mass market had shown resilience throughout the recession so far and non- performing loans at FNB's affordable housing unit were about half those of higher-income groups, said FNB's Smart Solutions CEO Linè Wiid.
She said in an interview yesterday nonperforming loans at the FNB division's affordable housing unit had fallen.
However, she warned that the inflation-sensitive mass market was not out of the woods yet and was likely to remain under financial stress through the recession, possibly until the last quarter of next year.
The Smart Solutions division services the bank's mass-market clients, which it defines as people with income of up to R100000 a year. It makes up 24% of FNB's profit and the division's contribution had grown at an average compound growth of 42% a year between 2005 and this year.
Wiid said the division's clients had started showing financial stress in terms of rising arrears and bad debts in late 2006, but the sector had remained relatively stable since June 2007. However, some stress was beginning to show on the loans side of the business again.
Wiid said the mass market was not typically interest-rate sensitive. Rather, clients' financial wellbeing tended to swing with the inflation rate. In the mass market, consumer price inflation tended to rise higher than for other income groups, and tended to reduce slower.
"Up until April, inflation was very sticky. It has fallen but food and transport inflation has remained high compared with other categories. We expect the strain to continue for at least another three quarters," she said.
Like the bank, the Smart Solutions division also has diverse businesses, which helps it through different stages of the economic cycle. For instance, the division's insurance operations, which provide funeral cover, credit protection on loans, and housing insurance, has been performing well.
The FNB Smart Solutions loan book, essentially micro loans up to R6500, had also grown, 60% year on year -- while the cell phone banking business was still performing "exceptionally well" Wiid said. About 60% of the bank's active cellphone banking clients were in the mass market.
The housing unit -- which had never stopped providing 100% home loans through the recession -- had adopted an "integrated approach" to housing for its mass-market clients. The bank adopted this approach because there was sufficient demand for housing, but there was not enough supply. Wiid said the division was focused on being sustainably innovative "because we can't do it the way it's always been done any more".
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