JOHANNESBURG (Reuters) - South Africa's second biggest bank, FirstRand, said it is scaling back loans and setting aside more money for bad debts, signs that the consumer credit bonanza in Africa's top economy may be coming to an end.
South African banks have been aggressively pushing lucrative loans to shoppers, sparking concerns that debt levels, especially among lower-income borrowers, are unsustainable.
FirstRand reported a 29 percent surge in first-half profit on Tuesday, as earnings from lending and fees grew by double digit numbers. Shares rose 3 percent on the results, but the bank cautioned that loan growth would likely slow to single digits in the second half.
Other banks in South Africa could start to see a similar squeeze, said Tracy Brodziak, a banking analyst at Old Mutual Equities.
"For advances growth, the trends will be pretty similar. I would expect to have a slow down in unsecured lending," she said.
"We are not expecting on the consumer side real disposable income to grow significantly. That will put pressure on taking out further loans and advances, so we expect it to moderate."
South African bank customers were hit hard by a recession that cut more than one million jobs during the credit crisis. Households are carrying debt equal to 76 percent of their disposable incomes and unemployment remains stuck at around 25 percent.
But lenders have been relatively unscathed due to tight regulation by the Reserve Bank.
While borrowing has helped fuel consumer spending, fattening profits for both banks and discount retailers, the economy has struggled to post convincing growth.
South Africa last week cut its 2013 growth forecast to 2.7 percent, from the 3.0 percent previously seen.
FirstRand Chief Executive Sizwe Nxasana said the bank was setting aside over 500 million rand in additional provisions, on top of the 800 million it set aside in June 2012.
"That's in anticipation of a tightening credit environment and a slowing environment where customers are going to find it a bit more difficult despite the fact that interest rates went down even further," he told Reuters.
"Customers' indebtedness is still a big issue."
Nxasana said the bank tightened up credit scoring on unsecured lending in the mass market last year, and is now becoming more vigilant with the middle-income market.
FirstRand's vehicle and asset finance unit, WesBank, wrote new business worth 39.2 billion rand, a 19 percent rise from a year ago, driven chiefly by motor and unsecured credit books.
However, in another sign that consumer spending may be weakening, data on Monday showed that new auto sales increased just 1.6 percent year-on-year in February, and an auto industry body warned sales will remain sluggish this year.
FirstRand said diluted headline earnings - the main measure of profit in South Africa and exclude certain one-time items - totaled 131.1 cents per share in the six months to end-December, from 101.5 cents a year earlier.
High margin loans from its retail unit, First National Bank (FNB), and WesBank boosted net interest income before bad debts by 18 percent to 12.38 billion rand.
Smaller rival Capitec Bank, one of the pioneers in South Africa's consumer lending market, said on Tuesday it expects its full-year profit to rise by as much as 36 percent.
Shares of FirstRand were 3.4 percent higher at 31.86 rand by 1425 GMT, outpacing 1.7 percent rise in Johannesburg's benchmark Top-40 index.