South Africa’s new bank takes a R3 billion hit – BusinessTech

OM Bank launched to the public only last year, but its parent company, Old Mutual, has already recorded an impairment of R3 billion for the bank, reducing its carrying value from R6 billion to R3 billion.

Old Mutual’s outgoing chair, Trevor Manuel, noted that OM Bank was soft-launched to Old Mutual employees in the first half of 2025 and is now officially open to the public.

“It has been designed to offer greater affordability and simplicity than our competitors and to be an agile,
intuitive and truly convenient digital experience,” said Manuel in the group’s financial results for 2025.

“OM Bank’s rollout has been deliberately slow and phased, but our plan to reach monthly break-even during 2028 is firmly on track.”

“Our focus is on creating a better way to bank with the right fundamentals in place: security, reliability and scalability.”

The bank serves mass- and middle-income South Africans, focusing on individuals earning between R8,000 and R80,000 per month.

It focuses on Old Mutual’s existing customer base and open-market customers, addressing the needs of financially underserved and emerging segments.

Its product suite includes transactional banking for everyday accounts and payment services, as well as savings and lending products, such as personal loans and credit facilities tailored to its target market.

The bank operates a digital-first, hybrid distribution model, with its mobile app the main channel for client engagement, which is supported by Old Mutual’s branch network.

Bank Impairment

Despite Old Mutual’s hopes for the bank, its value has been halved through an impairment.

As per IAS 36 Impairment of Assets, Old Mutual said that an assessment includes determining whether there is any indication of impairment.

If there is an indicator of impairment, an impairment test is required to compare the carrying value with the recoverable amount.

The recoverable amount is the larger of [the value-in-use] or [fair value minus cost-to-sell].

Old Mutual thus impaired its investment in OM Bank Holding Company using a look-through basis to OM Bank Limited.

The value-in-use was determined via a dividends discount model. The carrying value was then decreased from R6 billion to a recoverable amount of R3 billion.

This resulted in an impairment loss of R3 billion at 31 December 2025. Old Mutual said that the primary reason for the impairment of OM Bank Limited was due to the following:

• 2026 forecast capital requirements are materially higher than the 2025 forecast
• 2026 forecast return from operations is materially lower than the 2025 forecast

The financial services giant used the following assumptions in the value-in-use calculation of OM Bank Limited:

• Forecasted cash flow period 9 years
• Discount rate 22.47%
• Terminal growth rate 6.10%

The group’s management also conducted stress testing, the results of which were considered when determining the final impairment loss to be recognised.

Sensitivity tests included a 4.5% decrease in the discount rate and a 10% increase in the terminal growth rate.

Broader Group Performance

The broader Old Mutual group saw results from operations increase by 13% to R9.8 billion, supported by improved operating performance in Old Mutual Life and Savings and Old Mutual Insure.

The group said that Old Mutual Life and Savings benefited from positive experience and economic variances as well as improved Old Mutual Finance profitability, partially offset by persistency basis changes.

The group’s 2025 earnings were also impacted by elevated returns from its operations in Malawi, which continue to experience high inflation and shortages of foreign currency.

Given a devaluation of the Malawian kwacha of between 50% and 30%, Old Mutual said that the increase in results from operations would have been between 7% and 9%.

IFRS profit increased by 10% to R8.4 billion, driven by improved operating performance, offset by the prior-year impairment of the group’s China business and the loss on sale of its Nigeria business in 2024.

This was also partially offset by smaller profits from Old Mutual’s Zimbabwean business after the transition of the functional currency from Zimbabwe Gold to the US dollar in 2024.

Headline earnings thus declined by 2% to R8.6 billion, primarily due to the impact of Zimbabwe. The group’s total dividend still increased by 8% to 93 cents per share.