UPDATE 2-South Africa's Abil issues second profit warning in five weeks
* Warns FY profit may fall 90 pct
* Increases levels of provisions, rights issue
* Shares down nearly 4 pct
(Adds analyst, detail, background, updates shares)
JOHANNESBURG, Oct 25 (Reuters) - South Africa's African Bank Investments issued its second profit warning in five weeks on Friday, flagging a 90-percent plunge in full-year earnings due in part to rising bad debts among its core market of low income borrowers.
Shares in the bank, known as Abil, dropped as much as 8 percent after it said it would also increase a planned rights issue by over a third to 5.5 billion rand ($563 million).
Some analysts said the warning - so soon after the last - would add to concerns about management's willingness to communicate with investors.
"The biggest problem they face is a credibility problem, that's the real issue," said one, who declined to be named because he is not authorised to speak to the media.
Analysts have long been worried about a surge in unsecured lending in Africa's biggest economy, highlighting the risk of default on high-interest loans not backed by collateral in a country where household debt already accounts for three quarters of disposable income.
Many banks have been getting more caution. Growth in unsecured personal loans in South Africa has slowed to 17 percent in August from 30.1 percent in December 2012.
But Abil has been hit by its exposure to low-income borrowers, with unemployment remaining stubbornly high at around 25 percent.
It said on Friday that, after consulting with its auditors, it would hike provisions - the money it sets aside to cover bad debts - and write off a chunk of its loan book.
The bank said headline earnings for the year through September were likely to be as low as 37 cents a share, down from 378.2 cents a year earlier. Headline EPS, the main measure of profit in South Africa, excludes certain one-time items.
Abil had previously flagged a 58-63 percent drop in earnings.
"It marks a departure from previous guidance, it's worrying," said Johann Scholtz, head of research at Afrifocus Securities in Cape Town.
Abil shares were down 3.85 percent at 16.25 rand at 1245 GMT. The stock has lost half its value this year versus a 15 percent rise in Johannesburg's All-Share index.
CEO Leon Kirkinis conceded the new warning would raise questions around the credibility of the management team - something which is particularly important to the bank as it does not take deposits and so relies on the bond market for funding.
"That's entirely justified to be asking those questions and we're not going to be defensive about it and pretend its not an issue in peoples' minds," he said on a conference call.
Abil said it expected a pretax hit of 2.2 billion rand to its net income from higher provisions and other write-downs.
It said it would write off 3 billion rand worth of its bad loan portfolio and shorten the amount of time before bad loans were written off its balance sheet.
It also wrote down the value of its retail furniture business - which it is trying to dispose of - by 4.6 billion rand. While Abil has used the furniture business to sell sofas and living room tables to low-income customers on credit, it has been squeezed by slowing consumer demand.
The yield on Abil's 2017 dollar bond has remained stable at 7.085 percent as the bank's recapitalisation reduces investors' risk, one analyst said.
($1 = 9.7635 South African rand)
(Additional reporting by David Dolan; Editing by David Dolan and Mark Potter)