* African Bank to launch overdraft in 2020
* Will also relaunch credit card, expand in insurance
* Reversing falling customer numbers key to strategy, comeback
* Still owned by c.bank after near-collapse in 2014
JOHANNESBURG, June 20 (Reuters) - Small South African lender African Bank, rescued from failure by the central bank four years ago, plans to offer overdrafts and expand its insurance business as a drop in customer numbers threatens its turnaround strategy.
The bank is losing clients after it tightened lending criteria following its re-launch into a competitive banking sector made tougher by under-pressure consumers in a sluggish economy.
The first bank to be placed under South African Reserve Bank (SARB) curatorship in over a decade after nearly collapsing under the weight of bad loans in 2014, African Bank says it wants to make a comeback as a safer institution with a base of retail deposits and less focus on risky unsecured credit.
It has made strides towards a set of ambitious 2021 targets, but its customer numbers have fallen from 1.25 million in 2016 to 1.04 million in March, some way from its 2.5 million goal.
"That is the one we are concerned about, and I think we do have a very solid plan in terms of how we can address that," CEO Basani Maluleke told Reuters. The bank expects the trend to reverse following the launch of its low-fee digital account in May, she said.
Next year it plans to launch an overdraft facility in a bid to make the new account, called MyWorld and which it says is already the cheapest on the market, more attractive.
MyWorld has accumulated 20,000 customers so far.
There are few overdrafts available to the bank's low-income target market where credit card penetration is also low, Chief Finance Officer Gustav Raubenheimer said.
The bank also plans to expand its short-term insurance product beyond funeral policies and relaunch its credit card.
It hopes this will halt the loss of customers, allowing it to earn more revenue from transaction fees and other products and mine customer data for cross-selling.
If it struggles, it could push a SARB exit, as well as that of its other shareholders - six of South Africa's biggest banks - further into the future.
The SARB has said it wants African Bank to be viable and sustainable before it exists. It hived the bank off from listed parent, African Bank Investments Ltd (Abil), when the company started to fail. Abil's share price tumbled from 28 rand to 31 cents, before trading was suspended.
African Bank retained a portion of its old loan book, which it hoped to use as a springboard for MyWorld but tighter lending criteria led it to lose some customers.
The bank should capitalise on its access to clients from its former lending book, Stuart Theobald, chairman of financial consultancy Intellidex, said. Highly competitive rates have also given it an edge in savings and investments, where it grew deposits by 119% in the first half of the year.
MyWorld, however, doesn't stand out against rival offerings, he said. It launched amid the arrival of an array of new, largely digital-only lenders, some of which are growing much faster and whose arrival has also forced big banks to up their game.
"The of level competition there is quite aggressive," Theobald said.
In the longer term, Maluleke said African Bank planned to establish a digital marketplace where customers could buy a wide array of products, including from third parties. But for the next 18 months, it is focusing on stemming customer losses.
(Reporting by Onke Ngcuka and Emma Rumney, editing by Emelia Sithole-Matarise)