| Thu 15 Feb 2001, 0:00 | | African Bank Investments Ltd - Trading Update For |
|
TRADING UPDATE FOR THE FIRST QUARTER ENDING 31 DECEMBER 2000
1. Introduction
To achieve the objective of communicating operating performance more regularly
than the statutory six-monthly reporting periods, African Bank Investments
Limited ("ABIL") has decided to publish quarterly trading updates for the
quarterly periods ending 31 December and 30 June.
These updates will focus on the size of the loan book and movements in
constituent portfolios. These are the main drivers of performance in a lending
business as they drive volume and margin respectively.
This first quarterly report is done on a sequential basis only. With enough
historical quarterly reports, the year-to-year quarterly performance will be
reported in future.
2. The loan book at 31 December 2000
The table below shows the changes in the loan book that occurred since the last
reporting period ended 30 September 2000.
ADVANCES IN R'000 Sep-00 % Change Dec-00 Change in R
AFRICAN BANK LIMITED 4,103,740 -5.0% 3,900,555 -203,185
PERSAL 2,106,798 -17.7% 1,733,768 -373,030
PARASTATALS 286,111 -11.3% 253,929 -32,182
TRANSITIONAL LOCAL
COUNCILS (TLC) 250,724 -26.6% 183,993 -66,731
CORPORATE 1,338,545 4.4% 1,397,008 58,463
RETAIL 41,390 378.4% 198,027 156,637
CONTRACTOR FINANCE 79,881 57.7% 125,937 46,056
STANDARD BANK JOINT
VENTURE (53%) 291 2612.3% 7,893 7,602
SAFRICH 170,917 -6.8% 159,264 -11,653
PERSAL 107,219 -10.1% 96,448 -10,771
CORPORATE 63,698 -1.4% 62,816 -882
THETA INVESTMENTS 380,058 5.0% 399,026 18,968
CREDIT INDEMNITY 148,047 -5.9% 139,332 -8,715
MINERS CREDIT GUARANTEE 82,778 14.6% 94,886 12,108
GILT EDGE MANAGEMENT
SERVICES 146,784 10.6% 162,383 15,599
QUATRO 2,449 -1.0% 2,425 -24
TOTAL 4,654,715 -4.2% 4,458,845 -195,870
The loan portfolio decreased by 4% to R4.459 billion, in line with management
expectations, and reflecting the impact of lost Persal business from 1 July
2000.
The rate of decline in the size of the loan book is decreasing as the momentum
in retail and corporate payroll lending increases rapidly, offsetting the
decrease resulting from the Persal and Parastals/TLCs portfolios. The loan
portfolio is expected to resume an upward trend during the third financial
quarter starting April 2001.
The average loan balance at 31 December 2000 was R2,589 with an outstanding
term of 22 months. New loans written in the last month of the quarter had an
average term of 19 months and an average value of R4,052.
The table shows a strong increase in the retail (378%)and contractor housing
finance (58%) portfolios and a satisfactory increase in the private corporate
sector payroll portfolio (4%), over the reporting quarter. There is also a
welcome rapid decrease in those portfolios where management have tightened
credit policy due to market changes brought about by corporate restructurings,
e.g. Parastatals/ Transitional Local Councils and in Persal following the
Government decision to discontinue discretionary payroll deductions.
These trends show a move towards a portfolio with a higher average yield, and a
rapid reduction in portfolios where exposure is being managed down.
2.1 The Retail Portfolio
The growth of the retail portfolio by 378% to R198 million underlines:
* The momentum being gained in the scored retail lending sector,
* Increasing experience in scoring and processing retail loans, and
* Suitability of products developed to date.
At the end of February 2001, scored products for other banking deduction
platforms were at an advanced stage of development and testing. These products
have increased the size of the total market with which we can engage.
44% of the new retail loans are into the existing client base.
Continued strong growth is expected in this portfolio. Although this is still
in its development phase, underlying credit losses are currently well
contained, while the yields in this portfolio continue to meet expectation.
The Joint Venture with Standard Bank has started to show results, with a 26
times increase in volumes over the reporting quarter (albeit from a small base)
2.2 Corporate Payroll Portfolio
The corporate payroll portfolio increased by 4% to R1.460 billion (including
the Safrich corporate payroll book). The restructuring of the sales
infrastructure (being the integration and coordination of the different
channels) that took place in the second half of financial year 2000 affected
normal performance negatively. This lag is now out of the system with the
result that stronger growth in this portfolio is being experienced.
Risk differentiated products (including pricing levels) were developed for the
different corporate profiles.
The new structure has now been bedded down and has improved management control
of the sales infrastructure, resulting in significantly improved service to
corporate clients and their employees. This should lead to decreased provision
and bad debt levels in this portfolio in the future.
The number of payroll contracts increased by a net 225 over the quarter to over
5,000 at the end of December 2000.
2.3 Persal Portfolio
The Persal portfolio, which is affected by the announced termination of
government non-statutory payroll deductions at 30 June 2001, decreased by 17.4%
from R2.214 billion to R1.830 billion (including the Safrich Persal book). This
is in line with the expectation of a reduction to R1 billion by 30 June 2001.
Over the quarter, additional cancellations amounting to approximately 6,000
accounts per month were experienced. The overall level of specific and general
provisions covering this portfolio is considered adequate.
The alternative collection methods discussed in the 2000 Annual Report remain
in place to be used in the period post June 2001.
Negotiations with government relating to the potential run-off of the existing
Persal books beyond 30 June 2001 are ongoing.
2.4 Parastatals/Transitional Local Councils Portfolio
Credit policy governing the loan exposure to parastatals (e.g. Transnet,
Telkom) and the TLCs was tightened in financial year 2000 to recognize
increasing risks of the instability of employment levels as parastatals face
restructuring and new competition pressures, and the TLCs adjust to a new and
much tougher legal and operating environment.
This portfolio decreased by 18% to R438 million, in line with management
expectations, and is expected to continue this decline. The TLC lending
business is now being managed on a focused basis through Gilt Edge Management
Services, a subsidiary of Theta Investments.
The risk in this book remains within acceptable levels.
2.5 Contractor Housing Finance
Contractor housing finance, which represents bridging finance for small-scale
builders with government contracts to build low-cost housing, continues to gain
momentum with an increase of 58% to R126 million. Further strong growth is
expected in this portfolio.
The risk-reward profile of this specialized portfolio is yielding positive
results in line with our commitment to move into self-employed sectors on a
sustainable basis. This developing business forms an important learning base
for other procurement contract collaterallised small business lending models.
2.6 Theta Investments portfolio
This portfolio is the aggregation of the portfolios of underlying subsidiaries
of Theta Investments. These are Credit Indemnity, Miners Credit Guarantee, Gilt
Edge Management Services and Quatro.
This portfolio grew by 5% to R399 million. The growth in individual portfolios
was in line with management expectations.
The Credit Indemnity book experienced a normal seasonal downturn in December
(with the month traditionally closing on the 20th).
3. Insurance business/Stangen
The performance of Stangen is affected by the volume of new business (linked to
loans written by group companies), the movement in the life fund (which is
positive if the insured loan book matures and reduces in size), and investment
income on the liquid assets held.
New business written was higher in the reporting quarter relative to the
previous sequential quarter, but lower than the comparative quarter of
financial year 2000 due to the loss of new Persal business.
4. Trading prospects
The positive trading trends reported in the quarter to 31 December 2000 are
expected to continue into the second quarter.
The interim results for the six-month period ending 31 March 2001 will be
announced on 14 May 2001.
