| Tue 31 Jul 2001, 0:00 | | African Bank Investment Limited Trading Update For |
|
JUNE 2001
AFRICAN BANK INVESTMENT LIMITED
("Registration number 1946/021193/06")
TRADING UPDATE FOR THE QUARTER ENDING 30 JUNE 2001
1. INTRODUCTION
To achieve the objective of communicating operating performance more
regularly than the statutory six-monthly reporting periods, African Bank
Investments Limited ("ABIL") publishes quarterly trading updates. These
updates focus on the size of the loan book and movements in constituent
portfolios. These, together with risk-adjusted margins generated on these
portfolios, are the main drivers of performance in the business. It is
important to note that the quarterly update purely relates to the size and
movement of the various portfolios and, as a result, is not reflective of
profitability on its own.
ABIL is pleased to submit the update for the period ending 30 June 2001.
2. THE LOAN BOOK AT 30 JUNE 2001
The challenge faced by the group since late 1999 has been to achieve a
superior yield from an asset portfolio undergoing significant systemic
change. Whilst undertaking a major proactive shift in business towards newer
credit models within carefully controlled risk parameters, the business also
had to face the additional challenge of adjusting to major changes
introduced by Government in June 2000 on the Persal portfolio.
The major challenge for a business such as ABIL in a developing market, is
not absolute growth in credit portfolios but rather achieving the desired
risk adjusted yield from the portfolio. As a result, African Bank in
particular has been cautious in its asset growth, concentrating rather on
credit quality. Despite the above-mentioned systemic changes and sustained
competitive pressure, ABIL has achieved satisfactory business volumes in
this reporting period.
The table below shows the changes in the loan book that have occurred since
the last full reporting period ended 30 September 2000.
As predicted in the quarterly report to December 2000, the decline in the
portfolio has been reversed in the past three months. The loan portfolio
increased by 2.5% to R4 438 million at 30 June 2001. This increase includes
the change in the treatment of the Miners Credit Guarantee(MCG) portfolio,
as discussed under Theta Investments in paragraph 5. Excluding this
adjustment, the book shows a smaller increase, mainly as a result of the
decline in the Persal and quasi-government business. The reduction in the
Persal portfolio masks the satisfactory growth achieved by most of the other
portfolios of ABIL.
Good growth was achieved over the quarter in the retail portfolio (32%), the
Standard Bank joint venture (93%), Miners Credit Guarantee (115%) and the
African Contractor Finance portfolio (36%).
The average loan size written in the quarter ending 31 March 2001 was R4 235
with a term of 19 months. New loans written in this quarter had an average
term of 19 months and an average value of R5 647, an increase of 33%.
Advances % Change for Qtr ended Qtr ended Qtr ended Year ended
in Rm
Quarter 30 June 31 March 31 December 30 September
2001 2001 2000 2000
TOTAL 2.5% 4 438 4 328 4 509 4 655
AFRICAN BANK -2.4% 3 524 3 612 3 825 4 024
Persal -18.5% 1 159 1 422 1 734 2 107
Parastatals -20.2% 229 287 340 376
Transitional
Local 1.5% 186 183 184 251
Councils (TLC)
Corporate
payroll 6.6% 1 401 1 314 1 362 1 248
agreements
Retail
debit order 31.9% 508 385 198 41
products
Standard Bank
Joint 93.1% 42 22 8 0.3
Venture (53%)
SAFRICH -18.9% 107 132 159 171
Persal -19.7% 62 78 96 107
Corporate -17.7% 45 55 63 64
THETA
INVESTMENTS 38.1% 807 584 525 460
Credit
Indemnity 19.0% 190 160 139 148
Miners Credit
Guarantee 115.1% 214 100 95 83
Gilt Edge
Management 13.1% 186 165 162 147
Services
African
Contractor 35.6% 213 157 126 80
Finance
Quatro 5.2% 2 2 2 2
3. AFRICAN BANK
The rate of decline in the bank's portfolios slowed from a 5.6% decline
quarter-on-quarter in March 2001 to a 2.4% decline quarter-on-quarter in
June 2001 and it is expected that the decline will reverse over the next
period.
3.1 CORPORATE PAYROLL PORTFOLIO
The corporate payroll portfolio increased by 6.6% in the 3 months to R1 401
million. African Bank is focused on growing this core portfolio through
tailored products with improved service levels to new and existing clients
and increased sophistication with regard to employer specific risk
underwriting. It is now the single biggest portfolio in the group, having
overtaken Persal in this quarter despite increasing evidence of competition.
3.2 RETAIL PORTFOLIO
The growth of the retail portfolio by 31.9% to R508 million underlines the
demand for individual retail debit order lending. The total number of
individual debit order clients now exceeds 197 000. Underlying credit losses
remain within acceptable bad debt loss parameters.
The joint venture with Standard Bank has gained momentum in the past nine
months and should continue to grow into the foreseeable future.
3.3 PERSAL PORTFOLIO
The decrease in the Persal book is as a result of Government's previous
decision to discontinue discretionary payroll deductions. Following
Government's recent decision to allow consolidations of the existing loans
of its employees, African Bank is actively taking part in the consolidation
and rehabilitation of public servants and, as a result, this portfolio
should stabilise in the forthcoming quarter.
3.4 PARASTATALS/TRANSITIONAL COUNCILS PORTFOLIOS
Portfolios in the quasi-government sectors have continued to decrease as a
result of tightened credit policy due to market changes brought about by
corporate restructuring in these sectors. The restructuring of certain of
the Transitional Local Councils has largely been implemented and we have
started to increase our exposure to this sector again, albeit at a slower
rate.
4. SAFRICH
Safrich, whose business is predominantly related to Persal, is being wound
down.
5. THETA INVESTMENTS
This portfolio is the aggregation of the portfolios of the underlying
subsidiaries of Theta Investments. These are Credit Indemnity, Miners Credit
Guarantee(MCG), Gilt Edged Management Services, African Contractor Finance
and Quatro.
The portfolio grew by 38.1% over the three months. This growth includes a
once-off adjustment to the MCG portfolio, which is discussed later in this
document. Excluding this adjustment, the portfolio grew by 20.7%. Loans to
small-, micro- and medium-sized businesses (SMMEs) comprise 26% of Theta
Investments' loan portfolio.
All the Theta subsidiaries recorded above average growth, with the strongest
growth coming from African Contractor Finance (35.6%). This portfolio was
transferred by African Bank to Theta Investments during the year in order to
apply entrepreneurial focus to this business. This portfolio is expected to
continue to show satisfactory growth for the rest of the financial year.
The accounting practice for the Miners Credit Guarantee portfolio was
changed after the end of March 2001. The portfolio of joint ventures in
which MCG are involved was previously equity accounted and is now
proportionately consolidated within Theta Investments going forward. The MCG
portfolio has grown materially through turnover growth and new joint
ventures and will continue to do so over time. Given the size of the
underlying portfolios, it is more meaningful to evaluate these entities
fully, rather than on an equity accounted basis. The accounting change
contributed significantly to the growth of the book during the quarter. On a
comparable basis, the MCG portfolio grew by 13% over the 3 months from March
2001.
Credit Indemnity continued to show growth in volumes as the investment in an
expanded distribution network started to bear fruit.
Gilt Edged Management Services also showed good growth in the quarter as the
focus on diversification of the business outside of the local authorities
arena gained momentum.
6. TRADING PROSPECTS
The trading trends reported in the quarter to 30 June 2001 are expected to
be sustained into the last quarter.
On behalf of the board 30 July 2001
Registered Office Transfer Secretaries
59 16th Avenue, Mercantile Registrars Limited
Midrand,1685 8th Floor, 11 Diagonal Street
Private Bag X170, Johannesburg,2001
Midrand, 1685
