| Mon 10 Feb 2003, 8:42 | | African Bank Investments Limited - Trading update |
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African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Company registration number: 1946/021193/06)
Share code: ABL
ISIN code: ZAE000030060
Trading update for the first quarter ending 31 December 2002
1. INTRODUCTION
In order to communicate operating performance more regularly than the six-
monthly statutory reporting periods, African Bank Investments Ltd ("ABIL")
publishes quarterly trading updates. These updates focus primarily on the size
and composition of the advances book as well as the levels of non-performing
loans ("NPLs") and provisions, which together constitute the primary drivers of
profitability in the group. It is important to note that while the trading
update gives an overall indication of these factors as well as any other
pertinent issues, these do not necessarily reflect overall profitability levels
of the group.
2. MARKET CONDITIONS
The year-end to September 2002 was a particularly difficult period, following
the demise of Unifer and Saambou, and the impact that it had on the overall
quality of ABIL`s loan portfolio. As a result, NPLs and provisions rose to
unprecedented levels giving some concern as to the direction of future bad debt
charges. At the time of the year-end announcement, ABIL presented various early
indicators of credit quality, which were showing signs of steady improvement.
Traditionally, the first quarter of ABIL`s financial year generates
disproportionally higher NPL growth and credit charges given early salary
payments in December and the Christmas holidays. Despite this seasonal effect,
ABIL is pleased to confirm that the credit experience for the quarter ending 31
December 2002 showed an improvement in NPLs, which were down from R2 989,6
million in September 2002 to R2 904,8 million. Accordingly, the overall NPL
levels do appear to have peaked, and are showing positive signs of a further
reduction.
Provision coverage to NPLs has been maintained at 79,3% as opposed to 79,5% as
at 30 September 2002. The income statement charge for specific provisions was
R107,3 million for the quarter to December 2002.
The company believes that demand for credit remains strong, and improving credit
default rates will allow the group to return to real advances growth later in
the year.
Costs remained tightly managed in the quarter and are in line with continued
improvement in the cost-to- income ratio.
The above factors, together with the strengthening economy, reducing inflation
outlook and improved market sentiment, give ABIL cause for cautious optimism and
it is well positioned for consistent and steady growth, thereby generating real
shareholder value.
3. THETA INVESTMENTS RESTRUCTURING
The Theta group has been the private equity and new business incubator vehicle
for the past few years and has always been separately capitalised as a stand-
alone entity with a portfolio of investments. Some of these businesses have now
grown to critical mass and are core to the group, and others have failed to meet
the group`s investment return hurdles. As previously indicated, over the course
of the next few months and subject to obtaining the necessary regulatory
approvals, the Theta group will be restructured with the larger critical mass
businesses being divisionalised into African Bank, and some of the non-core
businesses being sold off.
The businesses that remain will be grouped into a cluster referred to as the
Specialised Lending division and will continue to focus on their respective
markets and clients. The divisionalisation process is driven by capital
efficiency and a need to simplify and focus the group on its core competency of
unsecured credit provision, and not as a cost-saving or integration imperative.
Whilst the process will lead to a more efficient capital structure, it is
unlikely that there will be any material positive impact on the new division`s
performance this year.
4. GROSS ADVANCES
The table below sets out the composition of the gross advances book as at 31
December 2002 and the movements since 30 September 2002.
ABIL advances fell by 3,5% in the quarter, mainly as a result of significant
collections on the Persal and Saambou books. The Specialised Lending division
maintained its gross advance levels over the period, albeit with a better mix,
as attention on non-performing businesses has resulted in a curtailment of asset
growth in those entities.
% 31 December 30 September
R millions growth 2002 2002
African Bank (3,8) 5 978,4 6 212,1
Limited
Core lending 3,4 3 183,4 3 078,6
books
Payroll - (10,0) 663,2 737,2
Persal
Saambou PLB (11,0) 2 131,8 2 396,3
Specialised (1,6) 939,7 954,5
lending
Credit (2,3) 241,1 246,7
Indemnity
Miners Credit 4,3 291,5 279,4
Guarantee
Gilt Edged (8,3) 191,2 208,6
Management
Services
African (5,7) 132,9 141,0
Contractor
Finance
A1 Taxi 7,5 71,8 66,8
Other (6,7) 11,2 12,0
Total (3,5) 6 918,1 7 166,6
Excluding the Persal and Saambou books, on which there is no new lending, the
real organic growth on the core African Bank business was up 3,4% or 13,6% on an
annualised basis. The following table sets out the movements in the African Bank
book over the period. In addition the table highlights the strong cash flow of
the Bank with over R1 billion being collected in the quarter.
Core Saambou
lending
R millions books Persal PLB Total
Gross
advances as
at 30 3 078,6 737,2 2 396,3 6 212,1
September
2002
New loans 507,1 0,0 0,0 507,1
granted
Net receipts (325,6) (61,4) (202,9) (589,9)
Interest and
charges
accrued 281,1 31,9 102,2 415,2
Gross cash (606,7) (93,3) (305,1) (1 005,1)
receipts
Bad debts (76,7) (12,6) (61,6) (150,9)
written off
Balance as at
31 December 3 183,4 663,2 2 131,8 5 978,4
2002
5. NON-PERFORMING LOANS
African Bank
(excl. Saambou) Saambou
R millions Dec 02 Sep 02 Dec 02 Sep 02
Advances
Performing 2 414,0 2 435,3 902,4 1 014,8
Non-performing 1 432,6 1 380,5 1 229,4 1 381,5
Total 3 846,6 3 815,8 2 131,8 2 396,3
NPLs as a %
of total 37,2 36,2 57,7 57,7
advances
Specialised
Lending Total
Dec 02 Sep 02 Dec 02 Sep 02
696,9 726,9 4 013,3 4 177,0
242,8 227,6 2 904,8 2 989,6
939,7 954,5 6 918,1 7 166,6
25,8 23,8 42,0 41,7
Non-performing loans fell by R84,8 million (2,8%) from R2 989,6 million to R2
904,8 million during the quarter to December 2002.
Non-performing loans within African Bank, excluding the Saambou PLB, rose
slightly from 36,2% to 37,2% of gross advances or by R52,1 million, mainly due
to the seasonal effect of the quarter. It is expected that most of this effect
will reverse during the quarter to March 2003.
The Saambou PLB book continues to perform well and NPLs during the period fell
by 11% to R1 229,4 million, which represents 57,7% of the total book.
Given the high levels of non-performing advances, especially within the acquired
Saambou PLB book, the group suspends the raising of interest on loans that have
a low probability of recovery. The total value of advances on which interest has
been suspended as at 31 December 2002 was R1 424 million, which against total
gross advances of R6 918,1 million, leaves gross interest-bearing advances of R5
494,1 million. The margins calculated using the gross interest-bearing advances
have remained steady over the period, with the growth in high yield retail
products being offset by the lower yields earned on the Saambou PLB book.
6. PROVISIONS
ABIL Consolidated
R millions Dec 02 Sep 02
Advances
Performing 4 013,3 4 177,0
Non-performing 2 904,8 2 989,6
Total advances 6 918,1 7 166,6
Provisions and reserves
General 52,8 56,2
Specific 2 059,5 2 122,8
Stangen credit life 98,5 87,4
reserves
Total provisions 2 210,8 2 266,4
Other insurance coverage 92,7 109,5
Total provisions and 2 303,5 2 375,9
reserves
Bad debt write-offs 170,6 640,1
Ratios (%)
Total provisions and 79,3 79,5
reserves as a % of NPLs
Specific provisions and
insurance
reserves as a % of total 31,1 31,1
advances
General provisions as a % 0,8 0,8
of total advances
Total provisions and 33,3 33,2
reserves as a % of total
advances
Bad debt write-offs as a % 9,7 12,2
of average advances
(annualised)
The group has maintained a conservative position with regard to provisioning
levels and the overall coverage ratio is steady at 79,3% (79,5%). Provisions to
gross advances remained constant at 33,3% (33,2%) whilst write-offs reduced from
12,2% to 9,7%, mainly due to the upfront effect of the Saambou PLB write-off in
the last quarter of the 2002 financial year.
7. CREDIT QUALITY INDICATORS
The leading credit indicators disclosed in the year-end results announcement are
beginning to translate into lower default rates and levels of NPLs. As
previously stated, the high levels of NPLs that arose during 2002 were primarily
due to an overextended credit bubble resulting from the Saambou and Unifer
failures. Whilst significant collection efforts are being made at reducing this
legacy, the results and, more importantly, cash collected will take some time to
come through. It is expected that these NPLs will work through the system over
the next 18 months, with expected recoveries being made and the balances being
written off.
Since the previous year-end, the vintage curves are continuing to show improving
trends. Vintage curves track each month`s new loans and plot the cumulative
proportion of that portfolio that migrates to non-performing status. The latest
vintage curves are set out below.
During the period of the Saambou and Unifer overextension, the vintage curves
peaked out at approximately 20% - 25%, translating into unacceptable loan
losses. Since then the curves have shown a sustained improvement and are now
projecting 15% peaks. This improvement was partly a direct result of holding
back credit supply (shorter-term loans and higher credit hurdles) and partly due
to the improving market environment as customers manage more acceptable levels
of credit.
The most recent vintage trends support a slow and careful relaxation of credit
supply which should translate into steady growth in advances. This process will
however be very carefully managed, and as such real advances growth is likely
only to pick up in the second half of the year.
The predatory practices of the debt mediators and administrators appear to be
slowing, primarily due to the efforts of African Bank in challenging and
pursuing legal recourse. The group continues to defend itself in all cases and
has been successful in being excluded from more than 50% of all administration
applications. In addition, cash received from existing administration orders
continues to rise as the portfolio management function takes effect.
Monthly administration orders, which fell from approximately 2 200 in April 2002
to approximately 1 700 by September 2002, continued to fall by December 2002 to
under 1 000. However, this was partly affected by the seasonal slowdown over
Christmas.
Persal cancellations continue to decline from a peak of 7 502 in September 2001
to 784 in December 2002 and the collection of this book continues to perform
well. While there is no indication from National Treasury as to whether or not
Persal will be re-opened, it is unlikely that a decision will have a material
effect on this year`s performance.
8. SAAMBOU PLB
The collection process on the Saambou PLB continues to operate at better than
anticipated levels. Total cash collections since the acquisition to 31 December
2002 exceed R540 million, and a large amount of this has been from the
underperforming books, which were fully provided on acquisition. Analysis
confirms that the overlap between African Bank and Saambou PLB is significant
and plans to integrate the collection efforts are being prioritised so as to
fast-track the debt rehabilitation of our customers.
9. AC 133
The group is conducting a review of the effects of AC 133 on its results and
operating performance. The impact of AC 133 will be determined and included in
the interim results for the current year to be released in May 2003.
10. Credit legislation review
As indicated in the 2002 financial year-end results, a review of the Usury Act
and other credit legislation is under way, and ABIL believes that this will
result in a more certain and appropriate regulatory framework emerging, which is
positive for the industry.
On behalf of the board
10 February 2003
African Bank Investments Limited
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Company registration number: 1946/021193/06)
Share code: ABL ISIN code: ZAE000030060
Registered office:
59 16th Road, Midrand, 1685
Share transfer secretaries
Computershare Investor Services Limited, 70 Marshall Street, Johannesburg, 2001,
PO Box 1053, Johannesburg, 2000
Board of directors: Executive directors: L Kirkinis (Chief Executive Officer), G
Schachat (Deputy Chairman), J A de Ridder, D F Woollam
Non-executive directors: AS Mabogoane (Chairman), N Adams, JJ Kekane, SA Levitt,
BJT Shongwe, RJ Symmonds, DFG Tembe (Mozambican) Group Secretary: S Martin
This announcement is available on the African Bank Investment Limited website
at: http://www.africanbank.co.za
Date: 10/02/2003 08:00:00 AM Produced by the JSE SENS Department
