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African Bank - Trading Update for the First Quarter ending 31 December 2003
African Bank Investments Ltd
(Incorporated in the Republic of South Africa)
(Registration number 1946/021193/06)
(ISIN: ZAE000030060)
(Share code: ABL)
Operational update for the first quarter ending 31 December 2003
1. Introduction
In order to communicate operating performance more regularly than the six-
monthly statutory reporting periods, African Bank Investments Ltd ("ABIL")
publishes regular operational 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
update gives an indication of these factors as well as any other pertinent
issues, these do not necessarily reflect overall profitability levels of the
group.
ABIL distinguishes between "lending books", being advances books in which
lending is continuing and "pay-down books", being books that are being unwound
and in which no new lending is taking place. This is done in order to facilitate
enhanced disclosure regarding asset quality and growth, given the significant
changes that have taken place in the ABIL advances portfolios over the last few
years.
2. Market conditions
Market conditions have remained positive over the past quarter, translating into
both higher sales growth on the back of strong demand and a continuing
improvement in credit quality.
Sales increased 14.5% to R1 202.4 million for the quarter (Sept 2003 quarter: R1
050.1 million). The growth in sales was in line with the improving trend
observed in the latter part of 2003 and was further enhanced by the seasonal
increase in sales usually associated with the December quarter.
Total advances grew by 1.3% to R6 397.8 million, as the growth in new sales
exceeded the reduction in the pay-down books. The lending books increased by
R245.7 million, while the pay down books reduced by R161.9 million.
The changing composition of the portfolio continued to lift the overall yield.
The higher turnover has not affected default rates and NPLs continued to improve
over the past quarter, down 4.1% to R2 516.5 million in December 2003 (Sept
2003: R2 625.3 million).
Provision coverage to NPLs remained conservative at 74.9% (Sept 2003: 74.7%),
while bad debt write-offs were maintained at similar levels to 2003.
Non-statutory cash reserves dropped to R478.0 million after the payment of the
final and special dividends in December. It is anticipated that these reserves
will build up over the next quarter, but at a slower rate than last year, given
the rise in sales.
ABIL remains well positioned to deliver its targeted returns on assets and
equity, thereby generating real shareholder value.
3. Sales
The lift in sales across all the business units continued to accelerate. Several
factors contributed to the improvement for African Bank Retail, including strong
demand, an improvement in the financial position of clients, a general decline
in the over indebtedness of this sector of the market and credit criteria that
were relaxed on the back of the improved credit environment. At Credit
Indemnity, the increase in sales was mainly attributable to longer terms and
bigger loans sizes in the 6-month and 12-month products that were rolled out
last year. MCG experienced good demand for its new products to existing clients.
SALES ANALYSIS
3 months ended 3 months ended
% 31 December 30 September
R million change 2003 2003
African Bank RETAIL 10,6 732,9 662,9
Payroll (25,8) 81,2 109,4
Retail/debit order 16,4 571,1 490,6
Standard Bank joint 28,0 80,5 62,9
venture
SPecialised lending 21,3 469,5 387,1
Credit Indemnity 16,2 255,2 291,6
Miners Credit Guarantee 33,3 168,6 126,5
ABCommerce 11,0 19,2 17,3
Commercial Vehicle 11,4 26,5 23,8
Finance
Total 14,5 1 202,4 1 050,1
The improvement in sales over the past 12 months was achieved through a
combination of a 11.9% increase in the number of loans sold and a 29.6% increase
in the average size of loans. The African Bank Retail sales graph depicts the
sales trend since October 2002. It is anticipated that sales will fall over the
next quarter in line with seasonal trends.
African Bank Retail Sales
Oct 147,956,1
17
Nov 147,375,6
85
Dec 174,966,4
48
Jan 157,004,1
75
Feb 143,102,0
04
Mar 133,779,8
03
Apr 159,061,0
26
May 129,893,6
77
Jun 138,250,0
58
Jul 153,204,9
15
Aug 118,409,8
74
Sep 135,997,0
16
Oct 174,536,8
47
Nov 178,528,4
98
Dec 168,115,7
64
Jan 184,334,9
16
Feb 162,730,0
39
Mar 169,575,0
29
Apr 169,456,1
76
May 181,511,1
88
Jun 187,225,3
70
Jul 209,708,1
34
Aug 212,518,1
87
Sep 237,808,5
64
Oct 244,375,0
15
Nov 233,404,8
33
Dec 255,112,5
02
4. GROSS ADVANCES
Sep 00 Dec 00 Mar 01 Jun 01
Retail/debit order business 167784 473000 566406 731000
Payroll business 4382657 4036000 3602324 3481000
Saambou PLB
SMME 82330 159758 215000
Sep 01 Dec 01 Mar 02 Jun 02 Sep 02
880145 1023400 1181000 1335000 1524108
3579185 3534000 3452000 3340000 3037258
2396267
209301 221900 229000 202000 209007
Dec 02 Mar 03 Jun 03 Sep 03 Dec 03
1716877 1880726 1938934 2242185 2550803
2853557 2601398 2453205 2367362 2224141
2131838 1976226 1802868 1473054 1368115
204700 202699 216288 226488 236070
African Bank Retail advances on the lending books grew by 4.5% in the three
months since September 2003, through growth in the retail debit order products.
Concomitantly, the payroll book continued to decline. The Specialised Lending
division increased its advances on its lending books by 12.3% over the period.
In this quarter, for the first time since the acquisition of the Saambou PLB,
total advances showed growth in absolute terms in excess of the declines in the
pay down books. Gross interest-bearing advances have climbed by 5.4% to R5 163
million in the quarter. The advances book appears to have bottomed and,
depending on the next quarter"s sales, is likely to maintain its upward momentum
towards the second half of 2004.
The total value of advances on which interest has been suspended as at 31
December 2003 fell to R1 234.0 million (Sept 2003: R1 415.3 million). The
reduction was as a result of write-offs, cash received on these loans during the
period and lower levels of new advances qualifying for interest suspension.
The table below sets out the composition of gross advances as at 31 December
2003 and the movements since 30 September 2003.
Advances analysis
% 31 December 30 September
R000 growth 2003 2003
Lending books 5,9 4 383 388 4 137 734
African Bank Retail 4,5 3 533 759 3 381 307
Payroll - corporates and (8,4) 1 331 975 1 454 763 *
other
Retail/debit order 13,9 2 006 483 1 761 261
Standard Bank joint venture 18,2 195 301 165 283
Specialised Lending 12,3 849 629 756 427
Credit Indemnity 10,6 349 019 315 641
Miners Credit Guarantee 10,2 352 302 319 836 *
Commercial Vehicle Finance 11,9 128 004 114 399
ABCommerce 272,9 18 675 5 008
Quatro 5,6 1 629 1 543
Pay-down books (7,4) 2 014 416 2 176 363
African Bank Retail (7,6) 1 784 014 1 930 597
Persal (9,1) 415 899 457 543
Saambou PLB (7,1) 1 368 115 1 473 054
Specialised Lending (6,3) 230 402 245 766
Gilt Edged Management (8,3) 123 965 135 220
Services
African Contractor Finance (3,7) 106 437 110 546
Total advances 1,3 6 397 804 6 314 097
Less: Non-interest-bearing (12,8) (1 234 038) (1 415 300)
advances
Gross interest-bearing 5,4 5 163 766 4 898 797
advances
* On 1 October 2003 the Teba Bank JV book of R49,0 million within African Bank
Retail was transferred to MCG as part of the continuing streamlining of the
businesses, and accordingly, the September 2003 advances have been restated to
take cognisance of this transfer.
4. ASSET QUALITY
NPLs as a percentage of total advances decreased from 41.6% to 39.3% on the back
of the larger advances book and a R108.7 million reduction in NPLs over the
quarter. NPLs in African Bank Retail reduced by R103.1 million to R2 233.7
million and in Specialised Lending by R5.6 million to R282.8 million. This
decrease was despite the seasonal impact of the December quarter, which has
traditionally been the worst quarter for collections. Operational efficiencies
implemented over the past year had a positive impact on the seasonal collection
trend.
In the Collections business unit, the Saambou PLB conversion was successfully
implemented and the business fully integrated over the past quarter. Cash
received was in line with expectations, with the average collection rate on the
Saambou PLB at 67.7%, and the latest monthly collection rate at 56.9%.
Non-performing loans
Sep "02 Dec "02 Mar "03 Jun Sep "03 Dec "03
"03
African Bank 1380.6 1432.6 1372.1 1333.6 1289.3 1248.5
Saambou PLB 1381.5 1229.4 1156.7 1100.3 1047.5 985.2
Specialised 227.6 242.8 252.3 279.9 288 282.815
Lending
Asset Quality analysis
% 31 December 30 September
R000 change 2003 2003
Advances
Performing 5,2 3 881 263 3 688 822
Non-performing (4,1) 2 516 541 2 625 275
Total 1,3 6 397 804 6 314 097
Provisions and reserves
Portfolio provisions 10,1 33 093 30 060
Specific provisions (4,5) 1 712 630 1 793 466
Stangen credit life reserves 96 916 90 825
Total provisions 1 842 639 1 914 351
Other insurance coverage 43 179 46 665
Total provisions and reserves (3,8) 1 885 818 1 961 016
Ratios (%)
NPLs as a % of total advances 39,3 41,6
Total provisions as % of NPLs 74,9 74,7
(NPL cover)
Total provisions and reserves
as %
of total advances 29,5 31,1
Bad debt write-offs as % of
average
gross advances 13,5 13,1
Provisions to gross advances reduced from 31.1% to 29.5%, in line with the
reduction in NPLs.
Vintage curves track each month"s new loans as a discrete portfolio and plot the
cumulative proportion of each portfolio that migrates into various levels of
default status measured by contractual number of missed instalments.
Traditionally ABIL has disclosed the cumulative long-term vintage chart for
greater than 3 missed instalments (NPL"s). For the current quarter this vintage
has remained consistent with the trends established over recent reporting
periods. Given the high growth in sales over the last 12 months, ABIL has
focused for this reporting period on the vintage for sales written over the last
year which have missed more than 2 instalments (2+ month vintage), in order to
depict the recent credit trends in finer detail. As reflected in the chart
below, this vintage curve has remained in a narrow band throughout the period of
increasing sales and reflects that the increased sales activity has not been at
the expense of unanticipated higher default risk.
This 2+ month vintage is an earlier and thus more conservative indicator of
risk, due to the fact that not all these loans progress into NPL status.
Vintage Chart for African Bank
3 4 5 6
200301 0.01% 0.98 2.26% 3.85%
%
200302 0.00% 0.73 1.90% 3.35%
%
200303 0.04% 1.09 2.48% 3.47%
%
200304 0.08% 1.03 1.90% 3.21%
%
200305 0.11% 0.84 1.87% 3.33%
%
200306 0.03% 0.81 2.31% 3.59%
%
200307 0.04% 1.07 2.44%
%
200308 0.02% 0.93
%
200309 0.06%
7 8 9 10 11
5.25% 5.87 6.83% 7.70% 8.23%
%
4.33% 5.39 6.52% 7.21%
%
4.81% 5.97 6.75%
%
4.71% 5.65
%
4.67%
This announcement is also available on the African Bank Investments Limited
website at http://www.africanbank.co.za
On behalf of the board
3 February 2004
African Bank Investments Limited (Incorporated in the Republic of South Africa)
(Registered bank controlling company) (Registration number 1946/021193/06)
Share code: ABL ISIN: ZAE000030060
Registered office: 59 16th Road, Midrand, 1685
Share transfer secretaries: Ultra Registrars (Pty) Ltd, 11 Diagonal Street,
Johannesburg, 2001.
Board of directors: Executive directors: L Kirkinis (Chief Executive Officer), G
Schachat (Deputy Chairman), JA de Ridder, A Fourie, AG Herselman, TM Sokutu, DF
Woollam
Non-executive directors: AS Mabogoane (Chairman), DB Gibbon, BD Goba, JJ Kekane,
SA Levitt, R Naidoo, BJT Shongwe, BPF Steele, GZ Steffens(German), DFG Tembe
(Mozambican), A Tugendhaft. Group Secretary: S Martin
Date: 03/02/2004 07:00:11 AM Produced by the JSE SENS Department
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