| Wed 3 Aug 2005, 9:22 | | ABIL - Operational update for the third quarter en |
|
ABIL - Operational update for the third quarter ending 30 June 2005
AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Registration number 1946/021193/06)
(Ordinary share code: ABL) (ISIN: ZAE000030060)
(Preference share code: ABLP)(ISIN: ZAE000065215)
(`ABIL`)
Operational update for the third quarter ending 30 June 2005
1. INTRODUCTION
ABIL publishes regular operational updates, which focus primarily on recent
sales trends, the size and composition of the advances book and asset quality.
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.
2. OVERVIEW
The continued favourable economic climate in our target market, as well as the
early benefits from various growth and business optimisation strategies within
ABIL have been evident in the quarter in terms of sales, book growth and asset
quality.
The sales environment has been buoyant over the last quarter resulting in an
increase of 34% relative to the equivalent quarter in 2004. This has translated
into a year to date growth in sales of 21%, ahead of the 15% to 20% growth
target range previously communicated. The group expects sales for the full year
to be at the higher end of this range.
The lending books grew by an annualised rate of 19% but total advances at R6 124
million were flat on September 2004, as the group continued to write off non-
performing loans in the pay down books. Gross interest-bearing advances grew by
an annualised 10% from R5 100 million as at 30 September 2004 to R5 474 million
as at 30 June 2005.
As previously stated, the group expects margins to continue to lift towards the
end of the 2005 financial year, due to the changing mix of products in the
portfolio, and then to fall gradually as the price reduction and differentiation
strategies begin to feed through together with the expected revenue growth, cost
absorption and risk profile benefits.
Non-performing loans (`NPLs`) maintained their steady downward trend and reduced
by R127 million to R1 679 million in the quarter. NPL coverage was 69.7%.
Operating costs have continued to reduce in line with expectations and the group
remains on track to deliver its 17% cost-to-advances target by 2006.
The group held non-statutory cash reserves of R1 478 million after the payment
of the interim dividends.
3. SALES
Sales value (R million)
2005
%change
05vs04 9mths Qtr3 Qtr2 Qtr1
African Bank - retail 36% 2 143 828 596 719
African Bank - payroll (14%) 182 57 57 67
African Bank 30% 2 325 885 653 786
Credit Indemnity 8% 739 258 230 251
Miners Credit 9% 489 147 153 189
Standard Bank JV 6% 268 100 75 93
Vehicle Finance 39% 130 41 42 47
Total 21% 3 951 1 432 1 153 1 366
Sales value (R million) cont.
2004
%change
05 vs 04 9mths Qtr3 Qtr2 Qtr1
African Bank - retail 36% 1 579 514 494 571
African Bank - payroll (14%) 211 64 66 81
African Bank 30% 1 789 577 560 652
Credit Indemnity 8% 683 218 209 255
Miners Credit 9% 448 148 131 169
Standard Bank JV 6% 254 89 84 81
Vehicle Finance 39% 94 38 29 26
Total 21% 3 267 1 070 1 013 1 183
Sales for the first nine months of 2005 were 21% higher than the equivalent
period of 2004, boosted by a strong 3rd quarter in which sales grew by 34% over
the comparative period.
African Bank retail debit order products were the major contributors to this
growth and achieved a 36% increase over the nine months, which comprised a 22%
growth in the number of loans sold and an 11% increase in the average loan size.
African Bank payroll sales fell by 14%, as the group has continued to limit its
payroll products to large corporates, although the sales have levelled off at
approximately R60 million per quarter.
The integration and business re-engineering of Credit Indemnity during the 1st
half of 2005 impacted sales and has resulted in a moderate 8% growth for the
first nine months of 2005. However this has picked up in the 3rd quarter with an
increase of 18% over the prior period. Miners Credit has maintained a steady
growth of 9% in light of a cautious approach to this sector. In addition, sales
were also negatively affected by strikes at certain mines. Commercial Vehicle
Finance delivered a 39% growth in sales, albeit off a low base in 2004.
A number of growth strategies were implemented in the past twelve months to take
advantage of opportunities identified last year. Since January, African Bank has
opened twenty new branches. This, together with the introduction of a new loan
product to cheque account holders, the extension of the product range to
incorporate customers from all the banks and the product line expansion of
African Bank long-term products into Credit Indemnity branches have been key to
the increase in sales and market penetration. These initiatives were
particularly successful in broadening the client base.
The new risk-based differentiated pricing strategy is in the process of being
implemented, and it is too early to comment on its impact, but it is evident
that the R100 reduction in the administration fee in May has already lifted
sales, specifically resulting in higher loan values.
Sales were also supported by a deliberate increase in average loan sizes and
terms, given that vintages had fallen to levels below which the group deemed
optimal in terms of its risk underwriting parameters.
Refer to our website for Quarterly Sales Trend graph
4. GROSS ADVANCES
The table below sets out the composition of gross advances as at 30 June 2005
and the movements since 30 September 2004.
YTD
Annualized As at As at As at
R million % growth 30 Jun 05 31 Mar 05 30 Sep 04
Lending books 19% 5 346 5 104 4 685
African Bank
- retail debit order 38% 3 222 2 937 2 511
African Bank - payroll (34%) 695 793 934
African Bank 18% 3 917 3 731 3 444
Credit Indemnity 19% 461 436 403
Miners Credit 32% 470 444 379
Standard Bank JV 15% 303 295 273
Commercial Vehicle
Finance 38% 241 230 187
Provision for deferred
admin fees n/a (45) (31) 0
Pay down books (62%) 777 910 1 444
Persal (36%) 220 242 302
Saambou PLB (56%) 540 647 931
GEMS n/a 17 21 99
ACFC n/a 0 0 94
ABCommerce n/a 0 0 18
Gross advances (0%) 6 124 6 014 6 129
Less:
Non-interest-bearing
advances (49%) 650 796 1 029
Gross interest-bearing
advances 10% 5 474 5 218 5 100
The lending books grew by an annualised 19% in the past nine months, compared to
a 14% annualised growth for the same period last year, driven primarily by the
increased sales in the 3rd quarter. The pay down books declined by an annualised
62% as a result of continued collections and a high level of write-offs. While
overall gross advances are flat due to the contrasting trends above, the
reduction in non-interest-bearing advances (correlated to further reductions in
NPLs) has resulted in the gross interest-bearing advances growing by an
annualised 10% for the nine months to June 2005.
The growth in the retail debit order book is closely correlated with the sales
trends described above. The loan books of Credit Indemnity and Miners Credit
have however grown more rapidly than sales as the average terms of these books
have lengthened.
The African Bank retail debit order and payroll split for March 2005 has been
adjusted by R54 million, due to an error in the reported classification between
these two categories as a result of a cleanup of static data in May 2005. The
December 2004 and September 2004 reported splits were unaffected by this error.
The lending books as a proportion of total advances have increased from 76% in
September 2004 to 87%, which has continued to have a positive impact on both
margins and asset quality.
The split of the non-interest bearing advances between lending books and paydown
books is set out in the following table.
Non-
interest-
bearing
Gross advances NIBA as a
R millions advances NPLs (NIBA) % of NPLs
Lending books 5 346 1 150 407 35%
Pay down books 777 529 243 46%
Gross advances 6 124 1 679 650 39%
The group suspends interest on loans that are in an advanced stage of the NPL-
cycle (approximately nine months in arrears, depending on collection status), in
order to avoid the recognition of interest income that is then immediately
reversed through the raising of provisions due to low collectability. As a
result of both the large population of NPLs and the longer average age of NPLs
that arose from the credit bubble, and the subsequent acquisition of the Saambou
book which was heavily in arrears, the non-interest-bearing advances peaked at
approximately R1.5 billion. Since then, the cash collections and aggressive
write-offs of NPLs have resulted in the total population of NPLs and the average
age of NPLs reducing. This has caused a significant decline in the non-interest-
bearing advances to R650 million. Just as the total NPLs to gross advances are
nearing normalised levels again, so too are the levels of NPLs on which interest
is suspended.
5. ASSET QUALITY
NPLs continued their steady rate of decline and fell a further R127 million
during the quarter, resulting in the NPLs as a percentage of total advances
decreasing from 30.0% in March 2005 to 27.4% as at 30 June 2005. Bad debts
written off, as a percentage of advances, remained high during this quarter as
the writing off of loans from the pay down books was accelerated. Overall
provision coverage reduced from 71.2% at March 2005 to 69.7% at June 2005,
relatively steady given that a high proportion of fully-provided loans are being
written off.
ASSET QUALITY
%
change
since
R million Sep 04 30 Jun 05 31 Mar 05 30 Sep 04
Advances
Performing 14% 4 444 4 209 3 883
Non-performing (25%) 1 679 1 806 2 246
Total 0% 6 124 6 014 6 129
Impairment provisions
and reserves
Portfolio impairment
provisions 20% 37 35 31
Specific impairment
provisions (35%) 992 1 121 1 514
Stangen credit life
reserves 26% 141 130 112
Total impairment
provisions and reserves (29%) 1 170 1 286 1 657
Ratio`s
NPL`s as a % of
total advances 27.4% 30.0% 36.6%
Total impairment
provisions as a % of
NPLs (NPLcoverage) 69.7% 71.2% 73.8%
Total impairment
provisions and
reserves as a % of
total advances 19.1% 21.4% 27.0%
Bad debt write-offs
as a % of average
gross advances 21.6% 22.5% 13.5%
Vintage curves track each month`s new loans as a discrete portfolio and plot the
cumulative proportion of each portfolio that migrates into various default
statuses, which are defined by a given number of cumulative missed instalments.
As reflected in the African Bank Retail charts below, the vintages have over the
past two years remained in a band of less than a 3%
variation. The group dynamically manages the relationship between the price of
the loans it offers, the associated underwriting risk and the costs of doing
business. In this regard the key ratios it targets are:
-a bad debt charge as percentage of interest income earned of 20%, and
-costs to interest-bearing advances of approximately 17%.
Given that the bad debt charge ratio has been below target for some time, the
group has been deliberately increasing its risk profile during the course of the
last twelve months. The vintages have been rising as a result of this strategy,
which has increased the bad debt charge, albeit slightly. This is however, being
more than offset by a positive lift in advances growth and gross income as well
as improved cost absorption.
Refer to our website for Vintage graph
The peak sales periods of November/December traditionally have the highest
vintages. The later vintages indicate that the historic pattern is intact, with
January and February risk levels again lower than the seasonal peaks.
ABIL is cautiously positioned for any change in the credit cycle in the year
ahead. Given this stance and the impending implementation of the new Credit
Bill, the group has started to reduce its risk exposure to the highest risk
groups in its target market, by shortening loan term, reducing loan sizes and
increasing its decline rate in these bands. The adjustments have not had a
noticeable effect on sales, as it represented only a small percentage of the
population by value.
6. NATIONAL CREDIT BILL
The Department of Trade and Industry recently tabled the National Credit Bill in
parliament for expected promulgation towards early 2006. Since the Bill is
enabling in nature, it requires a set of regulations to be promulgated before it
can be fully implemented, and these still require further debate and
clarification. It is therefore not expected to have any impact for the current
financial year.
The group is confident that its preparations for the implementation of the Bill
are on track, and that it is ready to meet the challenges of the changes that
will unfold.
7. BLACK EQUITY OWNERSHIP PROGRAMME
ABIL announced its broad-based black equity ownership programme in May 2005. A
general meeting will be held on 5 August 2005, where shareholders are requested
to approve the issue of shares to the limited-purpose vehicle created for the
programme. If approved, a prospectus to invite potential beneficiaries to
participate will be posted in October 2005.
ABIL also announced a special dividend of 70 cents per share in lieu of the
dilution created by the issue of shares. The salient dates for the special
dividend will be announced on 8 August 2005, should the resolutions be passed.
On behalf of the board 3 August 2005
This announcement is available on the African Bank Investments Limited website
at http://www.africanbank.co.za. ABIL will be hosting an investors` day on 3
August 2005. The presentations that will be given on the day are also available
on the website.
Registered office: 59 16th Road, Midrand, 1685
Share transfer secretaries: Ultra Registrars (Pty) Ltd, 11 Diagonal Street,
Johannesburg, 2001.
Board of directors
Executive directors: G Schachat (Deputy Chairman), L Kirkinis (Chief Executive
Officer), JA de Ridder, A Fourie, AG Herselman, MLD Marole, 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
3 August 2005
Sponsor:
Deutsche Securities (SA) (Proprietary) Limited
Date: 03/08/2005 08:00:16 AM
Produced by the JSE SENS Department
