Ellerine's debts weigh on African Bank

By Staff Writer

From Business Day 

by Regis Nyamakanga

He said the company had set aside a further R340m in provisions for doubtful
debts at Ellerine, as the retailer's provisioning models were less
conservative than African Bank's.

African Bank had also adjusted Ellerine's accounting policies and the treatment of insurance income and loan fees to bring them into line with its own. This
contributed to the reduction in Ellerine's net asset value to R4,6bn as of
January 7, about R450m lower than at the end of August, African Bank said.
Goodwill for the acquisition amounted to R4,56bn.

In January, African Bank, which is SA's largest provider of unsecured credit,
paid R9,2bn in stock for Ellerine, the nation's first combined lender and
retailer. African Bank's stock fell 2,59% to R24,84 on the JSE yesterday as
2,6-million shares changed hands in 482 deals. "African Bank has conducted a detailed evaluation of the underwriting models and loan portfolios as at
January 7 2008, compared with the view that was obtained at the time of due
diligence, and during this process it became clear that, as a result of
changes to the underwriting models introduced at the time of the National
Credit Act, the probability of default on loans written by Ellerine has risen
sharply.

"In addition, cash collection rates in Ellerine also fell during the period
leading up to December 2007," he said.

Since gaining control, African Bank has made improvements to reverse the high defaults and expects the benefits from these to begin to feed through during the latter part of this financial year.

Recent Articles

Featured Debt consolidation – Explained

Dealing with debt can be daunting. If you’re struggling to keep track of which store account to pay next and weighing up which credit card is more important to settle first, you may have considered debt consolation. At Justmoney, we’ve decided to get down to the basics and explain what this entails and what impact you can anticipate on your credit score.  

Read more

3 Vehicle financing options compared – which is cheaper?

Buying a car is a considered a milestone, both in life and financially. Unless you’re able to fork out the cash, many opt for financing. But often the excitement to drive it off the showroom floor overshadows the need to check if you’re choosing the most-suited option. To help you make the best-informed decision we compare available vehicle financing structures in South Africa.

Read more

Splitwise: Split the bill not the friendship

Collecting your friends’ debt to you can be draining. You don’t want to ruin your friendship with them, and it can also be extremely awkward. I don’t know how many times I have written, deleted, and rephrased texts, reminding people to pay what is due to me.

Read more

Stokvel-friendly accounts – which one is fair?

The stokvel economy is approximately worth R49 billion in South Africa. This is according to the National Stokvel Association of South Africa (Nasasa). Altogether 24% of these stokvels are in Gauteng, while only 6% are in the Western Cape.

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

Cape Town Fish Market Swartland Special

Price: From R123
When: Until 14 July
Where: Cape Town

Aha Casa do Sol Pay 2 Stay 3 Special

Price: R1,200
When: Until 31 July
Where: Mpumalanga

Open University Free Courses

Price: Free
When: Daily
Where: Online