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.

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