Nicolette Dirk, finance writer, Justmoney.co.za
With a headline loss of R3, 1 billion, African Bank Investments Limited’s (ABIL) CEO, Leon Kirkinis, said announcing today’s (20 May 2014) interim results for the six months ended, was the most difficult one he had to do.
The group also experienced a basic loss reported at R4, 4 billion relative to the R602 million restated basic earnings for the comparative period. The basic loss per share was 337, 6 cents per share.
The group’s banking unit reported a headline loss of R1,9 billion and an economic loss of R2,7 billion relative to the R604 million restated headline earnings and economic loss of R170 million for the equivalent six months to 31 March 2013.
“We are currently in a tough environment and it won’t get easier. We needed to make decisions to protect the business in this difficult environment. We recognise the severity and take responsibility for our role in these results,” said Kirkinis.
One of these decisions was to raise a general credit impairment provision of R2, 5 billion in the bank and to write-off of remaining goodwill, trademarks and deferred tax assets.
ABIL reduced the granting of new loans to riskier customer segments during 2013 which resulted in a reduction and re-pricing of new business within the riskier segments of its customer base which had a negative impact on the volume of new business written.
How has the current climate impacted unsecured lending?
Kirkinis said the economy and unsecured lending in general, is at cyclic lows and this has and will continue to impact customers.
He added that African Bank and the unsecured lending industry had seen a sharp pullback in growth rates since its peak in August 2012.
“Our customers’ disposable income continues to be eroded and consumer confidence remains particularly low,” said Kirkinis.
ABIL is not the only unsecured lender feeling the pressure of consumers’ high levels of indebtedness.
Last month, Transactional Capital, a taxi industry financer and credit lending company, announced that they will no longer be part of the unsecured lending industry because the pressure on consumers is causing them not to pay back their debts. Read more about that here.
Last month, Transactional Capital, a taxi industry financer and credit lending company, announced that they will no longer be part of the unsecured lending industry because the pressure on consumers is causing them not to pay back their debts. Read more about that here.
The impact of their provisions
According to Kirkinis, the general provision for credit impairments, relating to performing loans in the banking unit, increased by R2, 5 billion. The R2, 5 billion general provision accelerates the provisions for the pre-July 2013 business and its future above the normal non-performing loans (NPL) formation.
“By doing this the business future results should be, to an extent, immunized from the impact,” said Kirkinis.
The group’s retail unit stopped raising any further deferred taxes on losses within this unit and the opening balance of deferred tax assets, of R723 million, has been impaired.
Abil also plan to write off residual retail unit goodwill of R831 million.
How does ABIL plan to turn things around?
Kirkinis said one of their strategies would be to decrease the unsustainably high risk charge through better credit underwriting and better collections.
ABIL also lowered their loan periods from 84 months to 60 months, which took effect from 9 May 2014.
Capital and funding
According to ABIL, the successful conclusion of the rights issue during December 2013 strengthened the balance sheet from a capital and liquidity perspective, adding 10% to group capital adequacy on a pro forma basis and providing R5, 2 billion of new liquidity to the group.
According to reports, Investec Asset Management, Momentum Asset Management and Nedbank Capital are some of the institutions funding the loans (as bondholders) that Abil advances to customers.
Kirkinis said there would be no rights issue for now.
The increased provisioning, while strengthening the balance sheet through dramatically reducing uncovered NPLs, has had a negative impact on capital.