Nicolette Dirk, finance writer, Justmoney.co.za
African Bank Investments Limited (ABIL) announced that Moody’s Investors Service has downgraded its local national scale issuer ratings by one notch to A3.za/P-2.za from A2.za/P-1.za and its global senior debt from Baa3/Prime-3 to Ba1/Not Prime.
This comes after ABIL announced a headline loss of R3, 1 billion earlier this month. ABIL 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.
Other ratings under review
In addition, the long term ratings have been placed on review. According to ABIL the conclusion of this review will likely follow the publication of the bank’s trading update for the nine months ending June 2014.
African Bank announced a headline loss for the six months ended March 2014 and this rating action reflects Moody’s assessment of the deterioration in African Bank’s asset quality.
In their recent interim earnings results ABIL claimed that it raised a general provision of R2.5 billion to deal with the higher level of expected non-performing loan (NPL) emergence.
“The significantly improved quality business written since July 2013, when stricter underwriting interventions were implemented, is growing in proportion of the total book and is expected to start positively impacting future financial results. The bank continues to be adequately capitalized and liquid,” they added.
Kirkinis said African bank maintains it local currency investment grade rating so will still be well within investment grade range in the local market.
“One cannot increase credit impairment provisions without negatively impacting earnings and the key aspect for funders is the comfort from the additional provision of R2.5bn for possible future credit losses as opposed to actual credit losses.
This coupled with our internal minimum target capital levels will continue to provide further assurance to our funders both domestically and internationally,” said Kirkinis.
Abil’s offshore funders
According to Kirkinis, foreign market priced in their profile has always been a little higher than local pricing but ABIL liked the diversification afforded to them from the foreign markets.
“’For this reason African Bank does not expect the foreign debt pricing for new offshore issuances to be dramatically different. While the initial reaction on the pricing of foreign bonds has been negative, it is limited on low volumes,” said Kirkinis.
He added that ABIL's stabilisation, consolidation and turn-around strategy is gaining traction and will express itself in better financial performance from 2015 onwards.
ABIL said their recent rating will have an impact on the cost of funding African Bank but won’t impact consumers who have credit loans with the bank.