High lights:-
AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank)
(Registration number 1975/002526/06)
Company code: BIABL
("African Bank")
Quarterly operational update for the third quarter ended 30 June 2014, changes to the board, trading
statement and cautionary announcement
Operational performance
The Group continues to face tough trading conditions, against a deteriorating economic environment negatively
impacted by lowered GDP growth expectations, increasing inflation, and loss of customer income through
strike action and increased unemployment at 25.5% for the quarter ended June 2014, as reported by Stats SA.
ABIL customers‘ disposable income and their ability to service debt continues to be under pressure, driven by
a combination of above inflationary cost of living increases, higher relative debt servicing costs and lower
growth in their gross income.
Banking unit
Non-performing loan ("NPL") formation for the quarter ended June 2014 decreased by 7.1% from the quarter
ended March 2014. The business written post June 2013 continues to perform better than the business written
during 2012 as it more closely tracks that of 2011. This level of improvement was, in the opinion of the Board,
not adequate to achieve the targeted returns, particularly against the deteriorating economic outlook. ABIL has
therefore implemented further risk cutbacks in this reporting quarter and will continue to assess the need to
implement further risk mitigation steps as necessary. These cutbacks are expected to restore the risk yield
relationship as the pre June 2013 business rolls off. This is anticipated to result in a combined credit and
insurance claims charge of below 40% of total gross income earned by financial year 2018.
Disbursements for the nine months ended June 2014 declined to R14.1 billion, 20% lower than disbursements
of R17,7 billion for the comparable period. The lower sales are a result of risk cutbacks implemented in June
2013 and further cutbacks implemented during May and June 2014, in combination with a lower customer
credit appetite.
The average net loan size decreased to R13 331 in this quarter compared with R13 868 for the first half of
2014. Average term for the third quarter decreased to 50 months, relative to 54 months for the first half of
2014, and reduced further to 45 months in June 2014. This decline has been primarily driven by the reduction
in the maximum loan term from 84 to 60 months. Further risk cutbacks were made that are expected to
contribute to a restoration of the risk/yield relationship to less than 40% over the longer term and a reduction in
disbursements of between 17% to 22% at an average loan term of below 45 months in the near term.
Gross advances experienced muted growth of 2% to R60.1 billion over the nine months since September 2013
while performing loans have decreased by 3% to R41.1 billion over the same period. NPLs as a percentage of
gross advances remain unchanged from 31.7% at March 2014 to June 2014 as a result of lower sales and
increased write-offs as NPL migrations continue to remain at the previously reported elevated levels. The
income yield has consequently decreased to 31.7% of average advances for the nine months ended 30 June
2014 from 32.2% for the six months ended 31 March 2014 due to increased suspension of income on NPL
migration. Gross incoming yields on new business written in June 2014 have increased by approximately
1.5%.
Retail unit
Ellerine Holdings Limited ("Ellerines") recorded merchandise sales of R2.8 billion for the nine months ended 30
June 2014, a 12% decline relative to the comparative period. Retail sales were negatively impacted by further
credit risk reduction measures, lower customer demand for credit and the impact of a continuing tough
consumer environment.
Cash sales have increased by 9% to R1.3 billion compared to R1.2 billion in the comparative period. Credit
sales amounted to R1.5 billion, a 25% decline relative to the comparable period in 2013. The credit sales mix
for the nine months at 54% is significantly lower than the 63% in the comparable period.
The reduced sales volumes and its high fixed cost base continue to put pressure on Ellerines profitability which
remains loss making.
continue to believe that the ultimate outcome of the revised regulations will result in a fairer, better and
more equitable unsecured lending industry going forward, adequately balancing the interests of credit
providers, customers and regulators.
ABIL Board and Executive Committee appointments
The Board regrets to announce that Leon Kirkinis, the Group Chief Executive Officer, managing director of
African Bank and one of the founders of ABIL has resigned with immediate effect after 23 years in the
business. The Board owes a huge debt of gratitude to Leon for his vision and leadership during the growth of
African Bank and wishes him every success for the future.