Abil eating bad debt mountain

Johannesburg - Micro-lender African Bank Investments (Abil) said bad debts had been falling "monthly" during the last nine months, mainly in its strugggling furniture retailer Ellerines.

"The bad debt charge is getting lower and lower monthly in Ellerines," said Abil CEO Leon Kirkinis on Thursday. He was speaking during Abil's third-quarter presentation to analysts.

Kirkinis declined to provide details for fear of pre-empting the group's full-year earnings call, but he disclosed that Ellerines' bad debt was approaching that of African Bank. Ellerines reported a bad debt charge of 15.3% in the interim period.

Since taking over the furniture retailer in February 2008, Abil has restructured its operations and integrated its financial systems.

Ellerines CEO Tony Fourie said branches would be reduced to 1 100 by September. African Bank's front-end system would be installed in about 100 stores by that time. "We are reaching the ultimate number of stores and by year-end we'll be there," he said.

Strides had been made in "cleaning up" Ellerines, but that had had the effect of triggering a 14% drop in merchandise sales relative to the corresponding period of the previous financial year, Kirkinis said.

"You might say we pulled the handbrake too much. But it's easier to let the sales machine open again rather than struggle with collections on sales that shouldn't have been made in the first place," he said.

Ellerines' asset quality had also improved "as a result of us pulling the credit-granting plug", said Kirkinis.

Abil said earlier that its third-quarter sales of new loans had declined by 10% to R2.1bn. It forecast weak full-year returns.

Gross advances for the third quarter at its African Bank unit rose 5% to R19.5bn for the quarter.

But its furniture unit Ellerines continued to struggle, and posted R935m in merchandise sales compared to R1.08bn in the comparable year-ago period.

- Fin24.com