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African Bank expects R6.4bn loss, CEO quits

Aug 06 2014 10:15
Reuters and Sens

Leon Kirkinis

Company Data

AFRICAN PHOENIX INVESTMENTS LIMITED [JSE:AXL]

Last traded 1
Change 0
% Change -1
Cumulative volume 1698522
Market cap 0

Last Updated: 01/01/0001 at 12:00. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg - African Bank Investments [JSE:ABL] warned on Wednesday it would fall to a full-year loss of R6.4bn and said its chief executive would step down after more than 20 years with the struggling South African mass-market lender.

Abil, as the bank is widely known, said it expected a headline loss of R6.4bn for this year from a loss of R365m the previous year.

Abil has been hammered by rising bad debts as its core market of low-income borrowers comes under strain from a weakening economy and higher inflation.

Leon Kirkinis, a 23-year veteran and one of the founders of the bank, had stepped down as chief executive with immediate effect, it said, adding that chief financial officer Nithia Nalliah had been appointed acting chief executive.

Shares of the bank fell 35% in early trade to their lowest in more than a decade.

In a statement issued on Wednesday the bank said the operational performance  for the quarter ended June30 2014 shows the group continues to face tough trading conditions against a deteriorating economic environment.

It was negatively impacted by lowered gross domestic product (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.

"Customers are finding their 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," the bank said in a statement.

In the banking unit the non-performing loan formation for the quarter 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," the bank said in its statement.

"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 R14.1bn, 20% lower than disbursements of R17.7bn 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.

Retail unit Ellerine recorded merchandise sales of R2.8bn 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.

"Abil continues to engage constructively with the regulators to assist in ensuring a sustainable unsecured credit market to meet the needs of individuals in South Africa," the company said in its statement.

The board has decided to implement a series of steps designed to secure the future of its core banking business.

These steps include growing the "good" bank, insulating the group from further exposure to Ellerines, further tightening of the risk parameters around new credit business, strengthening the provisioning on the existing advances book, increasing Tier I capital and securing additional longer term liquidity.

Abil is exploring various options to isolate African Bank from the impact of the "bad" book which is also expected to have a direct positive impact on Moody's rating of African Bank. Further details will be announced in due course once finalised.

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abil  |  financial services  |  banking

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