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Sasfin cautious about SOE lending

Sep 25 2016 09:45
Justin Brown

Sasfin was “very concerned” about state-owned enterprises (SOEs) and had turned some of them down for banking and financial services, Sasfin Group CEO Roland Sassoon said this week.

“We have turned some of them down, like Denel, and we are very wary of SAA ... We look at it very carefully,” he added during an interview.

“We look at the municipalities very carefully. We look at their balance sheets and we see all this fruitless and wasteful expenditure. We obviously take note. A lot of the municipalities have been rated. We only tend to look at the better-rated ones. We are very selective.”

However, unlike Futuregrowth Asset Management, which has decided to stop lending to six key SOEs, “we don’t have a rule that we don’t deal with government”, Sassoon said.

Downgrade?

Regarding a credit rating downgrade for the country to junk status, the impact could be huge, Sassoon said.

“The whole banking industry is very concerned about the situation,” he added.

“If they arrest Mr [Finance Minister Pravin] Gordhan, a downgrade to ‘junk’ would happen quickly after that.”

A downgrade to junk status was expected to cause the rand to crash and then the SA Reserve Bank would hike interest rates, Sassoon said.

“It could really put this country in a depression,” he added. “It is a huge Sword of Damocles over all our heads,” Sassoon said.

“One would hope that the government will have a little bit of sense and won’t go crazy. They will toe the line to some extent. You never know. You can’t be sure. If it is something outrageous, then the reaction will be huge.”

Acquisitions

Sasfin was in talks with various parties to complete acquisitions, Sassoon said.

“In times like these, the best way to grow is probably through acquisitions. There are a lot of other institutions that have exposure to certain assets that don’t fit their criteria. As we speak, we are looking at acquisitions, but whether they materialise or not is another question.

“We are not going to do a deal unless we are satisfied that it is a good deal for us in terms of price, quality and whether it has synergies with Sasfin.”

Sassoon said that Sasfin had “fixed ideas” about what constituted a good acquisition. This included that the company had scale, the acquisition target must be viable and the culture must fit with Sasfin’s.

Sasfin was looking for “bolt on”, or small, acquisitions that add to its existing business. “Those are the easy acquisitions.

“The more difficult acquisitions, where you bring in a new product which you don’t have – there is more risk attached to that. There is more potential for benefits [from a new product].”

“A company that is particularly strong in transactional banking could help us from a product offering point of view.”

Transactional banking

Eighteen months ago, Sasfin launched transactional banking for its business clients.

“We don’t see this as a big profit area. It’s not our aspiration to make a lot of money from transactional banking. What we do see from transaction banking is a good catalyst to bringing in clients,” Sassoon said.

Through its transactional banking offering, Sassoon said Sasfin wanted to aim for the small and medium enterprises (SMEs).

“That market is underserviced and neglected by the big banks. We feel we can really offer a better service because our service is very high touch. So a lot of people will come to us. They will be happy to get away from the big banks. SMEs are just a number for the big banks.

“For us, we can offer them a whole experience. We can do everything for them, borrowing, foreign exchange...”

Sassoon declined to say how much had been spent on transactional banking. “It has cost us quite a bit of money ... We are taking a long-term view here,” he said. “We need to build up critical mass before we make profits,” he added.

Sasfin’s transactional banking division was likely to break even “in the next couple of years”.

Sassoon declined to say how many clients Sasfin had garnered for its transactional banking unit. “You do need quite a few clients for transactional banking to break even. Our offering is still not strong enough to attract a big number of clients,” he added.

Adrian Cloete, a portfolio manager at PSG Wealth, said that the move by Sasfin to include transactional banking was aimed at broadening the bank’s offering.

Once the investment in systems and people was complete, transactional banking could be quite profitable, as was evidenced by the major banks, he added.

“It makes sense for Sasfin to invest in a new venture, otherwise they won’t be growing,” Cloete said.

Sasfin and the World Bank’s International Finance Corporation (IFC) had put together a solar product.

The IFC has put up the funding for the project and Sasfin will install solar panels for businesses and then sell the electricity generated by the solar panels to the businesses concerned.

David Edwards, head of Sasfin commercial solutions, said that the IFC had put up R140 million towards the solar project.

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