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Additional information relating to the trading statement issued on 2 May 2013
AFRICAN BANK INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank controlling company)
(Registration number 1946/021193/06)
Ordinary share code: ABL ISIN: ZAE000030060
Preference share code: ABLP ISIN: ZAE000065215
("ABIL" or “the group”)
AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered bank)
(Registration number 1975/002526/06)
Company code: BIABL
(“African Bank”)
ADDITIONAL INFORMATION RELATING TO THE TRADING STATEMENT ISSUED ON 2 MAY 2013
ABIL released a trading statement on the Stock Exchange News Service (“SENS”) on 2 May 2013 in which it
advised shareholders, inter alia, that both headline earnings and earnings for the six months to 31 March 2013
are expected to decline by between 25% and 28% relative to the R1 370 million reported for the equivalent six
months to 31 March 2012. Headline earnings in the Banking unit declined by between 19% and 22%, while the
Retail unit achieved marginal profitability, as a result of a high fixed cost base and lower sales.
The announcement has created significant demand for additional information and ABIL will hold a conference
call at 17:00 (SA time) today, 8 May 2013, to provide context to the trading statement. Interested investors are
invited to use the details below to participate in the call.
Background
ABIL indicated during its third quarter trading update in August 2012 that the significant increase in
unsecured lending by all players in the market during 2012 introduced risk into certain segments of our
customer base. ABIL’s response was to forego volume growth for a reduction in risk through lower offer
rates, smaller loan sizes and increased pricing. These proactive measures have helped to safeguard ABIL to
a large extent against further increases in future risk.
It takes approximately nine months for the peak risk to emerge from any specific period of sales and the
current increase in bad debts and claims predominantly relates to the sales in the first half of 2012. The
positive effect resulting from declines in the supply of credit since the latter part of 2012 and the risk
reduction measures implemented will only become evident during the latter part of 2013. Given these
factors, ABIL expects that the peak non performing loans (NPL) emergence will occur this year, as
collections have continued to show positive improvements in the most recent three months.
The Banking unit
The Banking unit showed positive advances growth and maintained good control over operating and funding
costs. These improvements were however negated by the following key aspects.
1. The income yield declined, partially as a result of higher suspension of interest and fees due to the
growth in NPLs; and more so due to a once-off charge as a result of the final implementation of in
duplum for the credit card portfolio. The once-off charge impacted the yield by approximately 50 basis
points. Excluding the once-off in duplum adjustment, the yield was marginally lower than the second half
of 2012. The group has also increased pricing over the past year to ameliorate the increased risk and
the current incoming gross yield prior to suspension is higher than in the comparative period.
2. The charge for credit losses has increased by approximately 0,5% above the guidance provided at the
end of 2012. The elevated charge for bad and doubtful advances resulted from higher NPL formation in
the first few months of the year, exacerbated by ABIL’s decision to write-off an additional amount of non-
performing loans in March. This increased write-off coupled with the group’s previously communicated
intent to reduce the value of the previously written off book had the effect of reducing coverage, and
accordingly NPL coverage was increased to recent norms. ABIL remains confident in its credit
underwriting models and is comfortable with the latest vintage performance.
3. Insurance claims and related provisions increased by approximately 1% of average advances, as a
result of the group broadening the range of insured events. A portion of the charge is retrospective in
nature, as ABIL has previously applied a narrower definition of loss of income through retrenchment.
These claims that are now being covered are actual losses that African Bank has suffered and as such
there is no additional loss to the group.
The group is comfortably liquid and solvent and has seen a fresh inflow of new funds at a stable cost of
finance. We maintain a presence in the capital markets (both foreign and local) in all cycles and we work
hard at building funding relationships on that basis. We have a well diversified portfolio of funding partners
and we will continue to diversify and grow that base.
The Retail unit
Trading conditions in the furniture industry deteriorated quite rapidly during this period, as both the
willingness and ability of consumers to spend came under pressure and the deflationary trends in durable
goods continued. The group also reduced its appetite for risk. Efforts to further reduce costs and maintain
firm margins could not fully counter the decline in merchandise sales. The business is currently carrying
duplicate costs from the recent rollout of the centralised distribution network which further affected results.
Outlook for the remainder of the financial year
ABIL’s advances growth is expected to continue to exceed sales growth as older short term loans pay off
and are replaced by longer term loans.
The bad debt charge is expected to remain elevated for the rest of the financial year, but the risk reduction
measures implemented since the middle of 2012 should benefit the charge from 2014. At the same time, the
large write-offs continue to improve the quality of the remaining NPL portfolio.
The higher incoming yield, the fact that the effect of income suspension on the NPL portfolio will reduce and
that the retrospective credit card in duplum charge will not repeat, should support the yield going forward.
Operating cost growth and funding cost remains well contained in the Banking unit.
The slowdown in furniture sales is expected to endure due to rising inflationary pressures, lower consumer
confidence, increasing debt burdens and continued tightening of credit. Conditions for the Retail unit are
therefore unlikely to improve in the second half of the year. The Retail unit will continue to focus on margin
management and further cost reduction initiatives to provide maximum operational leverage, whilst also
paying close attention to stock levels, collections, the credit proposition, marketing and effective operational
execution. Approximately R100 million of duplicate costs from the implementation of the distribution and
logistics project is expected to come out of the Retail unit towards the end of 2014.
Given the above dynamics, the decline in ABIL’s results for the full year is expected to be lower than the
decline in the first half of the year.
ABIL remains profitable, well-funded and has a strong capital position with a capital adequacy of 27,6%. The
existing loan book continues to generate strong cash flows and our conservative funding
approach continues to enable the bank to withstand volatile economic cycles.
ABIL has spent the past few years building a group that is financially and operationally robust and resilient
and can withstand downturns in the economy and in credit markets. The group remains confident of its ability
to entrench its position as the market leader in a larger, more competitive and fast changing unsecured credit
market, despite the challenging environment.
The information in this announcement has not been reviewed nor audited and reported on by ABIL’s external
auditors.
The interim results for the six months ended 31 March 2013 are expected to be released on SENS and RNS
on or about Monday, 20 May 2013.
CONFERENCE CALL DETAILS
Date and time: 8 May 2013 at 17:00 (SA time)
Access numbers for participants dialling from their country:
Live call 48 hour playback Code 2134#
South Africa & Other South Africa & Other
Toll 011 535 3600 011 305 2030
USA USA
Toll-free 1 412 317 6060 1 412 317 0088
UK UK
Toll-free 1 866 652 5200 0 808 234 6771
Queries:
Investor Relations: Lydia du Plessis on 27 11 564 6991 or investor.relations@africanbank.co.za
Media Contact: Louise Brugman – 011 787 3015, 083 504 1186
Midrand
8 May 2013
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 08/05/2013 04:27:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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