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Release of Audited Financial Results for African Bank and Related Group Information - Year Ended 30 September 2017
AFRICAN BANK LIMITED
(Incorporated in the Republic of South Africa)
(Registered Bank)
(Registration No. 2014/176899/06)
Company code: ABKI
(“the Bank” or “African Bank”)
Release of the audited financial results for African Bank Limited and related group information for
the year ended 30 September 2017
African Bank is pleased to announce the release of the audited annual financial statements for the
full year ended 30 September 2017. The Bank commenced operations on 4 April 2016 and therefore
the comparative results referred to in this announcement, both for African Bank and African Bank
Holdings Limited on a consolidated basis are reflective of the results for an effective six month
period from 4 April 2016 to 30 September 2016.
Key aspects of the African Bank Limited results include the following:
- Net profit after tax for the period of R178 million (2016: Net loss after tax of R1 699 million)
- Net interest income after impairment R1 358 million (2016: R548 million)
- Net customer advances balances R18 743 million (2016: R20 111 million)
- Available cash balances, including surplus liquidity invested in the SA sovereign assets, of R10
148 million (2016: R12 862 million)
- Core Equity Tier 1 capital adequacy ratio of 29.9% (2016: 31.5%)
The change in “Net profit after tax for the period” was primarily attributable to the full goodwill
impairment of R1 947 million in 2016 on commencement of operations on 4 April 2016 not recurring
in the current period. The Bank increased its reported “Net interest income after impairment” to
R1 358 million (2016: R548 million), primarily as a result of a lower credit impairment charge due to
conservative underwriting practices and lower net interest expense as a result of bond buybacks to
date, partially offset by lower overall yields as a result of lower average gross advances balance. “Net
interest income after impairment” excludes the profit on bond buybacks.
Net customer advances have reduced as a result of a more conservative risk appetite reducing new
business disbursements by 9%. Strong liquidity has been maintained while the Bank has further
optimised its balance sheet through additional buy-backs of liabilities, further reducing its net
interest cost. Robust capital levels have been maintained, notwithstanding the negative impact of
the sub investment grade rating of the counterparty banks where significant surplus cash was
invested. A greater portion of this surplus cash has been invested in South African sovereign debt
securities which do not require a capital allocation but nevertheless offer similar interest income.
Unqualified audit report
The audit reports in respect of the financial year ended 30 September 2017 for African Bank Limited
and African Bank Holdings Limited referred to below, are both unqualified.
Restatement of elements of the statement of cash flows for the comparative period.
In order to improve the transparency and comparability of the amounts included in the “cash flows
from operating activities” analysis, the Bank has reclassified the adjustments related to the acquired
book accounting and thus disclosed them as part of the movement in gross advances. In the 2016
analysis, adjustments relating to the acquired book accounting were presented as cash receipts from
lending activities.
After further consideration, presentation of these adjustments as “movement in advances” was
considered to be more relevant and reliable, and is thus disclosed in the notes to the annual
financial statements.
The restatement did not change the net cash inflow from operating activities, although it did change
the classification of amounts described to derive the net cash inflow from operating activities.
African Bank Holdings Limited group information
African Bank is a 100% subsidiary of African Bank Holdings Limited (“ABH” or “ABH group”). ABH is
an unlisted registered bank controlling company under the Banks Act, Act 94 of 1990. The shares in
ABH are privately held by the South African Reserve Bank, the Government Employees Pension
Fund, Barclays Africa Group Limited, Nedbank Limited, FirstRand Bank Limited, Investec Bank
Limited, The Standard Bank of South Africa Limited and Capitec Bank Limited.
The ABH group has material insurance operations that are housed in African Insurance Group
Limited, a separate 100% held subsidiary of ABH which in turn holds a cell captive investment in
Guardrisk Limited (“cell captive”). The cell captive investment, owned 100% by African Insurance
Group Limited, is not consolidated by the ABH group according to International Financial Reporting
Standards ("IFRS"), although the financial performance of this entity is dealt with in the unaudited
consolidated financial statements, by means of a re-measurement of the investment in insurance
contracts.
ABH has today also released its audited consolidated annual financial statements for the year ended
30 September 2017.
Key aspects of the African Bank Holdings Limited consolidated results include the following
- Net profit after tax for the period of R786 million (2016: Net loss after tax of R1 678 million)
- Net interest income after impairment R1 330 million (2016: R536 million)
- Earnings from Insurance operations R639million (2016: R33 million)
The change in Net profit after tax reported also benefitted from an increase in earnings from the
investment in insurance operations, which reported earnings of R639 million (2016: R33 million), in
addition to not being impacted by the goodwill impairment as described above. The creation of the
initial reserve in the prior period resulted in a disproportionately large actuarial movements charge
for that period for the insurance operations. Net advances, available cash balances and capital
adequacy for African Bank Holdings Limited are all in line with African Bank Limited.
The following published results in respect of the year ended 30 September 2017 are available for
inspection at the registered office of the Bank and can be accessed on the African Bank’s website via
the following url: https://www.africanbank.co.za/en/home/investors/corporate/financial-reporting/
1. African Bank Holdings Limited Integrated Report;
2. African Bank Holdings Limited Investor slide presentation;
3. African Bank Holdings Limited audited Group Consolidated Annual Financial Statements;
4. African Bank Limited audited Annual Financial Statements; and
5. African Bank and African Bank Holdings Limited Basel Pillar III Disclosures.
Commenting on the results, Brian Riley, group CEO noted: “I am very pleased with the progress we
have made in many areas across African Bank, which have directly contributed to the good set of
results we have delivered for the 2017 financial year. Although we come off a relatively low base,
the significant increase in profitability is a result which should satisfy all stakeholders, particularly as
it includes planned investment and voluntary severance costs. In particular, the core loans business
has been fixed with the branch network producing a much improved RoE of 20%.
The online and contact centre channels have been improved and are gaining traction. The MMI
partnership has commenced and, whilst still in its infancy, it has the potential to create significant
embedded value for the Bank. We intend to grow the balance sheet following the previous period of
consolidation during which we established our conservative risk appetite, an approach we intend to
maintain.
Good progress has been made towards launching both transactional banking and our customer
centric omni-channel platforms. Both platforms will be launched in mid-2018 and should provide
significant uplift to our customer numbers.
Whilst this is my last set of results as the CEO, I look forward to my new role as a non-executive
director after March 2018. I am confident that I leave the organisation in capable hands. There is a
fine team of executives, supported by a highly committed staff base whom are duly skilled to deliver
upon the mission to build a successful retail bank”.
Conference call details, presentation material and playback facility
Interested parties are invited to register for a conference call during which Brian Riley, Gustav
Raubenheimer, group CFO, and Basani Maluleke, group head of Operations will take participants
through the results. Details of the conference call are
- Date: Friday, 1 December 2017
- Time: 11h00 SAST/CAT
- Web pre-registration: Interested parties are requested to pre-register for this conference
call at the following url: https:goo.gl/2cFnUS and follow the instructions
provided.
A playback recording will be available on (+27) 11 305 2030, playback code 10008688#
Comparison to Offer Information Memorandum for African Bank
The launch of African Bank on 4 April 2016 was preceded by the acceptance of a series of Exchange
Offers (“Exchange Offers”) by the creditors of the old African Bank (“old Bank” Registration No
1975/002526/06, Company Code BIABL). The affected creditors included holders of notes issued
under the old Bank’s Domestic Medium Term Note Programme, Euro Medium Term Note
Programme and bilateral corporate deposits. The acceptance of these Exchange Offers was a
condition precedent to the establishment of African Bank.
The information pertaining to the Exchange Offers was contained in an Offer Information
Memorandum (“OIM”) published on 4 February 2016, which is available on African Bank’s website at
https://www.africanbank.co.za/en/home/investors/corporate/financial-reporting/
The OIM contains certain financial information pertaining both to the old Bank and African Bank,
referred to as “Good Bank” in that document. A financial forecast for the period from 1 April 2016 to
30 September 2018 was included as part of Annexure A of the OIM. This financial forecast was split
into three periods, the six months ended 30 September 2016, and two full year periods ended 30
September 2017 and 2018 respectively.
The Board of African Bank have noted some variances in this set of reported results to the 2017 OIM
forecast. The comparison is done reflecting the risk adjusted income using the effective interest rate,
as explained in the OIM, rather than the fair value basis as disclosed in the audited interim results
for African Bank for the year ended 30 September 2017.
The material variances include the following:
1. The net interest income after impairment is marginally lower than forecast in the OIM as a result
of three factors which largely offset each other:
- A lower yield on advances than forecast in the OIM, given the Bank’s reduced risk
appetite, favouring lower risk customers that command larger loans over longer periods
at lower yields. This reduced risk appetite is deemed necessary as a result of a
deteriorating economy and the introduction of regulatory caps on interest and insurance
rates;
- A lower credit impairment charge than forecast in the OIM, as a result of the reduced
risk appetite described in the point above, partially offset by a more conservative
approach to writing off bad debt than was assumed in the OIM forecast. The change in
the bad debt write-off policy revolved around moving the point of bad debt write-off
from a “recency 10” factor, as assumed in the OIM forecast, to a more conservative
“recency 5” factor, where “recency” refers to the number of months since the last
payment by the customer; and
- A lower reported net interest expense, as a result of the bond buy backs that have been
executed, partially offset by certain foreign exchange losses.
2. Higher operating costs than anticipated in the OIM as a result of investment into strategic areas
of focus which were specifically not contemplated in the OIM, which have increased the
negative variance to the OIM.
The Board is however satisfied that, because of the changing economic environment since the
curator published the OIM forecasts and the need to drive a strategy which is aimed at diversifying
the business of African Bank over time, which was specifically not considered within the OIM
forecasts, the variances are not inappropriate.
The Board believes that as the Bank begins to deliver its stated strategy over time, the OIM forecasts
will continue to be increasingly distinct from reported results, eventually to the point where they are
all but irrelevant. The Board is thus satisfied with the quality of the reported earnings.
1 December 2017
Debt Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
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