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SASFIN HOLDINGS LIMITED - Trading update

Release Date: 08/06/2020 15:03
Code(s): SFNP SFN     PDF:  
 
Wrap Text
Trading update

SASFIN HOLDINGS LIMITED
(Incorporated in The Republic of South Africa)
(Registration Number 1987/002097/06)
(“Sasfin” or “the Company” or “the Sasfin Group”)
Ordinary share code: SFN ISIN: ZAE000006565
Preference share code: SFNP ISIN: ZAE000060273



TRADING UPDATE AND STATEMENT FOR THE TWELVE-MONTH PERIOD ENDING 30 JUNE 2020
INCLUDING THE EFFECTS OF COVID-19 ON SASFIN’S BUSINESS

Covid-19, and the associated lockdowns seen across the globe, has evolved rapidly, and the impact on
the local and world markets has been volatile and severe. The full impact remains uncertain. This
challenging environment is expected to endure for some time. The South African Reserve Bank's
Prudential Authority has issued several directives over this period to enable the banking sector to
better support the economy.

Many of the South African businesses, where Sasfin focuses its lending activities, have been
significantly impacted by Covid-19. This has resulted in lower lending volumes, a lower demand for
credit, and an increase in impairments. Despite this, Sasfin has retained a strong capital and liquidity
position, and has been able to assist clients in their cash flow management over this period. These
matters are detailed further below.

Sasfin developed a 5-point plan in early March 2020 to address the potential impact of Covid-19, which
was communicated in our interim results presentation and the related SENS announcement on 19
March 2020. An update on that 5-point plan is described below.

1. Health and Safety

Sasfin has taken significant steps to ensure that we protect the health and safety of the Sasfin
community, our top priority in the face of Covid-19. This included implementing best practices in terms
of hygiene and social distancing.

2. Remote Working

Sasfin has been able to operate as an essential services provider throughout the various levels of
lockdown. We quickly and successfully implemented remote working capabilities given the large
investment in digital capabilities made in the last few years. This has resulted in less than 5% of our
workforce working from our offices during Alert Levels 5 and 4, whilst ensuring that all our products
and services have been available to clients with no unusual downtime experienced during this period.
We anticipate that 90% of our employees will continue to work remotely during Alert Level 3, in line
with the President’s request that those companies which are able to ensure remote working should
continue to do so.

3. Financial Stability

a.      Capital

Sasfin has prioritised financial stability at this time. At 31 December 2019, our Group Capital Adequacy
ratio was 17.063%. This has improved to 18.487% (well above the regulatory requirements) at 31
March 2020, as reflected in our Pillar 3 report issued on 29 May 2020. This increase is due to a decrease
in risk weighted assets and an increase in capital as a result of profit appropriations. While the
Prudential Authority has reduced the required minimum capital adequacy ratio on an interim basis in
the face of Covid-19, it is unlikely that Sasfin will utilise this dispensation. Given the expected increase
in impairments, which we outline in greater detail below, we will continue to prioritise our capital
position.

b.      Funding and Liquidity

Our liquidity coverage ratio (LCR) at 31 March 2020 was 153% and remains well above regulatory
requirements. Here too, although the Prudential Authority has given temporary relief to the Banks by
reducing the required minimum liquidity coverage ratio from 100% to 80%, it is unlikely that Sasfin
will find it necessary to utilise this dispensation. Our funding base has strengthened through this
period.

Sasfin holds Land Bank bills which have historically been classified as High Quality Liquid Assets
(HQLA), in terms of banking regulations. The Land Bank bills have been derecognised as level 2 HQLA
due to the temporary suspension of such bills as eligible collateral for purposes of the refinancing
operations of the South African Reserve Bank. At the end of May, Sasfin held total cash and near cash
(net of repurchase agreements and excluding Land Bank bills) of R2.3bn and our LCR has improved
from 153% to 182%.

The Land Bank plays a critical role in ensuring food security and a strong agricultural sector in South
Africa. We take note of the assurances given by the Minister of Finance and National Treasury that the
government must do what it can to support the Land Bank, and we are working closely with both the
Land Bank and National Treasury to also do what we can to support the Land Bank at this time.

c.      Credit

Given the far-reaching impacts of Covid-19 and the lockdown, businesses have come under increasing
pressure. We are supporting our clients, and by the end of May had granted payment holidays to
clients approximating slightly less than 20% of our total loans and advances. These payment holidays
have been granted in terms of the Prudential Authority’s directive relating to Covid-19 restructured
loans.

We have seen a significant increase in impairments since our half year results. Our credit loss ratio is
above our target through-the-cycle range and we anticipate this trend to continue in the coming
months. Furthermore, as IFRS9 requires lenders to adopt a forward-looking view of the quality of their
loans, we anticipate further increasing impairments in June. This is expected to have a negative impact
on our earnings to 30 June 2020.

d.      Other Earnings Impacts

There has been a marginal contraction in loans and advances since the half year at December 2019,
arising from the impacts of Covid-19. Given Sasfin’s conservative approach to credit granting, we
anticipate a further reduction in loans and advances, which will result in lower than originally
anticipated income to 30 June 2020. Apart from the negative endowment impact on the back of
interest rate cuts, we do not anticipate any margin compression given the nature of Sasfin’s funding
base and business.

While we have a diversified Private and Property Equity portfolio, given the change in valuation risk
parameters we foresee a write-down in the value of this portfolio in June, negatively impacting our
Capital Pillar. Our property portfolio is largely residential and therefore has not experienced the same
level of challenges that properties in the industrial, commercial and retail sector have experienced.

Sasfin Wealth is performing well ahead of 2019 as a result of the strong investment performance it
continues to deliver for clients, the weak rand (given the large exposure to offshore markets), net
inflows, healthy trading volumes and the performance of its associates. Furthermore, as disclosed on
SENS on 26 May 2020, Sasfin Wealth has entered into negotiations to dispose of its stake in Efficient
Group Limited at R5.60 per share. This values Sasfin’s holding in Efficient Group Limited at R146,3
million. The offer is subject to certain conditions which can only be met in the new financial year.
Shareholders are therefore advised to continue to exercise caution when dealing in the Company’s
securities until a further detailed announcement is made.

Sasfin has taken steps to control its costs (including reducing bonus provisions in line with the
Prudential Authority’s guidance in this regard), which are expected to be flat compared to June 2019.
This will be achieved without any retrenchments or salary cuts in the year caused by Covid-19.

4. Client Support

Sasfin has engaged proactively with its clients. We have hosted a range of webinars across all our
business units reaching thousands of current and prospective clients at a fraction of the cost of our
normal face-to-face engagements.

Our digital capabilities have proven invaluable with a net increase in new business clients being
onboarded on our B\\YOND platform, with greater levels of utilisation.

5. Stakeholder engagement

In addition to the deep engagements we have had with our clients, we hold regular video-based
meetings and webinars with our employees and other stakeholders to ensure that they are
appropriately informed and supported.

We also are contributing to society at this most difficult time and have donated meaningfully to the
Solidarity Fund, to schools involved in feeding schemes and to people within the Sasfin network
(including our own employees and critical service providers’ employees) who are facing difficulties.

Trading Statement

Given the above impacts, most notably the expected increase in impairments, shareholders are
advised that headline earnings per share (HEPS) and earnings per share (EPS) for the year ending 30
June 2020 are expected to be more than 20% lower than the reported HEPS and EPS for the
comparable period (June 2019 HEPS: 501 cents, June 2019 EPS: 459.86 cents).

A further trading statement will be issued in order to provide specific guidance once there is
reasonable certainty regarding the extent of the decline, and the relevant HEPS and EPS ranges.

Shareholders are advised that the financial information contained in this trading update and trading
statement have not been reviewed or reported on by Sasfin’s external auditors.

Conclusion
Sasfin has a strong capital, funding and liquidity base and maintains healthy buffers to weather further
shocks emerging from Covid-19. We continue to implement our strategic plan and are fast-tracking
our digital capabilities given the changing working landscape.

Sasfin Group’s results for the full year to 30 June 2020 are expected to be released to the market in
the month of September 2020. The specific date is being finalised and will be communicated to
shareholders in due course.

Johannesburg
8 June 2020

Sponsor: Sasfin Capital Proprietary Limited (a member of the Sasfin Group)

Independent Sponsor: Deloitte & Touche Sponsor Services Proprietary Limited

Date: 08-06-2020 03:03:00
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