for the six months ended 31 march 2014...7 african bank investments limited group results % change...
TRANSCRIPT
UNAUDITED INTERIM
RESULTS PRESENTATION
for the six months ended
31 March 2014
Our purpose
Our purpose is to impact positively on
people’s lives through the provision of credit-
led, risk-based financial services. We assist
our customers to affordably meet their needs,
achieve their dreams, and manage the
unanticipated financial events that occur
through life.
We achieve this purpose by actively engaging
with our people and through them, with our
customers.
3
African Bank Investments Limited
Key themes
• Continued heightened risk emergence in a challenging consumer environment
• Elevated NPL formation from pre-July 2013 sales
• Compression of yield through lower sales and higher NPLs
• Pressure on collections, particularly on higher NPL portfolios
• Required higher coverage including a higher general provision
• Retail business continues to operate under stress
This resulted in a decision to raise a general credit impairment provision of R2,5 billion in
the bank and to write-off of remaining goodwill, trademarks and deferred tax assets
• Better positioned with a cleaner balance sheet
• Will need to focus on capital to achieve medium-term internal minimum levels
• New business at lower volumes continues to perform in line with expectations
• Revision of strategy to position the business through the expected tough period and
return to acceptable risk-adjusted returns
4
African Bank Investments Limited
Weak economic conditions to remain in the near term
(10)
(5)
0
5
10
15
20
(%)
The BER consumer confidence index
Source: Bureau of Economic Research
Forecast
Forecast
(4)
(2)
0
2
4
6
8
10
12
14
(%)
Economic conditions remain weak
GDP CPISource: SARB, StatsSA, ABIL
The economy, and unsecured lending in
general, is at cyclical lows, this has and will
continue to impact on customers – both in
terms of asset quality and lending volumes.
• GDP is expected to grow, but slowly.
• CPI is expected to remain at the upper end
of the Reserve Bank’s target range.
• Our customers’ disposable income
continues to be eroded.
• Consumer confidence remains particularly
low (below level experienced during 2008/9
financial crisis).
5
African Bank Investments Limited
Lower (but more sustainable) growth in the unsecured lending
industry
African Bank and the unsecured lending industry
has seen a sharp pullback in growth rates from a
peak in August 2012.
• African Bank implemented an initial cut back in
December 2012 and a new sales incentive
scheme focussed on quality in March 2013.
• In July 2013 African Bank implemented a new
underwriting model based on a reduced risk
appetite.
• During this period the market also tightened
lending criteria.
• As a result, growth in unsecured lending is now in
line with the growth in the overall retail lending
industry.
• We see this as a huge positive in terms of the
overall sustainability of the industry.
(10)
-
10
20
30
40
50
60
2008Q
4
2009Q
1
2009Q
2
2009Q
3
2009Q
4
2010Q
1
2010Q
2
2010Q
3
2010Q
4
2011Q
1
2011Q
2
2011Q
3
2011Q
4
2012Q
1
2012Q
2
2012Q
3
2012Q
4
2013Q
1
2013Q
2
2013Q
3
2013Q
4
(%)
Retail credit lending YoY growth
Retail lending YoY % Unsecured lending YoY %
Source: National Credit Regulator
0
5
10
15
20
25
30
35
40
45
50
Jan
09
Ap
r 09
Jul 09
Oct 09
Jan
10
Ap
r 10
Jul 10
Oct 10
Jan
11
Ap
r 11
Jul 11
Oct 11
Jan
12
Ap
r 12
Jul 12
Oct 12
Jan
13
Ap
r 13
Jul 13
Oct 13
Jan
14
(%)
Personal loans YoY growth
African Bank Market (excluding African Bank)
Source: BA900 returns
The acquisition of EHL has been excluded from African Bank YoY growth for the period
between September 2010 and August 2011
6
African Bank Investments Limited
ABIL’s 5 point strategy
Rebase the business
• Decrease the unsustainably high risk charge,
through better credit underwriting, better
collections and making the right sales
• Focus on costs
• To ensure business transitions to its new form
supported by the right balance sheet structure
• Decreased maximum loan term from 84 months
to 60 months effective 9 May 2014
Strengthen the core
• Continue development of customer life cycle
journey (loans, insurance ,savings)
• Further development of credit card product as a
bundled offering
• Distribution channels – physical and virtual
Regulatory and stakeholder management
• Market conduct – dti, NCR
• Prudential – SARB, FSB
• Shareholders
• Funders
Invent the new
• Refine the customer value proposition &
product offering balancing risk/reward
relationship
• Funeral product
• Savings and Investments
EHL
• Continue to work on disposal, while returning
the business to profitability
• New CEO implemented a turnaround strategy to
return the business to profitability
Medium-term financial target: risk / yield relationship < 40%
7
African Bank Investments Limited
Group results
% change
Unaudited for the six
months ended 31 March
2014
Restated for the six
months ended 31 March
2013*
Earnings before adjustments R million (>100) 8 604
Headline (loss)/earnings R million (>100) (3 123) 604
Banking unit R million (>100) (1 939) 604
Retail unit R million (>100) (1 186) 4
Consolidation adjustments R million 2 (4)
HEPS cents (>100) (240,7) 62,3#
Dividend per share cents (100) 0 25
TNAV per share cents (28) 623 870#
Total risk charge % 28,5 16,8
Credit impairment charge % 26,3 13,5
Claims paid % 2,2 3,2
Capital adequacy (%) ABIL African Bank ABIL African Bank
Tier 1 capital adequacy % 17,7 19,0 19,9 19,5
Total capital adequacy % 25,2 26,4 27,6 27,6
*With the exception of capital adequacy numbers, these were restated. #Adjusted for effect of rights issue
8
African Bank Investments Limited
Unpacking the group’s performance
604 8
(3 123)
379
247
686
(287) (788)
(114) (33)
(2 494)
(600)
(723)
Headlineearnings
March 2013
Grossmargin on
retailbusiness
Incomefrom loans
Expectedcredit
impairmentcharge andinsurance
claims
Interestexpenseand otherinterestincome
Operatingcosts
Taxation Earningsbefore
adjustments
Increase ingeneral
provisions
Increase inspecific
impairments
Deferred taxasset write-
down
Taxation Headlineearnings
March 2014
Change in headline earnings/(loss) (R million)
9
African Bank Investments Limited
Unpacking the impact of the material adjustments
We recognise the severity, and take responsibility for our role in these results.
• Banking unit: general provision for credit impairments relating to performing loans increased by R2,5
billion.
NPL formation for the poorer quality business written pre July 2013 remains at an elevated level.
The R2,5 billion general provision effectively accelerates the provisions for the pre July 2013
business and its future above normal NPL formation.
By doing this the business’ future results should be, to an extent, immunised from the impact of any
abnormal NPL formation due to loans written pre July 2013.
• Retail unit: ceased raising any further deferred tax on losses within this unit and the opening balance of
deferred tax assets of R723 million has been impaired.
The decision was taken in light of the continued operating losses generated.
The deferred tax asset will only be recognised in the future once the business is profitable.
A R100 million provision (before tax) for discontinued, phased-out and damaged inventories.
Further decisions impacting basic earnings:
Write off the residual Retail unit goodwill of R831 million.
Trademarks were impaired by R582 million in light of continued operating losses.
10
Banking Unit
The Banking unit
%
change
Unaudited for the
six months ended
31 March 2014
Restated for the
six months ended
31 March 2013
Earnings before additional impairment charge R million (52) 289 604
Headline (loss)/earnings R million (>100) (1 939) 604
Gross advances R million 5 61 623 58 799
Yield % 32,2 32,8
Total risk charge % 28,5 16,8
Credit impairment charge % 26,3 13,5
Base impairment charge % 16,1 13,5
Impact of additional specific and general
impairments % 10,2 0,0
Claims paid % 2,3 3,2
NPL Coverage % 82,9 68,6
Written off book cents/R 5,9 10,2
Total disbursements R million (21) 9 855 12 542
Average net loan size (current sales)* Rand 8 13 868 12 817
Average gross loans size (current sales) Rand 5 20 346 19 429
Average term (current sales) Months 10 54 49
*Net loan size includes external debt settlements but excludes any internal settlements.
11
Banking Unit
Unpacking the Banking unit’s performance
604
289
(1 939)
418
49 126 2
866
(795) (115)
(2 494)
(600) Headlineearnings
March 2013
Income fromloans
Expectedcredit
impairmentcharge andinsurance
claims
Interestexpense andother interest
income
Operatingcosts
Taxation Preferenceshareholders'
dividend
Earningsbefore
additionalimpairment
charge
Increase ingeneral
provisions
Increase inspecific
impairments
Taxation Headlineearnings
March 2014
Change in headline earnings/(loss) R million
Impact of escalated Jan –
Mar 2014 NPL migrations
12
Banking Unit
Portion of increased general provisions used to cover pre July 2013
business
- Used April 2012 – March 2013 for this analysis as it contained the highest vintages for this period
15 108
11 366 8 512
26 499
18 543
12 482
12 429
21 077
41 607 42 338 42 071
Mar 2013 Sep 2013 Mar 2014
African Bank performing loans (R million)
From sales after March 2013
From sales between April 2012 and March 2013
From sales pre-April 2012
16
20 18
24
0
5
10
15
20
25
30
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Ou
tsta
nd
ing
rep
aya
ble
of
NP
L o
ve
r to
tal o
rig
ina
l re
pa
ya
ble
(%
)
Months on book
Personal loans vintages
From sales pre-April 2012
From sales between April 2012 and March 2013
Forecast
Used in pricing
models
4%
An additional 4% of the original total repayable* (R50 billion) from sales between April 2012 and March 2013,
this represents the future cash value at risk. The R2,5 billion general provision raised is to address this
unexpected loss together with potential lower collections.
Difference between
lines = risk not
included in pricing
*Original total repayable = instalment amount multiplied by number of instalments.
Currently ±2%
difference already
included in specific
provisions
13
Banking Unit
1 186
926 1 029
3,4%
2,8% 2,9%
1,3% 1,6%
1,1%
Jan 14 Feb 14 Mar 14
Increase in net NPL migrations
870 838 859 844 937 953
1 036
840
1 002 894 863
2,5% 2,5%
2,7% 2,9% 2,9% 2,9%
3,3%
2,8%
3,1%
2,8% 2,8%
1,0% 1,1%
1,4%
2,0%
1,6% 1,5%
1,8% 1,7%
1,5% 1,6%
1,8%
Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13
Net NPL migration
Net NPL migration(R million)
PL to NPL NPL to PL Significantly increased specific (R600 million) and
general (R2,5 billion) provisions in anticipation of
continued elevated net NPL migrations
14
Banking Unit
NPL formation escalation predominantly due to 2012 business
195 180
156 168
146 128 124
116 105 99 105 91 89
76 76 90
66 64
10
57
136
209
230 242 255
231 223
238
183 190
162 151
173
139 131
65 161
262 323
316 347
268 289
235 216
251
190 189
8 29
87
124 158
0
200
400
600
800
1 000
1 200
1 400
1 600
Oct2012
Nov2012
Dec2012
Jan2013
Feb2013
Mar2013
Apr2013
May2013
Jun2013
Jul2013
Aug2013
Sep2013
Oct2013
Nov2013
Dec2013
Jan2014
Feb2014
Mar2014
Gross NPL formation split by quarterly tranche of business (R million)
2014Q1
2013Q4
2013Q3
2013Q2
2013Q1
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
Pre 2011
*per calendar
NPL formation peaks at 9-10
months on book
• 2012Q4 business peaked in
August 2013
• 2012Q3 business peaked in
May 2013
This quarter
has produced
the highest
NPL formation
15
Banking Unit
Oct – Dec 2012 business has had a disproportionate negative
impact on NPL formation and risk charge
195
180
156 168
146
128
289
235
216
251
190 189
-
50
100
150
200
250
300
350
12 13 14 15 16 17
NP
L m
igra
tio
n (
Rm
)
Months on book
2011Q4
2012Q4
Tranche Sales volume
(R million)
Oct – Mar NPL
migration % of
sales
Increase YoY
(R million)
Oct – Dec 2011 7 451 13,1%
397 Oct – Dec 2012 7 434 18,4%
Reporting
month Oct 2012 Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013
Reporting
month Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014
+94
+55
+60
+83
+44 +61
40%
16
Banking Unit
Post-July 2013 business is performing well but at lower sales
volumes
8*
44*
105*
162*
179*
8
29
87
124
158
0
20
40
60
80
100
120
140
160
180
200
4 5 6 7 8
NP
L f
orm
ati
on
(R
m)
Months on book
2012Q3
2013Q3
Tranche Sales volume
(R million)
Nov – Mar NPL
migration % of
sales
Decrease YoY
(R million)
Jul – Sep 2012 6 449 10,0% 236
Jul – Sep 2013 5 015 8,1%
Reporting
month Nov 2012 Dec 2012 Jan 2013 Feb 2013 Mar 2013
Reporting
month Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014
(15)
(18)
(38)
(21)
19%
*After normalising for differential in sales from R6 449 million to R5 015 million
17
Banking Unit
Post-July 2013 cumulative vintages improving following
reduction in risk appetite
0
5
10
15
20
25
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Ou
tsta
nd
ing r
ep
aya
ble
of N
PL o
ve
r to
tal o
rigin
al re
pa
ya
ble
(%
)
Months on book
Vintage graph – African Bank (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 Jul 13 Aug 13 Sep 13 Oct 13
18
Banking Unit
Post-July 2013 vintages showing delta having peaked
Newer vintages have improved but it will take time before the benefit of this has a
pronounced impact on the greater business
0%
1%
2%
3%
4%
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Net N
PL b
ala
nce
em
erg
en
ce
as a
% o
f o
rigin
al re
pa
ya
ble
(%
)
Months on book
Dent curve* – African Bank (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 Jul 13 Aug 13 Sep 13 Oct 13
Risk declining but
remains elevated
Post-July 2013
business showing
decreased risk through
lower dent curve slope
and peak
*Dent curves measure the rate of change in NPL formation
19
Banking Unit
The positive trend in post-July 2013 business also applies to
the Ellerines loans portfolio, albeit not as pronounced
0
5
10
15
20
25
30
35
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Ou
tsta
nd
ing r
ep
aya
ble
of N
PL o
ve
r To
tal O
rigin
al R
ep
aya
ble
(%
)
Months on book
Vintage graph – Furniture credit (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 Jul 13 Aug 13 Sep 13 Oct 13
20
Banking Unit
The positive trend in post-July 2013 business showing delta
having peaked
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Net N
PL b
ala
nce
em
erg
en
ce
as a
% o
f O
rigin
al R
ep
aya
ble
(%
)
Months on book
Dent curve – Furniture credit (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 Jul 13 Aug 13 Sep 13 Oct 13
21
Banking Unit
The positive trend in post-July 2013 business showing NPL
migration, cumulative vintage and delta
0
5
10
15
20
25
30
35
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Outs
tandin
g r
epaya
ble
of
NP
L o
ver
Tota
l O
rigin
al
Repaya
ble
(%
)
Months on book
Vintage graph – Furniture credit (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
Jul 13 Aug 13 Sep 13 Oct 13
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Net
NP
L b
ala
nce
em
erg
en
ce
as a
% o
f O
rig
ina
l R
ep
aya
ble
(%
)
Months on book
Dent curve – Furniture credit (more than three cumulative missed instalments in arrears)
2012Q2 2012Q3 2012Q4 2013Q1 2013Q2
Jul 13 Aug 13 Sep 13 Oct 13
-
50
100
150
200
250
0
1
2
3
4
5
Feb13
Mar13
Apr13
May13
Jun13
Jul13
Aug13
Sep13
Oct13
Nov13
Dec13
Jan14
Feb14
Mar14
(Rm
)
(%)
Net NPL Migration (EHL) - Balance
Net NPL migration PL to NPL NPL to PL
• Net NPL migration for March 2014 at
R160 million was down from a peak of
R203 million in July 2013.
• Vintages for post-July 2013 business
trending towards bottom end of range.
• Dent curves starting to show lower
peaks.
22
Banking Unit
Back test on September 2013 NPL portfolio: lower early 2014
collections resulted in additional specific provisions for NPLs
1 093
-
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
-
50
100
150
200
250
20
131
0
20
131
1
20
131
2
20
140
1
20
140
2
20
140
3
20
140
4
20
140
5
20
140
6
20
140
7
20
140
8
20
140
9
20
141
0
20
141
1
20
141
2
20
150
1
20
150
2
20
150
3
20
150
4
20
150
5
20
150
6
20
150
7
20
150
8
20
150
9
Cu
mu
lati
ve c
ash
Mo
nth
ly c
ollecti
on
s
Back test on September 2013 total NPL portfolio (R16 622 million) (R million)
Expected collections (lhs) Actual collections (lhs)
Cumulative expected collections (rhs) Cumulative actual collections (rhs)
Expected collections
Actual collections
R1 093 million collected to date vs
R1 170 million expected
23
Banking Unit
The ratio of provisions to gross loans has increased significantly
following the R2,5 billion increase in general provisions
Breakdown of impairment provisions Sep 2009 Sep 2010 Sep 2011 Sep 2012 Mar 2013 Sep 2013 Mar 2014
R million
Credit impairments 5 587 5 537 6 645 9 825 11 103 10 566 15 701
Specific impairments 5 430 5 472 6 529 9 669 10 804 9 981 12 472
General provision 157 65 116 156 299 585 3 229
Credit life reserves 37 18 0 339 698 512 500
Total provisions 5 624 5 555 6 645 10 164 11 801 11 078 16 201
Non performing loans 8 250 9 039 10 974 15 160 17 192 16 622 19 552
Book value of written off portfolio 1 003 1 700 1 928 1 659 1 321 1 321 1 321
Net uncovered NPLs 2 626 3 484 4 329 4 996 5 391 5 544 3 351
Provisions / gross loans 22,3 19,1 16,6 19,2 20,1 18,8 26,3
Total NPL coverage 68,2 61,5 60,6 67,0 68,6 66,6 82,9
Specific impairments + credit life reserves / NPLs 66,3 60,8 59,5 66,0 66,9 63,1 66,4
General provision / NPLs 1,9 0,7 1,1 1,0 1,7 3,5 16,5
66,3
60,8 59,5
66,0 66,9 63,1
66,4
1,9
0,7 1,1
1,0 1,7
3,5
16,5
68,2
61,5 60,6
67,0 68,6
66,6
82,9
NPL coverage (%)
General provision / NPLs
(Specific impairments + credit life reserves) / NPLs
24
Banking Unit
Collections initiatives introduced
Collections initiatives intensified to stem the
flow of performing loans to NPLs.
These are focused on both good faith and bad faith clients:
• Additional capacity in the call centre at 1 350 is now deemed
adequate
• Additional 150 collectors added to the EHL in store
collections network
• Intensified focus on high balance arrears totalling
R2,5.billion across 60 000 accounts (balance approximately
R42 000 per account)
• Champion challenger process to test internal collections
capacity against external agents – currently internal
processes outperforming external agents by 6%
• Analysing bureau data to determine if there are instances
where customers are paying third parties and not African
Bank and launching differentiated campaigns on these
customers
• Implemented a parallel collections process, running call
centre collections in parallel with tracing and legal
collections
• Earlier commencement of legal collections after 4 – 6
months delinquency, depending on status of account
• Issued 70,000 summonses since March 2014
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
(%)
First three missed instalments are down YoY
2012 2013 2014
Seasonal
increase
25
Retail Unit
The Retail unit
% change
Unaudited for the six
months ended 31
March 2014
Restated for the six
months ended 31 March
2013
(Loss)/earnings before tax adjustments R million (>100) (283) 4
Headline (loss)/earnings R million (>100) (1 186) 4
Merchandise sales R million (15) 1 968 2 324
Cash sales R million 7 889 832
Credit sales R million (28) 1 079 1 492
Non-furniture credit sales R million 976 1 627
Credit merchandise sales % of total % 54,8 64,2
Gross margin % 38,4 44,8
Gross margin excluding impact of
inventories provision % 43,4 44,8
Impact of inventories provision % (5,0) 0
Operating margin % (19,1) 0,7
Stock turn times 3,1 3,3
Number of stores (3) 1 025 1 057
Retail trading area m2 (6) 621 650 663 840
26
Retail Unit
Unpacking the Retail unit’s performance
4
(283)
(1 186)
111
(723)
(180)
(287) (84)
(10) (6) (11)
(1 400)
(1 200)
(1 000)
(800)
(600)
(400)
(200)
-
(200)
Headlineearnings
March 2013
Grossmargin on
retailbusiness
Otherincome
Impairmentcharge andinsurance
claims
Interestexpenseand otherinterestincome
Operatingcosts
Taxation Earningsbefore tax
adjustments
Deferred taxasset write
down
Taxation Headlineearnings
March 2014
Change in headline earnings/(loss) (R million)
27
Retail Unit
1098
374
179
217
142
117 197
788
327
169
229
146
112
197
Merchandise sales by brand R million
Ellerines
Beares
Furniture City
Geen & Richards
Dial-a-Bed
Wetherlys
Rest of Africa
Brand analysis
• Merchandise sales has declined by 15%
to R2 billion from R2,3 billion.
Credit sales decreased by 28% to R1.1
billion from R1,5 billion.
A result of more stringent credit granting
criteria implemented in June 2013 in an effort
to improve the yield risk relationship.
• This had a particularly negative impact on
the Ellerines brand where total sales
declined by 28% to R788 million from
R1.098 million.
• EHL cash sales increased by 7% to R889
million from R832 million.
1H13
1H14
85
62
56 51
7
66
85
62
53 52
4
59
78
55
41 43
3
59
Ellerines Beares FurnitureCity
Geen &Richards
Dial-a-Bed Rest ofAfrica
Credit Sales by brand (%)
1H12 1H13 1H14
28
African Bank Investments Limited
Balance sheet management
Capital adequacy
Capital adequacy
%
ABIL
Mar 14 Dec 13 Sep 13 Mar 13
Core Equity Tier 1 15,8 22,9 13,0 17,8
Additional Tier 1 1,9 2,1 2,1 2,1
Tier 1 17,7 24,9 15,1 19,9
Tier 2 7,5 7,6 8,1 7,7
Total CaR 25,2 32,5 23,2 27,6
Group:
Tangible shareholders’ equity = ordinary shareholders’ equity – goodwill – intangible assets – Retail unit deferred tax assets
Net uncovered NPLs = gross NPLs + written off book – impairment provisions – credit life reserves
Bank:
Tangible shareholders’ equity = ordinary shareholders’ equity – goodwill – intangible assets
Net uncovered NPLs = gross NPLs + written off book – impairment provisions including general provisions
Capital adequacy
%
African Bank
Mar 14 Dec 13 Sep 13 Mar 13
Core Equity Tier 1 19,0 24,3 15,7 19,2
Additional Tier 1 0,0 0,0 0,0 0,0
Tier 1 19,0 24,3 15,7 19,2
Tier 2 7,4 8,2 8,3 8,1
Total CaR 26,4 32,5 24,0 27,3
2 9
19
5 2
02
6 2
59
6 9
94
7 3
77
7 3
77
5 1
72 3
321
4 9
80
6 5
77
6 8
41
7 6
72
12 4
22
10 2
90
114%
96% 105%
98% 104%
168%
199%
Reported Reported Reported Restated Reported Pro forma* Reported
Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 13 Mar 14
African Bank Tangible shareholders’ equity/net uncovered NPLs
Net uncovered NPLs
Tangible shareholders' equity
Ratio of tangible shareholders' equity/net uncovered NPLs
3 6
29
5 1
84
6 2
59
6 6
55
6 8
65
6 8
65
4 6
71
5 3
88
5 9
28
6 6
74
6 3
44
6 3
12
11 5
22
9 3
33
148%
114% 107%
95% 92%
168%
200%
Reported Reported Reported Restated Reported Pro forma* Reported
Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 13 Mar 14
ABIL Tangible shareholders’ equity/net uncovered NPLs
Net uncovered NPLs
Tangible shareholders' equity
Ratio of tangible shareholders' equity/net uncovered NPLs
*Pro forma following the rights issue *Pro forma following the rights issue
29
African Bank Investments Limited
ABIL and African Bank target the following regulatory capital adequacy ratios and reaffirm the previous
targets over the medium term:
• 2014: Tier 1 ≥ 18% and Total ≥ 27% (revised down due to the R2,5 billion increase in general provisions)
• Medium-term: Tier 1 ≥ 20% and Total ≥ 30%
Balance sheet management
Capital adequacy
ABIL 2014 Medium term
Actual
Internal
minimum
Difference*
Internal minimum % Rm
Tier 1 17,7 ≥18,0 0,3 152 20,0
Total 25,2 ≥27,0 1,8 901 30,0
African Bank 2014 Medium term
Actual
Internal
minimum
Difference*
Internal minimum % Rm
Tier 1 19,0 ≥18,0 n/a n/a 20,0
Total 26,4 ≥27,0 0,6 275 30,0
The board has implemented certain measures to preserve and increase capital through
both operational and strategic initiatives and is pursuing additional measures.
*Difference calculated on March 2014 RWA
30
African Bank Investments Limited
Balance sheet management
Liquidity
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
2013Q1 2013Q2 2013Q3 2013Q4 2014Q1
(Rm
)
Sales/collections dynamic generated R8.9 billion positive cash flow from Jan 2013 – Mar 2014
Payaways on new loans
Receipting
Net cash
Cumulative net cash flows
-
5 000
10 000
15 000
20 000
25 000
Up to onemonth
More thanone tothree
months
More than3 months to6 months
More than6 months to
1 year
1 year to 3years
More than3 year to 5
years
More than5 years
Noncontractual
(Rm
)
African Bank Limited net liquidity gap 31 March 2014
Assets
Liabilities
Cummulative on balance sheet liquidity gap
31
African Bank Investments Limited
A strategic relationship explored with Edcon
Focus on smaller balance revolving credit facility
• In line with reduced risk appetite as per July 2013 cutback in loan size on medium and high risk
customers.
• Similar concept to credit card product which has been showing better risk experience.
• New customers to African Bank is a key focus.
0
5
10
15
20
25
4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Ou
tsta
nd
ing
rep
ayab
le o
f N
PL
ov
er
tota
l o
rig
ina
l re
pa
yab
le (
%)
Months on book
Vintage graph – Credit card (more than three cumulative missed instalments)
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
Jul 13
Aug 13
Sep 13
Oct 13
32
African Bank Investments Limited
Regulatory developments affecting unsecured lending
Credit amnesty (passed effective 1 April 2014)
• Removed from credit bureau:
• All adverse credit information of customer
behaviour and enforcement action taken by
the credit provider
• Paid up judgements
• Remains on credit bureau:
• Payment profiles
• Judgements with an outstanding balance.
• Notices such as sequestrations, etc
• Credit providers keep all customer
information
Affordability
• Initial NCR proposals under review
• Progress being made through consultation
Credit life
• Proposals including minimum benefits and price
caps under review
• Reviewing possible business mitigants
Pricing – interest and fees
• NCR intends reviewing as part of its ongoing
review of pricing in the industry
General observations
• Final regulatory changes proposed by the dti and passed by parliament are made in consultation with the
Ministry of Finance.
• We believe that the changes to affordability and pricing will be pragmatic, balancing the interests of the
affected stakeholders, and that the final changes will result in a fairer, better and more equitable
unsecured lending industry going forward.
• We have good visibility on prospective regulatory developments and the process of constructive
engagement continues.
33
African Bank Investments Limited
ABIL’s BEE share schemes
Gearing significantly reduced
BEE Structure and impact of rights issue
September 2013 March 2014
Number of ABIL shares 74,3m
Proceeds
from sale of
rights used
to reduce
debt
74,5m
Eyomhlaba 48,5m 48,6m
Hlumisa 25,8m 25,9m
Percentage holding in ABIL 9,12% 4,97%
Eyomhlaba 5,95% 3,24%
Hlumisa 3,17% 1,73%
Preference shares outstanding R510m R177m*
Eyomhlaba R330m R112m
Hlumisa R180m R65m
*ABIL is now the holder of the preference shares
34
African Bank Investments Limited
In Conclusion
• A very tough environment
• ABIL is going through a challenging period
• Bold decisions taken to hasten the turnaround
• Engaged and committed people focussed on delivery into the future
End of presentation
Questions