Full annual report - African Bank - Investoreports

Risk Mitigation Further detail
R6. Scalability of the business
The group has audacious goals for the growth of
the business over the short to medium term, and
it is critical that all aspects of the business grow
at the same pace to ensure the success of the
business model.
R7. Credit risk
Key to the success of the business is the effective
management of the group’s credit exposures. The
ongoing development of the group’s underwriting
models is dependent on the effective monitoring
of credit risk metrics and trends, as these inform
the continual changes necessary to calibrate the
models correctly and to incorporate the effect of
new risks as they emerge.
R8. Capital, liquidity and funding risk
ABIL has to maintain adequate capital levels to
safeguard its operations and stakeholders
against risk and to allow it to grow.
ABIL is exposed to liquidity risk arising from the
need to finance its ongoing operations and
growth. If the group is unable to obtain sufficient
funding due to capital market conditions, the
group may not be able to achieve expected
growth, fund acquisitions or meet ongoing
financing needs.
R9. Managing costs
As the business experienced significant growth in
the last couple of years, costs also grew more
rapidly. There is a deliberate focus on cutting
costs in appropriate areas of the business while
investing in areas where it is necessary.
R10. Ability to price for risk
ABIL’s business model is geared to provide
consistent returns through different economic
cycles and to remain relevant for its customers
across the entire risk spectrum. The structure of
the NCA caps and the current level of interest
rates have reduced the group’s ability and
flexibility to appropriately price for credit risk.
116
The group has identified certain initiatives that
are central to its growth aspirations: a more
refined customer segmentation; the role of
technology into the future; the operating model;
the financial model; capital and funding; a
redefined customer value proposition; and
people strategies.
This monitoring takes place at two levels.
Operational monitoring takes place online to
ensure that the processing of applications is
efficient and no processing discrepancies are left
unattended. For purposes of the tactical
monitoring each business unit compiles an
extensive monthly operations credit pack which is
reviewed by the operational credit committee.
This information then forms the basis of a
monthly strategic credit committee review and
decision processes, which in turn, reports its
findings to the group risk committee on a
quarterly basis.
The group has a specialised balance sheet
management function. Capital adequacy is
constantly monitored on a current to three-year
view to ensure that the business is adequately
capitalised to achieve its objectives. The group
maintains significant capital buffers and takes into
account growth, stakeholder requirements,
internal capital requirements and developing
legislation. The group has an experienced treasury
team who is responsible for managing the funding
requirements of the group and managing liquidity
and asset liability mismatch risk. It operates within
a framework of strict risk mitigation parameters
approved by the board.
Substantial focus has been brought to bear on
rightsizing the cost base of the business and
introduce efficiencies post the rapid expansion of
the distribution network. A cost committee has
been set up to oversee budgetary processes, cost
monitoring and all cost intensive projects.
The group constantly applies discipline to not
pursue unprofitable business, while at the same
time implementing initiatives to support the
pricing of the existing book through any
deterioration of the economic cycle. It is also
actively engaged in industry reviews of the
structure of the NCA interest rate caps.
■ Strategic review –
page 38
■ Credit risk section in
the risk report –
page 118
■ Capital, liquidity
and funding
management
section in the
risk report –
page 121
■ Financial review –
page 52
■ Credit risk section
in the risk report –
page 118
■ Regulatory risk
section in the
risk report –
page 128