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Letter to stakeholders continued
Economic review
In the year under review, the South
African economy has proven to be
resilient with GDP growth of around 2%
forecast for 2003. The economy was
driven by buoyant domestic demand and
consumer spending, which has remained
robust. Factors aiding this confidence
included tax decreases announced in the
2003 budget, the rate of inflation
declining from a peak of 11,3% in
November 2002 to 6,3% in August 2003
and interest rate cuts of 3,5% between
June and September 2003.
These trends are projected to continue:
consumers are expecting further tax
cuts in next year’s fiscal budget, inflation
is forecast to continue to fall in 2004
and further interest rate cuts are
anticipated.
In the wake of expected further rate cuts,
moderating price pressures, moderate
levels of indebtedness and higher
disposable incomes, demand for credit
should remain healthy.
Market trends
A large number of economically and
credit active South Africans suffered
dire consequences as a result of the
injudicious utilisation of available credit
during the credit bubble preceding the
Saambou and Unibank collapses as well
as the subsequent boom in predatory
debt administration activities. It is vital
that the credit industry now finds ways
to assist affected individuals to
rehabilitate their situation in the
shortest possible time and re-engage
in the credit economy despite the
impairment of their profiles.
All business indicators on ABIL’s book
reflect marked improvements in the
behaviour of both lenders and borrowers
in the wake of the credit bubble. During
the past year we have witnessed
significant increases in consumer
demand tempered with cautious take
up of credit by consumers who have
weathered the storm. These trends are
expected to be sustained for some time
with continued positive impact on
portfolio performance.
African Bank Investments Limited 4
Predatory debt administration and
mediation activities have reduced on the
back of mounting public and official
disapproval of such activities, borrowers
becoming increasingly aware of the
damaging long-term legal and financial
consequences of the process and the
courts applying ever-increasing levels of
scrutiny to applications.
Overview of the year
The past year has been characterised
by progress in all areas of our business:
the consolidation of our competitive
position, the restructuring and
streamlining of our existing businesses
and structures, innovation in our service
offering to clients, a notable
improvement in credit quality, the
strengthening of our funding profile and
renewed growth in our loan book after
three years of stagnation in a volatile
environment. These trends were aided
by improved economic and market
conditions as discussed above.
Improvements in the operating
environment and the R1 billion funding
ABIL was able to raise enabled the
group to meet its objective to improve
the capital efficiency of its balance sheet
without any compromise to its ability to
fund its growth.
Apart from delivering operating results
in line with market expectations the
group also performed well in nonfinancial
matters during the period
under review:
– ABIL achieved third place in the
Ernst & Young Excellence in
Corporate Reporting Survey of
the Top 100 companies listed on
the JSE.
– The group was highly
commended in the grand prix for
Best Overall Investor Relations –
Non-FTSE/JSE Top 40 for
Excellence in Investor Relations
by IR magazine (UK).
– ABIL came fourth in the Financial
Mail Top Companies 2003.
– The group was a finalist in the
Deloitte & Touche Good
Governance awards in the
remuneration practices category
– African Bank/Miners Credit
Guarantee received the
MFRC/Bankseta National
Lenders Competition award in
the category “Staff Development
and Training”.
– The MFRC/Bankseta made a
special award for Credit
Indemnity’s contribution to
HIV/Aids education and
counselling.
Strategic direction
The business model of ABIL focuses on
extending credit to the moderate to
lower income market segment in South
Africa. This grew out of the lack of or
inadequate credit facilities available to
this market in the country. The core
market to ABIL constitutes the people
who were historically not active
participants in the economy and thus had
limited opportunities to improve their
quality of life through access to credit.
ABIL is committed to continue to offer
alternative access to credit through the
group’s extensive distribution network.
The group continues to look for ways to
improve its credit underwriting
methodology with a view to being able
to identify true risk profiles of the clients.
This has enabled the group to lower the
prices to those better performing clients
and those clients with better risk profiles.
This is part of the group’s commitment
towards a customer focused business,
understanding the needs of the clients
and responding to those needs
appropriately.
Going forward, the group has identified
six strategic focus areas:
1. Development of the
regulatory environment
within the credit market
Review of credit legislation
As indicated last year, the group
is strongly supportive of the drive
by government to revamp the
consumer credit legislative
dispensation and establish a new
rationalised and uniform
dispensation for a unified credit
market.