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Capital adequacy model
Non-performing loans 2 625 275
Less provisions (1 914 351)
The group is committed to bringing
the capital ratio down towards the
optimal level over the medium term.
This implies a surplus capital position of
R887,9 million as at 30 September 2003.
The transition from the current levels to
the target range will be managed to
ensure smooth yet decisive progress
towards the target, with careful
consideration of the impact on funding
and credit rating stability.
The first step in this process has been
the declaration by the group of a special
dividend of 100 cents per share and the
maintenance of a lower dividend cover
on the ordinary dividends. The full
financial impact of the special dividend is
set out below.
Return on equity
Return on assets (RoA) improved from
8,9% to 10,6% (target 10%) while the
impact of surplus capital resulted in an
average gearing of 2,5 times, yielding a
return on equity (RoE) of 25,9% against
the prior year of 23,2%. The targeted
capital ratio of 30% would result in a
gearing of approximately three times
and would put the group at its targeted
RoE of 30%. On a pro forma basis, had
the special dividend been paid at the
beginning of the financial year, the RoA
would increase to 10,8% and the RoE
would increase to 30,4%.
Utilisation of excess capital
Given the targeted capital ratio
described above, the group set about
dealing with surplus capital in the
following order of priority:
Organic growth – while the overall
level of gross advances has
continued to decline, much of this is
as a result of the various paydown
books, including the Saambou PLB.
The increased sales over the last six
months has started to feed into
growth in the main lending books
and the group is confident that this
momentum will continue over the
medium term.
Acquisition growth – the group is
committed to only consider
acquisition strategies that fit its core
competence and focus, and while a
number of opportunities were
examined no deals materialised.
Share buybacks – the group
believes that buybacks should
ideally be used as a capital
management tool if the share is
trading at around net asset value
R000 Capital % Required capital
Net book value 710 924 100,0 710 924
Performing loans 3 688 822 24,6 907 450
Cash reserves 1 628 036 4,0 65 121
Goodwill 20 463 100,0 20 463
Other assets 429 897 20,0 85 980
Off balance sheet assets 96 876 20,0 19 375
Insurance company CAR 77 877
Total assets 6 575 018
Group risk weighted assets (per above) 6 239 830 30,2 1 887 190
Actual capital 44,5 2 775 073
Surplus capital 14,2 887 883
(NAV) levels. Accordingly, an
opportunity occurred during the
year to buy back 20 million shares at
a net price of 595 cents, which was
7 cents above the year-end NAV per
share of 588 cents. The shares will
be cancelled at the next annual
general meeting.
Ordinary dividends – the group
maintains a dividend cover which is
a function of the RoE and medium
term asset growth prospects. The
current year’s dividends have been
increased substantially to 56 cents,
yielding a dividend cover of
2,5 times.
Special dividends – in light of the
significant surplus capital backed by
strong cash reserves, the group has
declared a special dividend to
shareholders of 100 cents per share.
Impact of the special dividend
For purposes of comparative analysis,
the impact of the special dividend is set
out below. The pro forma analysis is
calculated assuming the special dividend
was paid on 1 October 2002.
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African Bank Investments Limited