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Management discussion continued
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African Bank Retail sales
(Indexed)
African Bank Retail has a fairly even mix
of repeat clients (60%) and new clients
(40%). In the shorter-term products of CI
and MCG, the repeat client ratios are
much higher at 81% and 93%
respectively.
The average term for new loans in
African Bank Retail has remained static.
In CI and MCG the average term
increased as these businesses extended
their range of products to include
longer-term products to clients with
a proven credit history with the
businesses.
Portfolio underwriting
margin, costs and tax
Portfolio underwriting margin
The group focuses on managing the risk-
adjusted yield, being the overall yield on
the advances portfolio less net credit
African Bank Investments Limited 28
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
Operating margin analysis
(% gross interest-bearing advances)
58,4
25,8
9,8
52,7
23,7
6,9
13,1 14,0
losses, as the main measure of
underwriting efficiency.
As anticipated, the overall yield on
the advances book (being interest,
insurance and fees), increased in the
past twelve months to 52,9%, compared
to 49,0% in 2002. The improvement was
the result of the changing mix in the
portfolio to higher yielding debit order
products and the pay down of lower
yielding books. The risk-adjusted yield
during this period was also positively
influenced by the decrease in the
charge for provisions and bad debts
and accordingly increased from 38,4%
to 44,7%.
Net financing costs were flat for the
year, with interest earned on cash
compensating for higher funding costs.
The average cost of funds increased
48,2
25,0
0,1
18,5 17,9 19,1
9,7 8,1
4,6
5,8 5,9
1999
2000 2001 2002 2003
49,0
14,8
10,6
2002
2003
The 2002 sales exclude
R152 million of once-off
Persal consolidation loans
in October to December
from 13,5% to 14,5% during 2003,
although this should begin to decline
as the effect of the lower interest rates
feeds through.
The net effect of the movements in these
profit drivers is that the operating margin
increased by 33% from 14,8% in 2002 to
19,7% in 2003.
Operating efficiency
The cost-to-income ratio at ABIL is
36,2%, relative to the 36,6% in
September 2002. Overall, ABIL’s costs,
after adjusting for the R100 million in
increased costs from the acquisition of
the Saambou PLB, were flat on that for
2002.
African Bank Retail’s cost reduction
programme continued to prove
effective and yielded operating expenses
52,9
19,7
8,2
Net financing
costs
Operating
expenses
Charge for
bad debt
Operating margin