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Management discussion continued
Provisions
Provision coverage of NPLs decreased
from 79,5% to 74,7%, mainly as a result
of heavy bad debt write-offs against the
portion of the non-performing book that
is 100% provided for and improved cash
collections during the year. The
provisions have been calculated in
accordance with AC133 and accordingly
the general provision previously held has
Analysis of NPL and provision movements
R000 NPLs Specific provisions
Balance as at 30 September 2003 2 625 275 1 793 466
Balance as at 30 September 2002 2 989 662 2 122 816
Net movement (364 387) (329 350)
Add back bad debts written off 875 010 875 010
Gross increase for the period 510 623 545 660
Increase in specific provisions as a % of increase in NPLs (%) 106,9
Collections
The African Bank Collections business
unit has, for the first part of the financial
year, been operating as two separate
units, one focused on African Bank
collections and one focused on the
collection of the personal loans book
acquired from Saambou Bank. This was a
conscious strategy aimed at maximising
the recoveries on the Saambou PLB,
while still maintaining the stability of the
African Bank collections efforts. The
process of integration started in April
2003 and should be finalised during
November 2003.
The division has invested heavily in
technology during the financial year.
This investment has been channelled
African Bank Investments Limited 32
been reduced to approximate the Banks
Act minimum and has been renamed the
portfolio provision. The balance, being
R26,2 million, was transferred to the
specific provision.
In addition, other insurance coverage
declined, mainly as a result of the credit
life cover on the Saambou PLB
declining as loans matured. Overall,
primarily into two areas: firstly, the
acquisition of a sophisticated collections
software solution and, secondly, the
acquisition of various components of
software to improve the efficiency of the
call centre activities.
Collection efforts during the year have
been rewarded through steadily
improving cash collection rates in all
environments as collection processes
have matured. Based on an analysis of
the NPLs in African Bank Retail as at
30 September 2002 of R2 762,1 million,
cumulative cash received on these loans
in the 12 months to 30 September 2003
amounted to R358,1 million, 13% of the
balance outstanding or 65% of net NPLs
after provisions. This rate of cash
the following table demonstrates that
after write-offs of R875 million, the
group created specific provisions of
R545,6 million against new NPLs of
R510,6 million, a coverage ratio of 107%.
The group will continue to maintain a
conservative stance with regard to
provisions on NPLs for the foreseeable
future.
collections (adjusted to present values),
implies an average 30 months to collect
the residual value of the NPLs for African
Bank Retail.
Recoveries of bad debts written off
previously almost doubled in 2003, from
R43,3 million in 2002 to R74,5 million.
The average collection rate on the
Saambou PLB to 30 September 2003 was
69,3%, with the latest monthly collection
rate at 65,4%, still running ahead of
original projections.
ABIL is endeavouring to discover ways
in which to unlock the cash owed by
clients who continue to default despite
all recovery efforts, both in the active