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ABIL also expanded its portfolio to
provide development and empowerment
finance to contractors within the local
construction industry. The current model
is not profitable and the book is being
wound down.
Gilt Edged Management Services
(Pty) Limited (“GEMS”) (still a subsidiary
of Theta and in the process of being
wound down)
GEMS provided personal loans to the
municipal worker market using a
business model competitive to that of
African Bank Retail. The business is
being wound down and the book will
be incorporated into the African Bank
Retail book.
Theta subsidiaries Specialised Finance
and MBD were both sold during the
2003 financial year.
Overview of the past year
Financial overview
Specialised Lending increased its
headline earnings by 15,6% to
R122,2 million (2002: R105,7 million)
These results were obtained through a
combination of improved cost control,
increased sales and a substantial
improvement in credit quality, especially
in Credit Indemnity. The result was
negatively impacted by the losses in
GEMS and ACFC, both businesses which
are being wound down.
Credit Indemnity has enjoyed a
successful year with the debtor’s book
growing 27,9% and headline earnings
increasing year on year by 43,1%. The
results were achieved off the back of the
consolidation of the Profiler Behavioural
Score Card that enabled the business to
selectively relax its credit granting policy
thereby selling more to existing clients.
In addition, the business was able to
underwrite repeat business on an
individually customised risk-adjusted
pricing basis and reward good clients
with longer-term loans at lower rates with
larger average loan sizes. All this was
achieved without detriment to the
condition of the debtor’s book, which
has improved year on year with nonperforming
loans down from 25,9% to
19,7%, and the current portion of the
book improving from 68,2% to 74,8%.
Credit Indemnity was successfully
integrated into the Specialised Lending
division of African Bank from 1 July 2003,
which has resulted in a closer beneficial
relationship between the various
business units in the group. The business
was rebranded to reflect the fact that it
now forms part of African Bank.
For MCG, the last year was one of
consolidation and preparation of the
base for solid growth. The company
sustainably adjusted its operating cost
base and is well poised to benefit from
affordability improvements, growing
demand for credit in its target market
and the expansion of its target market
outside the Teba Bank customer base.
The minority founding shareholders were
bought out during 2003, enabling MCG
operations to be divisionalised into
African Bank under the Specialised
Lending division in the first quarter of
2004. The exit of the shareholder
managers was well managed with
appropriate succession planning having
been in place and has had no effect on
the performance of the business.
ABCommerce commenced trading on
1 February 2003 as the SMME finance
division of African Bank Limited. It
targets the formal SMME market and
offers a factoring derivative product as
a means of providing cash strapped
growing business with access to funds,
currently tied up in debtors. The
business provides value-add and obtains
additional security against advances by
taking session of and collecting the total
debtor’s book for clients. The company
has a R5 million book at present.
African Bank Commercial Vehicle
Finance increased its profit after tax by
more than 150% over the previous year.
The debtor’s book grew by 71% to
R114,4 million through 625 new deals in
the financial year, resulting in it closing
with 1 190 active debtors at year-end.
Negligible bad debt has been incurred
to date and the division has no NPLs.
On 7 October 2003 the Minister of
Transport announced an extension to the
deadline of September 2006 after which
no existing minibus taxis would be
allowed to operate as public transport
vehicles. The date will be agreed in due
course. This extension will make it
possible for financial institutions to
extend their finance term enabling a
greater number of taxi operators to
qualify for finance and purchase new
vehicles in the interim period, prior to the
new vehicles under the recapitalisation
programme becoming available.
The year ahead
The last three months of the trading
year have seen a trend of marked
improvement in sales volumes and
credit quality at Credit Indemnity that
in conjunction with the implementation
of an aggressive cost management
programme provide management with
confidence that 2004 will be another
good year for the business.
At MCG, the long-term plan of a holistic
product offering to the client at the most
convenient location continues with the
introduction of a highly competitive legal
insurance product to the client base,
underwritten by Capital Alliance Life. The
MCG IT platform has been enhanced to
enable the extension of loans outside
of the Teba Bank relationship. The
introduction of application scoring
technology and a behavioural scorecard
based on the extensive availability of
historic data in MCG and its specialised
understanding of the mining industry will
support successful entry into the non-
Teba market and will enable improved
risk adjusted product offerings to loyal,
performing clients in the future.
Once the government’s taxi
recapitalisation programme is
implemented, the existing national taxi
fleet of almost 100 000 vehicles will be
phased out as the new 18 and 35 seater
vehicles become available. The
Commercial Vehicle Finance division is
well poised to benefit from the
opportunity provided by this massive
replacement programme. These new
vehicles will, in all likelihood, only
become available towards the end of
the 2004 financial year.
The 2004 financial year will be
ABCommerce’s first full year of trading as
opposed to the eight months of trading
in 2003. ABCommerce is well poised to
assist African Bank in making an
important contribution to the financial
services sector meeting the SMME
finance targets in the Financial Sector
Charter.
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African Bank Investments Limited