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Risk review continued
The risks below are rank ordered in terms of their inherent risks, ie the effectiveness of current controls have not been taken into consideration.
Top ten risks Mitigating factors
Risk 1: Liquidity and interest rate risk
Due to the gearing of banks, a loss of confidence could A natural interest rate hedge is maintained. The lending book consists
result in a withdrawal of deposits to the extent that the mainly of fixed rate assets and is financed with matching fixed rate
bank cannot meet its obligations despite adequate liabilities. Also, funding is largely raised in the capital market which
capital and profitability. facilitates the raising of longer term debt to ensure that assets mature
at a faster rate than liabilities. Concentration of maturing liabilities
is avoided and an adequate daily cash buffer is maintained. The
ALCO and Risk Committees continuously monitor interest rate and
liquidity risk. Refer to note 35 on page 120 for a further discussion.
Risk 2: Inappropriate level of capital/equity
The level of capital employed in the bank is an inherent While the regulatory minimum risk weighted capital requirement is
trade off between optimising the return on equity and 10%, the current capital and reserves of the group amount to 44%.
ensuring that sufficient capital is retained to cover the The internal minimum capital required for the group is calculated to
risk for the suppliers of funding. Capital in excess of the ensure sufficient coverage for the difference between the NPLs and
desired optimal level will have a dilutory effect on returns provisions plus an acceptable coverage for the performing book.
which can lead to a derating of the group. Please refer to page 22 for a discussion of the capital philosophy and
capital adequacy model. The board continuously evaluates the
required level of capital in the group to ensure that the required
optimum level of capital is maintained.
Risk 3: People
Most organisations’ success is dependant on the quality of The group has introduced an incentive scheme tailored to the various
staff that it employs and retention of good performers. levels and type of work performed by staff. Weak performers are
regularly appraised of their improvement and if unsuccessful are
requested to leave our employ. The group encourages selfdevelopment
of staff through various internal and external means, as
discussed in our sustainability report. This also assists with attaining the
employment equity targets set by the group. A recent culture survey
has indicated that improvement is required in the communication with
staff at all levels. Pages 80 to 81 of the sustainability report contains
more information on the management of ABIL’s staff.
Risk 4: Adequate level of sales
The inability to achieve a balanced product mix and Research is continuously undertaken to establish:
overall growth could result in margin compression or Client service satisfaction levels;
inability to carry the fixed overhead infrastructure with Client product needs;
resultant negative impact on shareholder value. Effectiveness of advertising.
The results are used to amend service levels, product offering and
advertising spend on an ongoing basis. Sales incentives are also
adjusted to influence the behaviour of sales and support staff.
African Bank Investments Limited 62
An innovation centre has recently been established to avoid staleness
yet care is taken that the organisation does not move into areas of noncompetence.
Risk 5: Regulatory changes
The majority of the group’s business is written under an The group is remaining close to the legislative processes not only to
exemption granted from the Usury Act. The exemption is influence a balanced outcome for all concerned but also adapt its
continuously under review to improve consumer protection business model well in advance to counter potential negative
which could result in a variety of outcomes, some of which outcomes. Processes are continuously re-evaluated to improve
could affect volume of sales, costs, margins and collection service levels and reduce costs to counter potential margin squeeze.
efficiencies. The creation of the innovation centre will also assist through the
development of more efficient payment platforms. Refer to pages 4
to 6 in the letter to stakeholders for more information.