Renée Bonorchis
25 November 2008
Johannesburg — THE share price of African Bank (Abil), the country's largest provider of unsecured loans, soared yesterday after it posted a 14% rise in headline earnings to R1,5bn for the year to September but a 7% drop in dividends.
CE Leon Kirkinis said next year's risks would be bad debts and growing liabilities, but bad debts appeared to have peaked at the half-year stage, and had fallen back to 10,1%.
"Bad debt levels are pretty much where they're going to be," Kirkinis said.
"Clearly the economy is slowing, but that doesn't mean everything falls off a cliff. You've got to watch the detail and fix worrying areas. Bad debts rarely come in one big wave. They work their way into the system. There's definitely more risk, but it's not a risk we can't control."
During the year, sales rose 36% and advances 45%, return on equity shrank from more than 60% to 19,5%, and the total dividend for the year was 7% less at 210c per share.
Kirkinis said that even though Abil had surplus capital of R1,1bn it would not have been prudent to distribute excess capital before the transfer of Ellerine's lending and insurance units.
Abil bought furniture retailer Ellerine in January for R9,2bn. Kirkinis said yesterday its results were disappointing. In the nine months of operations under review for the retailer, sales and profit margins declined while costs rose. Kirkinis said there would be a cost-stripping exercise, rebranding was under way, management teams were cut from 18 to seven, more than 100 stores were closed, 100 more would go, and merchandise in stores was being reconfigured.
"The integration of Ellerine has taken a bit longer than expected. We are running three to four weeks behind schedule. It's true that there were more challenges than we expected," Kirkinis said.
Still, he was confident that in two or three years the Ellerine acquisition would pay off by doubling sales and customer numbers. He was not worried that Abil paid too much for it in the first place.
"Theoretically we could have gotten it cheaper. But it's an academic point. It is what it is. There's a long-term view on this investment," Kirkinis said.
While natural attrition thinned staff numbers at Ellerine, Abil was growing. Unlike other local banks, it had not frozen hiring.
Abil hiked minimum pay at Ellerine from R1800 a month to R3000 a month; "R1800 was just too low, so we took a view to increase it dramatically," Kirkinis said. There was a short-term cost, but in the long term such a move created a more stable workforce that felt appreciated, he said.
Kirkinis said the bank's policy was to ensure the average staff pay rise was higher than those given to managers.
In the next four years, the bank intended to double its advances portfolio by continuing to bring credit pricing down, optimising weighted average cost of capital and operating costs and growing its active client base. It expected Ellerine restructuring to gain momentum in the next financial year.
The majority of analysts on Bloomberg News rate Abil stock a "buy". At close of trade yesterday, it was 6,6% higher at R23,16.
Be the first to Write a Comment!
Copyright © 2008 Business Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
