Johannesburg - African Bank Investments Limited (Abil) gained 5.33 percent on the JSE yesterday, as chief executive Leon Kirkinis declared it would find a buyer for its troubled furniture retailer Ellerines, despite strong industry odds against it.
The bank’s R2.5 billion provision for bad debt spiked losses for the six months to March. It made a basic loss of R4.4bn compared with first-half earnings of R602 million last year, against shareholder expectations for earnings of R300m as declared by the group in its update for the first quarter.
“The drag is actually at Ellerines, not at the bank; everybody is saying there is no chance [that] we will be able to sell Ellerines, but we believe the opposite,” Kirkinis said.
He said Abil was placing its hopes on using strategic partner Edcon’s platform to offer credit in the space vacated by credit provider RCS.
Analysts expected Abil to shy away from this, following its troubles with Ellerines.
Kirkinis said its perspective was that risk for Abil differed significantly between these two lending platforms.
He said average loan sizes and duration were much lower at Edcon, and the clothing retailer used credit card facilities, which is one segment that performed “remarkably” for Abil during its difficult times.
Yesterday, the microlender posted a headline loss of R3.1bn for the six months to March compared with restated headline earnings of R604m a year earlier. This translated to a headline loss a share of R2.407.
The retail segment posted a headline loss of R1.2bn. Its credit sales declined 28 percent to R1.1bn for the six-month period from R1.5bn for the equivalent first half a year earlier. This was affected by a once-off R100m provision for discontinued and damaged inventories and the decision to impair the deferred tax asset.
But Kirkinis said he expected no further markdown on the company’s stock as it was hoping to avoid any further surprises for shareholders.
In January, Abil had the biggest migration of performing loans to non-performing loans (NPLs) and, given the unpredictability of what could happen to this trend, Kirkinis said the bank felt it was appropriate to create this provision.
Between March last year and March this year, 3.1 percent of Abil’s performing loans on average migrated to NPLs.
“You have two choices: you can have denial and hope for the best or do something about it,” Kirkinis said.
Abil had R600m more NPLs than expected in the reporting period. The overall provision equalled 83 percent of NPLs.
The group also took all intangible assets off the balance sheet, writing off R831m in the retail unit’s residual goodwill; taking a R582m impairment of trademarks and a R723m write-off on deferred tax assets.
The bank’s credit impairment charge increased to 26.5 percent from 13.5 percent in the previous comparable period.
It was not only the rise of new NPLs that forced Abil to increase its bad debt provision; its collection on loans that were already not performing was about R80m less than what the lender had anticipated it would achieve.