Lower business volumes in non-banking activities hit earnings at Sasfin Holdings, resulting in an 18 percent decline in profit for the year to June to R114 million.
Reporting its full-year results yesterday, the listed bank holding company said it would be shrinking its balance sheet assets in the current financial year to minimise risks and to improve earnings.
“The business banking has done very well but the private equity business had some losses and we are not at all happy. We’ve now taken steps to move it into managed funds because I do not think it’s healthy for a banking business to have many risks in its balance sheet,” Sasfin chief executive Roland Sassoon said.
The knock in private equity business volumes, coupled with higher-than-expected impairment charges in its loan portfolio, saw headline earnings decline 11 percent to R96m. Impairment charges on loans and advances grew 37 percent to R37.7m.
Earnings an ordinary share were down to R3.04 from R3.96. Diluted headline earnings an ordinary share dropped 16 percent to R2.97. This was despite the 6 percent increase in the company’s net interest income, which jumped to R190.5m.
Sasfin said the net interest income increase was primarily a result of a larger lending book, with an average cost of funding in line with the previous year.
Its total gross loans and advances were up 22 percent to R2.4 billion, while banking assets increased 23 percent to R4.4bn, mainly a result of positive momentum in the business banking segment, Sasfin said.
Business banking generated R444.7m in revenue, significantly ahead of the R403m in the comparable period last year. Profit in this segment almost doubled year on year to R80m from R42.8m.
The wealth management business also increased revenue to R179.3m from R174m last year, but its profit for the year decreased to R11m from R17.7m. Funds under management grew to R45.3bn from R36.8bn a year earlier.
The logistics and risk management business recorded a slight increase in revenue, while all other remaining segments posted declines in both revenue and profit.
Sassoon said the bank had many clients who wanted private equity and property portfolios, so Sasfin would still retain these businesses, even though they would now be managed separately.
“We’ve had discussions with companies who have good track records in the management of assets and we’ll still be involved in the management of these assets. We just don’t want to have them on our balance sheet,” he said.
Sassoon expected a turnaround in Sasfin’s results in the current financial year after the bank acquired a 42 percent stake in IQuad, a diversified group of specialist financial and business services companies listed on the JSE’s AltX board.
Imara SP Reid analyst Stephen Meintjes said although the private equity business was a major drag on its performance, Sasfin was set to recover.
“The private equity has changed its model so it won’t be a setback anymore. (I am) not saying that their earnings will recover fully but there should be a bit of improvement. All the other divisions should have a good year,” he said.
However, Meintjes added that the IQuad transaction was just a “bolt-on” acquisition that might not necessarily bring much change.
Sasfin said despite the prevailing level of global economic uncertainty it expected to see improved levels of business activity across all segments.
“Sasfin is well positioned to grow its franchise, focusing on the entrepreneurial market and private client base.”
The firm added that it had intentions to launch a corporate bond programme and it had secured a e35m (R353m) seven-year facility from three European development funding institutions.
Sasfin’s stock slid 4.7 percent yesterday to close at R30.51.