Small is not al­ways beau­ti­ful

CEO Michael Sas­soon, who plans to broaden Sas­fin’s fo­cus, is con­fi­dent the bank is on the path to bet­ter re­sults

Financial Mail - - MONEY&INVESTING - Michael Sas­soon

Many be­lieve the only ad­van­tage that Sas­fin might have over other banks is an un­der­stand­ing of small busi­nesses. Over the years, the com­pany has carved out a niche fa­cil­i­tat­ing trans­ac­tions for low-turnover busi­nesses that big­ger banks do not or­di­nar­ily ser­vice.

Sas­fin of­fers debtor and trade fi­nance, equip­ment fi­nance and start-up fi­nance, as well as fa­cil­i­tat­ing BEE trans­ac­tions.

But the com­pany’s fi­nan­cial per­for­mance over the past few years raises ques­tions about its suc­cess as a one-stop-shop for small busi­nesses.

Loans and ad­vances ex­tended to cus­tomers rose 17.8% in the year to June 2018, but the qual­ity of its lend­ing book leaves much to be de­sired.

The bank­ing group has al­most dou­bled its im­pair­ment charges — the fig­ure was R144.1m for the year to June 2018, against R81.4m in the pre­vi­ous pe­riod.

The com­pany’s cred­it­loss ra­tio has risen sharply in the past five years from 68 ba­sis points to 197 bps now — more than dou­ble that of Ned­bank, Stan­dard Bank and Absa. It is also close to twice as much as FNB’S.

Sas­fin’s credit-loss ra­tio is high be­cause it op­er­ates in a riskier en­vi­ron­ment, lend­ing to small and less-sta­ble busi­nesses as well as the big­ger ones. Fi­nan­cial in­sti­tu­tions in­cur im­pair­ment charges when money lent to cus­tomers ap­pears un­likely to be fully re­paid, and their credit-loss ra­tios widen as these losses ma­te­ri­alise.

Sas­fin CEO Michael Sas­soon con­cedes that share­holder frus­tra­tion is jus­ti­fied. He has tried to bring calm by promis­ing that de­clines seen in this year’s fi­nan­cial re­sults will not be re­peated. “We’ve been good at com­plex trans­ac­tions and we aren’t go­ing to stop now. We’ll do it in a way that is more sus­tain­able,” Sas­soon tells the FM.

The bank re­cently re­viewed its credit pol­icy and lend­ing cri­te­ria. Sas­soon says the strat­egy will be to have a big­ger spread of clients, and to grow the num­ber of smaller clients on Sas­fin’s new dig­i­tal bank­ing plat­form B\\yond, launched in March, which is linked to Xero ac­count­ing soft­ware and could be a boon for smaller clients who don’t have in-house ac­coun­tants.

“We’ve tac­ti­cally em­bed­ded Xero … in such a way that busi­nesses can ac­cess the ba­sic pay­roll, ba­sic ac­count­ing sys­tem and au­to­matic in­voic­ing from one ac­count, and it is work­ing,” Sas­soon says. “We are see­ing sub­stan­tial growth in cus­tomer num­bers ev­ery month.”

To get more es­tab­lished busi­nesses on its books, Sas­fin is tar­get­ing those that gen­er­ate between R10m and R200m in an­nual turnover as po­ten­tial clients for trade and debtor fi­nance.

“Our fun­da­men­tals re­main the same but we have to look at how and where we can do things dif­fer­ently,” Sas­soon says, and the group’s in­come stream would change sub­stan­tially in the next few years.

For in­stance, Sas­fin in­creased its for­eign rev­enue by 32% in the past fi­nan­cial year and its off­shore as­sets un­der man­age­ment now sit at R10bn. “We are mak­ing strides in grow­ing for­eign in­come but we want to be more ag­gres­sive in other ar­eas as well.”

The com­pany is ex­plor­ing off­shore op­por­tu­ni­ties for trade and debtor fi­nance as well.

In SA, it is branch­ing into mez­za­nine and bridge fi­nance and will soon an­nounce a part­ner­ship with a third party, which is likely to be a re­tailer or tele­coms com­pany.

Through the part­ner­ship Sas­fin will roll out some of its prod­ucts to the con­sumer mar­ket un­der the third party’s brand. So far the com­pany has fo­cused solely on pro­vid­ing credit and bank­ing prod­ucts to busi­ness own­ers, but the im­mi­nent part­ner­ship will fa­cil­i­tate its en­try into the highly con­tested low-in­come seg­ment.

But while the re­cov­ery and di­ver­si­fi­ca­tion plans prom­ise to re-es­tab­lish Sas­fin’s grip on the mar­ket, share­hold­ers are still con­cerned that they will not have much im­pact on the bot­tom line in the short term. The com­pany’s cost-toin­come ra­tio is not de­clin­ing as fast as they would like, and the bur­geon­ing loans and ad­vances are funded through ad­di­tional bor­row­ing rather than cus­tomer de­posits. Sas­soon says while the full ben­e­fit of these ini­tia­tives will be re­alised in the medium to long term, there should be short-term im­prove­ments as well, and the credit-loss ra­tio in par­tic­u­lar should be down next year.

We’ve been good at com­plex trans­ac­tions and we aren’t go­ing to stop now Michael Sas­soon

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