Sasfin reports 66% plunge in interim earnings

FINANCIAL services group Sasfin recorded a 65.8 percent plunge in interim headline earnings during the six months ended December 2020 as the Covid-19 pandemic took its toll on South African businesses and recorded higher arrears as companies struggled.

Interim headline earnings fell to R26.89 billion down from R78.02bn a year earlier due to credit impairment provisions, as a result of the impact of Covid-19 and the associated lockdowns on businesses in the country.

Given that the businesses are under continued pressure, it had experienced higher arrears.

The group’s credit loss coverage ratio increased to 9.38 percent from 5.58 percent a year earlier and credit loss ratio doubled to 240 basis points (bps) up from 122 bps a year earlier. The higher arrears resulted in the profile of its book changing as up to date loans or Stage 1 loans falling to 80.09 percent of the total book from 84.08 percent in 2019. Stage 2 loans – overdue loans – now comprised 8.76 percent of the total book from 5.43 percent a year earlier and Stage 3 loans – non-performing loans – increased to 11.15 percent of total book from 10.49 percent in 2019.

“Given the developments at the Land Bank, we have increased the impairment against our exposure to the entity. The Land Bank continues to service interest and repaid 12 percent of the outstanding capital in February 2021,” Sasfin said.

Last week Finance Minister Tito Mboweni announced that the Medium-Term Expenditure Framework allocated R7bn to the Land Bank to help to resolve the bank’s current financial woes and re-establish the development and transformation mandate.

However, group financial director, Angela Pillay, said Sasfin had emerged stronger from 2020 with a strong balance sheet with cash and near cash at R2.338bn from R2.433bn in 2019 and the capital adequacy ratio stable at 17.07 percent from 17.06 percent a year earlier. Total deposits had declined 3.08 percent to R4.831bn.

“The capital and liquidity position the group finds itself ensure it is well placed to withstand further shocks and take advantage of opportunities as they present themselves,” Pillay said.

The asset finance division posted a lower operating profit due to increased impairments.

Group chief executive Michael Sassoon said income in the Pillar increased 8.94 percent attributable to improved better margins offset by lower lending volumes.

“We continue to diversify the book and expand our offering, with specialised equipment finance growing to 22 percent of the total asset finance book up from 19 percent in 2019.”

Sasfin parked its interim dividend payment and preference share dividend after consideration of the guidance from the Prudential Authority of the South African Reserve Bank and the continued recommendation that banks act prudently and preserve capital. Beyond Business Banking reduced its operating loss largely due to a 9.58 percent cost saving over the period, following the integration of the business units.

Transactional Banking grew revenue 14.02 percent through increased client volumes, despite lower interest rates. “The next step in our digital banking evolution is to increase the credit offering to small businesses off the back of the Nasira offering. This should enable us to win new business clients across our total product suite,” Sassoon said.

Sasfin shares closed 1.54 percent weaker at R18.55 on the JSE yesterday.