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AFRICAN BANKING CORPORATION

AFRICAN BANKING CORPORATION. Results Presentation for the Half Year ended 30 June 2008. Agenda. Economic Environment Financial Performance Overview Income statement review Balance sheet review Outlook Strategic shift Challenges & outlook Capitalisation Dividend.

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AFRICAN BANKING CORPORATION

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  1. AFRICAN BANKING CORPORATION Results Presentation for the Half Year ended 30 June 2008

  2. Agenda • Economic Environment • Financial Performance • Overview • Income statement review • Balance sheet review • Outlook • Strategic shift • Challenges & outlook • Capitalisation • Dividend

  3. ECONOMIC ENVIRONMENT & INDUSTRY ATTRACTIVENESS *2006 Sources: - IMF – World economic outlook database: April 07 -Central Banks statistics

  4. Economic environment • World economic Growth is expected to slow down due to the credit crisis in the US and other Developed Countries. • Real GDP growth for all the Southern African Countries, with the exception of Zimbabwe is expected to be higher than 5% in 2008 • Commodities boom largely responsible for the Growth • Inflation is expected to soar largely due to increase in food and Oil prices • Banking assets continue to grow • Botswana has the highest GDP per Capita and highest banking assets per Capita • Positive interest rates ( Except in Zimbabwe) • Relative stability for all currencies ( except Zimbabwe) • Zimbabwe in a hyper inflationary environment, June inflation at 11.2 million percent!!

  5. ECONOMIC ENVIRONMENT– Exchange Rates • ZWD and MZM revalued in 2006 • ZWD Old Mutual implied rate

  6. ECONOMIC ENVIRONMENT– Exchange Rates • ZWD Old Mutual implied rate • ZWD revalued in August 2008 (10 zeroes removed)

  7. Economic Environment – Inflation & Interest Rates * 90 day * 1 year

  8. FINANCIAL PERFORMANCE • Overview • Income Statement Review • Balance Sheet Review

  9. FINANCIAL PERFORMANCE - Overview • Attributable profit up by 50% from BWP 55.3m to BWP 82.6m • Net asset value up by 66% and 31% to BWP 410 million from June 2007 and December 2007 respectively • Return on equity of 46% compared to 43% achieved in prior year • Net interest income for financial operations up by 68% from BWP 53.7 million to BWP 90 million • Cost to income ratio down to 46%

  10. FINANCIAL PERFORMANCE - Overview • Balance sheet growth of 24% and 14% from June 2007 and December 2007 respectively to BWP 3.3 billion • Loans and advances up by 49% and 30% from June 2007 and December 2007 respectively to BWP 1.6 billion • Deposits increased by 26% and 16% from June 2007 and December 2007 respectively to BWP 2.3 billion • Strong results across the board • Dividend of 8 Thebe per share

  11. FINANCIAL PERFORMANCE: Salient Features

  12. Financial Performance - Five year earnings overview

  13. FINANCIAL PERFORMANCE: Profit per Subsidiary *Adjusted for minority interest & includes TDFL **Prior year adjustments( application of hedge accounting)

  14. INCOME STATEMENT REVEIW • All Banking operations are profitable • All operations except ABC Botswana posted results that are better than what was achieved last year • Botswana affected by impairments of BWP 8.3 largely due to one client • All key performance indicators for ABCB are very positive • Mozambique, Tanzania and Zimbabwe posted very strong results • Financial operations outside 42% ( BWP 21.6 million) to this segment • While Zambia is profitable its performance is not satisfactory • Massive depreciation of the Zimbabwe dollar

  15. INCOME STATEMENT REVEIW • NII declined by 11% to BWP 107.3m • Massive depreciation of the Zimbabwe dollar • Huge increase in non interest earning assets in Zimbabwe • Cost of additional Tier II capital still a burden, but now reversing as capital is fully leveraged • NII covered 67% of costs, down from 81% in 2006 • Botswana contributed 27% to NII, up from 17% in prior year • Zimbabwe contribution to NII declined by over 100%

  16. INCOME STATEMENT REVIEW • Mozambique contribution increased from 17% to 22% • Zambia and Tanzania registered growth albeit off a low base • Non-interest revenue increased by 37% to BWP 231.7m. • Operations outside Zimbabwe contribution to non-interest revenue up from 43% in 2006 to 48% • Impairments charge of BWP 32.9m up 25% compared to 2006. Botswana and Zambia most affected. • Significant write backs in Botswana.

  17. INCOME STATEMENT REVIEW – Total income *Including TDFL

  18. INCOME STATEMENT REVIEW – Net interest income *Including TDFL

  19. INCOME STATEMENT REVIEW – Net interest income

  20. INCOME STATEMENT REVIEW – Other income *Including TDFL

  21. INCOME STATEMENT REVIEW: Total income composition Excluding impairments Other income still the main income driver NII income covers 67% of costs Leverage of new capital should change the dynamics in 2008

  22. INCOME STATEMENT REVIEW: Operating expenditure Cost to income ratio down due to a combination of: • Zimbabwe dollar depreciation • cost containment

  23. INCOME STATEMENT REVIEW: Operating expenditure • Cost to income ratio at an all time low of 47% • Operating expenditure up 10% to BWP 160m • Sustained cost containment throughout the group • Pula costs in Zimbabwe lower due to the ZWD depreciation • Head count at 395 compared to 337 prior year; employee costs accounted for 54% compared with 57% in 2006 • Marketing costs set to increase in support of growth targets and retail roll out

  24. Head count per Operation • Total employee costs up from BWP82m to BWP87 m • Employee costs 54% of total costs • Staff compliment of 395 (2006: 337) • Head count set to increase significantly in 2008

  25. BALANCE SHEET REVIEW • Balance sheet grew by 20% from BWP 2.4 billion to BWP 2.9 billion • Loans and advances increased by 33% to BWP 1.25 billion in line with group’s aggressive asset growth ambitions • Deposits up by 28% to BWP 1.96 billion; Botswana contributed 51% to total deposits • NAV up by 15% to BWP 313.8m compared to Dec 2006 • Zimbabwe FCTR up BWP 104m in 2007

  26. BALANCE SHEET REVIEW: Total Assets 20% balance sheet growth compared to December 06 sustained balance sheet growth since 2003 Compound annual growth rate of 21.01%

  27. BALANCE SHEET REVIEW: Geographic split of deposits • 28% growth in Deposits • Botswana continues to lead and breached the BWP 1 billion mark • Very good growth in Tanzania & Zambia, albeit from a low base

  28. BALANCE SHEET REVIEW: Loans and advances • Net loans increased by 33% from December 2006 • All subsidiaries registered growth • Overall compound annual growth rate of 28.81%

  29. BALANCE SHEET REVIEW: Geographical Split of Loans BWP m

  30. BALANCE SHEET REVIEW: Capital *Including Tier II **Including TDFL ***Including Microfin Zimbabwe FCTR up BWP104m since Dec 06

  31. BALANCE SHEET REVIEW: Capital Adequacy Healthy capital adequacy ratios in all subsidiaries due to injection of capital & prudent capital preservation in Zimbabwe

  32. DIVIDEND • Directors propose a dividend of 14 thebe (ZWD 529,839.00) per share • Dividend cover of 6.9 times

  33. CAPITALISATION • IFC subscription of 13.9 million shares, bringing shareholding to 10.7% in January 2008 • IFC Convertible loan still to be drawn down • CVCI approved investment of USD 25 million on terms broadly similar to IFC convertible loan • Directors evaluating hybrid offer: rights issue and private placement • Group well positioned for sustained growth

  34. OUTLOOK: STRATEGIC SHIFT OVER THE NEXT 12 MONTHS • Group embarking on an ambitious growth path driven by: • retail banking roll out • branch network expansion • introduction of e-banking • mortgage finance • Consumer banking (debit cards, credit cards, auto loans)

  35. OUTLOOK & CHALLENGES • Acquisition of profitable assets • Deposit mobilization remains a key focus area for the group, particularly in Zambia • Changing the business model –People, processes, systems and culture • Retail banking structure in place from 3rd quarter of 2008 • Branch profitability: 12 months to 24 months

  36. Thank you

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