Vote of Confidence
By Andrew McNulty
A global financial and credit crisis is not an easy time for any small bank to raise capital for expansion. Yet Sasfin, a family-controlled company with a R756m market capitalisation, has raised substantial new capital from the International Finance Corp (IFC).
Sasfin is a niche business with a banking operation that focuses on small businesses and entrepreneurs.
It will provide additional equity capital by acquiring a stake of up to 12% for US$10m. This should qualify as new tier-one capital for Sasfin's banking business. The IFC will also provide the bank with an R82,5m subordinated loan, which will qualify as tier-two capital.
The bank's capital ratios are already among the highest in the industry, says CE Roland Sassoon, and capital raised through the IFC will lift these ratios further. The interim results showed Sasfin's ratio of group capital to risk-weighted assets was 31% at December 31, well above the required 8%.
Sassoon, whose family interests hold about 40% of Sasfin, says that though it is not required or expected that small banks should have much higher capital ratios than large banking groups, it "does make a lot of sense to do so". Microlender African Bank's capital ratio at March 31 was 26,7%.
High levels of capital may constrain returns, but it also means these banks are not highly geared and should be considerably less risky than many much larger banks.
Sasfin produced limited growth in the past year. In the year to June 2008, group total assets, which include other activities such as asset management and securities broking, grew by 18%, to R3bn. In the six months to December, the growth was 10%. Gross loans and advances in the half-year grew by 11% and headline earnings per share fell by 13%. Reserve Bank figures show Sasfin Bank's total assets, excluding securitisations, declined by 5% in 2008.
However, Sassoon says the growth rate was not related to capital, but to market conditions. The company avoided lending aggressively in this period, he adds.
"Having said that, we are now experiencing a big demand for banking facilities," he says. "All of a sudden there is quite a lot of reasonable business out there. "
Sassoon expects Sasfin will increase its growth rate after its agreement with the IFC. The IFC will be entitled to representation on the group's board. The bank is also likely to have more cross-border business in Southern Africa. The IFC, says Sassoon, wants to facilitate development finance for entrepreneurs in the region and will play an active role.
"They would like to see us become more of a regional than a national player," says Sassoon. "They have already referred some good business to us."
The IFC's willingness to back the company presents a striking contrast to the stance taken recently by investors.
The share, at R27, was trading last week at less than half its record high of R59 reached 18 months ago. It seems to offer value, on a historical p:e of five and a dividend yield of 8%, with the price at 1,2 times the NAV at December 31. However, liquidity in the stock is low. |