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Summit TV speaks to Sasfin financial director Malcolm Segal about year end results that show a credible performance in a year of consolidation

Giulietta Talevi: Welcome to Face to Face. Sasfin Holdings released their year end numbers on Tuesday. Malcolm, the numbers look quite respectable headline earnings down 2% to R150million - given the context of what’s happened to the banks over the last year it’s pretty respectable indeed - how have you managed to keep earnings relatively steady?

Malcolm Segal: Yes, we do believe it’s respectable given the circumstances. The business has been steady - the asset base has been steady - and that’s generated the income. Fortunately even though there has been an increase in impairments that’s not too serious…

Giulietta Talevi: I saw non-performing loans going up from R4million to R8million so that’s doubled - but in the context of things it’s quite small.

Malcolm Segal: That’s R4million to R18million actually - nevertheless as a percentage of advances of R1.8billion 1% is a good number.

Giulietta Talevi: The thing is there isn’t much growth in these numbers - have you significantly tightened up your lending criteria and that’s what kept growth back?

Malcolm Segal: Absolutely. When the credit crisis hit approximately a year ago the focus of bank then became to manage the balance sheet as opposed to focus on the income statement and we feel we did that successfully. Credit criteria were obviously tightened and investment criteria became more stringent - that was the need at the time to mange the balance sheet. The income statement will take care of itself...

Giulietta Talevi: Subsequent to year end have you relaxed anything? We are seeing Standard Bank and Absa for example relaxing rules for mortgage applications. I’m not sure how many loans they are going to grant - but they certainly are making a bit of a show about loosening up their lending regulations at the moment...

Malcolm Segal: Yes, a point we did make in our presentation this morning is that both on the debt side and on the equity side the green shoots are apparent - there has been a lot of interest in new business. What we feel is that we are well capitalised to take advantage…

Giulietta Talevi: So are you starting to give out more loans to small businesses?

Malcolm Segal: We remain cautious. Out there the real economy remains tough - the lead indicators are positive and the markets are running - but I think entrepreneurs still find business to be difficult. We are cognisant of that nevertheless there is definitely an improvement in the climate...

Giulietta Talevi: What about stealing a march or getting a bit of market share from your competitors in this environment? Is that a strategic intent of Sasfin at the moment?

Malcolm Segal: I think the success story of Sasfin really has been our focus on the entrepreneur - that is our focus. We’ve built our business around servicing the entrepreneur. Servicing those entrepreneurial clients - many of whom fall in the SME space - I think we have learnt and understood how to service those clients. Anecdotally our sense is that the bigger banks are perhaps withdrawing from that market - they are finding it difficult and expensive. It’s intensive care - you need to be close to the clients to understand their businesses and tailor-make products to their businesses. Possibly the larger institutions are less well positioned to do that than we are...

Giulietta Talevi: So you’re actually going after the business they’re neglecting?

Malcolm Segal: I think it is not so much going after - what we are finding is that clients who might otherwise ordinarily or in the past have found suitable lines of credit from the big banks are coming to us and we are finding that we can service them...

Giulietta Talevi: Looking at the results your deposits were down 20% which is quite a high number - what was behind that fall?

Malcolm Segal: Possibly there is a perception out there that when you are in the midst of a financial crisis that possibly the smaller banks have a higher risk profile than larger banks. I think the history of what happened over the last year actually proved that is not the case at all - but be that as it may perhaps that was the perception. It’s interesting to note however that post year end the depositor base has started to climb again...

Giulietta Talevi: You talked about managing liquidity - how good is your tier one capital and reserves? Are you confident that’s plump enough?

Malcolm Segal: A very distinct feature of Sasfin’s results - and it has been so for a number of years - is that we are an exceptionally well capitalised bank. Our capital adequacy is currently over 30%. I think you are aware of the fact that we recently announced the strategic tie-up with the International Finance Corporation (IFC) and that will pump yet further capital onto our balance sheet - in fact our capital adequacy at that point will go above 35% - so not only is our business very well capitalised but the way in which it is capitalised between the different classes of funding is very comfortable.

Giulietta Talevi: Malcolm, going back to the operational assets of the bank you service SME’s particularly and you have got a corporate finance division - I was just wondering how much business you are doing with companies coming to the bond markets to raise debt - is that good business for Sasfin or are those companies generally too big and they don’t look at Sasfin or you don’t look at them?

Malcolm Segal: Again we stick to our knitting. Our corporate finance activities are more as a boutique corporate finance house - we service mainly smaller cap companies up to market cap of around the R5billion mark - so our capital raising tends to be primarily on the equity side as opposed to the debt side.

Giulietta Talevi: I suppose there’s not many listings at the moment so there’s not much business in that regard?

Malcolm Segal: Not many listings - but some de-listings. Certain people are hungry for capital. There is quite a bit of activity still in the junior mining sector so our team is kept well occupied…

Giulietta Talevi: In the results you talk about capital expenditure - Sasfin spent R170million I think on your new head office. That’s quite a lot of money to spend on a new head office in a time such as this - can you justify that expense?

Malcolm Segal: It was a move we had to make. The business has been expanding over a number of years - if you’d been to our previous office you would have seen that we needed to grow and expand. We see it as laying the base for expansion and growth in years to come. Our offices are functional and well kitted out but certainly not plush. I think that’s keeping within the humble and modest style and the way in which we do business. During the year we invested in infrastructure across the board - IT systems, the building and the capital base - so we feel that we have created a strong platform off which to develop in years to come.

Giulietta Talevi: To end off with you mentioned the IFC - they came in as a shareholder and beefed up your capital - are you seeing any benefits from the relationship with the IFC just yet?

Malcolm Segal: Just to be precisely correct one leg of that transaction has still to fall in place - there is still a shareholder meeting to be held. We assume that all will go according to plan - but having said that yes we have developed a close rapport with the IFC. It took a long time to bed the transaction down - an extensive due diligence process - but having built the relationship we are working closely with them. We see as the beginning and certainly not the end the number of initiatives that have already kicked off.