Lower rates help Sasfin
Mar 05 2009 18:00
Lauren Cole
Johannesburg - Financial services firm Sasfin is set to benefit from falling interest rates as 70% of the group's capital equipment book is locked into deals concluded at the prime lending rate.
Capital equipment forms part of Sasfin's business banking division, which finances companies' stock, equipment and debtors and comprises about 30% of operating profit.
"The equipment rentals book stands at R1.2bn, of which most deals run for five years," said chief financial officer Tyrone Soondarjee.
He said these transactions were concluded at the prevailing prime lending rate at the time. Rate increases are passed on to clients, while decreases are not.
Economists expect a further 300 basis-point reduction in lending rates over 2009. As interest rates fall, Sasfin will benefit as its net margin will be larger.
Sasfin reported a 13% reduction in headline earnings to R65m for the year to end-December 2008. The group tightened its credit policies in response to the global economic crisis, resulting in lower levels of new business. While loans and advances grew 10% to R1.9bn in 2008, Soondarjee noted that "growth had been very low in the last six months".
Interest income was up 29% for the period at R202m, primarily as a result of growth in the book. The group also benefited from the two percentage-point rise in interest rates over the year.
The group's funding costs were higher, which saw net interest income's contribution to earnings fall by 1.9% to R75m. Total income came to R303m.
While lower interest rates will affect interest revenue earned on loans and other finance products, the group will also benefit from lower funding costs.
Scrip issue
Operating costs increased 23% to R193m, due to growth in the business, which includes an operation in Hong Kong and an international treasury firm. Also affecting operating costs were higher compliance costs associated with increased regulatory requirements following the adoption of banking regulation Basel II. Sasfin Bank boasted a capital adequacy ratio of 22% as at December, well above the prescribed minimum requirement of 9.75%.
Dividends per share of 71c were 13% lower than last year, but in line with the group's policy of declaring interim and final dividends, equal in aggregate, to 40% of headline earnings.
The group has offered shareholders the option of receiving a scrip dividend in lieu of the cash dividend in respect of all or part of their shareholding.
"Interest expressed by shareholders so far to take up the scrip offer is in the region of 50% - a definite show of confidence", said chairperson Martin Glatt.
The scrip issue, final details of which will be announced later this month, will further enhance the group's liquidity.
Soondarjee noted that cash and liquid assets of R415m, while 8% lower than 2007's R453m, was still good. "We are confident that this is sufficient to meet the future requirements of the business," he said.
Non-performing loans increased from 6% to 6.4%, resulting in an annualised impairment charge of R11m (1.2% on average loans and advances). This figure was significantly higher than the 0.2% recorded in 2007, primarily due to high recovery levels in 2007.
The group will continue to focus on the entrepreneurial market, in which it is well positioned as a banking and financial services provider.
The group also intends to build on its relationship with the International Finance Corporation, with whom it recently secured a trade finance guarantee facility. "We expect earnings to continue at these levels in the next six months," said Soondarjee.
- Fin24.com |