African Bank first quarter trading update, flat.

This morning we received a very informative trading update from African Bank for the first quarter of their fiscal year ending 31 December 2012. As expected trading conditions in the furniture industry and unsecured lending market remained challenging. Credit disbursements were flat for the quarter due to risk reduction measures. Leon Kirkinis has been very vocal about pulling back on loans to avoid a bubble. They did this by reducing both the average size and duration of the loan.


But still their overall book grew by 8% to R57.3 billion as loans with longer durations still sit on their books. This also includes growth from their credit card facility (R509 million). They indicate that competitor growth has also slowed down significantly. They still expect total advances to grow 23% for the full year.


Importantly for investors, Non-performing loans as a percentage of advances improved marginally. Then they clarify the impact of the strikes which as an investor is very interesting.


"The fallout from labour unrest increased the bad debt charge slightly. ABIL's exposure to sectors that are currently experiencing labour volatility is limited, with its exposure to platinum and agriculture less than 3% and 1% of advances, respectively. NPL coverage on both of these books is prudent based on the expected performance, and is substantially higher than on the overall portfolio. The industrial action, while disruptive to the economy, has also resulted in substantial wage increases in those sectors of the economy. The overall impact of the labour unrest and potential retrenchments will become clearer over the next few months. The group has intensified its focus on collections in the wake of the current trends in the market."


So there it is. The exposure is small and although they are feeling the effect, don't forget that strikes more often than not result in higher wages which of course benefits ABL.