African Bank Investments Limited Strategies to grow in the mass market

Transcription

1 African Bank Investments Limited Strategies to grow in the mass market June 2007

2 Presentation agenda Who we are Our target market A transforming business Is this a good time to be in this market? Outlook

3 Who we are 3

4 Business intent and purpose VISION Improving quality of life by providing access to affordable, convenient and responsible credit MISSION ABIL is the dominant low cost provider of unsecured credit in the South African mass market through an extensive distribution infrastructure, an innovative product portfolio and superior credit-underwriting competency 4 POSITIONING YOUR CREDIT BANK Improving quality of life

5 ABIL in perspective The focus of the group is to underwrite unsecured credit risk through the provision of personal loans to a rapidly growing group of emerging income earners in formal employment in South Africa Total loan book of R9 billion Servicing 1,3 million clients 596 outlets permanent staff and mobile sales agents 1 brand African Bank 5

6 Key elements of our business model Single-minded focus on unsecured lending based on a core competence of credit underwriting, selling, collections Only take credit risk, all other risks isolated Extensive retail model with direct client interaction and fast turnaround time Pricing based on individual client risk profile Fully automated process: application to approval to disbursement, centralised credit approval Low cost operating model 6

7 Our target market 7

8 Focused on a niche franchise Our target market: LSM 3 8 Banked Formally employed Aged Number of banking products used Private banking Commercial banking Unsecured lenders Cash lenders Unbanked 8 Income and degree of financial sophistication

9 Our current client profile Gender Monthly Expenses Marital Status Dependents Male 63% Female 37% Debt 44% Personal Expenses 15% Discretionary 41% Single Women 25% Single Men 34% Married Women 12% Married Men 29% 0 19% 1 24% 2+ 57% Age 40% Monthly income 40% 30% 30% 20% 20% 10% 10% 0% 0% >50 Years < R2 500 R to R4 000 R to R7 500 > R 7 500

10 Size of our target market Our projections show that the market will continue to grow, especially LSM s 6-8 Total repayments possible by LSM 3-8 (21+, excluding housing bond) 120 Rands (Billions) R74.8 Bn R81.5Bn R88.4Bn R95.7Bn R103.4 Bn Source: ABIL strategy demand-side model

11 A transforming business 11

12 A changing business in an evolving industry Over the past two years, ABIL has moved... From Multiple operating units Separate brands One-size-fits-all pricing Monoline product Reliance on preferred debit order mechanisms Focus on efficiencies and optimisation Product and sales focused business 12 To A single integrated business Single brand Segmented, differentiated pricing Multi-product portfolio Collection platform neutrality Focus on growth off a low cost platform Market focused, client-centric

13 Research showed that our clients value Amongst other things: Better customer service [simplicity of application, speed of approval, speed of disbursement] Greater access to cheaper credit Broader product offering Understanding and catering for clients emotional needs Clients viewed ABIL s strengths to be: Saying yes more often than anyone else, with quick turnaround times Clients disliked ABIL s: High interest rates, insufficient reward for past behaviour and inflexibility in collections practises 13 91% of clients say they will recommend African Bank to friends

14 Research showed that our clients value (continued) When African Bank clients evaluate mass-market lenders, the three most important considerations are: Speed of getting money Interest rates Quality of service Clients select African Bank as their service provider mainly for the following reasons: Can get money quickly Enough time to pay back the loan The loan does not cost a lot every month Hassle-free process Have borrowed from us before Speak their language Potential clients do not select African Bank for the following reasons: Interest rates are perceived to be too high Don t know much about African Bank 14 Never thought of going to African Bank

15 Consequently we are changing the focus from product to client-centricity Achieved thus far: Rewarded behaviour through risk-based pricing Decreased the level of client cross subsidisation; 1 price for all to 25 risk category segments Brought down cost of credit Significantly improved application to disbursement process times [average 93 mins] Determined our client value proposition based on substantial client research Broadened access More pervasive distribution footprint Dealing with a wider range of clients Introduced credit cards Convenience access Cost and therefore price Utility 15

16 Increasing utility for clients by reducing cross subsidisation For a R500 per month instalment Loan Size (Rands) High High High Low Medium Medium Medium Low Low Loan term in months Original pricing pre August 2005 Pricing from August 2005 Pricing from October 2006 Based on 3 risk groups Based on 8 risk groups Based on 25 risk groups 16

17 Reducing the cost of credit... Yield curve % Term in months Original pricing pre August 2005 Pricing from August 2005 Pricing from October Note: Yield curve: total cost of credit excluding the cost of insurance (expressed as an annualised effective rate)

18 Reducing loan approval times... Median of total loan cycle time (Time measured from start of application capture up to loan disbursement) Minutes Month

19 New branding to reposition, modernise and broaden appeal to clients Why 19 Streamlining of visual identity system required after integration of three companies and distribution footprints over past two years Branding is 10 years old and required modernising to maintain appeal for clients New branding and revitalised interiors improves aspirational aspect of brand and symbolises the stronger focus on our clients

20 A pervasive distribution footprint Number of contact points Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 20

21 Boosted by alternative formats 21

22 Credit card successfully launched and growing in line with expectations Number of accounts up to Advances book of R258 million Average limit of R3 200 Average utilisation of 84% 74% existing clients; 26% new clients First credit card for 85% of card holders Credit quality consistent with instalment loan business Target for September cards with R500+ million book 22

23 The credit and regulatory environment 23

24 Client average debt burden has been increasing Client average debt burden ABIL tracking population of (since June 2005) Rands 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Average Balances/client 24

25 and we pre-emptively tightened our underwriting criteria Decline rates as a result of affordability constraints % Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Decline rates 25

26 thus we ve kept our instalment to net salary ratio at 30% Average total instalments per client as percentage of net income 80% 70% 60% 50% % 40% 30% 20% 10% 0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Approved clients Declined clients 26

27 National Credit Act: redefining the market but also bringing opportunities Key NCA issues: Reckless lending - both affordability and customer understanding Price ceilings Credit marketing practices Debt counselling Legal enforcement in the event of default Increased competition ABIL readiness: All staff trained Prices aligned with ceilings NCA compliance completed: language, documentation, marketing practices etc 27 now providing loans beyond R10 000

28 Outlook 28

29 Initiatives beyond 2007 Continuous refining of segmentation of product term and pricing, and further testing of price / volume elasticity Developing our client value proposition further and consequential reengineering of the business Reinforcing new branding to align with repositioning and broader appeal Expanding distribution footprint further to 700 physical branches and 300 alternative distribution outlets Building credit card to scale Broadening our scope of clients and providing more people with access to credit Increasing approval rates Continuing to reduce the level of cross subsidisation and reward good clients for their financial discipline Piloting debt mediation programmes in our branches to assist clients in financial distress Continuing to keep a tight cost discipline 29

30 30 Thank you