Sasfin warns things could get worse for struggling businesses
The group is going to be cautious about extending credit, with the coronavirus expected to add additional strain for businesses already battling
Financial services provider Sasfin Holdings expects the first half of the year to be particularly tough on SA’s small businesses, as the coronavirus hits in an environment that has already seen a sharp rise in insolvencies over the past year.
Sasfin said it is adopting a cautious approach to issuing credit and will work closely with clients who have fallen on tough times, as it waits to see how the government responds to an environment in which some businesses are struggling with limited to no cash flow.
Sasfin CEO Michael Sassoon said the group often has senior officials engage deeply with good companies that may be too small to get similar attention from larger banks, and that that focus on understanding the underlying operations of clients to better structure services, will continue.
Sasfin was also engaging with the Banking Association SA and the Reserve Bank, in expectations that there may be support for businesses — or changes in lending regulation — similar to efforts in other countries seeking to combat the effects of the coronavirus, Sassoon said. “We want to be able to support our clients to the degree that is possible.”
There has been a marked increase in business insolvencies in SA over the past 12 months, “and it would seem as though this is not going to abate”, the group said.
Sasfin said that when companies have gone into business rescue, it has generally been successful in recovering its full exposure, given the security positions it takes, but unfortunately has lost clients.
Group profit rose about 5.4% to R87m in its six months to end-December, with the group benefiting from improved profitability in its banking division, where impairments decreased by almost a third. The group’s banking pillar grew profit 17% to R68.15m.
Sassoon said impairments have risen over the past few years, and the decrease has brought levels more or less in line with the company’s historical averages.
SA banks, including Standard Bank and FirstRand, have recently warned that credit impairment charges have risen, the former saying those rose by almost a quarter in its year to end-December.
Sasfin said that while some of its clients are struggling in this economic environment, it has managed to enhance the overall credit quality of its book by reducing exposure to high-risk clients, while ensuring book growth from better credit-quality clients.
The group’s wealth pillar saw a slight decline in profit as it continues to be hit by lower brokerage and portfolio management fees, due to the state of SA’s equity markets.
An analyst who asked not to be named said that things were undoubtedly getting tougher for SA business, particularly for smaller businesses without deep pockets.
But it was questionable just how much the government could afford given the state of the budget deficit, the analyst said.
The Sasfin share price closed 2.9% lower at R23.80 and is down 18% so far in 2020. The JSE banks index is down 47% so far in 2020.
Update: March 19 2020
This article has been updated with additional information.
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