South Africa to lose major bank next year

Safin Holdings announced that it intends to exit its banking business by the end of 2025.

The company cited increased regulatory complexity, compliance requirements and associated costs as difficulties that rendered its banking business unable to generate an appropriate risk-adjusted return on equity.

This announcement was made in Sasfin’s annual financial statements for the year through June 2024, wherein the company posted a significant loss.

Group headline earnings fell by over 150%, swinging the company from earnings of R112.68 million in 2023 to a loss of R58.68 million.

Headline earnings per share decreased from 366.18 cents to a loss of 190.96 cents per share, resulting in the company’s net asset value per share dropping 3.75% to 4.93 cents.

The company’s interest income increased by 12.1% in its financial year. However, its interest expense grew by 25.1%.

These results come after an announcement in March that Sasfin is embarking on a communicated strategic reset.

Sasfin said in its results that this reset has resulted in a strengthened balance sheet, which has enabled the company to navigate risks. 

“In terms of the strategic reset and other risks faced by the group, once-off costs were incurred, and short-term lost revenue opportunities contributed to a loss for the period,” the company said.

The effects of this rest are as follows:

• This approach resulted in an increase in net available cash of 10.50% to R1.67 billion
• The increase in cash was a result of an intentional decrease in Gross Loans and Advances of 7.19% to R8.89 billion, while Total Core Funding decreased by 1.63% to R9.67 billion 
• Sasfin Wealth has maintained Assets Under Management and Advice of R64.98 billion during difficult economic conditions.

Sasfin said its loss was impacted by an increase in expected credit losses and a decline in non-interest income, driven by negative fair value adjustments in the Private Equity portfolio. In addition, the company raised a provision in respect of the administrative sanctions it received. 

The Reserve Bank’s Prudential Authority recently fined Sasfin Bank R164.4 million due to “historic non-compliance” related to its foreign exchange business, which has now been discontinued.

“The exiting of non-core activities also negatively impacted total income, while core operating costs remained flat. In due course, in terms of the strategic reset, costs are expected to reduce,” the company said.

So far, the company’s strategic reset has seen it make progress on the following:

• Disposing of its Specialised Finance and Commercial Solutions businesses; concluding the disposal of its Commercial Property Finance business to ABL, post-year-end, and is in the final stages of implementing the disposal of its Capital Equipment Finance business to African Bank for an aggregate circa R3.14 billion.
• Closing its Foreign Exchange business and providing its core clients with alternative Forex solutions
• Progressing the exit of non-strategic private equity investments
• Announcing its intended delisting from the JSE, which the group aims to conclude in the coming months.

The company said it will continue this strategic rest after delisting from the JSE.

In its results, Sasfin also noted that it is one of the last remaining independent Tier 2 banks in South Africa. 

However, increased regulatory complexity, compliance requirements and associated costs, along with competitive dynamics and economic conditions, have made it particularly difficult for Tier 2 banks to generate an appropriate risk-adjusted return on equity. 

“The absence of a tiered banking regulatory framework and increasingly complex industry requirements needing specialised skills, advanced IT capabilities, and ongoing investment continues to reshape the financial services industry,” it said. 

“Considering these challenges and its strategic reset, Sasfin intends to exit its banking business by the end of 2025, subject to relevant regulatory requirements and approvals, while ensuring that it appropriately balances all stakeholder interests.”