The Bank’s asset base grew by a solid 16% (MUR 19.5bn) and reached MUR 139.9bn by end of this FY. This growth was primarily in investment securities, cash and cash equivalents and due from banks while loans and advances and other assets were relatively stable when compared to last FY.
Investment securities increased by MUR 10.9bn due primarily to higher holdings of debt instruments at amortised cost; representing 32% of total assets. Cash and cash equivalents and due from banks increased by 15% in 2019. Other assets, with its foremost component being mandatory balances with the Central Bank (MUR 1.9bn), did not experience major change. During the financial year 2019, in line with the requirements of IAS 36 – “Impairment of Assets’’ to test its assets for impairment, the Bank made a full provision for impairment of its investment in AfrAsia Investments Limited of MUR 189.6m. Furthermore, the proportion of the Bank’s total assets to Segment B represented 63% in 2019 which is a drop when compared to 70% in 2018.
Overall, as depicted in the chart below, the Bank furthered its risk diversification over its assets, this can be represented by:
With the conservative approach towards its lending strategy, the Bank’s loans and advances remained at par at MUR 28.2bn this year geared mostly towards Segment B representing 59%. Loans and advances with contractual maturities over 12 months represented 56% of total loans in 2019. The weightage of the Bank’s loan book sits primarily at 32% in financial and business services sector, 11% in the tourism sector and Global Business Licence holders (GBL) and 18% in other entities in the mist of other industry sectors. We note a decline in the concentration risk in industry sectors such as government and parastatal bodies, construction, ICT and agriculture and fishing primarily.
The Bank’s allowance for impairment losses represent estimated losses related to impaired loans in the portfolio provided for but not yet written off, and allowances for performing loans, which is our best estimate of impairment in the existing portfolio for loans that have not yet been individually identified as impaired. Our approach to establishing and maintaining the allowance for performing loans is based on the requirements of IFRS. Under the IFRS 9 – “Financial Instruments”, an allowance is recorded for expected credit losses (ECL) on financial assets regardless of whether there has been actual impairment. The ECL methodology is based on a 3 stage model:
ECL - MUR 1.6bn
ECL - MUR 226.4m
ECL - MUR 135.5m
Allowance for impairment losses encompasses ECL stage 3 provisioning, which increased from MUR 1.3bn in 2018 to MUR 1.9bn in 2019. Segment B makes 76% of the total allowance for impairment losses. MUR 214.3m of loans and advances to customers have been written off against provisions in 2019, 96% being in Segment A.
Other Non-Financial Corporations (ONFC) sector represents 44% of the written off against provision quantum followed closely by the construction sector at 36%.
*The above specific impairment includes interest component.
A lower than expected loans-to-deposits ratio was achieved in 2019, that is, 21% compared to 25% last year. This ratio can be further broken down into LCY at 40% and FCY at 18%. The result can be explained with a lower than expected growth in the Bank’s loans and advances compared to the growth on deposits.
The Bank’s NPA subdued an increase to MUR 1.9bn at end June 2019 as compared to MUR 1.5bn for the same period in 2018. Consequently, it is to be noted that the Bank’s NPA ratio was 7% (2018: 5%). The financial sectors were the topmost contributor at 25% of NPA taking the manufacturing sector off the pedestal which was at 35% last year
Coverage ratio is measured as the percentage of specific impairment over total NPA. As a matter of fact, the Bank coverage showed an improvement from 39% in 2018 to 65% in 2019.
Investment securities which is held in either its trading or banking book grew by 32% to reach MUR 45.3bn as at 30 June 2019 (2018: MUR 34.5bn) with the majority investments being in Government papers both domestic and international. The currency split as from 30 June 2019 stands as LCY MUR 18.6bn and FCY MUR 26.8bn (of which USD MUR 23.7bn). Effective 1 January 2018, with the adoption of the IFRS 9, the former classifications under held-for-trading, availablefor- sale and held-to-maturity have been superseded and replaced by the following categories:
The Bank’s conservative approach towards customer lending also led to an expansion in the Bank’s monies held with other banks from MUR 55.1bn to MUR 63.7bn between 2018 and 2019 consisting mainly of the following:
Nostro current accounts were dropped by 15% from MUR 19.8bn to MUR 16.9bn, placement with other banks increased by 26% from MUR 30.2bn to MUR 40.2bn of which MUR 32.4bn in USD and collateralised placements experienced an increase of 89% from MUR 3.5bn to MUR 6.6bn in 2019 which are money lent to local banks.
At AfrAsia, we have embraced digitalisation to make it easier for our clients to seamlessly bank with us and create scope for productivity gains in the workforce. Thus, an ample amount of our capital expenditure was channelled towards banking software, computer software and computer equipment, that is, MUR 19.7m, MUR 23.2m and MUR 22.2m respectively capitalized this year, out of which MUR 10.8m, MUR 18.8m and MUR 13.7 respectively refers to assets which formerly were classified under work-in-progress. The carrying amounts are depicted below:
Our offering is continuously evolving in order to address and anticipate our clients’ changing needs. As a result, existing customers placed high level of confidence and with the on-boarding of new clients the Bank’s deposits from customers grew from MUR 111.4bn end of June 2018 to reach MUR 131.2bn by the end of June 2019. The deposit figure for the year under review is split into MUR 18.6bn LCY and MUR 112.6bn FCY (of which MUR 80.5bn in USD).
Split of Customer deposits base was as follows: