Johannesburg | Friday
THE Absa group announced a turnaround plan for its 61% held microlending company Unifer on Thursday which was recently found to have a R1,5 billion shortfall in provisions.
The shortfall led Unifer to request the suspension of its shares on the JSE Securities Exchange on Tuesday and has caused Absa to announce a loss of 100 cents per share and its capital adequacy ratio to be revised from 12,1% to 11,4%.
Absa chief executive Nallie Bosman told a media briefing in Johannesburg on Thursday that his board decided to take swift action to support Unifer and to curtail any further losses that Absa might suffer.
Absa’s share closed 3,5% lower on Thursday at R28,70. It plunged by nearly 18% on Tuesday.
Said Bosman: ”Absa will follow its rights entitlement, underwriting the remainder of the rights offer and providing support to depositors and the liquidity to Unifer during this period, should it be required.”
He said a task team had devised an organisational restructuring programme that would be implemented from this month.
”In the short term, Absa’s focus will be on strengthening Unifer’s management and improving efficiencies and we will be seconding specialists from Absa to support and advise management at Unifer.
”Absa are also working on a new long-term strategic plan for the emerging market and Unifer business will play a part in this.”
The bank will finalise its overall strategy for the emerging market by March 31.
Bosman said there would have to be large scale cost cutting throughout the Absa group to make up for lost profits.
Unifer’s situation began after the Unifer implemented alternative collection methods and the company entered a period of rapid growth.
The Unifer board became concerned with the exceptionally fast growing Unifer advances book and reported the matter to the Absa board in May.
The Absa board cautioned Unifer’s management about extending their loans.
To determine the current state at Unifer, Absa’s board initiated audit and forensic investigations. After a initial report back in January, Unifer and Absa’s boards decided that decisive action was necessary.
”Despite Unifer’s management’s assurances to the contrary, it has now become clear that the use of a decentralised credit model and inadequate administrative capacity and systems underlie the inadequate provisions,” Bosman said.
This arose primarily in overheated trading between April and June 2001.
Bosman said understanding of the situation was exacerbated by misrepresentations to the Unifer board by their management.
”We have a team who are investigating the causes of Unifer’s losses and the effects these will have on Absa and when they find the cause of the problem we will, if necessary, take the appropriate action,” he said.
Auditors have been asked to verify Unifer’s position and will report back in mid-February. – Sapa