Avior Financials | ABSA and SBK meeting notes | Debt relief bill | Peregrine | SA insurers

In this week's Avior Financials note:

Our discussion with ABSA management this week highlighted that RBB SA is performing ahead of management's expectations. RBB SA's earnings growth prospects remain robust despite challenging SA economic conditions. Management believes there is limited scope for CIB SA advances growth from current levels (H1 '19a: +23% y/y or +5% since Dec ‘18) due to muted demand in SA.

Standard Bank management expects earnings growth from Banking activities to be similar to H1 '19 (+c.10% y/y). The base is low for CIB in H2 '18 (CIB earnings growth should increase in H2 ‘19f). PBB's earnings growth could improve in H2 ‘19f if credit impairment charges are lower than expected. ICBCS (London operations) and Liberty (due to market exposure) are challenging to forecast.

The National Credit Amendment Bill (or “debt relief” bill) was signed into law yesterday. The greatest impact on SA banks' existing debt will be in the form of lower post-write off recoveries and higher LGDs in unsecured credit models (resulting in a marginally higher through-the-cycle credit loss ratio). SA banks' credit models usually imply a probability of recovery of less than 5% after 12 months in arrears. Therefore, debt forgiveness after more than 36 months will have a negligible impact on credit loss ratios.

Peregrine withdrew its cautionary announcement this week. We believe the cautionary related to a potential sale of a division or the Group. Even without any corporate action, we believe PGR is undervalued.