REVIEW OF OPERATIONS // BANKING GROUP // WESBANK

WESBANK

INTRODUCTION

The motor industry continues to endure a very tough cycle. Trading conditions during the year have been severe, as local and global markets felt the effects of slowing economic growth, declining retail and corporate expenditure and continued high levels of consumer debt. These pressures, combined with high new vehicle price inflation, have resulted in new vehicle sales declining by over 30% year on year with a similar trend emerging in the Corporate sector. Job losses have also materialised, resulting in additional pressure in the Consumer sector.

The recent interest rate decreases will eventually provide debt servicing relief to consumers, but given the generally high level of indebtedness the de-leveraging process is proving to be more protracted than in previous cycles.

WesBank’s overall profitability was negatively impacted by significant increases in credit defaults in the local lending business. The compounding effect of declining demand and pressure on consumer affordability levels resulted in continued contraction of the advances book. Excluding the R203 million loss on the disposal of the MotorOne Finance advances book in Australia (incurred during the first half of the financial year), overall profits compared to the prior year declined 55% to R333 million. In addition, an impairment of goodwill charge of R78 million, relating to local non lending subsidiaries, was recognised in the current year. This charge falls outside of headline earnings.

The table below represents the relative contributions from local and international operations:

Divisional analysis of income before tax

* International operations include a R203 million loss on sale of the MotorOne Finance advances book.