Review of 2009

The difficult trading conditions experienced in the latter stages of 2008 continued into the first half of 2009. However, trading conditions started to improve in the second half of the year. The environment of lower interest rates resulted in an improvement in retail accounts in arrears and a reduction in the high level of impairments experienced in the first half of the year, enabling Imperial Bank to increase net profit after tax by 19,3% to R430,8 million. Return on equity was 13,2% and the efficiency ratio at 28,0% was similar to that achieved in the previous year. Loans and advances grew 12,8% from R44,7 billion to R50,4 billion as Imperial Bank continued to attract good-quality new business. The credit loss ratio at 1,97% (2008: 1,71%) is expected to decrease as recoveries and accounts in arrears continue to improve.

Motor Finance Corporation (MFC) performed well and increased net profit after tax by 92,5% from R164,5 million to R316,6 million, while loans and advances grew 16,1% from R28,0 billion to R32,5 billion. MFC was able to continue generating good-quality business, predominantly in the used-car market at appropriate pricing, while maintaining strong risk controls and a lean operating environment.

As anticipated, Property Finance has had a difficult year owing to the lack of demand for residential development finance. As a result, loans and advances grew 11,3% from R8,0 billion to R8,9 billion. This change in business mix away from residential development finance resulted in lower net interest income, which dropped 25,9% from R328,1 million last year to R243,2 million for the current year. This, combined with an increase of 218% in impairments from R13,3 million last year to R42,3 million for the current year, resulted in net profit after tax declining 36,7% from R164,0 million for 2008 to R103,8 million for 2009.

Professional Finance had a much improved year with net profit after tax increasing 42,7% from R17,8 million last year to R25,4 million for the current year. This was largely attributable to improved margins, excellent cost management and a slight reduction in impairments, which were down 3,4% from R26,7 million in 2008 to R25,8 million for the year under review. Loans and advances increased 16,3% from R4,9 billion last year to R5,7 billion for the current year.

Supplier Asset Finance had a disappointing year, with the division being badly affected by the poor economic environment. The division incurred a loss of R12,7 million for the year compared with a profit after tax of R37,3 million last year. This was mainly due to impairments that increased 201,7% from R29,2 million last year to R88,1 million for the current year. In line with the strategy to consider new business selectively loans and advances declined from R3,7 billion at 31 December 2008 to R3,3 billion at 31 December 2009.

Prospects

The improved trading conditions experienced during the second half of the year are expected to continue into 2010. However, the economic recovery is fragile and there is continued uncertainty that could negatively impact on the business and particularly the corporate and commercial businesses.

Since the initial announcements of the merger of Imperial Bank, the group has invested significantly in the planning of the integration to ensure a smooth transition in line with our values and guided by legislation and fair employment practices.