FY 2022 results
Press Release
ASA International Group plc reports FY 2022 results
Amsterdam, The Netherlands, 18 April 2023 - ASA International Group plc ('ASA International', the 'Company' or the 'Group'), one of the world's largest international microfinance institutions, today announces its unaudited results for the year ended 31 December 2022.
Key performance indicators
(UNAUDITED) (Amounts in USD millions) | FY2022 | FY2021 | FY 2020 | YoY % Change | YoY % Change (constant currency) |
Number of clients (m) | 2.3 | 2.4 | 2.4 | -3% |
|
Number of branches | 2,028 | 2,044 | 1,965 | -1% |
|
Profit before tax | 46.3 | 25.7 | 2.6 | +80% | +117% |
Net profit | 17.9 | 6.4 | -1.4 | +181% | +269% |
OLP(1) | 351.2 | 403.7 | 415.3 | -13% | +5% |
Gross OLP | 367.5 | 430.7 | 445.3 | -15% | +3% |
PAR > 30 days(2) | 5.9% | 5.2% | 13.1% | ||
(1) Outstanding loan portfolio ('OLP') includes off-book Business Correspondence ('BC') loans and Direct Assignment loans, excludes interest receivable, unamortised loan processing fees, and deducts modification losses and ECL reserves from Gross OLP. | |||||
(2) PAR>30 is the percentage of on-book OLP that has one or more instalment of repayment of principal past due for more than 30 days and less than 365 days, divided by the Gross OLP. | |||||
FY 2022 highlights
· The Company's operational and financial results continued to improve compared to 2021 with profit before tax increasing to USD 46.3 million in FY 2022 from USD 25.7 million in FY 2021.
· Net profit stood at USD 17.9 million for FY 2022, compared to USD 6.4 million in FY 2021.
· The improvement was led by the strong operational and financial performance of Pakistan, the Philippines, Ghana and Tanzania microfinance institutions ('MFI's), which delivered significant OLP growth and increased profitability in constant currency terms.
· Nigeria, Kenya, and Uganda also made significant positive contributions to the Group's net profitability.
· As portfolio quality improved or stabilised across most markets, the Company significantly reduced expected credit losses ('ECL') charged to the Income Statement to USD 0.6 million (FY 2021: USD 37.5 million). Reserves for expected credit losses on OLP in the Balance Sheet, including the off-book BC portfolio in India and interest receivables, reduced from USD 27.5 million in FY 2021 to USD 16.9 million in FY 2022.
· PAR>30 for the Group's operating subsidiaries increased to 5.9% in 2022 from 5.2% in 2021, partially due to the decrease in portfolio quality in India, combined with a shrinking OLP in USD terms in some of our other major better performing countries due to substantial currency devaluation. PAR>30 for the Group excluding India is 3%.
· ASA India's collection efficiency continued to improve, reaching 87% in December 2022. As of 31 December 2022, ASA India had collected USD 3.7 million from a total of USD 22.9 million in written-off loans since 2020.
· The Group derecognised deferred tax assets amounting to USD 8 million related to deductible temporary differences and past losses for mainly India and Myanmar, in adherence to IFRS guidelines. This resulted in a substantial increase in tax expenses and a high effective tax rate for FY 2022.
· The Group's cash and cash equivalents reduced from approximately USD 91 million as of 31 December 2021 to approximately USD 55 million as of 31 December 2022, following large debt settlements primarily in India. The Company maintains a healthy cash position and has a significant funding pipeline.
Outlook
Whilst inflation and the related foreign exchange ('FX') movements will continue to impact the Group's operating subsidiaries' financial performance in USD terms, based on the positive developments throughout 2022, the Company expects the operating environment for its clients to continue to improve in most of its operating markets.
As most of the Group's operating subsidiaries have returned to growth and increased profitability, and subject to improved performance in India and reduced currency devaluation in most of our operating countries, the Company is confident of continued progress during 2023.
Dirk Brouwer, Chief Executive Officer of ASA International, commented:
"We are pleased that all but three of our operating subsidiaries reached or exceeded pre-covid operating and financial performance on a constant currency basis in 2022. The performance of most of our major operating subsidiaries, particularly Pakistan, the Philippines, Ghana and Tanzania, was excellent in terms of portfolio quality, growth and profitability. Though as expected, and against the backdrop of global market volatility, FX movements have significantly impacted the Group OLP and financial performance in USD terms, most of our clients and their businesses in these countries have again proved their resilience despite operating in an environment with high inflation.
As a result of the improved operating performance in 2022, profit before tax and net profit of the Group for 2022 is substantially better than what was achieved in 2021. The Group's profit before tax increased to USD 46.3 million in FY 2022 from USD 25.7 million in FY 2021, and the Group's net profit increased to USD 17.9 million in FY 2022 from USD 6.4 million in FY 2021.
Based on the positive developments throughout 2022 and despite the challenging operating environment in some of our operating subsidiaries, overall, we expect higher demand for our loans in 2023. This should lead to continued progress as we continue to invest in the future with our digital strategy."
CHIEF EXECUTIVE OFFICER'S REVIEW
Business review 2022
The improvement in the operating environment in most of our markets saw demand for our loan products increase as clients experienced an upturn in business activity. Against the backdrop of the macroeconomic challenges faced in our operating markets due to the global impact of food, commodities and energy inflation, the high demand from clients contributed to the growth of our operations.
Excluding India, Myanmar and Sri Lanka, the Group added 112 additional branches and increased number of clients from 1.7 million to 1.9 million in 2022. On a constant currency basis, OLP, excluding India, Myanmar and Sri Lanka, grew to USD 360 million in 2022 from USD 282 million in 2021. The growth in OLP was combined with improved portfolio quality in these markets with PAR>30 at 3% as of December 2022 in all markets excluding India.
To limit financial losses and, simultaneously, maintain sufficient capital in India and Myanmar, the Group decided to downsize the operations in these two countries for now.
In India, the Company maintained its strategy to reduce disbursements and focus on the recovery of existing and overdue loans, which resulted in OLP shrinking by USD 61 million in 2022. We do expect that the major change of the regulatory environment in India, including the removal of the margin and interest rate cap, should translate into a positive effect on the future profitability of our operations in India.
In Myanmar, the operating environment remained challenging following the military takeover of government in February 2021. This resulted in our inability to operate in a few regions where the levels of civil unrest remained high. We do not expect the operating environment to substantially improve until a governmental settlement is reached.
In Sri Lanka, one of our smallest markets, the economic and political crisis faced in 2022 resulted in disruptions to our operations. However, we expect a gradual improvement of business and the operating environment in 2023 which should allow our operations to start gradually reaching new clients.
I express my gratitude to all of our colleagues in our head offices and in the field in all our countries for their commitment, hard work and for always keeping their focus on supporting our clients in difficult operating circumstances.
Financial performance
As a result of the improved operating performance in FY 2022, and the significantly reduced expected credit losses charged to the Income Statement from USD 37.5 million in FY 2021 to USD 0.6 million in FY 2022, the Group realised net profits of USD 17.9 million, which was a substantial improvement over the USD 6.4 million achieved in FY 2021. I am pleased that all but three of our major operating subsidiaries exceeded pre-covid operating and financial performance on a constant currency basis in 2022. The performance of most of our operating countries, particularly Pakistan, the Philippines, Ghana and Tanzania, was excellent in terms of portfolio quality, growth and profitability.
The Group maintains a diversified risk profile with operations across thirteen markets in Asia and Africa. As the impact of global market volatility, inflation and adverse FX movements in our operating markets substantially varies per country, the Company benefits from this relatively high level of diversification.
Expected credit losses
The Company reduced its reserves in the Balance Sheet for expected credit losses from USD 27.5 million in FY 2021 to USD 16.9 million in FY 2022, for its OLP, including the off-book BC portfolio and interest receivables. Following an additional write-off of the outstanding Covid affected portfolio (USD 10.8 million in FY 2022 vs USD 32.9 million in FY 2021), the Company maintained significant reserves, primarily due to the overdue loans in India and Myanmar.
The USD 16.9 million ECL reserves on OLP is concentrated in India (57%) and Myanmar (20%), with the remainder spread across the other countries as a percentage of each country's outstanding loan portfolio or as an aggregate amount. Further details on the ECL calculation, including the selected assumptions, are provided in note 2.5.3 to the consolidated financial statements.
Digital financial services
In anticipation of a rapidly digitising world, also in the segment of our low-income clients, the Group made progress with the implementation of its digital strategy to have a more attractive and competitive client proposition. Our digital strategy entails the implementation of the newly acquired core banking system, our digital financial services platform ('DFS App'), and our route to embedded finance with the so-called Supplier Market Place ('SMP'). Along with the digitalisation of our client relationship, we will make progress in further digitising our employee processes as well.
The implementation of the core banking system (T24) in Pakistan as the first country in the Group continues as planned and is targeted to go live in the second half of 2023.
The SMP app is currently being rolled out in Ghana. The first clients are onboarded and placing their online orders. The DFS app, in combination with the new core banking system (T24) in Ghana, will go live after the Pakistan implementation.
Competitive environment
The competitive landscape has not changed much across the Group. Our strongest competitors are in India, the Philippines, Nigeria, Tanzania and Uganda. In most other markets, we face less competition from traditional microfinance institutions. Up until now, we have not noticed significant competition from pure digital lenders.
Dividend
After careful consideration, the Board has decided not to declare a dividend in 2023 on the 2022 results. However, the Company looks to return to its pre-Covid dividend policy in 2024 on the 2023 results, assuming the operating and financial performance continues to improve and flows of dividends from major operating subsidiaries return to normal.
Changes to the Board of Directors post 31 December 2022
On 24 February 2023, the Board has approved the following succession plan. Mr. Brouwer will remain as CEO until the Annual General Meeting ('AGM') on Thursday 15 June 2023, at which point Ms. Karin Kersten, currently Executive Director, Corporate Development, will be appointed CEO. Ms. Kersten joined ASA International from ABN AMRO Bank in October 2021 and became an Executive Director in April 2022. In the Board's view she is very well qualified to lead the Group going forward.
Webcast
Management will be hosting an audio webcast and conference call, with Q&A today at 14:00 (BST).
To access the audio webcast and download the 2022 FY results presentation, please go to the Investor section of the Company's website: Investors | Asa (asa-international.com) or use the following link: https://stream.brrmedia.co.uk/broadcast/641c56bd2168855f70e653c7
The presentation can be downloaded before the start of the webcast.
In order to ask questions, analysts and investors are invited to submit questions via the webcast.
2022 Statutory accounts
The financial information in this document do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 ('the Act'). A copy of the accounts for the year ended 31 December 2021 was delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified but made reference to a material uncertainty in respect of going concern and did not contain statements under section 498 (2) or 498 (3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2022 is not yet complete. The Directors expect the auditors' report to be unqualified and to make reference to a material uncertainty in respect of going concern due to expected portfolio quality covenant breaches in India and lack of waivers or no-action letters that cover the entire going concern period under assessment, and expect not to contain a statement under section 498 (2) or (3) of the Act. These accounts will be finalised on the basis of the financial information presented by the Directors in these preliminary results and will be delivered to the Registrar of Companies following the Company's annual general meeting.
Full Year Annual Report and Accounts
On 24 April 2023, the Company will publish the Annual Report and Accounts for the 12 months period ended 31 December 2022 on Investors | Asa (asa-international.com).
Annual General Meeting
The Annual General Meeting will be held on 15 June 2023.
Enquiries:
ASA International Group plc
Investor Relations
Mischa Assink
ir@asa-international.com
GROUP FINANCIAL PERFORMANCE
(UNAUDITED) | FY2022 | FY2021 | FY 2020 | YoY | YoY % Change | |
| ||||||
Profit before tax | 46,281 | 25,705 | 2,578 | +80% | +117% | |
Net profit | 17,887 | 6,358 | -1,395 | +181% | +269% | |
| ||||||
Cost/income ratio | 68% | 77% | 98% |
| ||
Return on average assets (TTM)(1) | 3.4% | 1.1% | -0.2% |
| ||
Return on average equity (TTM)(1) | 18.5% | 6.0% | -1.3% |
| ||
Earnings growth (TTM)(1) | 181% | 556% | -104% |
| ||
|
|
|
| |||
OLP | 351,151 | 403,738 | 415,304 | -13% | +5% | |
Gross OLP | 367,535 | 430,698 | 445,257 | -15% | +3% | |
Total assets | 489,752 | 562,554 | 579,260 | -13% |
| |
Client deposits (2) | 84,111 | 87,812 | 80,174 | -4% |
| |
Interest-bearing debt (2) | 257,466 | 314,413 | 337,632 | -18% |
| |
Share capital and reserves | 89,661 | 103,443 | 107,073 | -13% |
| |
Number of clients | 2,299,558 | 2,380,690 | 2,380,685 | -3% |
| |
Number of branches | 2,028 | 2,044 | 1,965 | -1% |
| |
Average Gross OLP per client (USD) | 160 | 181 | 187 | -12% | +6% | |
| ||||||
PAR > 30 days | 5.9% | 5.2% | 13.1% |
| ||
Client deposits as % of loan portfolio | 24% | 22% | 19% |
| ||
(1) TTM refers to the previous twelve months. |
| |||||
(2) Excludes interest payable. |
| |||||
Regional performance
South Asia
(UNAUDITED) | FY2022 | FY2021 | FY 2020 | YoY | YoY % Change |
| |||||
Profit before tax | 12,395 | -8,229 | -5,537 | +251% | +273% |
Net profit | 3,103 | -12,393 | -4,360 | +125% | +128% |
| |||||
Cost/income ratio | 64% | 154% | 134% |
| |
Return on average assets (TTM) | 1.9% | -5.5% | -1.7% |
| |
Return on average equity (TTM) | 8.8% | -27.3% | -7.8% |
| |
Earnings growth (TTM) | 125% | -184% | -131% |
| |
|
| ||||
OLP | 118,590 | 182,329 | 217,843 | -35% | -19% |
Gross OLP | 128,460 | 201,405 | 238,738 | -36% | -21% |
Total assets | 133,894 | 198,393 | 253,360 | -33% |
|
Client deposits | 1,345 | 2,464 | 2,610 | -45% |
|
Interest-bearing debt | 85,878 | 146,522 | 183,756 | -41% |
|
Share capital and reserves | 33,393 | 37,506 | 53,232 | -11% |
|
Number of clients | 935,091 | 1,106,469 | 1,185,656 | -15% |
|
Number of branches | 670 | 778 | 758 | -14% |
|
Average Gross OLP per client (USD) | 137 | 182 | 201 | -25% | -7% |
| |||||
PAR > 30 days | 11.1% | 9.6% | 21.3% |
| |
Client deposits as % of loan portfolio | 1% | 1% | 1% |
|
· Pakistan continued to maintain a strong portfolio quality throughout 2022.
· A shrinking OLP in India and significant currency depreciation in Pakistan and Sri Lanka (PKR down 28% and LKR down 81% YoY against USD) contributed to overall OLP reduction in 2022.
· South Asia recovered from a net loss of USD 12.4 million in 2021 and posted a net profit of USD 3.1 million in 2022.
Pakistan
ASA Pakistan grew its operations over the past 12 months:
· Number of clients increased from 512k to 606k (up 18% YoY).
· Number of branches up from 325 to 345 (up 6% YoY).
· OLP up from PKR 13.8bn (USD 77.7m) to PKR 17.9bn (USD 79.1m) (up 30% in PKR).
· Gross OLP/Client up from PKR 27.3K (USD 154) to PKR 29.8k (USD 131) (up 9% YoY in PKR).
· PAR>30 increased from 0.2% to 0.7%.
India
ASA India intentionally shrank its operations over the past 12 months, as it focused on recovery of overdue loans:
· Number of clients down from 541k to 284k (down 47% YoY).
· Number of branches down from 387 to 261 (down 33% YoY).
· OLP declined from INR 4.5bn (USD 61m) to INR 1.2bn (USD 14m) (down 74% YoY in INR).
· Off-book portfolio declined from INR 2.7bn (USD 35.7m) to INR 1.8bn (USD 21.5m) (down 33% in INR).
· Gross OLP/Client down from INR 16K (USD 211) to INR 13K (USD 158) (down 17% YoY in INR).
· PAR>30 increased from 19.7% to 49.0%, although PAR>30 amount decreased from INR 1.1bn (USD 15.1m) to INR 903.4m (USD 10.9m).
*See note 13.1 to the consolidated financial statements for details on the off-book portfolio.
Sri Lanka
Lak Jaya shrank its operations over the past 12 months as a result of the political and economic crisis in Sri Lanka:
· Number of clients down from 53k to 45k (down 15% YoY).
· Number of branches decreased from 66 to 64 (down 3%).
· OLP decreased from LKR 1.6bn (USD 7.7m) to LKR 1.4bn (USD 3.8m) (down 11% YoY in LKR).
· Gross OLP/Client up from LKR 32.0K (USD 158) to 32.4k (USD 89) (up 1% YoY in LKR).
· PAR>30 increased from 6.0% to 8.5%.
South East Asia
(UNAUDITED) | FY2022 | FY2021 | FY 2020 | YoY | YoY % Change |
| |||||
Profit before tax | 4,217 | 34 | -4,348 | +12173% | +13660% |
Net profit | 1,910 | -339 | -3,366 | +663% | +713% |
| |||||
Cost/income ratio | 82% | 97% | 135% |
| |
Return on average assets (TTM) | 1.8% | -0.3% | -2.7% |
| |
Return on average equity (TTM) | 12.0% | -1.8% | -16.1% |
| |
Earnings growth (TTM) | 663% | 90% | -163% |
| |
|
| ||||
OLP | 63,316 | 62,328 | 74,214 | +2% | +13% |
Gross OLP | 66,955 | 66,784 | 80,832 | +0.3% | +12% |
Total assets | 102,917 | 105,872 | 119,152 | -3% |
|
Client deposits | 22,069 | 20,956 | 24,000 | +5% |
|
Interest-bearing debt | 58,416 | 60,392 | 66,412 | -3% |
|
Share capital and reserves | 14,980 | 16,827 | 20,259 | -11% |
|
Number of clients | 424,076 | 400,021 | 428,645 | +6% |
|
Number of branches | 441 | 420 | 415 | +5% |
|
Average Gross OLP per client (USD) | 158 | 167 | 189 | -5% | +5% |
| |||||
PAR > 30 days | 6.5% | 2.1% | 4.1% |
| |
Client deposits as % of loan portfolio | 35% | 34% | 32% |
|
· South East Asia saw return to operational growth and profitability led by improvement of operations in the Philippines.
The Philippines
Pagasa Philippines operations grew over the last 12 months:
· Number of clients up from 289k to 325k (up 13% YoY).
· Number of branches up from 324 to 345 (up 6% YoY).
· OLP up from PHP 2.3bn (USD 44.6m) to PHP 2.8bn (USD 49.6m) (up 21% YoY in PHP).
· Gross OLP/Client increased from PHP 8.2K (USD 161) to PHP 8.6k (USD 153) (up 4% YoY in PHP).
· PAR>30 decreased from 2.5% to 1.7%.
Myanmar
ASA Myanmar saw a decline in clients and OLP over the last 12 months as a result of the political situation and the related civil unrest halting operations in certain regions:
· Number of clients down from 111k to 99k (down 11% YoY).
· Number of branches remained at 96.
· OLP down from MMK 31.5bn (USD 17.7m) to MMK 28.9bn (USD 13.8m) (down 8% YoY in MMK).
· Gross OLP/Client up from MMK 324k (USD 182) to MMK 362k (USD 172) (up 12% YoY in MMK).
· PAR>30 increased from 1.1% to 20.4%.
West Africa
(UNAUDITED) | FY2022 | FY2021 | FY 2020 | YoY | YoY % Change |
| |||||
Profit before tax | 27,799 | 35,583 | 19,268 | -22% | -2% |
Net profit | 19,215 | 25,019 | 13,443 | -23% | -4% |
| |||||
Cost/income ratio | 43% | 37% | 49% |
| |
Return on average assets (TTM) | 15.8% | 20.6% | 13.2% |
| |
Return on average equity (TTM) | 33.2% | 45.4% | 31.1% |
| |
Earnings growth (TTM) | -23% | 86% | -16% |
| |
|
| ||||
OLP | 82,380 | 94,201 | 77,835 | -13% | +22% |
Gross OLP | 84,853 | 95,879 | 79,499 | -12% | +23% |
Total assets | 108,395 | 134,719 | 107,748 | -20% |
|
Client deposits | 39,544 | 46,548 | 39,788 | -15% |
|
Interest-bearing debt | 4,326 | 7,100 | 10,255 | -39% |
|
Share capital and reserves | 54,591 | 61,222 | 49,033 | -11% |
|
Number of clients | 433,897 | 457,302 | 447,122 | -5% |
|
Number of branches | 446 | 440 | 433 | +1% |
|
Average Gross OLP per client (USD) | 196 | 210 | 178 | -7% | +30% |
| |||||
PAR > 30 days | 4.2% | 2.6% | 2.7% |
| |
Client deposits as % of loan portfolio | 48% | 49% | 51% |
|
· West Africa saw a deterioration in operational performance and profitability in USD terms due to the depreciation of GHS (65% down against USD in FY 2022) and SLL (68% down against USD in FY 2022). In constant currency, West Africa demonstrated an improvement in operational performance.
Ghana
ASA Savings & Loans operations improved with OLP above pre-Covid levels with excellent portfolio quality:
· Number of clients up from 158k to 177k (up 12% YoY).
· Number of branches up from 133 to 137 (up 3% YoY).
· OLP up from GHS 301.7m (USD 48.9m) to GHS 416.3m (USD 40.8m) (up 38% YoY in GHS).
· Gross OLP/Client up from GHS 1.9k (USD 310) to GHS 2.4K (USD 231) (up 24% YoY in GHS).
· PAR>30 increased from 0.3% to 0.6%.
Nigeria
ASA Nigeria saw an improvement of operations with OLP also above pre-Covid levels in NGN:
· Number of clients down from 254k to 220K (down 13% YoY).
· Number of branches maintained at 263.
· OLP up from NGN 15.9bn (USD 38.5m) to NGN 16.7bn (USD 37.3m) (up 5% YoY in NGN).
· Gross OLP/Client up from NGN 65k (USD 157) to NGN 80k (USD 179) (up 24% YoY in NGN).
· PAR>30 increased from 4.6% to 7.1%.
Sierra Leone
ASA Sierra Leone continued to successfully expand with branch and OLP growth:
· Number of clients down from 45k to 37k (down 18% YoY).
· Number of branches up from 44 to 46 (up 5% YoY).
· OLP up from SLL 76.1bn (USD 6.7m) to SLL 80.7bn (USD 4.3m) (up 6% YoY in SLL).
· Gross OLP/Client up from SLL 1.7m (USD 154) to SLL 2.3m (USD 123) (up 34% YoY in SLL).
· PAR>30 increased from 7.5% to 10.7%.
East Africa
(UNAUDITED) | FY2022 | FY2021 | FY 2020 | YoY | YoY % Change |
| |||||
Profit before tax | 11,241 | 6,605 | 1,652 | +70% | +75% |
Net profit | 6,913 | 4,631 | 1,069 | +49% | +54% |
| |||||
Cost/income ratio | 68% | 75% | 90% |
| |
Return on average assets (TTM) | 7.0% | 6.5% | 1.8% |
| |
Return on average equity (TTM) | 29.8% | 25.5% | 6.7% |
| |
Earnings growth (TTM) | 49% | 333% | -83% |
| |
|
| ||||
OLP | 86,865 | 64,881 | 45,413 | +34% | +39% |
Gross OLP | 87,267 | 66,629 | 46,188 | +31% | +36% |
Total assets | 113,791 | 83,602 | 59,802 | +36% |
|
Client deposits | 21,153 | 17,843 | 13,776 | +19% |
|
Interest-bearing debt | 59,871 | 41,201 | 26,292 | +45% |
|
Share capital and reserves | 26,445 | 19,973 | 16,313 | +32% |
|
Number of clients | 506,494 | 416,898 | 319,262 | +21% |
|
Number of branches | 471 | 406 | 359 | +16% |
|
Average Gross OLP per client (USD) | 172 | 160 | 145 | +8% | +12% |
| |||||
PAR > 30 days | 0.9% | 1.3% | 13.2% |
| |
Client deposits as % of loan portfolio | 24% | 28% | 30% |
|
· East Africa saw an improvement in operational performance and profitability due to continued growth in Tanzania and Kenya and improvements in the operating environment in Uganda, Rwanda and Zambia.
Tanzania
ASA Tanzania managed to significantly expand its operations over the last 12 months:
· Number of clients up from 174k to 217k (up 25% YoY).
· Number of branches up from 143 to 180 (up 26% YoY).
· OLP up from TZS 79.0bn (USD 34.3m) to TZS 119.5bn (USD 51.2m) (up 51% YoY in TZS).
· Gross OLP/Client up from TZS 460k (USD 200) to TZS 553k (USD 237) (up 20% YoY in TZS).
· PAR>30 decreased from 0.5% to 0.4%.
Kenya
ASA Kenya expanded its operations over the 12 months period:
· Number of clients up from 119k to 141k (up 19% YoY).
· Number of branches up from 112 to 124 (up 11% YoY).
· OLP up from KES 1.8bn (USD 16.1m) to KES 2.1bn (USD 16.9m) (up 14% YoY in KES).
· Gross OLP/Client down from KES 16K (USD 140) to KES 15K (USD 120) (down 6% YoY in KES).
· PAR>30 decreased from 1.1% to 0.8%.
Uganda
ASA Uganda saw a growth in operations over the last 12 months:
· Number of clients up from 92k to 107k (up 16% YoY).
· Number of branches up from 103 to 110 (up 7% YoY).
· OLP up from UGX 31.8bn (USD 9.0m) to UGX 43.0bn (USD 11.6m) (up 35% YoY in UGX).
· Gross OLP/Client up from UGX 378k (USD 107) to UGX 405k (USD 109) (up 7% YoY in UGX).
· PAR>30 decreased from 3.8% to 0.9%.
Rwanda
ASA Rwanda saw a growth in operations over the last 12 months:
· Number of clients up from 18k to 21k (up 17% YoY).
· Number of branches maintained at 30.
· OLP up from RWF 3.4bn (USD 3.3m) to RWF 4.6bn (USD 4.3m) (up 34% YoY in RWF).
· Gross OLP/Client up from RWF 193k (USD 187) to RWF 220k (USD 207) (up 14% YoY in RWF).
· PAR>30 slightly increased from 4.5% to 4.6%.
Zambia
ASA Zambia managed to expand its operations:
· Number of clients increased from 15k to 21k (up 43% YoY).
· Number of branches increased from 18 to 27 (up 50% YoY).
· OLP up from ZMW 36.4m (USD 2.2m) to ZMW 51.7m (USD 2.9m) (up 42% YoY in ZMW).
· Gross OLP/Client remained ZMW 2.5k (USD 139).
· PAR>30 increased from 0.3% to 5.0%.
Regulatory environment
The Company operates in a wide range of jurisdictions, each with their own regulatory regimes applicable to microfinance institutions.
Key events 2022
Pakistan
· ASA Pakistan received the Microfinance Banking ('MFB') licence from the State Bank of Pakistan ('SBP') on 24 May 2022 and is expected to receive a formal certificate of commencement any time.
· ASA Pakistan approved the dividend declared in 2022, and it has applied to the SBP for approval of the remittance. The approval is still pending.
India
· Following the Reserve Bank of India ('RBI') announcement on 14 March 2022, new regulation is in place for the microfinance sector in India, applicable to all banks, NBFC-MFIs and other participants in the microfinance sector. The key changes include the removal of the interest rate cap and margin cap which allowed the Company to raise the client rate, loans shall be collateral-free (also for banks providing microfinance loans), and lenders will be restricted to provide microfinance loans to clients up to a maximum of 50% of the client's household income. As a result of these changes, ASA India increased interest rates on new loans from 1 April 2022.
Sri Lanka
· The interest cap of 35% in Sri Lanka was removed by the Central Bank of Sri Lanka on 10 June 2022.
Myanmar
· Throughout 2022, the Central Bank of Myanmar prohibited or limited the servicing of foreign loans due to controls on foreign reserves.
· The Central Bank of Myanmar issued a circular dated 13 July 2022 suspending interest and principal repayments on foreign loans and directed companies to restructure the same. Subsequently, a new circular was issued on 16 August 2022 permitting certain transactions with approval from the Foreign Currency Supervision Committee.
Ghana
· The application for Digital Financial Services submitted in 2021 was still pending in 2022. In Q1 2023, the Bank of Ghana approved the application for Digital Financial Services.
Nigeria
· In 2022, the Central Bank delayed the approval of payment of dividends declared in the past. The 2021 dividend was approved in March 2023. The dividend declared in 2022 is still pending for approval.
Kenya
· In 2022, the Digital Credit Providers Act took effect, which prohibits credit-only MFIs to take collateral. MFIs are required to apply for a Digital Credit Providers licence, Microfinance Bank licence or any other suitable licence.
· ASA Kenya submitted a pro forma application for Digital Credit Providers licence to ensure it is compliant with the law, but is desirous to acquire a deposit taking license in the near future.
Regulatory capital
Many of the Group's operating subsidiaries are regulated and subject to minimum regulatory capital requirements. As of 31 December 2022, the Group and its subsidiaries were in full compliance with minimum regulatory capital requirements.
Asset/liability and risk management
ASA International has strict policies and procedures for the management of its assets and liabilities as well as various non-operational risks. In 2022, the Group has established an Asset-Liability Committee ('ALCO'), and the Terms of Reference of the ALCO has been approved by the Board. The ALCO will continuously manage the Group's assets and liabilities to ensure that:
· The average tenor of loans to customers is substantially shorter than the average tenor of debt provided by third-party banks and other third-party lenders to the Group and any of its subsidiaries.
· Foreign exchange losses are minimised by having all loans to any of the Group's operating subsidiaries denominated or duly hedged in the local operating currency. All loans from the Group to any of its subsidiaries denominated in local currency are also hedged in US Dollars.
· Foreign translation losses affecting the Group's balance sheet are minimised by preventing over-capitalisation of any of the Group's subsidiaries by distributing dividends and/or hedging capital.
Nevertheless, the Group will always remain exposed to currency movements in both (i) the profit and loss statement, which will be affected by the translation of profits in local currencies into USD, and (ii) the balance sheet, due to the erosion of capital of each of its operating subsidiaries in local currency when translated in USD, where the US Dollar strengthens against the currency of any of its operating subsidiaries.
Funding
The funding profile of the Group has not materially changed during FY 2022:
In USD millions
31 Dec 22 | 31 Dec 21 | 31 Dec 20 | |
Local deposits | 84.1 | 87.8 | 80.2 |
Loans from financial institutions | 216.6 | 249.8 | 274.1 |
Microfinance loan funds | 21.5 | 36.5 | 23.5 |
Loans from dev. banks & foundations | 19.4 | 28.1 | 40.0 |
Equity | 89.7 | 103.4 | 107.1 |
Total funding | 431.3 | 505.6 | 524.9 |
The Group maintains a favourable maturity profile with the average tenor of all funding from third parties being substantially longer than the average tenor at issuance of loans to customers which ranges from six to twelve months for the most of the loans.
Cash and cash equivalents reduced to approximately USD 55 million as of 31 December 2022 following large debt settlements, primarily in India. The Group maintains a healthy cash position. The Group managed to raise approximately USD 157 million in new debt funding in 2022. In line with market developments, funding costs have increased by approximately 100 bps, which will have limited impact on our 2023 results. Also, the Group has a strong funding pipeline of USD 201 million fresh loans, with over 88% having agreed terms and can be accessed in the short to medium term as of 31 March 2023.
The Group and its subsidiaries have existing credit relationships with more than 60 lenders throughout the world, which has provided reliable access to competitively priced funding for the growth of its loan portfolio.
During 2022, a number of loan covenants were breached across the Group, particularly related to the portfolio quality in India. As of 31 December 2022, the balance for credit lines with breached covenants and which does not have waivers amounts to USD 65 million out of which waivers have been subsequently received for USD 64 million .
The Group has also received temporary waivers, no-action and/or comfort letters from some of its major lenders for expected portfolio quality covenant breaches (primarily PAR>30) in 2023 caused primarily by the overdue loans in India. The impact of these potential covenant breaches was further assessed in the evaluation of the Group's going concern as disclosed in note 2.1.1 of the Full Year Financial Report. As the waivers and no-action letters do not cover the entire going concern period under assessment, and due to the expected portfolio quality covenant breaches in India, the Directors have concluded that there is a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern. Nevertheless, given the historical and continuing support received from lenders regarding these particular covenant breaches and based on continued improved operating performance in the other markets, the Group has a reasonable expectation that it will have adequate resources to continue in operational existence throughout the Going Concern assessment period.
Impact of foreign exchange rates
As a USD reporting company with operations in thirteen different currencies, currency movements can have a major effect on the Group's USD financial performance and reporting.
The effect of this is that generally (i) existing and future local currency earnings translate into less US Dollar earnings, and (ii) local currency capital of any of the operating subsidiaries will translate into less US Dollar capital.
Countries | FY 2022 | FY 2021 | FY 2020 |
| Δ FY 2021 - FY 2022 |
Pakistan (PKR) | 226.4 | 177.5 | 160.3 | (28%) | |
India (INR) | 82.7 | 74.4 | 73.0 | (11%) | |
Sri Lanka (LKR) | 366.3 | 202.9 | 185.3 | (81%) | |
The Philippines (PHP) | 55.7 | 51.1 | 48.0 | (9%) | |
Myanmar (MMK) | 2100.0 | 1778.5 | 1330.7 | (18%) | |
Ghana (GHS) | 10.2 | 6.2 | 5.9 | (65%) | |
Nigeria (NGN) | 448.1 | 411.5 | 384.6 | (9%) | |
Sierra Leone (SLL) | 18910.0 | 11289.0 | 10107.0 | (68%) | |
Tanzania (TZS) | 2332.5 | 2303.7 | 2317.2 | (1%) | |
Kenya (KES) | 123.5 | 113.2 | 109.0 | (9%) | |
Uganda (UGX) | 3717.6 | 3546.2 | 3647.7 | (5%) | |
Rwanda (RWF) | 1067.0 | 1031.8 | 986.4 | (3%) | |
Zambia (ZMW) | 18.1 | 16.7 | 21.1 | (9%) |
During FY 2022, the local currencies PKR -28%, GHS -65%, NGN -9% and LKR -81% particularly weakened against US Dollar. This had an additional negative impact on the USD earnings contribution of these subsidiaries to the Group and also contributed to an increase in foreign exchange translation losses. The total contribution to the foreign exchange translation loss reserve during FY 2022 amounted to USD 34.0 million of which USD 9.4 million related to the depreciation of the PKR, USD 17.4 million related to the depreciation of the GHS, USD 2.5 million related to the depreciation of the NGN, and USD 1.4 million to depreciation of the LKR.
High effective tax rate
The Group derecognised deferred tax assets amounting to USD 8.0 million, which related to deductible temporary differences and past losses for mainly India and Myanmar, as these entities failed to meet the future profitability threshold required under IFRS. The Group will be able to recognise these deferred tax assets provided these entities turn profitable again. This resulted in a substantial increase in our tax expenses and effective tax rate for the year. Further details are provided in note 11 to the consolidated financial statements.
Transfer pricing
The South East Asia and East Africa regions are contributing intercompany franchise fees and corporate service fees to the holding companies of the Group, whereas approval for most of such intercompany charges are pending in certain countries in South Asia and West Africa. The intercompany charges per region are detailed in the Segment Information as included in note 3 to the consolidated financial statements.
Forward-looking statement and disclaimers
This announcement does not constitute or form part of any offer or invitation to purchase, otherwise acquire, issue, subscribe for, sell or otherwise dispose of any securities, nor any solicitation of any offer to purchase, otherwise acquire, issue, subscribe for, sell, or otherwise dispose of any securities. The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restriction.
ASA INTERNATIONAL GROUP PLC
UNAUDITED PRELIMINARY CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes | 2022 | 2021 | ||
USD'000 | USD'000 | |||
(Restated)1 | ||||
Interest income calculated using Effective Interest Rate (EIR) | 4.1. | 173,856 | 184,630 | |
Other interest and similar income | 4.2. | 4,123 | 5,137 | |
Interest and similar income | 177,979 | 189,767 | ||
Interest and similar expense | 5. | (40,322) | (42,439) | |
Net interest income | 137,657 | 147,328 | ||
Other operating income | 6. | 10,351 | 10,518 | |
Total operating income | 148,008 | 157,846 | ||
Credit loss expense | 7. | (643) | (37,509) | |
Net operating income | 147,365 | 120,337 | ||
Personnel expenses | ||||
8. | (60,475) | (56,813) | ||
Depreciation on property and equipment | 16. | (1,816) | (1,985) | |
Depreciation on right-of-use assets | 17. | (3,931) | (4,398) | |
Other operating expenses | 9. | (33,303) | (29,904) | |
Exchange rate differences | 10. | (1,559) | (1,532) | |
Total operating expenses | (101,084) | (94,632) | ||
Profit before tax | 46,281 | 25,705 | ||
Income tax expense | 11. | (27,174) | (15,594) | |
Withholding tax expense | 11.7. | (1,220) | (3,753) | |
Profit for the period | 17,887 | 6,358 | ||
Profit for the period attributable to: | ||||
Equity holders of the parent | 17,892 | 8,787 | ||
Non-controlling interest | (5) | (2,429) | ||
17,887 | 6,358 | |||
Other comprehensive income: | ||||
Foreign currency exchange differences on translation of foreign operations | (33,995) | (11,583) | ||
Movement in hedge accounting reserve | 23. | 3,004 | 1,381 | |
Others | (1,152) | (365) | ||
Total other comprehensive (loss) to be reclassified to profit or loss in | (32,143) | (10,567) | ||
subsequent periods, net of tax | ||||
Gain/(loss) on revaluation of MFX investment | 15. | 7 | (1) | |
Actuarial gains on defined benefit liabilities | 8.1. | 470 | 698 | |
Total other comprehensive income not to be reclassified to profit or loss in subsequent | 477 | 697 | ||
periods, net of tax | ||||
Total comprehensive (loss) for the period, net of tax | (13,779) | (3,512) | ||
Total comprehensive (loss) attributable to: | ||||
Equity holders of the parent | (13,770) | (1,096) | ||
Non-controlling interest | (9) | (2,416) | ||
(13,779) | (3,512) | |||
Earnings per share | 39. | USD | USD | |
Equity shareholders of the parent for the period: | ||||
Basic earnings per share | 0.18 | 0.09 | ||
Diluted earnings per share | 0.18 | 0.09 | ||
The notes 1 to 39 form an integral part of these unaudited preliminary financial statements.
1See note 2.1.2 for details
Company number: 11361159
ASA INTERNATIONAL GROUP PLC
UNAUDITED PRELIMINARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
Notes | 2022 | 2021 | ||
USD'000 | USD'000 | |||
ASSETS | ||||
Cash at bank and in hand | 12. | 83,117 | 87,951 | |
Loans and advances to customers | 13. | 331,898 | 373,242 | |
Due from banks | 14. | 38,900 | 65,259 | |
Equity investments at Fair Value through Other Comprehensive Income | 15. | 244 | 237 | |
(FVOCI) | ||||
Property and equipment | 16. | 3,513 | 4,085 | |
Right-of-use assets | 17. | 4,589 | 5,031 | |
Deferred tax assets | 11.2. | 4,625 | 13,362 | |
Other assets | 18. | 9,970 | 8,939 | |
Derivative assets | 19. | 7,855 | 3,966 | |
Goodwill and intangible assets | 20. | 5,041 | 482 | |
TOTAL ASSETS | 489,752 | 562,554 | ||
EQUITY AND LIABILITIES | ||||
EQUITY | ||||
Issued capital | 21. | 1,310 | 1,310 | |
Retained earnings | 22. | 173,297 | 155,405 | |
Other reserves | 23. | 3,324 | 995 | |
Foreign currency translation reserve | 24. | (88,123) | (54,132) | |
TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT | 89,808 | 103,578 | ||
Total equity attributable to non-controlling interest | 31.6 | (147) | (135) | |
TOTAL EQUITY | 89,661 | 103,443 | ||
LIABILITIES | ||||
Debt issued and other borrowed funds | 25. | 261,301 | 318,674 | |
Due to customers | 26. | 84,155 | 87,812 | |
Retirement benefit liability | 8.1. | 4,593 | 5,391 | |
Current tax liability | 11.1. | 8,873 | 6,265 | |
Deferred tax liability | 11.3. | 2,184 | 2,296 | |
Lease liabilities | 17. | 3,091 | 3,459 | |
Derivative liabilities | 19. | 456 | 602 | |
Other liabilities | 27. | 34,400 | 32,937 | |
Provisions | 28. | 1,038 | 1,675 | |
TOTAL LIABILITIES | 400,091 | 459,111 | ||
TOTAL EQUITY AND LIABILITIES | 489,752 | 562,554 | ||
The notes 1 to 39 form an integral part of these unaudited preliminary financial statements.
ASA INTERNATIONAL GROUP PLC
UNAUDITED PRELIMINARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
| Issued capital | Retained earnings | Other reserves | Foreign currency translation reserve | Non-controlling interest | Total |
USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | |
| ||||||
At 1 January 2021 | 1,310 | 147,291 | (718) | (43,091) | 2,281 | 107,073 |
Profit for the year | - | 8,787 | - | - | (2,429) | 6,358 |
Other comprehensive income: |
|
| ||||
Actuarial gains and losses on defined benefit liabilities | - | - | 698 | - | - | 698 |
Foreign currency translation of assets and liabilities of subsidiaries | - | - | - | (11,596) | 13 | (11,583) |
Movement in hedge accounting reserve | - | - | 1,381 | - | - | 1,381 |
Other comprehensive income (net of tax) | - | - | (366) | - | - | (366) |
Total comprehensive (loss)/ income for the period | - | 8,787 | 1,713 | (11,596) | (2,416) | (3,512) |
|
|
|
|
|
|
|
Disposal of ASA Consultancy limited and ASA Cambodia Holdings | - | (673) | - | 555 | - | (118) |
Dividend | - | - | - | - | - | - |
| ||||||
At 31 December 2021 | 1,310 | 155,405 | 995 | (54,132) | (135) | 103,443 |
| ||||||
At 1 January 2022 | 1,310 | 155,405 | 995 | (54,132) | (135) | 103,443 |
Profit for the year | - | 17,892 | - | - | (5) | 17,887 |
Other comprehensive income: |
|
| ||||
Actuarial gains and losses on defined benefit liabilities | - | - | 470 | - | - | 470 |
Foreign currency translation of assets and liabilities of subsidiaries | - | - | - | (33,991) | (4) | (33,995) |
Movement in hedge accounting reserve | - | - | 3,004 | - | - | 3,004 |
Other comprehensive income (net of tax) | - | - | (1,145) | - | (3) | (1,148) |
Total comprehensive (loss)/ income for the period | - | 17,892 | 2,329 | (33,991) | (12) | (13,782) |
|
|
|
|
|
|
|
Dividend | - | - | - | - | - | - |
| ||||||
At 31 December 2022 | 1,310 | 173,297 | 3,324 | (88,123) | (147) | 89,661 |
ASA INTERNATIONAL GROUP PLC
UNAUDITED PRELIMINARY CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes | 2022 | 2021 | ||
USD'000 | USD'000 | |||
(Restated)1 | ||||
OPERATING ACTIVITIES | ||||
Profit before tax | 46,281 | 25,705 | ||
Adjustment for movement in: | ||||
Operating assets | 29.1. | (19,297) | (84,609) | |
Operating liabilities | 29.2. | 15,043 | 13,004 | |
Non-cash items | 29.3. | 19,063 | 76,843 | |
Income tax paid | (17,972) | (14,260) | ||
Net cash flows used in operating activities | 43,118 | 16,683 | ||
INVESTING ACTIVITIES | ||||
Purchase of property and equipment | 16. | (1,575) | (1,713) | |
Proceeds from sale of property and equipment | 333 | 652 | ||
Purchase of intangible assets | (4,592) | (452) | ||
Net cash outflow from disposal of subsidiaries | - | (673) | ||
Net cash flow used in investing activities | (5,834) | (2,186) | ||
FINANCING ACTIVITIES | ||||
Proceeds from debt issued and other borrowed funds | 167,394 | 181,053 | ||
Payments of debt issued and other borrowed funds | (192,764) | (188,787) | ||
Payment of principal portion of lease liabilities | (4,353) | (4,680) | ||
Net cash flow from financing activities | (29,723) | (12,414) | ||
Cash and cash equivalents at 1 January | ||||
87,951 | 90,165 | |||
Net increase in cash and cash equivalents | 7,561 | 2,083 | ||
Foreign exchange difference on cash and cash equivalents | (12,395) | (4,297) | ||
Cash and cash equivalents as at 31 December | 83,117 | 87,951 | ||
Operational cash flows from interest | ||||
Interest received | 181,534 | 193,848 | ||
Interest paid | 39,941 | 42,146 | ||
The notes 1 to 39 form an integral part of these unaudited preliminary financial statements.
See note 2.1.2 for details
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
1. CORPORATE INFORMATION
ASA International Group plc ('ASA International', the 'Group') is a public company limited by shares bearing registration number 11361159 in England and Wales. The entity was incorporated by Catalyst Microfinance Investors ('CMI') on 14 May 2018 for the purpose of the initial public offer of ASA International Holding. ASA International Group plc acquired 100% of the shares in ASA International Holding and all its subsidiaries on 13 July 2018 in exchange for the issue of 100 million shares in ASA International Group plc with a nominal value of GBP 1.00 each.
Investment strategy
ASA International is an international microfinance holding company with operations in various countries throughout Asia and Africa.
Abbreviation list
Definitions | Abbreviation | |
A1 Nigeria Consultancy Limited | A1 Nigeria | |
ASA Consultancy Limited | ASA Consultancy | |
ASA Cambodia Holdings Limited | ASA Cambodia Holdings | |
ASA Dwaso Limited | ASA Dwaso | |
ASA International Group plc | ASAIG | |
ASA International Holding | ASAIH | |
ASA International India Microfinance Limited | ASA India | |
ASA International(Kenya) Limited (formerly 'ASA International Microfinance (Kenya) Limited') | ASA Kenya | |
ASA International N.V. | ASAI NV | |
ASA Lanka Private Limited | ASA Lanka | |
ASA Leasing Ltd | ASA Leasing | |
ASA Microfinance (Myanmar) Ltd | ASA Myanmar | |
ASA Microfinance (Rwanda) Limited | ASA Rwanda | |
ASA Microfinance (Sierra Leone) | ASA Sierra Leone | |
ASA Microfinance (Zanzibar) Ltd | ASA Zanzibar | |
ASA Microfinance (Tanzania) Ltd | ASA Tanzania | |
ASA Microfinance (Uganda) Limited | ASA Uganda | |
ASA Microfinance Zambia Limited | ASA Zambia | |
ASA NGO-MFI registered in Bangladesh | ASA NGO Bangladesh | |
ASA Pakistan Limited | ASA Pakistan | |
ASA Savings & Loans Limited | ASA S&L | |
ASHA Microfinance Bank Limited | ASA Nigeria (formerly "ASA MFB") | |
ASAI Investments & Management B.V | ASAI I&M | |
ASAI Management Services Limited | AMSL | |
Association for Social Improvement and Economic Advancement | ASIEA | |
C.M.I. Lanka Holding (Private) Limited | CMI Lanka | |
Catalyst Continuity Limited | Catalyst Continuity | |
Catalyst Microfinance Investment Company | CMIC | |
Catalyst Microfinance Investors | CMI | |
Corporate Social Responsibility | CSR | |
CMI International Holding | CMII | |
Lak Jaya Micro Finance Limited | Lak Jaya | |
Pagasa ng Masang Pinoy Microfinance, Inc | Pagasa | |
PagASA ng Pinoy Mutual Benefit Association, Inc. | MBA Philippines | |
Pagasa Consultancy Limited | Pagasa Consultancy | |
Pagasa Philippines Finance Corporation | PPFC | |
Pagasa Philippines Finance Corporation and Pagasa ng Masang Pinoy Microfinance, Inc | Pagasa Philippines | |
Pinoy Consultancy Limited | Pinoy | |
PT PAGASA Consultancy | PT PAGASA Consultancy | |
Microfinance Institution | MFI | |
Reserve Bank of India | RBI | |
State Bank of India | SBI | |
Standard & Poor's | S&P | |
Sequoia B.V. | Sequoia | |
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES
2.1 General
The consolidated financial statements of ASA International Group plc have been prepared on a historical cost basis, except for derivative and equity instruments, which have been measured at fair value. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand (USD'000), except when otherwise indicated. The consolidated financial statements for the year ended 31 December 2022 were authorised for issue in accordance with a resolution of the Directors on 17 April 2023.
After the issue of the financial statements the Company's owners or others do not have the power to amend the financial statements.
2.1.1 Basis of preparation
The 2022 consolidated financial statements have been prepared on a going concern basis. It should be noted that in the 2021 Annual Report and Accounts, approved on 29 April 2022, senior management and the Directors concluded that the that the uncertainty relating to debt covenant breaches over the going concern period, and potential actions to mitigate debt being called due, represented a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern. In performing the going concern assessment for the 2022 consolidated financial statements the Directors have considered the global economic challenges arising out of high inflation in major operating markets and the strengthening of the USD against operating currencies in major operating markets for the period up to 31 May 2024 (the 'Assessment Period'). The conclusion of this assessment remains consistent with that of the 2021 Annual Report. Senior management and the Directors have concluded that there is a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern.
The Group has updated its detailed financial model for its budget and projections (the 'Projections') in line with current market conditions. The management team used the actual numbers up to December 2022 and updated the operating projections for the Assessment Period. These Projections are based on a detailed set of key operating and financial assumptions, including the minimum required cash balances, capital and debt funding plan per operating subsidiary, post-pandemic economic conditions of the countries, senior management's estimation of increased credit and funding risks, and current economic challenges faced by different operating subsidiaries resulting from increased inflation, which has a possibility to reduce demand for new microfinance loans. As a microfinance lender, the Group sees the service it provides to clients as an important factor for them to continue their businesses and their livelihoods as it provides resources and access to capital to the financially underserved. Therefore, The Group expects that rising inflation will not increase arrears materially based on historical evidence, however, this remains a risk.
The Group remains well capitalised and in compliance with minimum capital requirement in all markets. In terms of liquidity, the Group has USD 54.5 million of cash as of 31 December 2022. Also, the Group has a strong funding pipeline of USD 194 million with over 63% having agreed terms and which can be accessed in the short to medium term at the time of approval of the consolidated financial statements. This continues to reaffirm the confidence lenders have in the strength of the Group's business model and senior management's ongoing strategies to steer the Group through the current economic situation. It should be noted that the majority of this additional funding contains loan covenants and there is a risk of covenant breaches in certain stress scenarios, consistent with the risks detailed in the remainder of the going concern assessment. The Group is confident it will generate positive cash flows and will be able to fully fund the projected loan portfolio throughout the assessment period.
The Group does not expect a significant increase in credit loss expenses during the Assessment Period as in most of the entities, collections are back to the high 90% range and the proportion of loans with outstanding payments greater than 30 days (portfolio at risk greater than 30 days, or 'PAR>30') have generally stabilised. However, the Group expects increased PAR>30 in India, Myanmar and Sri Lanka as these entities are still struggling with overdue loans, economic and political challenges, which are creating operational and liquidity challenges for these entities. However, the Group has curtailed its disbursement in those entities and their portfolio size is expected to be much lower in comparison to the Group's Outstanding Loan Portfolio ('OLP'). The management team is closely following up on the developments.
Due to the above challenges, the Group expects further breaches of loan covenants during the Assessment Period. These covenants would mainly relate to arrears levels (portfolio at risk greater than 30 days, or 'PAR>30'), risk coverage ratios, the cost to income ratio, and write-off ratios. These breaches have not historically resulted in the immediate repayment request from lenders and are further evidenced by the supportive attitude of lenders in the last three years where the Group has been continuously able to raise new funds from the lenders. Out of total loans of USD 257 million, USD 82.5 million had breached loan covenants. As of 31 December, the balance for credit lines with breached covenants and which does not have waivers amounts to USD 65 million out of which waivers have been subsequently received for USD 64 million. Senior management is in constant communication with the other lenders for the waivers. However, the waivers received do not cover all of the Assessment Period. The international funders have been supportive of the Group and the microfinance sector in general during the last three years. In the absence of waivers, breaches of covenants that are not rectified within the time specified in the respective agreements, as applicable, would cause an event of default under the loan agreements. The Group is experiencing restrictions on the movement of funds between certain countries, due to laws or regulations, which could restrict the ability of the Group to support the funding or debt repayment requirements in the countries in which it operates.
Unless the majority of the covenant breach waivers are obtained the debt may be called due, which could materially impact the ability of the Group to meet its debt obligations. Although the Group has a history of negotiating covenant waivers, across particular locations, the current economic and market conditions make it difficult to assess its likely scale of debt covenant breaches and whether the waivers necessary to avoid the immediate repayment of debt will be forthcoming. As a result, senior management and the Directors have concluded that this represents a material uncertainty that may cast significant doubt over the Group's ability to continue as a going concern.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES
2.1.1 Basis of preparation (continued)
In terms of mitigations, the Group is shrinking its exposure in certain countries by focusing on the collection of existing loans and curtailing disbursements. This is being applied to India, Myanmar and Sri Lanka. In India, additional focus has been on off-book disbursements and finding new business correspondent partners ('BC Partners') as this serves to increase the available cash in the business. This is not a preferred action but can be utilised to create liquidity in any country's operation when unexpected repayments are requested by lenders. Further, the holding entities within the Group did not provide parent guarantees to funders of the operating subsidiaries, which protects the Group against cross defaults.
Senior management and the Board of Directors extensively challenged the Projections and their underlying assumptions including the above considerations and factors. They also considered the risks around economic uncertainties resulting from high inflation, devaluation of local currencies, delays in dividend repatriation, increased operational costs, and the risk of not obtaining waivers for prospective covenant breaches. They also considered that since the beginning of 2022 most of the operating subsidiaries are fully operational, which has allowed the field operations to open new branches, with collections and new disbursements gradually returning to pre-pandemic levels. The Group also prepared stress and reverse stress scenarios for cash flows including the mitigating actions which include repatriation of dividends and short-term loan from subsidiaries which have sufficient cash reserves.
Senior management and the Directors have also assessed the probable impact of any subsidiary failing to maintain its required regulatory ratios. Given the level of arrears and challenge in India there is a probable risk of breaching capital requirements of the Reserve Bank of India ('RBI') if the realisation significantly declines. Should these requirements be breached then the possible implications could be that the RBI provides management with a remediation plan and/or further capital could be required. As stated earlier, the Group did not provide parent guarantees to funders of the operating subsidiaries and hence in case of dissolution, the Group's risk is limited to its capital investment and any shareholder loans.
Nevertheless, having assessed the Projections, downtrend analysis and mitigations described above, senior management and the Directors have a reasonable expectation that the Group has adequate resources to continue in operation existence for at least twelve months from the date of the authorisation of these financial statements, and the going concern assessment period through to 31 May 2024. For these reasons, they continue to adopt a going concern basis for the preparation of the consolidated financial statements. Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group was unable to continue as a going concern.
2.1.2 Statement of compliance
The Group and Parent Company financial statements are prepared in accordance with UK adopted International Accounting Standards ('IAS' or 'IFRS').
The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis.
Change in accounting policy
The Group has reassessed its accounting policy for restricted cash as cash and cash equivalents following the release of IFRS Interpretations Committee agenda decision in March 2022. The Group has concluded that the restricted cash meets the definition of cash as the underlying terms and conditions do not prevent the Group from accessing restricted cash on demand. Therefore, the Group has concluded that restricted cash will be presented as a component of cash and cash equivalents in the consolidated statement of cash flows. This change in accounting policy has been applied retrospectively. The consolidated statement of cash flows and related notes have been restated in the consolidated financial report.
Correction of an error
The Group recognises interest income using effective interest rate method. The calculation includes all amounts paid or received between parties to the contract that are an integral part of the effective interest rate of a financial instrument including transaction costs, and all other premiums or discounts. Loan processing fees that is integral to the effective interest rate was previously reported under other interest income instead of interest income calculated using EIR.
The presentation error has been corrected by restating each of the affected financial statement line items by USD 8.9 million for the prior periods, as follows:
Restatement in the Consolidated income statement and statement of | 2021 | 2021 | ||
comprehensive income | (restated) | |||
USD'000 | USD'000 | |||
Interest income calculated using Effective Interest Rate (EIR) | 175,732 | 184,630 | ||
Other interest and similar income | 14,035 | 5,137 | ||
Interest and similar income | 189,767 | 189,767 | ||
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.1.3 Consideration of climate change
In preparing these financial statements, the Group has given consideration to the recommendations laid out by the Task Force on Climate-related Financial Disclosures (TCFD). The relevant assessment of the climate-related risks outlined in the Group's Annual Report on page 49 has been incorporated into judgements associated with recognition, measurement, presentation and disclosure, where so permitted by the UK adopted International Accounting Standards. The accounting judgements relating to climate change are presented in note 2.5.1.
While there is currently no significant impact expected from climate change, the Directors are aware of the constant evolving risks attached to climate change and will regularly assess these risks against judgements and estimates made in preparation of the financial statement.
2.1.4 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December for each year presented. The financial statements of subsidiaries are similarly prepared for the year ended 31 December 2022 applying similar accounting policies. Two new subsidiaries, ASA Zanzibar Limited and ASA Dwaso, were incorporated during the period. These do not have any significant impact on the financial position and results of the Group. All intra-Group balances, transactions, income and expenses and profits and losses resulting from intercompany transactions are eliminated in full. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. The Company has control over a subsidiary when it is exposed, or has rights to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. The results of subsidiaries acquired or disposed of during the year are included (if any) in the consolidated statement of comprehensive income from the date of acquisition or up to the date of disposal, as appropriate. Non-controlling interests represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Group and are presented separately in the consolidated statement of comprehensive income and within equity in the consolidated statement of financial position, separately from the equity attributable to equity holders of the parent.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.
2.2 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below:
2.2.1 Foreign currency translation
The consolidated financial statements are presented in USD, which is also the Group's presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The Group uses the direct method of consolidation.
Transactions and balances -Transactions in foreign currencies are initially recorded by the Group's entities at their respective functional currency at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. All differences are taken to 'Exchange rate differences' in the statement of profit or loss and other comprehensive income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.
Group companies - As at the reporting date, the assets and liabilities of subsidiaries are translated into the Group's presentation currency (USD) at the rate of exchange ruling at the reporting date except investments in subsidiaries and issued capital, which are translated at historical rate, and their statements of profit or loss and other comprehensive income are translated at the weighted average exchange rates for the year. Currency translation differences have been recorded in the Group's consolidated statement of financial position as foreign currency translation reserve through other comprehensive income.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.2 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
a) Financial assets - initial recognition and subsequent measurement
(1) Date of recognition
Purchases or sales of financial assets that require the delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
(2) Initial recognition and measurement
The Group recognises a financial asset in its statement of financial position, when, and only when, the entity becomes a party to the contractual provisions of the instrument. Financial assets are classified, at initial recognition, and measured at fair value. Subsequently they are measured at amortised cost, fair value through Other Comprehensive Income ('OCI'), and Fair Value Through Profit or Loss ('FVTPL'). The classification of financial assets at initial recognition depends on the financial asset's contractual cash flow characteristics and the Group's business model for managing them.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'Solely Payments of Principal and Interest ('SPPI') on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Group's business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
(3) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
· Financial assets at amortised cost (loans and advances to customers, other assets, cash at bank and in hand and due from banks);
· Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments); and
· Financial assets at FVTPL (derivative instruments).
Financial assets at amortised cost
Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group's financial assets at amortised cost includes Loans and advances to customers, Other loans and receivables, Cash and cash equivalents and Due from banks.
Financial assets designated at fair value through OCI without recycling
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis. Investments at FVOCI are subsequently measured at fair value with unrealised gains or losses recognised in OCI and credited to the Investments at FVOCI reserve. Gains and losses on these financial assets are never recycled to profit or loss. Equity instruments designated at fair value through OCI are not subject to impairment assessment. Derivatives are initially recognised at FVTPL. However, as the Group applies cash flow hedge accounting the impact is later moved to FVOCI.
Derecognition
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised where:
· the right to receive cash flows from the asset has expired; or
· the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and
· either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset (see note 2.5.4 to 2.5.6). Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.3 Financial instruments (continued)
b) Impairment of financial assets
The Group recognises an allowance for Expected Credit Losses (ECLs) on Loans and advances to customers, Related party receivables, Cash at bank and Due from banks.
Loans and advances to customers
Given the nature of the Group's loan exposures (generally short-term exposures, <12 months) no distinction has been made between stage 1 (12 months ECL) and stage 2 loans (lifetime ECL) for the ECL calculation. For disclosure purposes normally stage 1 loans are defined as loans overdue between 1-30 days. Stage 2 loans are overdue loans between 31-90 days. To avoid the complexity of calculating separate probability of default and loss given default, the Group uses a 'loss rate approach' for the measurement of ECLs. The 'loss rates' are determined based on historical credit loss experience, adjusted for forward-looking factors specific to economic environment.
The Group considers significant increase in credit risk when contractual payments are 31 days past due. In addition, loans and advances are treated as credit impaired (stage 3) when contractual payments are greater than 90 days past due. These thresholds have been determined based on the historical trend and industry practice where the Group operates.
Write-off
The Group uses judgement to determine bad loans which are written off. Based on management experience in the local market and the microfinance industry practice, loans over 365 days past due are bracketed as bad, unless there are specific circumstances that lead local management to believe that there is a reasonable expectation of recovery. In Pakistan loans over 209 days are treated as bad as per regulatory requirement. All bad loans are written off for accounting purposes. The write-offs occur mainly two times in a year (June and December). However, management (Group and/ or subsidiary) can write-off loans earlier if loans are deemed unrecoverable or delay write-offs in case of national calamity or any regulatory reasons subject to Board approval. From an operational perspective all overdue loans are monitored for recovery up to two years overdue.
Cash at bank, Due from banks and Related party
For Due from banks and Related party receivables, the Group used the S&P matrix for default rates based on the most recent publicly made available credit ratings of each counterparty. In the S&P matrix for default rates, there is no specified default rate for each of our external counterparties. Thus, the Group applied the default rate for all financial institutions. Then, the Group calculated the adjusted Probability of Default ('PD')/default rates by accommodating management estimates. However, for non-credit rated external counterparties; the PD/default rate is determined by choosing the riskier one between the mid-point of credit ratings of Banks the Group has business with and a similar level rated entity. Management collects the credit ratings of the banks where the funds are deposited and related parties (where applicable) on a half-yearly basis and calculates the ECL on such items using the default rate identified as above. The Group considers credit risk to have significantly increased when the credit ratings of the bank and the related parties have been down-graded which in turn increase the probability of default. The Group considers that the closure of a counterparty bank, dissolution of a related party or a significant liquidity crisis or any objective evidence of impairment such as bankruptcy to be indicators for stage 3.
2.2.3 Financial liabilities-Initial recognition and subsequent measurement
(1) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at amortised cost. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group's financial liabilities include Debt issued and other borrowed funds, Due to customers, Lease liabilities, Other liabilities, Provisions and Derivative financial instruments.
(2) Subsequent measurement
For the purposes of subsequent measurement, financial liabilities are classified in two categories:
· Financial liabilities at amortised cost (Debt issued and other borrowed funds, Due to customers and Lease liabilities); and
· Financial liabilities at FVTPL (Derivative instruments).
Financial liabilities at amortised cost
Debt issued and other borrowed funds, Other liabilities and Due to customers are classified as liabilities where the substance of the contractual arrangement results in the Group having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. After initial measurement, Debt issued and other borrowed funds including Due to customers are subsequently measured at amortised cost using the effective interest rate method. Amortised cost is calculated by considering any discount or premium on the issue and costs that are an integral part of the effective interest rate.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.3 Financial Liabilities (continued)
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position only if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
2.2.4 Derivative instruments and hedge accounting
The Group uses derivative financial instruments, such as forward currency contracts and cross currency interest rate swaps to hedge its foreign currency risks and interest rate risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value at the end of every reporting period. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
For the purpose of hedge accounting, hedges are classified as cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment.
The effective portion of the gain or loss on the hedging instrument is recognised in OCI in the cash flow hedge reserve, while any ineffective portion is recognised immediately in the statement of profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. The Group uses forward currency contracts and cross currency interest rate swaps agreements as hedges of its exposure to foreign currency risk and interest rate risk in forecast transactions and firm commitments.
The Group designates only the spot element of forward contracts as a hedging instrument. The forward element and cross currency basis risk is recognised in OCI and accumulated in a separate component of equity under cost of hedging reserve. The forward points and foreign exchange basis spreads are amortised throughout the contract tenure and reclassified out of OCI into P&L as interest expenses.
2.2.5 Recognition of income and expenses
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, considering contractually defined terms of payment and excluding taxes or duties. The Group has concluded that it is principal in all of its revenue arrangements except for loans under BC model where the Group works as an agent.
The following specific recognition criteria must also be met before revenue is recognised:
(1) Interest and similar income and expense
Interest income and expense are recognised in the statement of profit or loss and other comprehensive income based on the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group shall estimate cash flows considering all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all amounts paid or received between parties to the contract that are an integral part of the effective interest rate of a financial instrument including transaction costs, and all other premiums or discounts. Interest income is presented net of modification loss (note-2.5.9). The interest income also includes loan processing fees that are integral to the interest rate.
The Group recognises interest income on the stage 3 loans on the net loan balance.
(2) Dividend income
Revenue is recognised when the Group's right to receive the payment is established.
(3) Other income
Other income includes group member's admission fees, document fees, sale of passbook, income on death and multipurpose risk funds and service fees from off-book loans under the BC model.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (continued)
2.2.5 Recognition of income and expenses (continued)
(4) Other income (continued)
Group member's admission fees, document fees and sale of passbook fees are recognised on receipt as the then admission and sale constitutes as satisfactory performance obligation.
The Group collects fees for the death risk fund or multipurpose risk fund in the Philippines, Sri Lanka, Kenya and Uganda. These fees cover settlement of the outstanding loan amount and other financial assistance if a borrower dies or disabled. The collections are recognised upfront as income and a liability is recognised in the statement of financial position for the claims resulting from these funds. The judgement used to recognise the liability is disclosed in note 2.5.3.
Service fees from off-book loans under the BC model are recognised on the basis of loan disbursement as the amount is received only after completion of the service.
2.2.6 Cash and cash equivalents and Cash at bank and in hand
Cash and cash equivalents as referred to in the statement of cash flows comprises cash in hand, restricted cash relating to Loan Collateral Build Up ('LCBU') in the Philippines and against security deposits from clients in Tanzania and Kenya, current accounts with various commercial banks and amounts due from banks on demand or term deposits with an original maturity of three months or less. The cash flows from operating activities are presented using the indirect method, whereby the profit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items of income or expense associated with investing or financing cash flows.
Cash in hand and in bank as referred to the statement of financial position comprises of cash and cash equivalents and restricted cash relating to Loan Collateral Build Up ('LCBU') in the Philippines and against security deposit from clients in Tanzania and Kenya.
2.2.7 Property and equipment
Property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and are treated as changes in accounting estimates.
Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives.
The estimated useful lives are as follows:
Furniture & Fixtures: | 5 Years |
Vehicles: | 5 Years |
Office equipment including IT: | 3 Years |
Buildings: | 50 years |
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in 'Other operating income' or 'Other operating expenses' in the statement of profit or loss and other comprehensive income in the year the asset is derecognised.
2.2.8 Taxes
(1) Current tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
(2) Deferred tax
Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except: (i) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss, and (ii) in respect of taxable temporary differences associated with investments in subsidiaries and associates, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.8 Taxes (continued)
(2) Deferred tax (continued)
Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses, can be set-off: (i) where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss, and (ii) in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it becomes probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax assets and deferred tax liabilities can only be offset in the statement of financial position if the Group has the legal right to settle current tax amounts on a net basis and the deferred tax amounts are levied by the same taxing authority on the same entity or different entities that intend to realise the asset and settle the liability at the same time.
The Group started to recognise deferred tax on undistributed dividends from 2021. Reference is made to note 2.5.8 and note 11.7.
2.2.9 Dividend distribution on ordinary shares
Dividends on ordinary shares will be recognised as a liability and deducted from equity when they are approved by the Group's shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Group. Dividends for the year that were approved after the reporting date will be disclosed as an event after the reporting date.
2.2.10 Short-term employee benefits
Short-term benefits typically relate to the payment of salaries and wages. These benefits are recorded on an accrual basis, so that at period end, if the employee has provided service to the Group, but has not yet received payment for that service, the unpaid amount is recorded as liability.
2.2.11 Post-employment benefits
2.2.11.1 Defined benefit plan
The Group maintains a defined benefit plan in some subsidiaries, which leads to retirement benefit obligations. The defined benefit obligation and the related charge for the year are determined using assumptions required under actuarial valuation techniques. These benefits are unfunded.
Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding an amount included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability) are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognised in profit or loss on the earlier of (i) the date of the plan amendment or curtailment, and (ii) the date that the Group recognises related restructuring costs.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under operating expenses in the consolidated statement of comprehensive income; (i) service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements and (ii) net interest expense or income. Reference is made to note 2.5.2.
2.2.11.2 Defined contribution plan
Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Similar to accounting for short-term employee benefits, defined contribution employee benefits are expensed as they are paid, with an accrual recorded for any benefits owed, but not yet paid. The expenses of the defined contribution plan are incurred by the employer. The contributions are to be remitted by the entities to the fund on a monthly basis. Employees are allowed to withdraw the accumulated contribution in their accounts from this fund as per the terms and conditions specified in the fund Acts.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.12 Goodwill
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non- controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, the Group measures goodwill at cost less any accumulated impairment losses. The Group tests goodwill for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired. Impairment for goodwill is determined by assessing the recoverable amount of the cash-generating unit (CGU) (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.
2.2.13 Intangible assets
The Group has adopted a strategy of enriching the offering to its clients with product diversification by adding Digital Financial Services (DFS). The DFS will be offered to its clients through a smartphone app, where clients will be able to apply online for loans and other financial services like a current account and a savings or deposit account. They will be able to see their loan and account information and make payments including paying bills. The DFS app will also include additional functions and services such as digital group meetings and a chat function. As part of the DFS, the Group is also developing a Supplier Market Place app ('SMP') where clients can purchase goods for their businesses. SMP will be a separate app, but is part of the DFS model to retain and attract loan and savings clients and generate payment transactions that will generate commissions.
For the introduction of current accounts and savings and deposits accounts and other digital services to our clients, the Group has procured license of a Core Banking System ('CBS') to its IT infrastructure. The Group made upfront payments to buy core banking software licence. The licence for the software is granted for ten years.
Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual software project are recognised as an intangible asset when the Group can demonstrate:
The technical feasibility of completing the intangible asset so that the asset will be available for use
Its intention to complete and its ability to use it or sell it
How the asset will generate future economic benefits
The availability of resources to complete the asset and use or sell it
The ability to measure reliably the expenditure during development
Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete, and the asset is available for use. It is amortised over the period of expected future benefit. During the period of development, the asset is tested for impairment annually. The break down is presented in note 20.
A summary of the policies applied to intangible asset is, as follows:
Initial licence and set up costs | Development costs | |
Useful life | Finite (5-10 years) | Finite (5-10 years) |
Amortisation starts | After installation for use | After installation for use |
Amortisation method used | Amortised on a straight line | Amortised on a straight line basis |
Internally generated or acquired | basis over the period of licence | over the period of expected usage |
Acquired | Internally generated |
2.2.14 Impairment of non-financial assets
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or CGU's fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses of continuing operations are recognised in the statement of profit or loss in expense categories. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. For right of use assets ('ROU') the fair value is determined based on estimated rental payments using the Incremental Borrowing Rate ('IBR') used for each country where such ROU exists. If there is a significant change in discount rates, the fair value is reviewed to see if there is impairment. The sensitivity analysis on account of IBR changes is shown in note 17.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (continued)
2.2.15 Liability for death and multipurpose risk funds
The Group collects 1-2% of disbursed loan amounts for death risk funds or multipurpose risk funds in certain markets (the Philippines, Uganda, Kenya and Sri Lanka). These funds cover settlement of the outstanding loan amount and other financial assistance when the borrower dies or is affected by natural calamities. The collected amounts are recognised upfront as income and a liability is recognised in the statement of financial position for the claims resulting from these funds. Reference is made to note 2.5.3 on the key judgement used.
2.2.16 Fair value measurement
The Group measures financial instruments such as derivatives, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) In the principal market for the asset or liability; or (ii) In the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities;
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flow (DCF) model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility.
2.2.17 Leases
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group determines the lease term as the non-cancellable term of the lease. Any periods covered by an option to extend the lease is not considered unless it is reasonably certain to be exercised.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful life of the asset.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in note 2.2.14 Impairment of non-financial assets.
Lease liabilities
(1) Initial measurement
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less (if any) lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. There are no obligatory extension clauses in the rental agreements. Although some lease contracts comprise the optional extension clauses, these are not included on initial recognition because it is not always reasonably certain that the Group will take the option. In calculating the present value of lease payments, ASA International uses the incremental borrowing rate at the lease commencement date due to the reason that the interest rate implicit in the lease is not available. The incremental borrowing rate is calculated using a reference rate (derived as country specific risk-free rate) and adjusting it with company specific financing spread and integrating lease specific factors. Refer to note 2.5.7 on accounting estimates and assumptions used to determine the IBR rates.
(2) Subsequent measurement
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term or a change in the in-substance fixed lease payments which also impacts similarly the right of use assets.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.2.18 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of comprehensive income net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
2.2.19 Share based payments
The Group has granted options ('Options') in the Group Company under its long-term incentive plan (LTIP) to certain Executive Directors and Persons Discharging Managerial Responsibilities ('PDMRs') on 28 October 2022 The Company's LTIP is designed to incentivise and retain Directors and senior staff, along with aligning them with shareholders' interest to create long term value. The transaction is determined as an equity-settled transaction.
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model, further details of which are given in Note 32.1.
That cost is recognised in employee benefits expense, together with a corresponding increase in equity (other capital reserves), over the period in which the service and, where applicable, the performance conditions are fulfilled (the vesting period). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.
The expense or credit in the statement of profit or loss for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.
2.2.20 Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. For Property and equipment, the fair value less costs of disposal calculation is based on available data from similar assets or observable market prices less incremental costs of disposing of the asset. For "ROU" the fair value is determined based on estimated rental payments using incremental borrowing rates used for each country where such ROU exists. If there is a significant change in discount rates, the fair value is reviewed to see if there is impairment.
The Group has identified the impairment of non-financial assets as one of the areas in which it could be exposed to the financial impacts of climate change risk, as a number of the Group's operating areas are prone to natural disasters. However, as the Group manages a frugal cost operating model with minimum investment in fixed assets and leases, the impact of climate related financial loss is expected to be insignificant.
2.3. New standards, interpretations and amendments adopted by the Group
The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2022 (unless otherwise stated). The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
2.3.1 Onerous Contracts - Costs of Fulfilling a Contract - Amendments to IAS 37
An onerous contract is a contract under which the unavoidable costs of meeting the obligations under the contract costs (i.e., the costs that the Group cannot avoid because it has the contract) exceed the economic benefits expected to be received under it. The amendments specify that when assessing whether a contract is onerous or loss-making, an entity needs to include costs that relate directly to a contract to provide goods or services including both incremental costs (e.g., the costs of direct labour and materials) and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to fulfil the contract and costs of contract management and supervision). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
These amendments had no impact on the consolidated financial statements of the Group as there were no Onerous contracts within scope of these amendments.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.3. New standards, interpretations and amendments adopted by the Group (continued)
2.3.2 Reference to the Conceptual Framework - Amendments to IFRS 3
The amendments replace a reference to a previous version of the IASB's Conceptual Framework with a reference to the current version issued in March 2018 without significantly changing its requirements. The amendments add an exception to the recognition principle of IFRS 3 Business Combinations to avoid the issue of potential 'day 2' gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively, instead of the Conceptual Framework, to determine whether a present obligation exists at the acquisition date. The amendments also add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date. In accordance with the transitional provisions, the Group applies the amendments prospectively, i.e., to business combinations occurring after the beginning of the annual reporting period in which it first applies the amendments (the date of initial application).
These amendments had no impact on the consolidated financial statements of the Group as there were no contingent assets, liabilities or contingent liabilities within the scope of these amendments that arose during the period.
2.3.3. Property, Plant and Equipment: Proceeds before Intended Use - Amendments to IAS 16
The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss.
In accordance with the transitional provisions, the Group applies the amendments retrospectively only to items of PP&E made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated financial statements of the Group as there were no sales of such items produced by property, plant and equipment made available for use on or after the beginning of the earliest period presented.
2.3.4 IFRS 1 First-time Adoption of International Financial Reporting Standards - Subsidiary as a first-time adopter
The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported in the parent's consolidated financial statements, based on the parent's date of transition to IFRS, if no adjustments were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. These amendments had no impact on the consolidated financial statements of the Group as it is not a first time adopter.
2.3.5 IFRS 9 Financial Instruments - Fees in the '10 per cent' test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other's behalf. There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement. In accordance with the transitional provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated financial statements of the Group as there were no modifications of the Group's financial instruments during the period.
2.4. Standards issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.
2.4.1 IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by:
· A specific adaptation for contracts with direct participation features (the variable fee approach).
· A simplified approach (the premium allocation approach) mainly for short-duration contracts.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
ACCOUNTING POLICIES (continued)
2.4. Standards issued but not yet effective (continued)
2.4.1 IFRS 17 Insurance Contracts (continued)
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17.
The Group charges a 1-2% upfront premium fee on its loans disbursed to customers under the Death Risk Fund/Multipurpose Risk Fund (DRF/MRF) scheme in certain subsidiaries. In return, outstanding loans (including interest receivables) shall be exempted in case of customers' death (in a few cases partial exemption is granted by ASAI in the event of disability). Additionally, and independently, a certain amount of money is paid as a cash subsidy for funeral/financial assistance to the customers and/or next kin. These compensations (exemption of loans and/or cash subsidy) made by ASAI are not a guaranteed payment to customer and/or next to kin if occurrences (death and/or disability) do not happen. The Group is assessing the impact of implementing IFRS 17.
2.4.2 Definition of Accounting Estimates - Amendments to IAS 8
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of 'accounting estimates'. The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop accounting estimates. The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted as long as this fact is disclosed. The amendments are not expected to have a material impact on the Group's financial statements.
2.4.3 Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12
In May 2021, the Board issued amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences.
The amendments should be applied to transactions that occur on or after the beginning of the earliest comparative period presented. In addition, at the beginning of the earliest comparative period presented, a deferred tax asset (provided that sufficient taxable profit is available) and a deferred tax liability should also be recognised for all deductible and taxable temporary differences associated with leases and decommissioning obligations. The Group is currently assessing the impact of the amendments.
2.4.4 Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements, in which it provides guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by replacing the requirement for entities to disclose their 'significant' accounting policies with a requirement to disclose their 'material' accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier application permitted. Since the amendments to the IFRS Practice Statement 2 provide non-mandatory guidance on the application of the definition of material to accounting policy information, an effective date for these amendments is not necessary. The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group's accounting policy disclosures.
2.5 Significant accounting judgements and estimates
In the process of applying the Group's accounting policies, judgements and estimates are applied in determining the amounts recognised in the financial statements. Significant use of judgements and estimates are as follows:
2.5.1 Allowance for Expected Credit Loss (ECL) on loans and advances
The Group calculates the allowance for ECL in a three-step process as described below under A to D. The Group reviews its loans at each reporting date to assess the adequacy of the ECL as recorded in the financial statements. In particular, judgement is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on certain assumptions such as the financial situation of the borrowers, types of loan, maturity of the loans, ageing of the portfolio, economic factors etc. The actual performance of loans may differ from such estimates resulting in future changes to the allowance. Due to the nature of the industry in which the Group operates, i.e. micro credit to low income clients, the loan portfolio consists of a very high number of individual customers with low value exposures. These characteristics lead the Group to use a provisioning methodology based on a collective assessment of similar loans. The Group's policy for calculating the allowance for ECL is described below:
A) Determination of loan staging
The Group monitors the changes in credit risk in order to allocate the exposure to the correct staging bucket. Given the nature of the Group's loan exposures (generally short term exposures, <12 months) no distinction has been made between stage 1 (12 months ECL) and stage 2 loans (lifetime ECL) for calculating the ECL provision. During the Covid period (2020 and 2021), the Group provided significant moratoriums to the clients. In addition, multiple periodical moratoriums were provided to clients in Myanmar and Sri Lanka as those entities faced multiple national and or local lockdowns.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (Continued)
2.5 Significant accounting judgements and estimates (continued)
2.5.1 Allowance for expected credit loss (ECL) on loans and advances (continued)
Hence, in addition to the loans that were in arrears by more than 30 days and less than 91 days, loans which were in arrears by less than 31 days but more than 31 days passed since their last payment, were also classified as stage 2.
However, as no further moratoriums were provided in 2022 and all previous moratoriums were expired six months before the balance sheet date, the Group has returned to the standard criteria by using loan aging analysis to determine the staging. Any loans overdue more than 31-90 days are recognised as stage 2 loans. Loans overdue more than 90 days are recognised as stage 3 loans.
There are six branches in Myanmar which were closed during the year due to insecurity. Although the management team is collecting some instalments, the total loan amounts outstanding at those branches (USD 382K) were considered bad and recognised as stage 3.
B) Calculating ECL for stage 1-2 loans
To avoid the complexity of calculating the separate probabilities of default and loss-given default, the Group uses a 'loss rate approach' for the measurement of ECLs under IFRS 9. Using this approach, the Group developed loss-rate statistics on the basis of the net amounts written off over the last five years (Gross write-off less subsequent recovery). The historical loss rates include the impact of security deposits held by the Group, which is adjusted with overdue amounts before loans are written off. ECL recorded purely based on historical loss comes to USD 1.5 million (2021: USD 3.2 million). If a three year or four year time period was used to capture the net written off balance then the resulting impact to the ECL would be USD 1.2 million and USD 374K respectively.
The forward-looking element of the ECL model is constructed through looking at the trend in net write-off information from the prior three years and applying a scaled loss rate in order to anticipate future loss events. ECL as per the forward-looking element comes to USD 479K (2021: USD 7.2 million). The write-offs in 2022 are considerably lower than those in 2021 which has resulted in a lower forward looking ECL element.
Changing the write-off trend to two years, rather than three years for the forward-looking assessment, would reduce ECL by USD 1.2 million.
C) Calculating ECL for stage 3 loans
The Group considers a loan to be credit impaired when it is overdue for more than 90 days. The ECL applied to net stage 3 loans (after adjusting the security deposit which is held as collateral in certain countries) is at a rate below:
ECL for stage 3 loans | ||
Loss % | ||
Overdue age | 2022 | 2021 |
91-180 days | 50% | 50% |
181-365 days | 70% | 70% |
Over 365 days | 100% | 100% |
No change in the loss rate was made in 2022 except for India, Myanmar, Nigeria, Sierra Leone and Sri Lanka operations, where management considered a higher loss rate (80% for the loans bucketed between 91-180 days and 100% for loans over 180 days overdue) in view of operating challenges faced in these countries on account of high PAR, market challenges and political instability which might led to reduction in recoveries.
Based on the above, ECL for stage 3 loans comes to USD 13.1 million (2021: USD 11.6 million). An alternative assessment of stage 3 provisions would be to apply a 100% loss rate across the entire stage 3 population (net of security deposit), being all loans more than 90 days past due. This would increase the ECL on the stage 3 population to USD 15.3 million.
D) Management overlay
In prior periods and for 2022 interim financials, the Group considered additional management overlay on account of significant loan amounts under moratorium and under restructuring, the possible impact of a global economic crisis sparked by the Russian invasion of Ukraine and the risks associated with the price inflation of fuel, food, and other costs across the countries where the Group operates. However, the Group has stopped providing any new moratoriums in 2022 and the loans restructuring period in India have already expired six months before the year end. In addition, the impact of the economic crisis is being captured by loan ageing. Hence, no additional management overlay is taken in 2022 to account for moratoria, whereas this was a relevant factor in 2021.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (continued)
2.5.1 Allowance for expected credit loss (ECL) on loans and advances (continued)
E) Impact of macro-economic indicators
The Group provides small loans to clients who are not employed but operate their own small businesses in the informal sector and are less impacted by macro-economic trends than other business sectors. In addition, the Group's loans average 6 months until maturity at the year-end and so the impact of macro-economic factors on the repayment of loans is inherently limited. Hence the management concluded that changes in macro-economic indicators do not have any direct correlation with the ASA business model and therefore, no adjustment was made to consider forecasts for such macro-economic indicators in the forward-looking element of its expected credit loss provision calculation.
F) Impact of climate change
The Group and its customers are exposed to the physical risks from climate change and risks of transitioning to a net-zero economy. Most climate-related physical risks are expected to manifest over a term that is generally much longer than the maturity of most of the outstanding exposures. The following balances may be impacted by physical and transition risks.
The Group has identified the ECL provision as one of the main areas in which it could be exposed to the financial impacts of climate change risk, as a number of the Group's operating areas are prone to natural disasters such as typhoons, flash floods or droughts. The Group's expected credit loss model captures the expected impact of the climate related risks through the historical loss data that feeds the model, which also includes write-offs due to such natural disasters. In addition, management monitors the situation in each of its operating territories post the balance sheet date for any factors that should be considered in its year-end ECL calculations. As the Group's loans are short-term, the impact of such events over the life of the loans would naturally be limited. Hence, no additional changes have been made in the existing model on account of climate related risks. However, given the evolving risks associated with climate change, management will continue to monitor whether adjustments to its ECL models are required for future periods.
G) Business Correspondence ('BC') portfolio, Direct Assignment ('DA') Portfolio and Securitisation portfolio of ASA India
A similar assessment has been performed for the off-book Business Correspondence ('BC') portfolio of ASA India (see note 13 for details on the BC portfolio). The off-book BC portfolio consists of disbursements on behalf of IDFC First Bank and Jana Small Finance Bank (JSFB). IDFC BC is subject to a maximum provision of 5% of OLP, which is the maximum credit risk exposure for ASA India as per the agreement with IDFC First Bank. There is no maximum risk on BC from JSFB. Those portfolios are assessed in line with ASA India's own OLP. ECL for the off-book BC portfolio comes to USD 1.04 million (2021: 1.7 million).
The portion of the DA portfolio of ASA India which is on-book has also been treated the same as regular portfolio. No provision for the off-book portion of the DA portfolio was made because, as per the agreement with the State Bank of India, ASA India has no credit risk on this part of the DA portfolio.
The Securitisation portfolio of ASA India has been assessed in line with ASA India's own portfolio.
H) ECL on interest receivable
ECL for Interest receivable is assessed in the same line as OLP. ECL for interest receivable comes to USD 794K (2021: 1.7 million).
Based on the above assessment the total provision for expected credit losses for loans and advances to customers can be summarised as follows:
2022 | 2021 | |||||
Own | Off-book | Interest | Own | Off-book | Interest | |
portfolio | portfolio | receivable | portfolio | portfolio | receivable | |
Particulars | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 |
ECL as per historical default rate | 1,521 | 400 | 75 | 3,204 | 339 | 148 |
Forward considerations | 479 | 492 | 21 | 7,184 | 793 | 309 |
ECL under stage 3 loans | 13,197 | 146 | 607 | 11,574 | 543 | 37 |
Management overlay | - | - | - | 2,136 | - | 1,202 |
15,197 | 1,038 | 703 | 24,098 | 1,675 | 1,696 |
2022 | 2021 | |||||
Gross outstanding | ECL | Coverage | Gross outstanding | ECL | Coverage | |
Allocated to: | USD'000 | USD'000 | USD'000 | USD'000 | ||
Own Portfolio (note 13.1 and 13.3) | 344,985 | 15,197 | 4% | 393,298 | 24,098 | 6% |
Off-book BC portfolio (note 13.1 and note 28) | 21,362 | 1,038 | 5% | 35,583 | 1,675 | 5% |
Interest receivable (note 13.1 and note 13.3) | 7,265 | 703 | 10% | 10,700 | 1,696 | 16% |
373,612 | 16,938 | 5% | 439,581 | 27,469 | 6% |
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (Continued)
2.5 Significant accounting judgements and estimates (continued)
2.5.2 Defined benefit plans
The cost of the defined benefit plan is determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, staff turnover and retirement age. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. The assumptions used in December 2022 and December 2021 are as follows:
Assumptions defined benefit plan:
2022 | 2021 | |||||||||
ASA | Pagasa | ASA | Pagasa | |||||||
Lak Jaya | Pakistan | ASA India | ASA Nigeria | Philippines | Lak Jaya | Pakistan | ASA India | ASA Nigeria | Philippines | |
Discount rate | 18.7% | 14.5% | 7.4% | 14.3% | 7.4% | 11.2% | 11.8% | 7.2% | 13.5% | 5.1% |
Salary increment | 10.0% | 13.5% | 9.0% | 12.0% | 5.0% | 10.0% | 10.8% | 9.5% | 12.0% | 4.0% |
Staff turnover | 15.7% | 14.0% | 22.0% | 5.0% | 38.1% | 13.0% | 15.9% | 25.5% | 5.0% | 47.0% |
Retirement age | 60 Years | 60 Years | 60-62 Years | 60 Years | 60 Years | 60 years | 60 years | 60-62 years | 60 years | 60 years |
The parameter most subject to change is the discount rate. Management engages third-party actuaries to conduct the valuation. The defined benefit costs have been disclosed in note 8.2. The sensitivity analysis of the plan on account of any change in discount rate and salary increment is disclosed in note 8.3. Sensitivity analysis for changes in the other two assumptions were not done as the effect is determined immaterial.
2.5.3 Liability for death and multipurpose risk funds
At the end of each period, management uses significant assumptions to reassess the adequacy of the liability provided. These include estimating the number of borrower deaths among the total number of borrowers by applying the local mortality rates at the end of the period, outstanding loan amount per borrower and other financial assistance to the family where applicable. The mortality rate is based on historical mortality rates of the borrower for last three years for the specific countries. As of December 2022, rates were 0.36 % (2021: 0.40%) in Sri Lanka, 0.21% (2021: 0.20%) in Uganda, 0.43% (2021: 0.45%) in the Philippines and 0.24% (2021: 0.21%) in Kenya. The liability is disclosed under note 27. No sensitivity analysis is done as the amount is not material.
2.5.4 Business Correspondence and partnership models
The portfolios under the Business correspondence and partnership models in ASA India ('BC model') are recognised on the statement of financial position based on whether the entity has the right to receive rewards. ASA India operates a Business Correspondent and partnership model with IDFC First Bank ('IDFC') and Jana Small Finance Bank ('JSFB') . ASA India operates as an agent, whereby ASA India selects borrowers based on the selection criteria of the BC Partner. After approval of the selected borrowers, the BC Partners
disburse the loans either through ASA India or directly to the clients and ASA India collects the interest and repayments from the borrowers on behalf of the BC Partners. In exchange for these services, ASA India receives service fees and processing fees.
The loans to borrowers of IDFC and JSFB and related funding are not recognised on the balance sheet since the loan agreements are made between the partners and the borrowers. More information is available in note 13.
2.5.5 Securitisation agreements
ASA India has a securitisation agreement in place at the balance sheet date, 'Lily' which is managed by Vardhman Trusteeship Private Limited. The loans to customers under the securitisation agreements do not qualify for derecognition as ASA India provides cash collateral for credit losses and thereby the credit risk is not substantially transferred. Hence, the loans to customers continue to be recognised on the balance sheet of ASA India under Loans and advances to customers and the purchase consideration is presented under borrowings.
Interest income from customers continues to be recognised as interest income and the related portion of the interest which is transferred to the counterparty is presented as interest expense. The outstanding loan portfolio as per end of 2022 under the securitisation agreements amounts to USD 617K (31 December 2021: USD 747K) and the related liability amounts to USD 636K (31 December 2021: USD 1.2 million). The loan portfolio is disclosed under Gross loan portfolio in note 13 'Loans and advances to customers' and the liability is disclosed under Debt issued and other borrowed funds by operating subsidiaries in note 25 'Debt issued and other borrowed funds'. The total pool principal balance at the start date of the relevant securitisation agreement amounts to USD 1.02 million (31 December 2021: USD 3.5 million) and the related liability amounts to USD 1.02 million (31 December 2021: USD 3.5 million). The cash collateral provided under these agreements amounts to USD 102K (31 December 2021: USD 278K) and is disclosed under note 14 'Due from banks'.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (Continued)
2.5 Significant accounting judgments and estimates (continued)
2.5.6 Direct Assignment
ASA India entered into two Direct Assignment agreements (DA) with State Bank of India (SBI), through which the entity has sold a pool of customers' loans amounting to USD 16.5 million against a purchase consideration of USD 14 million. The balance (15%) is kept as minimum retention as per guidelines issued by Reserve Bank of India (RBI). Based on the agreements, 85% of the loans are derecognised on the books on the grounds that the entity transferred substantially all the risks and rewards of ownership of financial assets. 15% remained on-book. Further information is available in note 13.
2.5.7 Leases - estimating the Incremental Borrowing Rate ('IBR')
The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses IBR to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
IFRS 16 describes the accounting for an individual lease and a discount rate that should be determined on a lease-by-lease basis. However, as a practical expedient, an entity may apply IFRS 16 to a portfolio of leases with similar characteristics if the entity reasonably expects that the effects on the financial statements of applying a portfolio approach instead of a lease-by-lease basis would not differ materially from applying this standard to the individual leases within that portfolio. If accounting for a portfolio, an entity shall use estimates and assumptions that reflect the size and composition of the portfolio.
The Group applied a discount rate per country based on leases with similar characteristics applying a portfolio approach instead of a lease-by-lease approach which had no material impact for the Group. The starting point for estimating the reference rate is the local risk-free rate. The Group developed an approach to determine IBR that is closely aligned with the definitions and requirements prescribed in IFRS 16. In this approach the Group first determined the country risk free rate and adjusted that with the Group specific financing spread and lease specific adjustments to consider IBR rates.
The Group used country sovereign rates to determine the risk-free rate. If no sovereign risk-free rate is available, a build-up approach is applied that adjusts the USD based United States Treasury bond for (i) the country risk premium, to capture country specific risk, and (ii) the long-term inflation differential, to capture any currency risk.
The Group specific financing spread is determined based on (i) the Group specific perspective / credit rating, (ii) the credit rating of the legal entities (lessees) of ASA International, and (iii) the market interest rates / yields on industry specific bonds.
The lease specific adjustment depends on the type/nature of asset, and relates to the fact that a secured bond will have a lower yield compared to an unsecured bond. However, the yield difference varies based on the type / nature of the asset that is used as collateral. The IBR used for different entities in 2022 and 2021 are as follows:
|
|
|
| 2022 | 2021 | |||||||
Country | Lease Currency | Credit Rating | Approach reference rate | IBR at different lease duration (year) | IBR at different lease duration (year) | |||||||
Tenure of lease | 1 | 2-4 | 5-6 | 7-9 | 1 | 2-4 | 5-6 | 7-9 | ||||
Ghana | GHS | BBB+ | Local | 16.7% | 20.3% | 21.4% | 22.3% | 18.4% | 19.3% | 19.9% | 20.3% | |
Nigeria | NGN | BBB+ | Local | 5.5% | 9.0% | 11.5% | 12.5% | 0.9% | 2.8% | 4.6% | 5.8% | |
Sierra Leone | SLL | BB- | Build-Up | 14.8% | 15.4% | 15.8% | 16.0% | 22.0% | 23.2% | 24.2% | 24.8% | |
Kenya | KES | BBB | Local | 9.3% | 10.5% | 12.1% | 12.7% | 9.6% | 10.9% | 11.9% | 12.6% | |
Rwanda | RWF | BB | Build-Up | 10.1% | 10.7% | 11.2% | 11.3% | 12.0% | 12.6% | 13.4% | 14.0% | |
Tanzania | TZS | BBB | Build-Up | 7.4% | 8.3% | 9.4% | 10.5% | 6.0% | 6.6% | 7.0% | 7.4% | |
Uganda | UGX | BBB | Local | 10.5% | 13.0% | 15.2% | 16.0% | 8.0% | 9.5% | 10.0% | 10.3% | |
Zambia | ZMW | BB- | Local | 25.0% | 25.0% | 25.0% | 25.0% | 35.0% | 35.6% | 36.1% | 36.3% | |
Bangladesh | BDT | B+ | Build-Up | 3.4% | 5.3% | 6.7% | 7.2% | 6.0% | 6.5% | 7.1% | 7.6% | |
India | INR | BBB | Local | 4.4% | 5.4% | 6.1% | 6.4% | 4.5% | 5.2% | 5.9% | 6.5% | |
Pakistan | PKR | BBB+ | Build-Up | 7.9% | 10.8% | 11.5% | 12.3% | 11.7% | 11.7% | 12.0% | 12.3% | |
Sri Lanka | LKR | BB+ | Local | 8.7% | 9.8% | 11.7% | 12.1% | 6.4% | 6.6% | 7.3% | 7.9% | |
Myanmar | MMK | BB | Build-Up | 17.0% | 17.7% | 18.1% | 18.3% | 11.9% | 13.3% | 14.6% | 15.5% | |
Philippines | PHP | BBB | Build-Up | 1.7% | 3.0% | 4.0% | 4.5% | 2.0% | 2.3% | 2.7% | 2.9% | |
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
2. ACCOUNTING POLICIES (Continued)
2.5 Significant accounting judgments and estimates (continued)
2.5.8 Taxes
Deferred Tax Assets
Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies.
In assessing the probability of recovery, the Group has used its five-year business plan which is consistent with last year's assessment. This business plan was also used for the Going concern and Viability assessment.
As at 31 December, the Gross amount and expiry dates of losses available for carry forward are as follows:
2022 | |||||||||||
Expiring within 1 year |
| Expiring within 2-5 years |
| Expiring beyond 5 years |
| Unlimited | Total | ||||
Losses for which Deferred tax asset is recognised | - | - | - | - | - | ||||||
Losses for which Deferred tax asset is not recognised | - | 3,409 | 24,972 | 27,058 | 55,439 | ||||||
- | 3,409 | 24,972 | 27,058 | 55,439 | |||||||
2021 | |||||||||||
Expiring within 1 year |
| Expiring within 2-5 years |
| Expiring beyond 5 years |
| Unlimited |
| Total | |||
Losses for which Deferred tax asset is recognised | 181 | 352 | 1,453 | 10,387 | 12,192 | ||||||
Losses for which Deferred tax asset is not recognised | - | 48 | 23,002 | 10,707 | 33,757 | ||||||
181 | 400 | 24,455 | 21,094 | 45,949 | |||||||
If the Group was able to recognise all unrecognised deferred tax assets, profit and equity would have increased by USD 13.0 million (2021:
7.8 million).
Deferred Tax Liabilities
As of 31 December 2022, the Group has undistributed profits in its subsidiaries amounting to USD 76.8 million. The Group recognised a deferred tax liability amounting to USD 2.2 million (see note 11.3) on USD 25.5 million of undistributed profits on the assessment that these will be distributed in the foreseeable future. No deferred tax liability was recognised on the balance 51.3 million due to regulatory uncertainty on when those can be distributed. If the Group recognises a deferred tax liability on these profits, profit and equity would decrease by USD 5.2 million.
2.5.9 Modification of loans
In 2020 and 2021, the Group provided moratoriums to its clients in certain subsidiaries. The main objective of these payment holidays was to offer clients a temporary relief due to disruption of their livelihoods on account of Covid. Extending the loan term only is not considered as a substantial modification and therefore does not result in derecognition and the original effective interest rate is retained. The temporary catch-up adjustment or modification gain/loss is then calculated as the difference between the carrying amount of the loans and the discounted value of the modified cash flows at the original effective interest rate. The modification gain/ loss is an adjustment to the carrying value of the loans and advances to customers and interest income. No additional moratoriums were given in 2022. Total loans under moratorium at 31 December 2022 is Nil (2021: USD 48.9 million)
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
3. SEGMENT INFORMATION
For management purposes, the Group is organised into reportable segments based on its geographical areas and has five reportable segments, as follows:
· West Africa, which includes Ghana, Nigeria and Sierra Leone.
· East Africa, which includes Kenya, Uganda, Tanzania, Rwanda and Zambia.
· South Asia, which includes India, Pakistan and Sri Lanka.
· South East Asia, which includes Myanmar and the Philippines.
· Holding and other non-operating entities, which includes holding entities and other entities without microfinance activities.
No operating segments have been aggregated to form the above reportable operating segments. The Company primarily provides only one type of service to its microfinance clients being small microfinance loans which are managed under the same ASA Model in all countries. The reportable operating segments have been identified on the basis of organisational overlap like common Board members, regional management structure and cultural and political similarity due to their geographical proximity to each other.
The Executive Committee is the Chief Operating Decision Maker (CODM) and monitors the operating results of its reportable segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operational profits and losses and is measured consistently with profit or loss in the consolidated financial statements. Transfer prices between operating and non-operating segments are on an arm's length basis in a manner similar to transactions with third parties and are based on the Group's transfer pricing framework.
Revenues and expenses as well as assets and liabilities of those entities that are not assigned to the four reportable operating segments are reported under 'Non-operating entities'. Inter-segment revenues, expenses and balance sheet items are eliminated on consolidation.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue in 2022 or 2021.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
3. SEGMENT INFORMATION (continued)
The following table presents operating income and profit information for the Group's operating segments for the year ended 31 December 2022
Holding and other | |||||||||
As at 31 December 2022 | non-operating | Adjustments and | |||||||
West Africa | East Africa | South Asia | South East Asia | entities | Total segments | eliminations | Consolidated | ||
USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | ||
External interest and similar income | 54,178 | 43,165 | 49,058 | 31,566 | 12 | 177,979 | - | 177,979 | |
Inter-segment interest income | - | - | - | 19 | 774 | 793 | (793) | - | |
External interest expense | (2,788) | (8,761) | (19,043) | (5,393) | (4,337) | (40,322) | - | (40,322) | |
Inter-segment interest expense | (276) | (282) | (70) | (146) | (19) | (793) | 793 | - | |
Net interest income | 51,114 | 34,122 | 29,945 | 26,046 | (3,570) | 137,657 | - | 137,657 | |
External other operating income | 548 | 2,837 | 2,554 | 4,369 | 43 | 10,351 | - | 10,351 | |
Inter-segment other operating income | 1 | - | - | - | - | 44,273 | 44,273 | (44,273) | - |
Other inter-segment expense | (428) | (2,246) | (306) | (1,943) | 3 | (4,920) | 4,920 | - | |
Total operating income | 51,234 | 34,713 | 32,193 | 28,472 | 40,749 | 187,361 | (39,353) | 148,008 | |
Credit loss expense | (2,868) | 501 | 2,876 | (1,143) | (9) | (643) | - | (643) | |
Net operating income | 48,366 | 35,214 | 35,069 | 27,329 | 40,740 | 186,718 | (39,353) | 147,365 | |
Personnel expenses | (13,332) | (15,227) | (15,616) | (10,611) | (5,689) | (60,475) | - | (60,475) | |
Exchange rate differences | 206 | (37) | (259) | (614) | (855) | (1,559) | - | (1,559) | |
Depreciation of property and equipment | (293) | (741) | (332) | (288) | (162) | (1,816) | - | (1,816) | |
Amortisation of right-of-use assets | (687) | (1,126) | (1,031) | (1,011) | (76) | (3,931) | - | (3,931) | |
Other operating expenses | (6,461) | (6,842) | (5,436) | (10,588) | (3,976) | (33,303) | - | (33,303) | |
Tax expenses | (8,584) | (4,328) | (9,292) | (2,307) | (3,883) | (28,394) | - | (28,394) | |
Segment profit after tax | 19,215 | 6,913 | 3,103 | 1,910 | 26,099 | 57,240 | (39,353) | 17,887 | |
Total assets | 108,395 | 113,791 | 133,894 | 102,917 | 199,363 | 658,360 | (168,608) | 489,752 | |
Total liabilities | 53,804 | 87,346 | 100,501 | 87,937 | 82,808 | 412,396 | (12,305) | 400,091 | |
Explanation: Segment profit is net profit after tax | |||||||||
1 Inter-segment operating income includes intercompany dividends, management fees and share in results of the subsidiaries.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
3. SEGMENT INFORMATION (continued)
The following table present operating income and profit information for the Group's operating segments for the year ended 31 December 2021
As at 31 December 2021 | Holding and Non- | Adjustments and | ||||||||||||||
West Africa | East Africa | South Asia | South East Asia | operating entities | Total segments | eliminations | Consolidated | |||||||||
USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | |||||||||
External interest and similar income | 61,472 | 32,742 | 62,092 | 33,452 | 9 | 189,767 | - | 189,767 | ||||||||
Inter-segment interest income | - | - | - | - | 2,846 | 2,846 | (2,846) | - | ||||||||
External interest expense | (3,891) | (5,603) | (22,453) | (6,049) | (4,443) | (42,439) | - | (42,439) | ||||||||
Inter-segment interest expense | (227) | (521) | (231) | (389) | (1,477) | (2,845) | 2,845 | - | ||||||||
Net interest income | 57,354 | 26,618 | 39,408 | 27,014 | (3,065) | 147,329 | - | 147,328 | ||||||||
External other operating income | 702 | 2,874 | 2,929 | 3,954 | 59 | 10,518 | - | 10,518 | ||||||||
Inter-segment other operating income1 | - | - | - | - | 29,577 | 29,577 | (29,577) | - | ||||||||
Other inter-segment expense | 220 | (1,663) | (206) | (2,173) | (3,373) | (7,195) | 7,195 | - | ||||||||
Total operating income | 58,276 | 27,829 | 42,131 | 28,795 | 23,198 | 180,229 | (22,382) | 157,846 | ||||||||
Credit loss expense | (1,655) | (2,327) | (27,622) | (5,891) | (14) | (37,509) | - | (37,509) | ||||||||
Net operating income | 56,621 | 25,502 | 14,509 | 22,904 | 23,184 | 142,720 | (22,382) | 120,337 | ||||||||
Personnel expenses | (13,630) | (11,999) | (14,810) | (11,172) | (5,202) | (56,813) | - | (56,813) | ||||||||
Exchange rate differences | (142) | 151 | (331) | (562) | (648) | (1,532) | - | (1,532) | ||||||||
Depreciation of property and equipment | (327) | (458) | (638) | (346) | (620) | (2,389) | 404 | (1,985) | ||||||||
Amortisation of right-of-use assets | (808) | (1,033) | (1,307) | (1,167) | (83) | (4,398) | - | (4,398) | ||||||||
Other operating expenses | (6,131) | (5,558) | (5,652) | (9,623) | (2,940) | (29,904) | - | (29,904) | ||||||||
Tax expenses | (10,564) | (1,974) | (4,164) | (373) | (2,272) | (19,347) | - | (19,347) | ||||||||
Segment profit | 25,019 | 4,631 | (12,393) | (339) | 11,419 | 28,337 | (21,979) | 6,358 | ||||||||
Total assets | 134,719 | 83,602 | 198,393 | 105,872 | 396,864 | 919,450 | (356,896) | 562,554 | ||||||||
Total liabilities | 73,497 | 63,629 | 160,887 | 89,045 | 149,502 | 536,560 | (77,449) | 459,111 | ||||||||
Explanation: Segment profit is net profit after tax
1 Inter-segment operating income includes intercompany dividends, management fees and share in results of the subsidiaries.
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
4. INTEREST AND SIMILAR INCOME
The interest and similar income consists of interest income on microfinance loans to customers, and interest income on bank balances and fixed-term deposits.
Notes | 2022 | 2021 | |||
USD'000 | USD'000 | ||||
(Restated) | |||||
Interest income calculated using EIR | 4.1. | 173,856 | 184,630 | ||
Other interest and similar income | 4.2. | 4,123 | 5,137 | ||
177,979 | 189,767 | ||||
2022 | 2021 | ||||
USD'000 | USD'000 | ||||
| (Restated)1 | ||||
4.1. | Interest income calculated using EIR | ||||
Interest income on loans and advances to customers | 161,176 | 175,732 | |||
Loan processing fees | 12,680 | 8,898 | |||
173,856 | 184,630 | ||||
Interest income decreased from last year in USD terms mostly due to devaluation of local currency against USD in most of the operating subsidiaries. Loan processing fee increased mainly in Tanzania where an additional transaction fee equivalent to 1% of disbursement is introduced in 2022.
2022 | 2021 | |||
USD'000 | USD'000 | |||
| (Restated) | |||
4.2. | Other interest and similar income | |||
Interest income on short-term deposits | 3,916 | 4,579 | ||
Other interest income | 207 | 558 | ||
4,123 | 5,137 | |||
5. INTEREST AND SIMILAR EXPENSE
Included in interest and similar expense are accruals for interest payments to customers and other charges from banks.
Notes | 2022 | 2021 | ||
USD'000 | USD'000 | |||
Interest expense on loans | (31,565) | (33,508) | ||
Interest expense on security deposits and others | (3,788) | (4,631) | ||
Interest expense on lease liability | (299) | (301) | ||
Commitment and processing fees | (274) | (266) | ||
Amortisation of forward points of forward contracts and currency basis spread of swap contracts | 37. | (4,396) | (3,733) | |
(40,322) | (42,439) | |||
6. | OTHER OPERATING INCOME | |||
2022 | 2021 | |||
USD'000 | USD'000 | |||
Members' admission fees | 1,875 | 1,881 | ||
Document fees | 928 | 856 | ||
Proceeds from sale of pass-books | 141 | 159 | ||
Income from death and multipurpose risk funds | 3,743 | 3,867 | ||
Service fees income from off-book BC model (ASA India) | 2,045 | 2,503 | ||
Distribution fee MBA Philippines | 890 | 846 | ||
Other | 729 | 406 | ||
10,351 | 10,518 | |||
Other includes a number of small items that are smaller than USD 150K on an individual basis.
1 Refer to note 2.1.2
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
7. | EXPECTED CREDIT LOSS EXPENSE | ||||
Notes | 2022 | 2021 | |||
USD'000 | USD'000 | ||||
ECL on loans and advances to customers | 13.2. | (4,847) | (28,227) | ||
Impairment on bank and intercompany | 13 | (109) | |||
ECL on interest receivable | 368 | (6,441) | |||
Other expected credit loss expense | (1,294) | (3,000) | |||
Recovery of previously written off loans | 5,117 | 268 | |||
(643) | (37,509) | ||||
The Group made large ECL provision in 2021 on account of increased credit risk of the loan portfolio caused by the adverse impact of Covid on the businesses of clients. The situation has improved significantly in 2022 as operating performance in most the markets is back to pre-covid level. The key assumptions applied for the expected credit loss provision and related expense are explained in note 2.5.1.
Other expected credit loss includes loss allowance provided against off-book portfolio in India and loan and interest exemptions for settlement of customer loans in case of death or disability.
The Group was able to collect a significant amount of previously written off loans, mainly in India and the Philippines.
8. PERSONNEL EXPENSES
Personnel expenses include total base salary expenses and employee benefit plans:
Notes | 2022 | 2021 | |||
USD'000 | USD'000 | ||||
Personnel expenses | (55,253) | (51,287) | |||
Defined contribution plans | (4,221) | (3,951) | |||
Defined benefit plans | 8.2. | (1,001) | (1,575) | ||
(60,475) | (56,813) | ||||
Notes | 2022 | 2021 | |||
USD'000 | USD'000 | ||||
8.1. | Retirement benefit liability | ||||
Retirement benefit liability as at beginning of period | 5,391 | 5,446 | |||
Payments made during the period | (572) | (592) | |||
Charge for the period | 8.2. | 1,001 | 1,575 | ||
Actuarial gains and losses on defined benefit liabilities (OCI) | (470) | (698) | |||
Foreign exchange differences | (757) | (340) | |||
Retirement benefit liability as at end of the period | 4,593 | 5,391 | |||
ASA India, ASA Pakistan, Lak Jaya, Pagasa Philippines, ASA Nigeria, ASA Kenya, ASA Zambia, ASA Sierra Leone and AMSL are maintaining defined benefit pension plans in the form of gratuity plans at retirement, death, incapacitation and termination of employment for eligible employees. The funds for the plans in ASA Pakistan, Pagasa Philippines, Lak Jaya, ASA Nigeria and AMSL are maintained by the entity itself and no plan assets have been established separately. The funds for the plan of ASA India are being maintained with Life Insurance Corporation of India and the entity's obligation is determined by actuarial valuation. There are no other post-retirement benefit plans available to the employees of the Group.
2022 | 2021 | |||
USD'000 | USD'000 | |||
8.2. | Charge for the period | |||
Current service cost for the period | (504) | (1,156) | ||
Interest cost for the period | (497) | (419) | ||
Impact from change in assumptions (see note 2.5.2) | - | - | ||
(1,001) | (1,575) | |||
8.3. Sensitivity analysis
A quantitative sensitivity analysis for significant assumptions as at 31 December 2022 and 31 December 2021 is shown below.
Assumptions | Discount rate | Future salary increases | |||||||
1% | 1% | 1% | 1% | ||||||
Sensitivity level | Year | increase | decrease | increase | decrease | ||||
USD'000 | USD'000 | USD'000 | USD'000 | ||||||
Impact on defined benefit obligation | 2022 | (180) | 1,290 | 1,298 | (197) | ||||
2021 | (501) | 1,384 | 1,379 | (513) | |||||
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
9. OTHER OPERATING EXPENSES
The other operating expenses includes the following items:
Notes | 2022 | 2021 | |||
USD'000 | USD'000 | ||||
Administrative expenses | 9.1. | (27,975) | (24,758)1 | ||
Professional fees | 9.2. | (2,579) | (2,707) | ||
Audit fees | 9.3. | (1,527) | (1,406) | ||
International travel | (646) | (327) | |||
CSR expenses | (249) | (337) | |||
Other | (327) | (369) | |||
(33,303) | (29,904) | ||||
2022 | 2021 | ||||
USD'000 | USD'000 | ||||
9.1. | Administrative expenses | ||||
Office expenses | (5,158) | (3,557) | |||
Transport and representation expenses | (10,391) | (9,405) | |||
Gas, water and electricity | (1,106) | (1,079) | |||
Telecommunications and internet expenses | (3,119) | (2,865) | |||
VAT/ Output tax / Service tax | (3,445) | (3,414) | |||
Bank charges | (1,472) | (1,747) | |||
Insurance expenses | (642) | (489) | |||
Other administrative expenses | (2,642) | (2,202) | |||
(27,975) | (24,758) | ||||
1 CSR expenses have been separately disclosed.
Office and transport expenses increased compared to last year primarily due to high inflation in most of the operating entities.
Other administrative expenses includes several small items that are smaller than USD 150K on an individual basis. |
2022 | 2021 | ||
USD'000 | USD'000 | ||
9.2. | Professional fees | ||
Legal services fees | (295) | (378 | |
Other professional fees | (2,284) | (2,329) | |
(2,579) | (2,707) | ||
Other professional fees includes fees for various consultants on tax, IT, accounting and, actuary valuation services. | |||
2022 | 2021 | ||
USD'000 | USD'000 | ||
9.3. | Fees payable to the Group's auditor is analysed as below: | ||
Fees payable to the Group's auditor for the audit of the Group's annual accounts | (1,008) | (940) | |
Fees payable to the Group's auditor for other services: | |||
Audit of the accounts of subsidiaries | (219) | (269) | |
Audit related assurance services | (295) | (194) | |
Total audit and audit related assurance services | (1,522) | (1,403) | |
Other assurance services | (5) | (3) | |
(1,527) | (1,406) | ||
10. EXCHANGE RATE DIFFERENCES
The Group incurred certain foreign exchange losses on monetary assets denominated in currencies other than the Group's functional currency.
2022 | 2021 | ||
USD'000 | USD'000 | ||
Foreign currency losses | (4,876) | (7,530) | |
Foreign currency gains | 3,317 | 5,998 | |
(1,559) | (1,532) | ||
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
11. INCOME TAX AND WITHHOLDING TAX EXPENSE
2022 | 2021 | |||
USD'000 | USD'000 | |||
Income tax expense | ||||
Current income tax | (20,883) | (18,844) | ||
Income tax for previous period | (7) | 477 | ||
Changes in deferred income tax | (6,284) | 2,773 | ||
(27,174) | (15,594) | |||
2022 | 2021 | |||
USD'000 | USD'000 | |||
11.1. | Current tax liability | |||
Balance as at beginning of period | 6,265 | 2,502 | ||
Tax charge: | ||||
Current period | 20,883 | 18,844 | ||
Previous period | 7 | (477) | ||
Tax paid | (16,643) | (14,085) | ||
Foreign exchange adjustment | (1,639) | (519) | ||
Balance as at end of period | 8,873 | 6,265 | ||
2022 | 2021 | |||
USD'000 | USD'000 | |||
11.2. | Deferred tax assets | |||
Balance as at beginning of period | 13,362 | 11,303 | ||
(Adjustment)/Addition during the period | (7,436) | 2,488 | ||
Foreign exchange adjustment | (1,301) | (429) | ||
Balance as at end of period | 4,625 | 13,362 | ||
Deferred tax assets are temporary differences recognised in accordance with local tax regulations and with reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In 2022, The Group derecognised deferred tax assets amounting to USD 8.0 million for India, Myanmar, Sri Lanka and ASAI NV as it was not reasonably certain that sufficient taxable income will be available against which such deferred tax assets can be realised.
2022 | 2021 | ||||
USD'000 | USD'000 | ||||
11.3. | Deferred tax liability | ||||
Balance as at beginning of period | 2,296 | - | |||
(Adjustment)/Charge during the period | (112) | 2,296 | |||
Foreign exchange adjustment | - | - | |||
Balance as at end of period | 2,184 | 2,296 | |||
11.4. | Deferred tax relates to: | ||||
2022 | 2021 | ||||||
Deferred tax relates to: | Deferred tax | Deferred tax | Income | Deferred tax | Deferred tax | Income | |
assets | liabilities | statement | assets | liabilities | statement | ||
USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | USD'000 | ||
Allowance for ECL | 1,321 | - | (4,759) | 6,205 | - | 1,365 | |
Provision for retirement liabilities | 1,138 | - | (322) | 1,505 | - | (95) | |
Provision on FX loss | 51 | - | (21) | - | (97) | 200 | |
Unused tax losses | - | - | (3,139) | 3,244 | - | 1,803 | |
Other temporary differences | 3,177 | (183) | 2,407 | 1,682 | 310 | 254 | |
IFRS 16 Lease | - | 183 | 8 | - | (213) | (40) | |
Undistributed profit of subsidiary | - | 2,184 | 113 | - | 2,296 | (2,296) | |
Modification loss | 236 | - | (459) | 812 | - | (715) | |
Other comprehensive | (1,298) | - | (1,152) | (86) | - | (284) | |
Income/Revaluation of cash flow | |||||||
hedge | |||||||
4,625 | 2,184 | (7,324) | 13,362 | 2,296 | 192 |
ASA INTERNATIONAL GROUP PLC
NOTES TO THE UNAUDITED PRELIMINARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
11. | INCOME TAX AND WITHHOLDING TAX EXPENSE (continued) | |||
11.5. | Reconciliation of the total tax charge | 2022 | 2021 | |
USD'000 | USD'000 | |||
Accounting result before tax | 46,281 | 25,705 | ||
Income tax expense at nominal rate of consolidated entities | (15,373) | (9,565) | ||
Over/ (under) provision for income tax previous year | (7) | 477 | ||
Net allowable /(non-allowable) expenses | (1,114) | (271) | ||
Movement in unrecognised deferred taxes | (11,285) | (6,191) | ||
Exempt income | 74 | 185 | ||
Tax impact on elimination | 531 | (11) | ||
Other permanent differences | - | (218) | ||
Total income tax expense for the period | (27,174) | (15,594) | ||
Weighted average nominal rate of consolidated entities | 33% | 37% | ||
Consolidated effective tax rate | 59% | 61% | ||
11.6. | Income tax per region | 2022 | 2021 | |
USD'000 | USD'000 | |||
Corporate income tax - West Africa | (9,417) | (10,564) | ||
Corporate income tax - South Asia | (9,292) | (4,164) | ||
Corporate income tax - East Africa | (3,994) | (1,974) | ||
Corporate income tax - South East Asia | (1,653) | (344) | ||
Corporate income tax - Holding and other non-operating entities | (2,818) | 1,452 | ||
Total income tax per region | (27,174) | (15,594) | ||
11.7. | Withholding tax expense | 2022 | 2021 | |
USD'000 | USD'000 | |||
Withholding tax on interest income, dividend, royalties and service fees | (1,332) | (1,457) | ||
Deferred tax on undistributed dividend | 112 | (2,296) | ||
Total withholding tax expense | (1,220) | (3,753) | ||
Interest income, dividends, royalties and service fees are subject to withholding tax in certain jurisdictions. The applicable withholding tax rates vary per country and per type of income.
12. CASH AT BANK AND IN HAND
2022 | 2021 | ||
USD'000 | USD'000 | ||
Cash at bank | 83,006 | 87,684 | |
Cash in hand | 111 | 267 | |
83,117 | 87,951 | ||
An amount of USD 32.6 million (2021: USD 21.5 million) of cash at bank is restricted and cannot be readily available. Out of this USD 17.1 million (2021: USD 16.3 million) in the Philippines is restricted as per Securities and Exchange Commission ('SEC') regulations as it relates to Loan Collateral Build Up ('LCBU', the collection of security collateral from clients of a lending company). LCBU is placed into a segregated account. In Tanzania USD 7.5 million (2021: 5.2 million) is restricted and maintained in a separate account as per the Bank of Tanzania requirement for non-deposit-taking microfinance institutions as it relates to security deposits from the clients. In Kenya, the new 'Central bank of Kenya (AMENDMENT) ACT' restricted non-deposit microfinance companies from taking cash collateral from clients. ASA Kenya is repaying the collateral amount to the clients once the loan matures. The year- end balance of USD 7.9 million is presented as restricted.
13. LOANS AND ADVANCES TO CUSTOMERS
Loans and advances to customers are net of allowance for expected credit loss.