Firstrand Limited · JSE:FSR
Firstrand — Investec corporate impairments seminar 2009
11 slides from Firstrand's conference presentation, Nov 20, 2009
Slide 1: Corporate CPM strategy in a down turn
Corporate CPM strategy in a down turn Investec corporate impairments seminar BANKING GROUP financial & operating review Jacques Mouton – Head of Corporate Credit 20 November 2009 Agenda • Setting the scene for the South African market • Understanding what has happened previously and resulting CPM re
Slide 2: A number of structural issues in South Africa influence the strategy for CPM
Agenda • Setting the scene for the South African market • Understanding what has happened previously and resulting CPM reaction • What can happen in the near future and how does CPM react? • Conclusion A number of structural issues in South Africa influence the strategy for CPM Structural features o
Slide 3: Looking at what has happened and where we are
Agenda • Setting the scene for the South African market • Understanding what has happened previously and resulting CPM reaction • What can happen in the near future and how does CPM react? • Conclusion Looking at what has happened and where we are South African Wholesale Credit Cycle Indicator asing
Slide 4: Understanding what has happened previously
Looking at what has happened and where we are South African Wholesale Credit Cycle Indicator Understanding what has happened previously asing corporate risk • Defaults were more concentrated in smaller size counters and specific industries • Increased risk evident in both market data Increa andd ffu
Slide 5: Wholesale credit cycle indicator status vs previous cycles
Increa asing corporate risk 199501 16 18 20 22 24 26 28 2 3 4 5 6 7 8 9 10 % 199506 Aug-90 Aug-90 Times 199511 Aug-91 Aug-91 199604 Aug-92 Aug-92 199609 Aug-93 Aug-93 199702 Aug-94 Aug-94 199707 we are Aug-95 Aug-95 199712 Aug-96 Aug-96 199805 Defaults Aug-97 Aug-97 199810 Aug-98 Aug-98 199903 Aug-9
Slide 6: Rating models as risk/default predictor
Rating models as risk/ default predictor • Financial ratios are significant building blocks of predicting distress over longer term • Market Data (more significant over short term as predictor)- rating mover report • Models key tool in pricing, rating migration, ORM Fundamental industry analysis: in
Slide 7: Fundamental industry analysis: industry classification example
Fundamental industry analysis: industry classification example Industrial Sector South African Wholesale Credit Cycle Indicator More Volatile Industries Capital Energy Risk Factor Cyclicality Competition intensity sensitivity Industry A H H H H Industry B H H H M Industry C H H H M Industry D M M/H
Slide 8: CPM toolkit derived from lessons learned during previous cycles
CPM toolkit derived from lessons learned during previous cycles CPM strategies for the in force book: immediate effect • Credit cycle indicator (portfolio level leading risk indicator) • Rating mover reports (exposure level leading risk indicator) • Ongoing risk management & covenant monitoring • Co
Slide 9: Hypothetical risk appetite summary
Hypothetical risk appetite summary Wholesale Lending Portfolio ‐ Credit Risk Appetite and Capacity (Example) Portfolio Summary R'million Credit Portfolio Exposure Value 1,000 Average net income from credit related business 40 Credit Capital on Performing Exposures 100 Concentration risk Capital 10 P
Slide 10: Assessing the impact on provisions
Assessing the impact on provisions Distribution: VaR Impact Scenario: Conditions similar to previous downturn 50th "Unluck" Unluck of the Draw Percentile Expected Stress Average 75th Percentile 90th Percentile 95th Percentile Stress testing done to indicate possible loss scenarios given economic dow
Slide 11: Conclusion
Conclusion • Most large corporate counters indeed in better state of financial health vs previous downturn, but understand industry specific earnings/ cash flow volatility not yet in numbers • Improved CPM allows for better understanding of and early reaction to the implications of downturns • Illiq
FirstRand — Investec corporate impairments seminar 2009 on 6ix