Firstrand Limited · JSE:FSR
Firstrand — Debt Investor Presentation (April 2015)
49 slides from Firstrand's debt investor presentation, April 2015
Slide 1: Debt Investor Presentation
DEBT INVESTOR PRESENTATION April 2015
Slide 2: Important notice
Important notice By electing to view this internet roadshow presentation, you agree to be bound by the following limitations: The information in this presentation has been prepared by FirstRand Bank Limited (FRB) solely for the purposes of a presentation in relation to a proposed offering of notes b
Slide 3: Important notice (cont.)
Important notice (cont.) The Notes have not been and will not be registered under the U.S. Securities Act of 1933 (the Securities Act), or the laws of any state or other jurisdiction of the United States, and may not be offered or sold within the United States or U.S. persons, absent registration or
Slide 4: Overview of the FirstRand Group and FirstRand Bank Limited (Issuer)
OVERVIEW OF THE FIRSTRAND GROUP AND FIRSTRAND BANK LIMITED (ISSUER)
Slide 5: Contextualising the FirstRand group
Contextualising the FirstRand group ZAR USD NORMALISED EARNINGS* FINANCIAL HIGHLIGHTS for the six months ended 31 December 2014 million million ZAR million 10 000 Normalised total assets 980 176 84 717 15% 9 993 9 000 Normalised net asset value 85 241 7 367 8 691 8 000 Normalised earnings 9 993 909
Slide 6: FirstRand has a portfolio of leading financial services franchises
FirstRand has a portfolio of leading financial services franchises Listed holding company (FirstRand Limited, JSE: FSR) Group-wide Retail and Corporate and Instalment Investment functions commercial bank investment bank finance management 6
Slide 7: FirstRand's strategy
FirstRand’s strategy • Objectives • Be the African financial services group of choice • Create long-term franchise value • Deliver superior and sustainable returns within acceptable earnings volatility • Maintain balance sheet strength • ...driven by two growth strategies • In South Africa, focus on
Slide 8: FirstRand Bank is the debt issuer and holds the group's South African banking franchises
FirstRand Bank is the debt issuer and holds the group’s South African banking franchises Listed holding company (FirstRand Limited, JSE: FSR) 100% 100% 100% 100% 100% FirstRand Investment FirstRand Bank Limited* FirstRand EMA Ashburton Investments FirstRand Insurance Holdings (Pty) Ltd (FRB) (Pty) L
Slide 9: FirstRand Bank is one of South Africa's Big 4 banks
FirstRand Bank is one of South Africa’s Big 4 banks Assets* (ZAR billion) Gross advances* (ZAR billion) Residential mortgages* (ZAR billion) 4 183 3 254 854 1 100 845 291 225 857 807 690 624 170 711 588 125 Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA
Slide 10: FirstRand Bank Financial Performance
FIRSTRAND BANK FINANCIAL PERFORMANCE
Slide 11: The economy continues to rebalance
The economy continues to rebalance A weak but stable real effective exchange rate supports exports Export volumes continue to lift Index Real effective exchange rate Index Export volumes 120 125 120 110 115 100 110 105 90 100 80 95 90 70 85 60 80 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Dec-
Slide 12: FirstRand Bank performance highlights
FirstRand Bank performance highlights Normalised results Dec 14 Dec 13 Change Profit before tax (ZAR million) 9 672 8 814 10% Earnings (ZAR million) 7 139 6 582 8% Return on equity (%) 22.9 24.3 Return on assets (%) 1.65 1.67 Credit loss ratio (%)* 0.80 0.78 Cost-to-income ratio (%) 56.3 5
Slide 13: Adjusting for accounting change at WesBank – strong operational performance
Adjusting for accounting change at WesBank – strong operational performance As reported Operational performance Normalised PBT (ZAR million) Dec 14 Dec 13# % change Dec 14 Dec 13# % change FNB 6 578 5 544 19 6 578 5 544 19 RMB 1 868 2 918 (36) 1 868 2 918 (36) WesBank 1 536 1 793 (14) 2 08
Slide 14: Continued strong topline drives earnings growth
Continued strong topline drives earnings growth Normalised earnings (ZAR million) 10 000 +9% +12% 9 000 +14% +16% 972 (363) (1 796) 8 000 +11% 2 042 (298) 8% 7 000 7 139 6 582 6 000 5 000 4 000 3 000 2 000 1 000 0 Dec 13 NII Impairments NIR Opex Tax and other Dec 14 NII = Net interest income (befo
Slide 15: Retail advances reflects strength of lending franchises
Retail advances reflects strength of lending franchises Retail advances breakdown Retail unsecured 15% ZAR million Dec 14 Dec 13 % change 3% 7% Residential mortgages 175 097 166 954 5 5% Vehicle and asset finance (VAF)* 115 039 99 242 16 Card 17 356 14 173 22 51% Personal loans 22 654 20 471 11 34%
Slide 16: Corporate advances resilient but slowing
Corporate advances resilient but slowing, reflecting lower levels of activity ZAR million Dec 14 Dec 13 % change Corporate advances breakdown RMB core South Africa 159 617 128 001 25 17% RMB core cross-border 27 001 24 775 9 RMB IB core advances 186 618 152 776 22 11% Repurchase agreements 35 837 36
Slide 17: Margin benefited from deposit strategy and endowment
Margin benefited from deposit strategy and endowment Margin (bps) 540 (5) 530 15 (7) 520 3 523 520 517 510 • Higher term funding and liquidity 500 costs • New business written, change in 490 fixed vs floating rate • Pricing pressure 480 470 460 450 Dec 13 Treasury Adjusted Capital and Advances Liabi
Slide 18: Continued strong topline drives earnings growth
Continued strong topline drives earnings growth Normalised earnings (ZAR million) 10 000 +9% +12% 9 000 +14% +16% 972 (363) (1 796) 8 000 +11% 2 042 (298) 8% 7 000 7 139 6 582 6 000 5 000 4 000 3 000 2 000 1 000 0 Dec 13 NII Impairments NIR Opex Tax and other Dec 14 18 NII = Net interest income (b
Slide 19: Increase in impairment charge driven by franchise overlays
Increase in impairment charge driven by franchise overlays 6 5.00 Credit loss ratio (%) Dec 14 Dec 13 5.7 4.50 Retail – secured 0.44 0.48 5.0 5 4.00 Residential mortgages 0.06 0.10 4.4 3.50 VAF 1.04 1.13 4 3.6 3.00 Retail – unsecured 5.35 6.16 3.2 2.9 Card 0.19 0.22 3 2.9 2.50 2.6 2.4 2.4 Personal l
Slide 20: Unsecured portfolios benefiting from post write-off recoveries
Unsecured portfolios benefiting from post write-off recoveries 3% 10.48* 10.50* 10.10* 0.93 1.94 26% 3.93 9.57 3.49* 8.16 71% 6.55 3.30 0.19 Retail secured Card FNB WesBank Retail loans loans other Retail unsecured Corporate Recoveries as a % of average advances Credit loss ratio net of recoveries (
Slide 21: Not a function of defaults but reflects strengthening of balance sheet
Not a function of defaults but reflects strengthening of balance sheet… Total corporate Rest of Africa credit exposures* credit exposures* Impacted Africa (cross border) Impacted* R13bn 5% exposures consist of: Africa • Mining and metals R27bn 11% • Oil and gas Non impacted R14bn 6% Domestic R214bn
Slide 22: Continued reduction in residential mortgages NPLs from work-out strategy
Continued reduction in residential mortgages NPLs from work-out strategy… NPLs (ZAR million) Dec 13 Dec 14 18 000 Origination Specific Credit cycle action and counterparties worsening 4% 16 000 workout 16 021 15 419 14 000 12 000 10 000 8 000 (17%) 6 000 17% 6 089 5 037 30% 4 000 4 968 4 258 4% 3 69
Slide 23: Portfolio impairments underpin higher coverage ratio
Portfolio impairments underpin higher coverage ratio NPLs (ZAR billion) Dec 14 Dec 13 Coverage ratios (%) 18 Retail – secured 25.0 24.6 4% Residential mortgages 20.3 21.0 15 15% 14% VAF 31.5 32.4 12 18% 23% Retail – unsecured 68.2 72.7 Card 73.1 72.0 9 28%* Personal loans* 64.3 72.6 31%* Retail othe
Slide 24: Overlays reflect countercyclical actions
Overlays reflect countercyclical actions Portfolio impairments (ZAR million) 8 000 7 000 6 000 Dec 14 Dec 13 5 000 Portfolio impairments as 1.11% 1.02% % of performing book 4 000 3 000 Bad debt charge (%) 0.80% 0.78% 2 000 Portfolio impairments 1 000 7 148 5 829 (R million) - Dec 13 Dec 14 Franchise
Slide 25: Continued strong topline drives earnings growth
Continued strong topline drives earnings growth Normalised earnings (ZAR million) 10 000 +9% +12% 9 000 +14% +16% 972 (363) (1 796) 8 000 +11% 2 042 (298) 8% 7 000 7 139 6 582 6 000 5 000 4 000 3 000 2 000 1 000 0 Dec 13 NII Impairments NIR Opex Tax and other Dec 14 25 NII = Net interest income (b
Slide 26: NIR driven by strong client franchise; costs up on investment strategy
NIR driven by strong client franchise; costs up on the back of investment strategy • Non-interest revenue (NIR) +9%: • Fee and commission income +7% (represents 85% of NIR) • Strong contribution from FNB (NIR +10%); due to specific strategies; drive customers onto electronic platforms and increase c
Slide 27: Capital, Funding and Liquidity Update
CAPITAL, FUNDING AND LIQUIDIT Y UPDATE
Slide 28: FRB's approach to capital management and issuance of instruments
FRB’s approach to capital management and issuance of instruments • Capital planning performed on a forward-looking basis, not point-in-time • Raise capital in good times, not in times of stress • Considerations for volume of proposed Tier 2 issuance • Actual against target levels for all elements of
Slide 29: Strong capital position
Strong capital position… Adjusted for: • Available-for-sale reserves CET1 ratio • Anticipated Basel III changes 14% 13.7% 0.4% 13.3% ZAR10.2bn 12% surplus CET1 target range: FSR 10% – 11% 10% management buffer 2.5% 8% 6% SARB end-state minimum 4% requirement 8.5% 2% 0% Target Column2 Regulatory X Ec
Slide 30: Capital stack
Regulatory and market developments will require higher level but different mix of capital Level of capital to increase Review target mix due to regulatory changes to optimise WACC* Tier 2 3.25%** Tier 2 Tier 2 AT1 Introduction of 2.25%** AT1 capital floors based Capital stack on revised standardised
Slide 31: Strong focus on building a diversified funding base
Strong focus on building a diversified funding base Sources of funding Funding instruments R544bn R599bn R657bn R731bn 1% 5% 5% 6% 6% 5% 6% 5% 3% 5% 12% 10% 9% 10% 22% 11% 4% 17% 17% 17% 1% 18% Other 4% Foreign 5% 22% 22% 23% SMEs 24% 20% Public sector Retail Corporate 28% Institutional 39% 39% 37%
Slide 32: Deposit franchise growing strongly across all portfolios
Deposit franchise growing strongly across all portfolios Deposits (ZAR billion) Deposit franchise +18% Funding +2% 2% 265 269 14% Dec 14 14% 28% Dec 13 150 149 156 132 131 122 Retail Commercial CIB Institutional deposits deposits deposits funding* * Includes CIB institutional funding and marketable
Slide 33: Funding strategies result in improved profile
Funding strategies result in improved profile… As % of total funding (institutional and corporate/public sector) Retail funding as % of total 42% 19% Retail (RHS) 40% 18% 38% 17% 36% 16% Institutional (LHS) 34% 15% 32% 14% Corporate and public sector (LHS) 30% 13% Dec 11 Jun 12 Dec 12 Jun 13 Dec 13
Slide 34: Listed debt maturity profile
Listed debt maturity profile Maturity profile of FRB’s capital market instruments (ZAR billion) 16 14 12 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2031 2033 2038 2042 2045 Senior debt Inflation-linked senior debt Subordinated debt Credit-linked notes EMTN issuance
Slide 35: Basel III updates
Basel III updates • Liquidity coverage ratio (LCR) • SA adopted the LCR phased-in approach from 2015 to 2019 • Expansion of eligible collateral, with appropriate haircuts • Level 2A (AA-.zaf or better) and Level 2B (BBB-.zaf or better) • SA has been approved as a jurisdiction eligible for a CLF give
Slide 36: Already compliant with LCR and implementing strategies to improve liquidity
Already compliant with LCR and implementing strategies to further improve liquidity position FirstRand Bank liquidity coverage ratio (LCR) 100% Off-balance sheet Management buffer facilities and CLF (subject to SARB approval) Target buffer of 10% above Public sector regulatory 2015: Current HQLA (bu
Slide 37: IMF review: South Africa's financial system stability assessment
IMF review: South Africa’s financial system stability assessment • Financial sector operates in a challenging economic environment • Relatively high capital buffers as well as sound regulation and supervision have helped mitigate risks • Stress tests confirm the capital resiliency of banks and insur
Slide 38: Further strengthening the banking system
Further strengthening the banking system • SA is adopting the Twin Peaks model of financial sector regulation • Prudential Authority with the SARB • Financial Sector Conduct Authority • Resolution framework is in development • South Africa aims to address the "too big to fail" perception in line wit
Slide 39: Summary
Summary • Strong financial position • Long-term external ratings on par with the sovereign • Proactively provided for credit cycle • Strong capital position • Integrated funding and liquidity management • Earnings should remain resilient • Quality and diversification underpin earnings resilience • B
Slide 40: Indicative terms
Indicative terms Description Issuer FirstRand Bank Limited Baa2 (Stable) / BBB- (Stable) / BBB (Negative) Issuer ratings (Moody’s / Standard & Poor’s / Fitch) Programme size USD 1,500,000,000 Ranking Senior, Unsecured Obligation Distribution / Format Regulation S Only Currency USD Issue size Benchma
Slide 41: Appendix – FirstRand Bank
APPENDIX FIRSTRAND BANK
Slide 42: FirstRand operates in a well-regulated banking system
FirstRand operates in a well-regulated banking system SA banking system ranked 6th globally Rank 1 = insolvent and may require government bailout; Global competitiveness index 7 = generally healthy with sound balance sheets /144 Canada (1) 6.7 Efficacy of corporate boards 3 New Zealand (2) 6.7 Stren
Slide 43: Credit ratings – FirstRand Bank Limited
Credit ratings – FirstRand Bank Limited South Africa FirstRand Bank Limited credit ratings sovereign ratings FOREIGN CURRENCY FOREIGN CURRENCY LOCAL CURRENCY Long-term/ Long-term/ Long-term/ Short-term Short-term outlook outlook outlook Moody’s Baa2/Stable Baa2/Stable P-2 Baa2/Stable P-2 Fitch Ratin
Slide 44: Overview of operating franchises' performance
Overview of operating franchises’ performance • FNB up 19%: • Excellent NIR growth from volumes • Robust advances growth in targeted segments • Strong deposit growth • Bad debts continued to reduce • RMB down 36%: • Lower corporate activity and high base effect impacted performance of IBD • Proactiv
Slide 45: Retail advances growth reflects origination strategies
Retail advances growth reflects origination strategies Retail advances Mortgages Affordable housing SA VAF UK VAF (MotoNovo) Remain conservative Continued strong Gradual reduction of Strengthening market with focus on low-risk demand and credit higher-risk with volumes position and benefiting FNB cu
Slide 46: Targeted approach resulted in strong corporate and commercial advances growth
Targeted approach resulted in strong corporate and commercial advances growth Commercial advances Commercial Asset-backed Small businesses Rest of Africa Agri finance property finance finance (SMEs) and India Focus remains on Continued to Growth focus on Cross-sell to Continue to target banked owner
Slide 47: Debt review inflows reflects continued pressure on consumers
Debt review inflows reflects continued pressure on consumers SA retail VAF NPLs (ZAR million) WesBank personal loans NPLs (ZAR million) 4 000 800 3 500 700 3 000 600 2 500 500 2 000 400 1 500 300 1 000 200 500 100 - - Jun 10 Dec 11 Jun 13 Dec 14 Jun 10 Dec 11 Jun 13 Dec 14 NPLs Debt review restructu
Slide 48: FirstRand's philosophy on foreign currency external debt
FirstRand’s philosophy on foreign currency external debt • Framework for the management of external debt takes into account sources of sovereign risk • We consider the external debt of all South African entities… • …as all these entities utilise the South African system’s capacity • Therefore FirstR
Slide 49: International funding activities
International funding activities • EMTN programme • Bilateral facilities • Reg S • USD500 million 5-year bond due 2016 • Private placements • Syndicated loans • African currencies BWP, ZMK, NGN settled in USD/EUR • DFI facilities • CHF programme (Six Swiss Exchange) • CHF160 million 5-year bond due