Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (October 2019)
47 slides from Firstrand's debt investor presentation, Oct 22, 2019
Slide 1: Financial and strategic update
Financial and strategic update overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 2: Agenda
2 Agenda Overview of the FirstRand group Alan Pullinger (CEO: FirstRand) Overview of FirstRand Bank (debt issuer) Overview of macroeconomic environment Financial resource management Funding and liquidity Andries du Toit (FirstRand Group Treasurer) Capital South African financial sector and market in
Slide 3: Overview of the FirstRand group
Overview of the FirstRand group overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 4: FirstRand's financial position and track record
4 FirstRand’s financial position and track record FINANCIAL HIGHLIGHTS NORMALISED EARNINGS – YEAR ENDED 30 JUNE* for the year ended 30 June 2019 R million $ million R million Total assets (normalised) 1 669 039 118 120 30 000 Normalised net asset value 129 650 9 176 27 500 27 894 25 000 26 411 Norma
Slide 5: FirstRand's portfolio
5 FirstRand’s portfolio LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) Retail and commercial Corporate and Instalment UK specialist Asset Group-wide banking, insurance investment banking finance bank management functions Customer-facing Stakeholder management
Slide 6: Current portfolio mix – activity, geography and business
6 Current portfolio mix – activity, geography and business Investing Other Aldermore‡ Insure Transact UK Save Rest of 7.6% WesBank and invest** Africa 6% 6% 9.6% Geographic Normalised earnings Revenue split PBT mix# by activity* 25% per operating (i.e. pre-minorities) business† 63% RMB Lend 82.8% FN
Slide 7: Group strategic framework
7 Group strategic framework FirstRand commits to building a future of SHARED PROSPERITY through enriching the lives of its customers, employees and the societies it serves. This is the foundation to a sustainable future and will preserve the group’s enduring promise to create long-term value and sup
Slide 8: Overview of FirstRand Bank (debt issuer)
Overview of FirstRand Bank (debt issuer) overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 9: FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited
9 FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) OTHER WHOLLY-OWNED SUBSIDIARIES OF FIRSTRAND LIMITED 100% FirstRand EMA Holdings (Pty) Ltd (FREMA) DEBT ISSUER FIRSTRAND BANK LIMITED Rest of Africa SA banking FirstRand Internatio
Slide 10: FRB a significant contributor to group's financial position
10 FRB a significant contributor to group’s financial position 24% 23% Group FirstRand Bank FirstRand Bank normalised Group Other legal entities* Other legal entities* earnings assets 76% 77% 3% 3% 3% 27% South Africa Group FRB FirstRand Bank Other Africa normalised geographical net asset Other lega
Slide 11: Protecting and growing SA banking businesses key to group's growth
11 Protecting and growing SA banking businesses key to group’s growth SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Build a more valuable banking businesses services offering to the rest of Africa UK business • The bank continues to focus on • The group’s strat
Slide 12: The bank supports the group's rest of Africa strategy
12 The bank supports the group’s rest of Africa strategy SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Build a more valuable banking businesses services offering to the rest of Africa UK business The bank’s balance sheet is utilised in RMB’s cross-border lendin
Slide 13: UK – MotoNovo integration into Aldermore completed
13 UK – MotoNovo integration into Aldermore completed SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Build a more valuable banking businesses services offering to the rest of Africa UK business • FirstRand acquired Aldermore in 2018 (Aldermore is not part of Fir
Slide 14: FRB normalised performance highlights
14 FRB normalised performance highlights 30 June 19 30 June 18 % change IFRS 9 IAS 39 Normalised earnings (R million) 21 152 20 170 5 Return on equity (%) 23.7 23.4 Return on assets (%) 1.70 1.76 Credit loss ratio (%) 0.95 0.80 Cost-to-income ratio (%) 53.6 54.3 Tier 1 ratio (%)* 14.0** 12
Slide 15: Overview of results
15 Overview of results NORMALISED EARNINGS R million 28 000 +10% +8% +10% +27% 24 000 3 079 (3 337) (1 801) +16% 4 189 5% 20 000 (1 148) 21 152 20 170 16 000 12 000 8 000 4 000 0 2018 NII Impairments NIR Opex Tax and other 2019
Slide 16: Overview of macroeconomic environment
Overview of macroeconomic environment overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 17: South Africa's growth remains under pressure
17 South Africa’s growth remains under pressure GDP growth remains weak Inflation is around the midpoint of the target band % % y/y 6 8.0 5 7.0 4 6.0 5.0 3 4.0 2 3.0 1 2.0 0 1.0 -1 0.0 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-20 Mar-21 -2 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Slide 18: Government balance sheet constrained but room in private sector
18 Government balance sheet constrained but room in private sector No room for additional fiscal support A comparison of corporate debt to GDP Deficit to GDP ratio % 0.0 140 -1.0 120 -2.0 100 80 -3.0 60 -3.6 -4.0 -4.3 40 -4.5 -5.0 20 -6.0 -5.8 -5.8 -6.0 0 SA Saudi Arabia Thailand Greece Philippines
Slide 19: Private sector credit growth drifting sideways
19 Private sector credit growth drifting sideways PRIVATE SECTOR CREDIT GROWTH % y/y 30 25 20 15 10 5 0 Sep 04 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 Sep 19 -5 Sources: SARB, FirstRand.
Slide 20: Financial resource management
Financial resource management overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 21: Disciplined approach to financial resource management
21 Disciplined approach to financial resource management • Strong capital position Capital • Appropriate buffers in excess of minimum management Balance sheet • Distance-to-trigger/default strength Assets • Quality Liabilities • Integrated funding and liquidity • Quality Earnings resilience, volatil
Slide 22: FirstRand philosophy on funding and capital
22 FirstRand philosophy on funding and capital Funding Capital Risk appetite measures • Diversify across business, • Capital planning performed • Regulator – comfortably exceed markets, currencies, maturities on forward-looking basis, minimum prudential and instrument types not point-in-time require
Slide 23: The group's risk profile remains within appetite across all perspectives
23 The group’s risk profile remains within appetite across all perspectives Quantitative risk appetite measure for normal cycles Performance targets Resource objectives and constraints CET1 capital Leverage Returns ROE 18% - 22% Solvency 10% - 11% >5.5% Earnings Nominal GDP To exceed minimum regulat
Slide 24: Building a stronger balance sheet
24 Building a stronger balance sheet ACTUAL TREND Assets in marketable format R195 billion Increased HQLA as % total assets 18% Improved Credit quality of assets BB/BB- Stable Institutional funding term 36 months Improved duration Deposit franchise 64% core deposit funding Increased Continues to exc
Slide 25: Funding and liquidity
Funding and liquidity overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 26: FRB exceeds LCR and NSFR requirements
26 FRB exceeds LCR and NSFR requirements Liquidity coverage ratio (LCR) Net stable funding ratio (NSFR) • June 2019: 133% • June 2019: 117% • LCR minimum requirement: 100% • Taking into consideration the regulatory and economic barriers to ZAR liquidity flowing out of • Aim to exceed minimum require
Slide 27: Improved balance sheet liquidity
27 Improved balance sheet liquidity BALANCE SHEET GROWTH LIQUID ASSET GROWTH AND MIX R billion R billion 1 400 250 1 239 226 1 200 CAGR 8.2% 200 CAGR 13.7% 1 000 836 800 150 119 600 100 400 50 200 0 0 2014 2019 2014 2019 Cash and central bank deposits Government bonds and bills Other liquid assets S
Slide 28: Strong growth in deposit franchise across all segments
28 Strong growth in deposit franchise across all segments LIABILITIES R billion 450 400 2018 2019 350 300 9% 16% 12% 250 248 240 244 200 227 218 207 6% 150 138 146 148 24% 100 112 74% 50 68 39 27 27 0 Retail Commercial CIB Group Treasury Debt securities Other deposits AT1 and T2 capital deposi
Slide 29: Continued focus on optimising the funding base
29 Continued focus on optimising the funding base Sources of funding Funding instruments R760bn R826bn R885bn R974bn R1 065bn 36% 37% 36% 35% 36% Deposit franchise: 65% 22% 20% 21% 21% 21% June 2019 18% 19% 20% 20% 21% 10% 10% 11% 11% 11% 5% 6% 5% 5% 5% 7% 7% 6% 8% 6% 2% 1% 1% Current and savings ac
Slide 30: Local deposit franchise outperforms market due to successful save/invest strategy
30 Local deposit franchise outperforms market due to successful save/invest strategy, and innovative products INDEX June 2011 = 100 225 2.25 FirstRand’s domestic deposit franchise 200 2.00 Outperformance >R167 billion over 8 years 175 1.75 M3 money 150 1.50 supply 125 1.25 100 1.00 Jun 11 Dec 11 Jun
Slide 31: Bank continues to optimise institutional funding profile
31 Bank continues to optimise institutional funding profile Institutional funding as % of total funding Diversified institutional funding mix and term profile 43% Institutional funding composition Months 42% 100% 40 41% 90% 38 80% 36 40% 36 70% 39% 34 33 34 60% 38% 50% 31 32 37% 40% 31 30 36% 30% 28
Slide 32: FirstRand's philosophy on external debt…
32 FirstRand’s philosophy on external debt… Solvency Net asset value Sustainability Asset quality Structural borrowing limit Liquidity risk Cash flow and earnings profile Structural borrowing capacity of all SA entities Debt level Liquidity limits Liquidity mismatch SA Inc’s repayment capacity and e
Slide 33: …results in sustainable FX balance sheet structure
33 …results in sustainable FX balance sheet structure Assets Short-term trading assets Liquid trading assets MotoNovo vehicle finance Trade and working Interbank placing back book capital facilities (London branch) Cross-border acquisition Long-term FX liquidity buffers Short-term loans bridge finan
Slide 34: Capital
Capital overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 35: Strong recovery in CET1 leaves bank well in excess of internal target
35 Strong recovery in CET1 leaves bank well in excess of internal target CET1 RATIO 14.0% 13.4% 13.0% 13.0% 12.7% 12.0% 11.0% Target range: 10% – 11% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 2018 regulatory (IAS 39) 2019 regulatory (IFRS 9) 2019 economic view * Driven by net internal capital generation and R1
Slide 36: Additional Tier 1 and Tier 2 issuance to date
36 Additional Tier 1 and Tier 2 issuance to date Additional Tier 1 (AT1) • Inaugural AT1 issuance • Issuance to date: R5.7 billion Tier 2 • Redemption of remaining old-style Tier 2 • R3.2 billion in December 2018 • Redemption of Basel III-compliant instruments • April 2019: USD172.5 million • June 2
Slide 37: South African financial sector and market infrastructure
South African financial sector and market infrastructure overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 38: Regulatory update
38 Regulatory update • Draft Financial Sector Laws Amendment Bill published for comment by National Treasury in October 2018 • Proposed amendments to various acts to support and empower the resolution regime • New chapter (12A – Resolution of Designated Institutions) builds on the draft resolution f
Slide 39: Resolution blueprint – proposed hierarchy in insolvency
39 Resolution blueprint – proposed hierarchy in insolvency CURRENT AMENDED Secured • Allows for setoff up to the value of security held Secured (up to the value (up to the value • Residual claims rank pari passu with all other unsecured creditors of security) of security) • Assets under repo GMRA, I
Slide 40: SA has a sophisticated financial system
40 SA has a sophisticated financial system • SA benefits from world class market infrastructure in payments, exchanges and securities clearing • SA benefits from financial stability due to the closed rand system • SA has adopted the Twin Peaks model of financial sector regulation • Regulation and le
Slide 41: IMF Review: South Africa's financial stability assessment
41 IMF Review: South Africa’s financial stability assessment • Financial sector operates in challenging economic environment • Relatively high capital buffers as well as sound regulation and supervision have helped mitigate risks • Stress tests confirm the capital adequacy resilience of banks and in
Slide 42: FRB credit ratings
42 FRB credit ratings SOUTH AFRICA FIRSTRAND BANK LIMITED SOVEREIGN RATINGS CREDIT RATINGS FOREIGN CURRENCY COUNTERPARTY* Long term/ Long term/ Long term Standalone outlook outlook national scale credit rating S&P Global BB/Stable BB/Stable zaAA+ bbb- Moody’s Baa3/Stable Baa3/Stable Aaa.za** baa3 *
Slide 43: Conclusion
Conclusion overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 44: Despite difficult macroeconomic backdrop, FirstRand remains well positioned
44 Despite difficult macroeconomic backdrop, FirstRand remains well positioned • Continued focus on increasing balance sheet strength • Strong capital position • Integrated and diversified funding and liquidity management • Prudent credit provisions • Resilient earnings base and strong return profil
Slide 45: Important notice
Important notice overview and financial results for the year ended 30 June results presentation for the six months ended 31 December ’18
Slide 46: Important notice
46 Important notice The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer or solicitation of an offer to buy or sell securities or financial instruments or any advice or recommendation to buy such securit
Slide 47: Important notice (continued)
47 Important notice (continued) The information in this presentation is given in confidence and the recipients of this presentation should not engage in any behaviour which would or might amount to market abuse for the purpose of Regulation (EU) 596/2014 (the Market Abuse Regulation). This presentat
FirstRand Bank — Debt Investor Presentation (October 2019) on 6ix