Absa Group Limited · JSE:ABG
Absa — Investor Day (November 2011)
70 slides from Absa's investor day presentation, Nov 11, 2011
Slide 1: Absa Group Retail Investor Day
Absa Group Retail Investor Day 11 November 2011
Slide 2: Introduction
Introduction Bobby Malabie Chief Executive: Absa Retail and Business Banking
Slide 3: Upside from combining Retail and Business Banking
Upside from combining Retail and Business Banking Retail Similarities Business Bank Balance sheet Sustainable optimisation and Targeting proactive risk growth in Sustainable profitable wallet management Balance sheet targeted markets growth in share optimisation and • Quickly • Creating a targeted m
Slide 4: Retail and Business Banking model
Retail and Business Banking model Deep customer World class sales and Compelling CVPs Efficient operations insights service • Derive deep customer • Design segments in • Delivering on the CVP • Through the largest insights across the alignment with cost-to through end to end face to face spectrum of
Slide 5: New RBB leadership team
New RBB leadership team Bobby Malabie Chief Executive: Absa Retail and Business Banking 11 years * Daphne Motsepe Marcel de Klerk Arrie Rautenbach Millicent Clarke Maurits Pretorius Gustav Raubenheimer Dirk Reyneke Vacant Chief Executive: Head: Business Head: Retail Head: Human Head: Strategy Chief
Slide 6: Absa Retail Markets
Absa Retail Markets Arrie Rautenbach Head: Retail Markets
Slide 7: Retail part of several One Absa workstreams
Retail part of several One Absa workstreams Enhancing business-as-usual Key priorities – Grow retail business – Build corporate bank – Grow core deposits – Absa Business Bank leadership – Standardise / streamline – Entry-level banking proposition – Customers and people – centred – Wealth and investm
Slide 8: Retail in context (1H11)
Retail in context (1H11) Retail is large Strong first half >11m customers (34% share) R12bn in revenue (+7%) 2.1m AllPay customers Positive JAWS Cellphone banking customers 2.8m (+42%) Pre-provision profit R5.1bn (+10%) 12.3m debit cards Credit impairments R2.3bn (-22%) 374m transactions YTD (July)
Slide 9: A large contributor to Group earnings
A large contributor to Group earnings 38% of 1H11 earnings ... ... transactional and unsecured the bulk 3.6 Annualised earnings 3.2 (Rbn) 2.8 2.4 2.0 1.6 1.2 0.8 0.4 0.0 Retail Card PLs VAF HLs Total Bank Retail 9
Slide 10: Customer
Customer Gustav Raubenheimer RBB Chief Credit Officer
Slide 11: Retail's journey towards customer obsession
Retail’s journey towards customer obsession Stages in becoming customer focussed customer obsessed customer satisfaction achievement • customers are the primary element and constitute the centre of strategy • Lines of business and channels proactively and customer driven flexibly integrate as • Stra
Slide 12: From income to value-based segmentation
From income to value-based segmentation PVT Current New RA CMM ELIB – Primarily based on customer‟s income level – Primarily based on customer‟s value to the bank – Does not take into account customer‟s needs, behaviour and value – Informed by customer‟s needs and behaviour - Needs and behavior segm
Slide 13: Our segmentation provides for more explicit measure of customer value
Our segmentation provides for more explicit measure of customer value ... Existing macro Future value segments segments 13
Slide 14: ... based on actual customer value
... based on actual customer value – The value as an asset to the enterprise derived from recent behaviour and assumes that there will be no major future changes in future behaviour – The “proven” actual value should be the primary driver of sales / service differentiation in all channels • One-to-o
Slide 15: Thorough process produced granular segments
Thorough process produced granular segments 15 15
Slide 16: We designed customer value propositions from these insights
We designed customer value propositions from these insights 16
Slide 17: We are executing detailed project plans for each segment
We are executing detailed project plans for each segment Fully entrenched Pricing CUSTOMER Product CHARTER CVP2 Distribution PHILOSOPHY Market IT BRD ready CVP2015 APB SOP and BAU programmes Existing BRDs to be amended Progress indicator leading up to ATL Ready 72% Segment A Jan Jan Jan Jan Jan 2011
Slide 18: Customer Charter the basis for designing channel shape and functionality
Customer Charter the basis for designing channel shape and functionality Our promise to customers... we will consistently deliver a convenient, excellent, personal and transparent experience every time we interact with you Convenient access and Transparent Personal approach Excellent service deliver
Slide 19: Zoning methodology a strategic tool
Zoning methodology a strategic tool Without zoning: Customers Areas Primary channel options • Branches/loan centres • ATM‟s Customer “SAT” • Other devices measures for the • Other Channels region “An area” 2.3m customers in this area With zoning: A distribution planning approach Areas Customers per
Slide 20: Retail customer strategy – changing shape across our value tiers
Retail customer strategy – changing shape across our value tiers Current 2.3% of our base contributes shape 25% of our revenue Affordable Basic Full Value 68% of base Exclusive 29.7% of base 1.7% of base 0.6% of income 22% of revenue 53% of income 15% of revenue 10% of revenue Future shape Basic Exc
Slide 21: We measure key performance indicators across our value tiers
We measure key performance indicators across our value tiers Revenue and costs Affordable Basic Full value Exclusive Primary relationship % Customer shape Number of customers Number of accounts (excl AFS) Economic profit before overheads Economic profit full absorbed Net interest income on advances
Slide 22: Conclusion
Conclusion – We have a clear strategic journey to move from product to customer-centric banking – Our customer segmentation model is based on value – It produces a set of value tiers – We are creating compelling Customer Value Propositions from these – We have a detailed delivery roadmap – Our Custo
Slide 23: Distribution
Distribution Pierre Loubser Head: Sales and Service Christo Vrey Managing Executive: Digital Channels
Slide 24: Distribution guidelines inform our strategy
Distribution guidelines inform our strategy We are accessible We are convenient We are differentiated We empower and value our customers 24
Slide 25: We are accessible
We are accessible We are accessible Success factors – Largest branch footprint (24% larger than – Approachable, welcoming and not intimidating nearest competitor) and (achieved through differentiation at outlet level) – Largest ATM footprint (29% larger than – Accessible, within easy reach of both:
Slide 26: We are convenient
We are convenient We are convenient Success factors – Multi-channel approach – Offer multiple sales and service functionalities – Choice of access across a broad spectrum of convenient – Choice of self-service channels: – Integration across channels • Full service branches • Self-service devices • S
Slide 27: We are differentiated
We are differentiated We are differentiated Success factors – Affordable distribution solutions – All customers want (and deserve) a good, fair and effective experience – Transactional distribution solutions – Customers have different needs and values: – Exclusive distribution solutions • Certain cu
Slide 28: We empower and value customers
We empower and value customers Absa empowers and values our customers Success factors – Educate customers – Educate customers so they can optimise their banking relationship with us; promote low cost – Migrate transactions to lower cost channels digital channels – Allow, encourage and educate our cu
Slide 29: Differentiated multi-channel approach is key to sustainable competitive edge
Differentiated multi-channel approach is key to sustainable competitive edge Applying segment Customer Mono-line / non- Product Customer Value Propositions allows us to integrated channel design a differentiated multi- approach channel customer experience Product Customer Selling …using many … to ma
Slide 30: A two pillar approach to meet customer sales and service needs
A two pillar approach to meet customer sales and service needs Affordable Channel / customer strategy Internet Drive complex Drive service and sales to branch non-advice sales to digital channels Customers have a need for ........ Mobile Self service and virtual contact and access Assisted sales and
Slide 31: Face to face channels – matching customer value and cost to serve
Face to face channels – matching customer value and cost to serve Affordable / 1234 loan centres Limited / simplified product range Full-time staff and contract staff used Transaction migration to self-service Approachable and education oriented Transactional Full product range (generic sales staff)
Slide 32: Our digital channels
Our digital channels Internet Mobile Messaging Self-service channels absa.co.za Mobile portal NotifyMe ATM’s, self service kiosks and ISO’s Mobile sales and Electronic Internet sales VAS statements Largest ATM footprint in SA Cash acceptor Absa Online Mobile banking Messaging Internet Kiosk 32
Slide 33: Internet update
Internet update Implemented in 2011 What to expect in 2012 New Absa Internet Banking (AOL) featuring : • New Absa portal launched in February 2011 • Personal financial management tools • A top 15 portal in South Africa • Support for capturing other financial institution data by our • Serves close to
Slide 34: Mobile update
Mobile update Implemented Payments, in 2011 Mobile Tablet sales tool and value added services What to expect in 2012 • We carry connectivity cost for mass market customers (USSD • Full service mobile banking tablet app will complement existing costs) suite of solutions • Launched contactless card pa
Slide 35: Self service channels – ATM, cash acceptor and self service kiosk
Self service channels – ATM, cash acceptor and self service kiosk Implemented Payments, in 2011 Mobile Tablet sales tool and value added services What to expect in 2012 • Launched new ATM and Self Service Kiosk (SSK) user • 3rd Party bill payment at Cash Acceptor devices early in 2012 interface in O
Slide 36: Messaging and related value-added services
Messaging and related value-added services Implemented Payments, in 2011 Mobile Tablet sales tool and value added services What to expect in 2012 • Launched new SMS delivery platform to support over 7 million clients and a billion SMSs • New smart eStatements for two banking products rolled • Extend
Slide 37: ORM, social media, Absa.mobi and other service show positive uptake
ORM, social media, Absa.mobi and other service show positive uptake eStatements and Online and mobile Internet Mobile inbound mail marketing Electronic Statement Delivery (ESD) millions Customer Base Account Base Linear (Account Base) 37
Slide 38: Product
Product Saks Ntombela Head: Products
Slide 39: Product strategies reflect current and expected environment
Product strategies reflect current and expected environment So what? Socio-economic environment Economic environment Poverty levels high Socio-economic High oil prices/ Rand depreciation Continuous retrenchments Understanding our customers and their needs Global concerns could lead to double dip Con
Slide 40: We have an extensive product range to meet customer needs (I)
We have an extensive product range to meet customer needs (I) “You can get any loan, through any channel, over a Personal lending ATM loan term of your choice” Credit card Express Microloan Student Personal Revolving Overdrafts loan loan loan loan loan Vehicle and asset Islamic Instalment “Complete
Slide 41: We have an extensive product range to meet customer needs (II)
We have an extensive product range to meet customer needs (II) “Providing choice and accessibility to enable our Transactional customers to bank smartly” Transactional savings Credit card banking Islamic Pay as you Rebate cheque Cheque account Packages transact banking account Contractual Index link
Slide 42: Fee pricing approach supports our value for money promise
Fee pricing approach supports our value for money promise Simplicity and Reward the right Innovation and transparency behaviour communication Fee Secondary to Revenue leakage pricing primary Billing and pricing Regulatory Overall and segmentation concerns competitiveness 42
Slide 43: Balance sheet management strategy impacts mix
Balance sheet management strategy impacts mix Underlying BSM principle: Increase shareholder value by maximising sustainable economic profit. Increased shareholder value Increasing sustainable economic profit Increasing earnings Balance sheet management ALM Assets Equity and liabilities Total advanc
Slide 44: Our approach to growing home loans
Our approach to growing home loans – A prudent approach to growth – Industry returns below cost of capital – Enhancing our multiple channel strategy – Focus areas • Grow internal channel volumes • Increase margin • Reduce NPLs, legal book and PIPs • Improve customer experience • Retain Absa customer
Slide 45: Home loans – focussing on internal channels
Home loans – focussing on internal channels Compelling and Source differentiated value proposition Competitive value + Customer proposition End-to-end value Operational + efficiency chain management 45
Slide 46: Vehicle finance a big opportunity
Vehicle finance a big opportunity – Slowing vehicles sales growth – Key business growth drivers – Focus areas: • Improving customer and dealer experience • Improving relationships with dealer groups • Reducing NPLs and legal book • Improving cost efficiency • Increasing sale of VAPS 46
Slide 47: Strategy to grow personal loans
Strategy to grow personal loans – Exceptional market growth in the last few years – Key business growth drivers – Focus areas • Increase penetration of Absa customers • Grow short-term loans • Improve account opening process • Reduce acquisition costs • Optimise our channel mix 47
Slide 48: Concentrating on personal loan returns
Concentrating on personal loan returns Personal loan market share dropped ... ... despite strong book growth since FY05 35% Personal and microloan book (Rbn) 20 30% 16 25% 20% 12 15% 8 10% 4 5% 0% 0 12/05 12/06 12/07 12/08 12/09 12/10 FY05 1H11 Source: Statutory returns 48
Slide 49: Card
Card Arrie Rautenbach Head: Retail Markets
Slide 50: Increasing unsecured lending is a key Group strategy
Increasing unsecured lending is a key Group strategy SA banks unsecured advances Retail Unsecured lending Other Banks, Standard African 3.10% Bank, Bank, 19.30% R39.6bn 16.70% R37.9bn R35.5bn R35.4bn R27.2bn Nedbank, 14.20% Absa, 21.40% Investec, 2.90% FY07 FY08 FY09 FY10 1H11 Capitec, FirstRand, 7.
Slide 51: Diverse credit and payments business with focus on innovation and growth
Diverse credit and payments business with focus on innovation and growth Our vision “to own the world of simple payment” Leading in the Grow, maintain and Great experiences Diversified income delivery of new defend existing for our customers streams forms of simple opportunities payment Inorganic co
Slide 52: Key business lines joined together in a card centre of excellence
Key business lines joined together in a card centre of excellence Integrated with Absa‟s Retail and Unsecured Lending banking franchise as well as with Barclaycard, and is comprehensively supported by Absa Financial Services – Unique and powerful - integrated payments Absa Card business – Consumer c
Slide 53: Market-leading performance through the economic cycle
Market-leading performance through the economic cycle Advances Headline earnings 25 Rbn 1 400 Rm 1 200 20 1 000 15 800 600 10 400 5 200 0 0 2006 2007 2008 2009 2010 2005 2006 2007 2008 2009 2010 - 200 Absa Bank 1 Bank 2 Bank 3 Absa Bank 1 Bank 2 Bank 3 53
Slide 54: Strong commitment to innovation
Strong commitment to innovation There are significant benefits for our retail partnerships in our innovation portfolio Pay in your own Advanced EMV chip CardOnline currency acquiring security (DDA Multi- Corporate prepaid issuing application) (prepaid, gift etc.) Social grant In-store banking Cashen
Slide 55: Credit
Credit Gustav Raubenheimer RBB Chief Credit Officer
Slide 56: Structured approach to credit risk planning
Structured approach to credit risk planning Strategy Planning Implementation: ‒ Policies ‒ Scorecards ‒ Impairments Required ROEC ‒ Capital hurdle rates management ‒ Pricing ‒ Customer orientation ‒ Collections Credit risk Mandates appetite and scale Governance and process Monitoring 56
Slide 57: Risk appetite based on economic forecast across key indicators
Risk appetite based on economic forecast across key indicators 2011 2012 2013 2014 2015 2016 Prime 9.0 9.5 11.0 11.0 11.0 11.0 M3 money supply 5.9 7.9 9.7 10.2 10.2 10.2 Nominal house prices 2.3 4.9 5.9 6.9 7.0 7.0 Real house prices -2.7 -1.2 0.3 1.3 1.2 1.2 GDP growth 3.1 3.4 4.3 4.4 4.4 4.5 Debt t
Slide 58: Our non-performing loans are high relative to peers
Our non-performing loans are high relative to peers NPL ratio benchmarking Reduction in NPLs 12% Standard Absa Nedbank Bank FNB 0% 10% -2% 8% -4% -6% 6% -8% -10% 4% -12% -14% 2% -16% 0% -18% Absa Nedbank Standard FNB -20% Bank June 2010 June 2011 -22% Source: Company reports Source: Company reports
Slide 59: Slower to terminate debt counselling accounts
Slower to terminate debt counselling accounts Retail debt counselling (Rbn) Legal inflow construct (Rm) Industry started terminating 9 We started terminating 1 000 8 7 800 6 600 5 4 400 3 2 200 1 0 0 Sep-10 Jan-11 Jun-11 Feb-10 Mar-11 Apr-11 Jul-11 Feb-11 Aug-11 Sep-11 Jan-10 Jun-10 Apr-10 Oct-10 Ma
Slide 60: Other factors contribute to our higher NPLs
Other factors contribute to our higher NPLs 9.96% 10% NPLs (June 2011) 9% 8% 7.11% 6.96% 7% 6% 5% 4% Absa Construct/mix Growth DC Write-off policy Registrations Part payer Absa adjusted Peer average terminations 60
Slide 61: Restructure policies appear to differ across banks
Restructure policies appear to differ across banks 8 000 Rm 6 000 4 000 2 000 0 -2 000 -4 000 -6 000 Write-offs Net NPL differential Inflow -8 000 -10 000 -12 000 Absa Other banks combined Source: Company reports 61
Slide 62: Initiatives to reduce NPLs are paying off (I)
Initiatives to reduce NPLs are paying off (I) Number of mandates signed Payer stock 100% 3 000 1 000 2 500 80% 800 2 000 60% 600 1 500 40% 400 1 000 200 20% 500 0 0% 0 Central Gauteng - JHB Cape Region <25% payer >25% payer >50% payer Eastern Cape KZN Northern Cape Full payer Value (Rm) Gauteng Nort
Slide 63: Initiatives to reduce NPLs are paying off (II)
Initiatives to reduce NPLs are paying off (II) Sales by channel (Rm) Sold amounts as a % of balance 120 120% 100 100% 80 80% 60 60% 40 40% 20 20% 0 0% Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Average 63
Slide 64: Improved work-outs produce higher write-offs
Improved work-outs produce higher write-offs Retail inflows into NPL and write-offs 1 400 Rm New into NPL Write-offs 1 200 1 000 800 600 400 200 0 64
Slide 65: We expect NPLs to improve further in future months
We expect NPLs to improve further in future months Retail NPLs as a % of book 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% NPL as a % of loans Legal as a % of loans Pre-legal NPL as a % of loans Note: Debt counselling included in pre-legal 65
Slide 66: Improved delinquency performance is apparent
Improved delinquency performance is apparent Total delinquency (Rm) 2 payments delinquent (Rm) 35 000 4 500 30 000 4 000 25 000 3 500 3 000 20 000 2 500 15 000 2 000 10 000 1 500 1 000 5 000 500 0 0 Non debt review Debt review Non debt review Debt review 66
Slide 67: Card deep dive: portfolio improving
Card deep dive: portfolio improving Card coverage 6 month change H1 2010 H2 2010 H1 2011 0 1 2 3 4 5 6 Q3 2011 Delinquent Cycle Card construct 6 month change H1 2010 H2 2010 H1 2011 0 1 2 3 4 5 6 Delinquent Cycle Q3 2011 67
Slide 68: Personal loans deep dive: confident about returns
Personal loans deep dive: confident about returns Loan_Type Risk Band #Accounts Volume Distn WA PD WA Term WA Rate WA ROEC Micro Loans 0 696 13% 3.00% 37 10.0% >25% 1 693 13% 3.00% 38 10.0% >25% 2 850 16% 4.00% 37 10.0% >25% 3 1,008 19% 8.00% 39 20.0% >25% 4 1,085 20% 9.00% 38 20.0% >25% 5 1,079 20%
Slide 69: Vehicle finance deep dive: scope to improve
Vehicle finance deep dive: scope to improve AVAF Construct 6 month change H1 2010 H2 2010 H1 2011 0 1 2 3 4 5 6 Delinquent Cycle Q3 2011 AVAF Coverage 6 month change H1 2010 H2 2010 H1 2011 0 1 2 3 4 5 6 Delinquent Cycle Q3 2011 69
Slide 70: Conclusion
Conclusion • We follow a structured methodology in credit risk planning • Late debt counselling terminations and other identified root causes contribute to our higher NPLs • Banks‟ restructure policies appear to differ greatly • Strategies in the mortgage legal portfolio are starting to show results