Firstrand Limited · JSE:FSR
Firstrand — Debt Investor Presentation (November 2009)
36 slides from Firstrand's debt investor presentation, Nov 17, 2009
Slide 1: Debt Investor Presentation
Debt Investor Presentation November 2009
Slide 2: Agenda
Agenda • Fi tR d and FirstRand dGGroup T Treasury • Funding & Liquidity Risk Management • Capital p Management g 2
Slide 3: Agenda
Agenda • Fi tR d and FirstRand dGGroup T Treasury • Funding & Liquidity Risk Management • Capital p Management g 3
Slide 4: FirstRand's Balance Sheet Management
FirstRand’s Balance Sheet Management • Pillars of Balance Sheet Management • Capital Management • Capital planning • Capital allocations • Economic capital p p process • Credit Portfolio Management • Manage the credit portfolio from a macro economic perspective • Influences credit origination strate
Slide 5: Group Treasury
Group Treasury Group Treasury Set Strategy, Risk Appetite & Framework Centralised Treasury Functions Group Treasury Finance Funding & Liquidity Desk Exchange Control Management Strategic Treasuryy ALM Relationship Management Alternative Funding Multi Currency Funds Strategies Transfer Pricing Africa
Slide 6: Agenda
Agenda • Fi tR d and FirstRand dGGroup T Treasury • Funding & Liquidity Risk Management • Funding and liquidity management philosophy • Macro economic influence on funding • External influence on funding • FirstRand’s response • Capital Management 6
Slide 7: Funding and liquidity management philosophy
Funding and liquidity management philosophy 7
Slide 8: Funding and liquidity management
Funding and liquidity management • Liquidity Li idit risk i k iis th the risk i k th thatt th the b bank k will ill nott b be able bl tto meett allll paymentt obligations as liabilities fall due. In addition not able to realise assets when required to meet obligations (normally a consequential risk)
Slide 9: Banks are in the business of maturity transformation
Banks are in the business of maturity transformation C Core F Function ti off Banks B k ini an E Economy C t off Liquidity Cost Li idit RiRisk k • Maturity transformation is the defining • There are costs incurred for running aspect of banking liquidity risk • Short term funded • Statutory • Long te
Slide 10: Liquidity risk management philosophy
Liquidity risk management philosophy • Continuous funding and liquidity cycle Funds Target Transfer Risk Pricing Profile • Integrated across • All financial risk disciplines • Macro economic environment • All business units Funding Risk Framework • Financial markets Profile • Forward looking • Ensur
Slide 11: Macroeconomic influences on funding
Macroeconomic influences on funding 11
Slide 12: Growing balance sheets in excess of income
Growing balance sheets in excess of income Total Private Credit to GDP 200% United States Switzerland 150% Spain Germany 100% S h Africa South Af i 50% United Kingdom Credit growth in De-leveraging excess of GDP has begun Growth 0% Dec-60 Dec-65 Dec-70 Dec-75 Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-0
Slide 13: Credit extension supported M3
Credit extension supported M3 Credit extension & bank assets Money supply & credit extension 100% 30% 30% 25% 25% 90% 20% 20% 80% 15% 15% 70% 10% 10% 60% 5% 5% 50% 0% 0% Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 PCE/(Banking Syste
Slide 14: Banks monetised foreign liquidity
Banks monetised foreign liquidity Current account deficit & PCE Foreign investment & PCE 10 - 600 250 - 500 50 200 -10 10 400 100 -20 150 300 -30 150 200 100 -40 200 100 -50 50 0 -60 250 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 M
Slide 15: Increased reliance on professional funding
Increased reliance on professional funding 50% 40% 30% 20% 10% 0% J 98 Jan-98 J 99 Jan-99 J 00 Jan-00 J 01 Jan-01 J 02 Jan-02 J 03 Jan-03 J 04 Jan-04 J 05 Jan-05 J 06 Jan-06 J 07 Jan-07 J 08 Jan-08 J 09 Jan-09 FRB SBK ABSA NED Source: SARB BA Returns 15
Slide 16: Funding pressures – demand for credit
Funding pressures – demand for credit Total Private Credit to GDP ratio Nominal GDP vs government revenue y/y Index, 1970 =1 30 18 1.8 25 20 1.6 15 Trend 10 1.4 5 0 1.2 Credit/Nom GDP -5 -10 1 -15 93 95 97 99 01 03 05 07 Dec-9 Nov-9 Nov-9 Nov-9 Nov-0 Nov-0 Nov-0 Nov-0 0.8 70 75 80 85 90 95 00 05 10
Slide 17: Funding pressures – government
Funding pressures – government Government debt/GDP ratio SOEs borrowing requirement % 55 180 50 160 45 140 120 40 100 35 80 30 60 25 40 20 20 Maar‐80 Maar‐82 Maar‐84 Maar‐86 Maar‐88 Maar‐90 Maar‐92 Maar‐94 Maar‐96 Maar‐98 Maar‐00 Maar‐02 Maar‐04 Maar‐06 Maar‐08 Maar‐10 Maar‐12 0 2009 2010 2011 2012
Slide 18: The funding market
The funding market Array of issuers SOEs dominate term issuance Standard Bank Basil Read Omnia FirstRand COJ Unitrans Rb Rbn Securitisations SOEs ABSA Bidvest Denel Municipal Corporates 36 Banks / Financials Gold Fields Netcare Unilever Rbn ACSA Toyota FS Transnet 32 SOEs have entered the 24 Mercede
Slide 19: The private sector
The private sector Household savings Private sector investment 2 5% 2.5% 20% 2.0% 15% 1.5% 10% 1.0% 5% 0.5% 0.0% 0% 98 99 00 01 02 03 04 05 06 07 08 09 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 2 Mar-03 4 Mar-04 Mar-05 Mar-06 6 Mar-07 Mar-08 Mar-09 Mar-9 Mar-9 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-
Slide 20: Funding base
Funding base 500 35% 32% 450 30% 400 25% 25% 350 16% 20% 300 13% 250 15% 200 10% 150 5% 100 0% 0% 50 0 -5% Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-09 Prof Corporate Retail Gov & PSE's Other Annualised Growth (RHS) Source: 31-Aug- 2009 SARB BA Returns 20
Slide 21: Long term SA banks 1-year funding spread
Long term SA banks 1-year funding spread • Consider the 1-year NCD SA Banks 1‐Year Funding Spreads vs swap as a principal 120 component in explaining the funding curve. 110 100 • 1 year funding spreads, 90 were in i th the range 20 20-30 30 bps for 3 years from 2004 80 to 2007 70 60 50 40 30 20 10 0
Slide 22: Comparing SA to US banks 1-year spreads
Comparing SA to US banks 1-year spreads • Comparing the US to SA 1- 1-Yr US v SA Bank Spreads year bank funding 250 spreads. • US spreads widened more 200 severely than in SA. 150 • US spreads have also Swaps narrowed more aggressively. Spread to S 100 • This highlights a divergence in funding 50 pr
Slide 23: External influences
External influences 23
Slide 24: External influences on strategy
External influences on strategy • Macro economy, SA Inc and financial markets • Regulatory • Basel II focused largely on credit risk • Focused the attention of banks and regulators mostly on credit risk • Bank failures fail res have ha e proved pro ed to be as a res result lt of liquidity liq idit r
Slide 25: FirstRand's Response
FirstRand’ss Response FirstRand 25
Slide 26: SA banking liquidity gap
SA banking liquidity gap Business as usual gap Contractual maturity gap 2,000 6% 2,000 10% 1,792 1,712 BAU Maturity of Assets 4% Contractual Maturity of Assets 5% 5% 1,500 1,500 BAU Maturity of Liabilities 4% Contractual Maturity of Liabilities 0% 2% BAU Cumulative Gap 1,000 Contractual Cumulative G
Slide 27: Matching funding to liquidity of assets
Matching funding to liquidity of assets 100% Cash, 14 Collateral Trading, 23 Equity, 34 90% Collateral Trading, 33 Other, 53 Term Debt,17 Other, 9 80% Trading Liabilities, 59 Trading Assets, 88 70% 60% 50% 40% Loans, 374 Deposits, 409 30% 20% 10% 0% Assets E i and Equity d Liabilities Li bili i Sour
Slide 28: Portfolio of funding instruments
Portfolio of funding instruments Securitisation NCD's 5.3% Other Trading 7.7% Repo's Liabilities 6 0% 6.0% Derivative 3% 7.9% Senior Debt 2.0% Sub Debt 1.5% Other Deposits Conduits 9.2% 0.7% Savings Deposits 0.4% Call Deposits 13.1% Fixed & Notice Deposits 25.3% Current Account 18.2% Source: SARB BA
Slide 29: Funding initiatives
Funding initiatives Domestic International • Retail product development International platforms • Structured Notes • London branch • I tit ti Institutional l funding f di • Middle Middl EEastt presence • How can we help you? • Africa (7 countries ex SA) • Australia • Indian branch Products • Listed
Slide 30: Agenda
Agenda • Fi tR d and FirstRand dGGroup T Treasury • Funding & Liquidity Risk Management • Capital p Management g 30
Slide 31: Capital strategy in line with Basel II developments
Capital strategy in line with Basel II d developments l t • Tier 1 quality • Economic capital backed by Tier 1 • Gearing • Leverage ratios are monitored • Pro-cyclicality • Capital targets defined as bands to ensure we have buffers to take into account the effects of Basel II pro-cyclicality and IFR
Slide 32: FRB capital position remains robust
FRB capital position remains robust Capital adequacy (%) Tier 1% Total % 13.11 12.28 2.41 Capital adequacy ratio 10.70 13.11 2.83 83 1.08 1.04 Regulatory minimum 7.00 9.50 Target 9.50 11.50 – 13.00 9.62 8.41 Tier 2% Jun '09 Jun '08 Tier II Tier 1 pref shares Core Tier 1 Utilisation 2.41 Target 2.00
Slide 33: Maturity profile based on call dates
Maturity profile based on call dates FRB05 3,500 FRBC21 FRBC220 Call on Subordinated debt (August 2010) already considered in 3,000 detailed 3-year forecasts. Will continue to review level of issuance in line with stated targets Marked growth in RWA may necessitate further T2 issuance 2,500 2,0
Slide 34: FirstRand Bank Limited external ratings
FirstRand Bank Limited external ratings Moody’s Investor Fitch Standard Firstrand Bank Limited Service Firstrand Bank Limited Ratings Firstrand Bank Limited & Poor’s Foreign currency counterparty Foreign Currency credit rating Foreign currency Long term issuer default rating BBB+ counterparty credit
Slide 35: Disclaimer
Disclaimer This presentation has been prepared by FirstRand Bank Limited (“FRB”), which is an authorised Financial Services Provider. The information contained in this presentation is confidential and intended solely for the use the intended recipient of this presentation . This presentation may con
Slide 36: Debt Investor Presentation
Debt Investor Presentation FIRSTRAND Banking Group
FirstRand — Debt Investor Presentation (November 2009) on 6ix