Slide 1: Absa Group Limited - Six months ended 30 June 2010
A b sa Gro up Lim it ed For the six months ended 30 June 2010
Slide 2: Contents
Contents The six months under review Maria Ramos Financial overview David Hodnett Cluster performance Louis von Zeuner Outlook Maria Ramos 2
Slide 3: The six months under review
The six months under review Maria Ramos 3
Slide 4: Key macro factors impacting the results
Key macro factors impacting the results • Uneven global economic recovery Global macro • Increased downside risk to global economic recovery factors • Unfolding regulatory reform • Subdued economic upturn Local • Real income growth macro factors • Muted consumer and commercial sectors • High unemplo
Slide 5: Positioned for sustainable growth
Positioned for sustainable growth Implementing the “One Absa” strategy Sustainable growth in targeted Balance sheet optimisation and markets pro-active risk management Simple, streamlined Group for Customer- and people-centred customer delivery organisation 5
Slide 6: Delivering to plan
Delivering to plan • Corporate Bank co-coverage in place • Double digit increase in Absa Business Bank’s electronic and cash transactions Balance sheet Sustainable growth in optimisation and • Two million cellphone customers at June 2010 targeted markets pro-active risk management • Strengthened lea
Slide 7: Delivering to plan
Delivering to plan • Further improved long-term funding • Core tier I ratio rose to 11.9% Balance sheet Sustainable growth in optimisation and • Enhanced retail collections strategy targeted markets pro-active risk management Simple, streamlined Customer- and • Innovative products launched, especial
Slide 8: Delivering to plan
Delivering to plan • Upgraded data centres and systems re- platforming Sustainable Balance sheet optimisation and growth in targeted markets pro-active risk • Enhanced FX capability management • Re-designing customer processes on an Simple, end-to-end basis streamlined Customer- and Group for people
Slide 9: Sound financial performance
Sound financial performance Jun Change Jun 2010 % 2009 Headline earnings (Rm) 3 862 1 3 826 Headline earnings per share (HEPS) (cents) 539.3 4 564.4 Diluted HEPS (cents) 535.9 3 550.5 Attributable earnings (Rm) 3 842 17 3 272 Dividends per ordinary share (cents) 225 0 225 Net asset value p
Slide 10: Diversified earnings mix
Diversified earnings mix Headline earnings Headline earnings mix – Jun 2010 (%) Jun Jun 4% 2010 Change 2009 Rm % Rm 16% 26% Retail banking 1 018 40 728 Absa Business Bank 1 355 (9) 1 481 Absa Capital 747 (19) 917 19% Bancassurance 606 (10) 672 Corporate centre 136 >100 28 35% Retail banking Absa Bus
Slide 11: Financial overview
Financial overview David Hodnett 11
Slide 12: Positive earnings
Positive earnings Headline earnings (Rm) Jun Jun 2010 Change 2009 8% 19% 1% Rm % Rm Net interest income 11 293 5 10 772 Non-interest income 9 713 (5) 10 209 Total income 21 006 0 20 981 Credit impairments (3 704) 23 (4 834) Operating expenditure (11 264) (15) (9 782) Other (421) 74 (1 608) Tax
Slide 13: Net interest income resilient
Net interest income resilient 3.74% 3.60% 3.58% 3.89% 3.71% 3.29% 3.31% 2.95% 2.62% 1.97% 6 891 8 574 10 565 10 772 11 293 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Net interest income (Rm) Margin on interest-bearing assets before credit impairments (%) Margin on interest-bearing assets after credit impair
Slide 14: Improved net interest margin
Improved net interest margin Hedging impact on margin (%) YoY bps 18 4.0 Advances 15 3.5 16 • Change in client rates 13 3.0 • Change in composition 2 14 2.5 Deposits (17) 12 2.0 • Client pricing/endowment (27) 1.5 • Change in composition 10 10 1.0 Capital (11) 8 Interest rate management 36 0.5 Oth
Slide 15: Fee and commission income growth
Fee and commission income growth Non-interest income (Rm) Non-interest income as a % of operating income (%) Jun 2010 Change Mix Rm % % Retail fees and commissions 4 890 3 50 ABB fees and commissions 1 879 7 19 Bancassurance 1 596 0 17 Markets and Investment 1 336 (10) 14 Banking Private Equity and
Slide 16: Credit impairment ratios declining
Credit impairment ratios declining Credit impairment ratio NPL coverage ratio Jun 2010 Dec 2009 Jun 2009 Jun 2010 Dec 2009 % % % % % Retail banking 1.90 2.30 2.49 28.8 27.1 • Home Loans 1.30 1.76 1.86 19.2 17.5 • AVAF 2.79 2.05 2.88 40.6 43.2 • Card 4.43 7.13 8.41 78.4 77.3 • Other 3.23 3.42 2.88 41
Slide 17: Investing in the franchise
Investing in the franchise Operating expenses Cost-to-income ratio (%) 53.6% 49.3% Jun 46.6% 2010 Change 21% Rm % Staff costs 5 875 19 Accommodation, property and 1 837 7 equipment-related Information technology 1 054 24 Communication and 4% 878 (2) 13% 15% 0% marketing (2%) Fees and insurance 710 7
Slide 18: Low demand for credit
Low demand for credit Net loans and advances to customers (Rbn) Jun 2010 Change Mix 18% 7% 4% Rbn % % Retail banking 332 (1) 65 71 56 58 • Credit cards 20 (0) 4 • Instalment finance 40 (7) 8 114 124 123 • Mortgages 247 (1) 48 • Other 25 9 5 Absa Business Bank (ABB) 125 (1) 24 Absa Capital 56 (
Slide 19: Grew retail and commercial deposits
Grew retail and commercial deposits Deposits due to customers (Rbn) Jun 2010 Change Mix 19% 7% 3% Rbn % % Cheque accounts 107 11 30 Savings, transmission and 140 121 65 3 18 investment accounts 146 Fixed deposits 106 (9) 29 124 126 107 Call deposits 52 (15) 14 94 107 112 Other 30 (11) 9 Jun 08
Slide 20: Net asset value growth
Net asset value growth Compounded annual growth of 14% 27.4% 27.2% 23.4% 15.5% 15.0% 15.5% 14.5% 14.0% 14.0% 13.5% 4 717 5 537 6 998 7 038 7 420 Dec 06 Dec 07 Dec 08 Dec 09 Jun 10 Net asset value (NAV) per share (cps) RoE (%) Cost of equity (CoE) (%) 20
Slide 21: Well capitalised
Well capitalised Capital adequacy ratios (Jun 2010) Absa Group – Capital adequacy ratio (%) Core 14.1 15.6 15.8 Tier l Tier l Total % % % Absa Group 2.7 2.9 Capital adequacy ratio 11.9 13.1 15.8 2.5 Regulatory minimum 5.25 7.00 9.75 Target 9.5 10.5 13.0 Absa Bank Capital adequacy ratio 10.7 12.0 14.
Slide 22: Cluster performance
Cluster performance Louis von Zeuner 22
Slide 23: Retail banking: Financial performance
Retail banking Financial performance Jun Change Jun 2010 % 2009 Headline earnings (Rm) 1 018 40 728 Revenue (Rm) 11 282 2 11 531 Cost-to-income ratio (%) 57.9 52.1 Credit impairment ratio (%) 1.90 2.49 Return on regulatory capital (%) 14.0 9.8 23
Slide 24: Retail banking: Performance drivers
Retail banking Performance drivers Attributable earnings (Rm) • Resilient fee income, particularly in 26% 9% card and electronic banking 1 049 523 • Lower advances, but improved quality • Enhanced collections 25% 16% 133 • Continued cost control 2% 1 060 • Grew customer base and Absa– 916
Slide 25: Retail banking: Unsecured lending and deposits drove earnings
Retail banking Unsecured lending and deposits drove earnings Attributable earnings – Jun (Rm) • Secured lending remained under 72% 285% 75% 48% pressure but is recovering 1 320 – Limited demand for credit – Wider margins – Improved impairments 304 • Unsecured lending continued to 13 50 531 680
Slide 26: Retail banking: Credit impairment ratios trending down
Retail banking Credit impairment ratios trending down Early arrears (%) 50% • Early arrears improving 45% 40% 35% • Stabilising late cycle arrears and 30% 25% legal, offset by debt counselling 20% 15% arrears 10% 5% 0% • Improvements due to: Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Ju
Slide 27: Retail banking: Strategic focus
Retail banking Strategic focus • Make banking easier for our customers • Optimise distribution footprint Sustainable growth in Balance sheet optimisation and • Deepen customer relationships and improve targeted markets pro-active risk management solutions Simple, streamlined Customer- and • Prudent
Slide 28: Absa Business Bank: Financial performance
Absa Business Bank Financial performance Jun Change Jun 2010 % 2009 Headline earnings (Rm) 1 355 9 1 481 Revenue (Rm) 5 671 2 5 558 Cost-to-income ratio (%) 54.6 48.7 Credit impairment ratio (%) 0.99 1.06 Return on regulatory capital (%) 23.2 26.9 28
Slide 29: Absa Business Bank: Performance drivers
Absa Business Bank Performance drivers Attributable earnings (Rm) • Solid transactional volume growth 9% 14% 2% particularly in electronic banking and 55 387 cash 113 • Deepened primary banking 1 518 relationships 11% 9% 76 1 375 • Stabilisation of impairments • Lower advances but positive
Slide 30: Absa Business Bank: Motivated sales force with a broad footprint
Absa Business Bank Motivated sales force with a broad footprint Profit before taxation – Jun (Rm) 33% 16% 5% 99% 159% • Large segment – Commercial Property 917 Finance (CPF) and Commercial Asset Finance (CAF) books declined • Medium segment – negatively impacted by impairments 578 600 • Sm
Slide 31: Absa Business Bank: Strategic focus
Absa Business Bank Strategic focus • Enhance transactional capabilities • Deepen primary banking relationships Sustainable Balance sheet growth in targeted optimisation and pro-active risk • Improve collaboration and product innovation markets management Simple, streamlined Customer- and • Expand Ag
Slide 32: Absa Capital: Financial performance
Absa Capital Financial performance Jun Change Jun 2010 % 2009 Headline earnings (Rm) 747 19 917 Attributable earnings (Rm) 700 443 129 Revenue (Rm) 2 556 10 2 315 Cost-to-income ratio (%) 53.7 39.8 Return on regulatory capital (%) 15.4 18.6 32
Slide 33: Absa Capital: Performance drivers
Absa Capital Performance drivers Attributable earnings (Rm) • Revenue growth as a result of 88% 49% improved performance from Private 1 070 451 Equity, sub-Saharan Africa and Debt Capital Markets 578% • Focused containment of capital 289 443% utilisation 700 • Lower SSF impairment with 10%
Slide 34: Absa Capital: Diversified business model resulted in a mixed picture
Absa Capital Diversified business model resulted in a mixed picture Revenue after credit and other impairments – Jun (Rm) • Markets – pressure on revenue owing 10% 8% 9% 72% 99% to reduced client activity, lower 1 736 volatility and tighter margins • Investment Banking – both fee and 938 m
Slide 35: Absa Capital: Strategic focus
Absa Capital Strategic focus • Further enhance foreign exchange capability • Implement corporate bank model Sustainable growth in Balance sheet optimisation and • Leverage new cash equities and equity targeted pro-active risk markets management capital markets business Simple, streamlined Group for
Slide 36: Bancassurance: Financial performance
Bancassurance Financial performance Jun Change Jun 2010 % 2009 Headline earnings (Rm) 606 10 672 Net premium income (Rm) 2 165 16 1 867 Return on equity (%) 35.6 38.3 Embedded value of new business (Rm) 211 29 164 Combined ratio (%) 90.9 89.7 Investments – assets under management 147 8 136 (Rbn)
Slide 37: Bancassurance: Performance drivers
Bancassurance Performance drivers Attributable earnings (Rm) 16% 14% • Strong premium growth in insurance businesses 298 146 48% • Increase in insurance claims ratio 124 • New business strain impacting 6% 7% reserves 11% 10% 672 37 69 • Lower fee income 12 606 594 • Operating expenses
Slide 38: Bancassurance: Resilient operational performance
Bancassurance Resilient operational performance Jun Change Jun 2010 % 2009 • Absa Life’s ability to write profitable business and earn superior returns Life – Return on embedded entrenched 32.3 14.7 value (RoEV) (%) • Absa Life’s new business APE driven by growth in recurring Life – New business ann
Slide 39: Bancassurance: Strategic focus
Bancassurance Strategic focus • Improve cross sell and penetration into the Absa customer base • Grow distribution capacity through multiple channels Sustainable Balance sheet • growth in optimisation and targeted markets pro-active risk management Expand Africa bancassurance presence Simple, stream
Slide 40: Outlook
Outlook Maria Ramos ember of the §@ BARCLAYS croup GSABSA 4
Slide 41: Review
Review • Maintained strong balance sheet and liquidity position • Well capitalised • Enhanced quality of new business • Diversified offerings stood the business in good stead • Risk management remained a key focus 41
Slide 42: Basel III amendments expected to have far reaching implications
Basel ll Amendments expected to have far reaching implications Implications of capital/liquidity Leading to changes • Sharper focus on returns, • Higher funding costs potentially a shift in product mix • Premium on gathering deposits • Greater competition amongst and raising long-term unsecured bank
Slide 43: Strategic priorities
Strategic priorities Key priorities Enhancing business Core fundamentals as usual • Corporate Bank • Lead foreign • Strengthening risk • Absa Business Bank’s exchange centre in management market positioning South Africa • Balance sheet • Retail business • Entry-level and optimisation growth inclusiv
Slide 44: The next six months
The next six months • Domestic trading conditions to improve slowly • Challenging business environment Macro • Low consumer credit appetite factors • Subdued corporate credit demand • Regulatory environment to remain challenging • Adaptability to capital and liquidity imperatives • Subdued revenue g
Slide 45: Absa Group Limited - Six months ended 30 June 2010
A b sa Gro up Lim it ed For the six months ended 30 June 2010