Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (June 2017)
56 slides from Firstrand's debt investor presentation, June 2017
Slide 1: Debt Investor Update
DEBT INVESTOR UPDATE June 2017
Slide 2: Presentation team
2 Presentation team • Melanie Kleinhans (FirstRand Investor Relations) • Jaco van Wyk (Head: Group Finance) • Bhulesh Singh (Group Treasury – Head: Funding and Liquidity) • Tammy Crotty (Group Treasury – Manager: Funding and Liquidity)
Slide 3: Overview of the FirstRand Group and FirstRand Bank (Issuer)
3 OVERVIEW OF THE FIRSTRAND GROUP AND FIRSTRAND BANK (ISSUER)
Slide 4: Introducing the FirstRand group – financial position and track record
4 Introducing the FirstRand group – financial position and track record FINANCIAL HIGHLIGHTS ZAR USD NORMALISED EARNINGS – YEAR ENDED 30 JUNE for the year ended 30 June 2016 million million ZAR million Total assets (normalised) 1 149 326 78 399 25 000 Normalised net asset value 99 794 6 807 22 855 N
Slide 5: FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited
5 FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited… LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) 100% OTHER WHOLLY-OWNED SUBSIDIARIES OF FIRSTRAND LIMITED DEBT ISSUER FIRSTRAND BANK LIMITED FirstRand EMA (Pty) Ltd (FREMA) DIVISIONS Banking subsidiaries in the rest of Africa R
Slide 6: A significant contributor to the group's financial position
6 … and a significant contributor to the group’s financial position FirstRand normalised earnings FirstRand normalised assets 11% 22% FirstRand Bank FirstRand Bank Other legal entities* Other legal entities* 78% 89% FirstRand normalised net asset value FRB geographical advances split 2% 3% 3% 21% So
Slide 7: FirstRand Bank is one of South Africa's 'Big 4' banks
7 FirstRand Bank is one of South Africa’s ‘Big 4’ banks Assets (ZAR billion) Gross advances (ZAR billion) and NIM (%) Residential mortgages (ZAR billion) 6 4 875 5.2% 918 130 3 728 5 3.9% 316 110 3.4% 3.3% 4 1 235 3 90 224 960 1 017 2 185 915 763 866 70 710 698 1 131 50 0 Industry FRB Absa Nedbank S
Slide 8: Macroeconomic environment
8 MACROECONOMIC ENVIRONMENT
Slide 9: The macroeconomic cycle has turned
9 The macroeconomic cycle has turned Economic growth at cyclical lows Trade balance has pushed the CA deficit % y/y % GDP 7 6 4 6 2 5 0 4 -2 -4 3 -6 2 -8 1 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 94 95 96 97 99 00 01 02 04 05 06 07 09 10 11 12 14 15 16 0 -1 Net in
Slide 10: Government debt has lifted; households have delevered
10 Government debt has lifted; households have delevered Government debt to GDP ratio Government debt service costs % GDP % 55 12.8 50 12.6 45 12.4 40 12.2 35 12.0 11.8 30 11.6 25 11.4 20 11.2 1994 1997 2000 2003 2006 2009 2012 2015 2018 2016/17 2017/18f 2018/19f 2019/2020f Government: gross debt to
Slide 11: Structural composition of SA's GDP and exports reflect linkages to China and EU
11 Structural composition of SA’s GDP and exports reflect linkages to China and EU Sectoral breakdown of SA GDP Demand-side breakdown of SA GDP % total Primary Secondary Tertiary sector 12 sector sector 10 8 6 Household consumption 4 2 Government consumption 0 Investment Mar 00 Dec 16 SA major expor
Slide 12: Financial sector and market infrastructure
12 FINANCIAL SECTOR AND MARKET INFRASTRUCTURE
Slide 13: Further strengthening the SA financial system
13 Further strengthening the SA financial system • SA benefits from world class market infrastructure in payments, exchanges and securities clearing • SA benefits in financial stability from the closed rand system • SA is adopting the Twin Peaks model of financial sector regulation • Prudential Auth
Slide 14: SA is progressing on G20 reforms and alignment
14 SA is progressing on G20 reforms and alignment Source: FSB.
Slide 15: IMF Review: South Africa's financial stability assessment
15 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 16: FirstRand Bank's credit ratings
16 FirstRand Bank’s credit ratings SOUTH AFRICA FIRSTRAND BANK LIMITED SOVEREIGN RATINGS CREDIT RATINGS FOREIGN CURRENCY LOCAL AND FOREIGN CURRENCY Long term/ Long term/ Standalone National scale outlook outlook credit rating S&P Global BB+/Negative BB+/Negative zaA bbb Baa2/Rating under Baa2/Rating
Slide 17: Protect and enhance market access
17 Protect and enhance market access • Protect the balance sheet • Within our external balance sheet consider both liquidity risk and business risks • Rating downgrade risk had been reflected in stress testing, credit origination and balance sheet strength • Protect the counterparty status • FRB is
Slide 18: FirstRand Bank financial performance
18 FIRSTRAND BANK FINANCIAL PERFORMANCE
Slide 19: FRB normalised performance highlights
19 FRB normalised performance highlights Dec 2016 Dec 2015 % change Profit before tax (ZAR million) 12 269 10 661 15% Earnings (ZAR million) 9 081 7 712 18% Return on equity (%) 22.6 21.1 Return on assets (%) 1.75 1.57 Credit loss ratio (%)* 0.79 0.79 - Cost-to-income ratio (%) 53.8 55.4 T
Slide 20: Topline growth resilient
20 Topline growth resilient NORMALISED EARNINGS (R million) 11 000 +9% +6% +10% +5% 1 203 1 105 +11% 18% 154 360 8 500 1 785 9 081 7 712 6 000 3 500 1 000 Dec 2015 NII Impairments NIR Opex Tax and other Dec 2016 -1 500
Slide 21: Retail advances reflect specific origination strategies
21 Retail advances reflect specific origination strategies Dec Dec % RETAIL ADVANCES BREAKDOWN R million 2016 2015 change Retail unsecured 17% Residential mortgages 191 693 186 217 3 4% 7% VAF 114 252 125 198 (9) 6% - SA 92 016 96 748 (5) - MotoNovo (UK)* 22 236 28 450 (22) Card 22 495 20 855 8 52%
Slide 22: Corporate and commercial advances growth remained resilient
22 Corporate and commercial advances growth remained resilient Dec Dec % CORPORATE ADVANCES BREAKDOWN R million 2016 2015 change 5% RMB IB core South Africa 169 780 149 748 13 21% HQLA corporate advances 18 862 15 280 23 Investment banking-related 188 642 165 028 14 corporate advances 7% RMB cross-b
Slide 23: Diversified portfolio of advances
23 Diversified portfolio of advances NORMALISED ADVANCES 1% Agriculture 4% 14% Banks 13% Financial institutions 2% 2% Building and property 6% Government and public authorities 12% Dec 3% Individuals 2016 Manufacturing and commerce Mining Transport and communication 43% Other
Slide 24: Margin benefited from positive endowment
24 Margin benefited from positive endowment MARGIN (bps) 520 522 Group Treasury impacts 24 505 5 490 (2) (10) 495 19 (11) 8 475 (6) 460 445 430 415 400 Dec 2015 Interest rate Accounting MTM vs Impact of Change in Deposit Advances mix Capital and Dec 2016 normalised risk hedges mismatches accrual on
Slide 25: Topline growth resilient
25 Topline growth resilient NORMALISED EARNINGS (R million) 11 000 +9% +6% +10% +5% 1 203 1 105 +11% 18% 154 360 8 500 1 785 9 081 7 712 6 000 3 500 1 000 Dec 2015 NII Impairments NIR Opex Tax and other Dec 2016 -1 500
Slide 26: Operational NPL trend reflects macros and cycle
26 Operational NPL trend reflects macros and cycle NPLs* (R million) NPLs* (R billion) 8 000 20 Origination Credit cycle worsening Specific (1%) action and counterparties workout 17.5 17.3 6 000 +19% 15 5 920 (23%) (4%) 5 291 4 447 4 552 4 000 4 270 10 4 098 +17% 3 271 2 784 2 000 5 0 0 Residential
Slide 27: Cycle emergence now reflecting in credit performance
27 Cycle emergence now reflecting in credit performance CREDIT LOSS RATIO (%) Dec 2016 Dec 2015 Retail – secured 0.67 0.61 Residential mortgages 0.14 0.17 VAF 1.50 1.27 5.7 - SA 1.44 1.30 5.0 0.1% impact due to reclassification - MotoNovo (UK) 1.74 1.11 4.4 Retail – unsecured 5.89 5.12 3.6 Card 2.60
Slide 28: NIR driven by strong client franchise; costs up on investment strategy
28 NIR driven by strong client franchise; costs up on the back of investment strategy NORMALISED EARNINGS (R million) 11 000 +9% +6% +10% +5% 1 203 1 105 +11% 18% 154 360 8 500 1 785 9 081 7 712 6 000 3 500 1 000 Dec 2015 NII Impairments NIR Opex Tax and other Dec 2016 -1 500
Slide 29: Funding and liquidity
FUNDING AND LIQUIDITY FIRSTRAND BANK
Slide 30: Strong focus on building a diversified funding base
30 Strong focus on building a diversified funding base SOURCES OF FUNDING FUNDING INSTRUMENTS 3% 2% 4% 37% 33% 34% 34% 4% 24% 4% 13% Dec 24% 22% 22% 23% 2016 20% 18% 19% 20% 17% 26% 10% 11% 10% 11% 5% 5% 5% 6% 6% 6% 8% 6% 2% 3% 2% 1% Current and savings accounts Call accounts Dec 13 Dec 14 Dec 15 De
Slide 31: Funding and liquidity strategy anchored to growing the deposit franchise
31 FRB’s funding and liquidity strategy is anchored to growing the deposit franchise and improving balance sheet liquidity Funding composition (ZAR billion) Balance sheet growth Liquid asset* growth and mix ZAR billion ZAR billion 17.15% of 1 000 200 total assets 1 200 900 CAGR 11% 180 180 800 1 000
Slide 32: Update on liquidity ratios
32 Update on liquidity ratios LCR – 104% (Dec 2016) NSFR – effective Dec 2018 • LCR phase-in requirements continue with • SARB adopted an ASF for FI deposits <6m of minimum requirement 35%, considering regulatory and economic • 2017: 80% and 2018: 90% barriers that prevent liquidity from flowing out
Slide 33: Stylised view of FirstRand's external debt philosophy
33 Stylised view of FirstRand’s external debt philosophy … 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
Slide 34: Sustainable FX balance sheet structure
34 FirstRand’s philosophy results in a sustainable FX balance sheet structure Assets Short-term trading assets Liquid trading assets Trade and working capital MotoNovo vehicle finance facilities Interbank placing Short-term Long-term lending FX liquidity buffers Cross border acquisition bridge finan
Slide 35: Cross-border investment banking a key growth strategy for RMB
35 Cross-border investment banking a key growth strategy for RMB USD150 million USD300 million USD1 billion syndicated loan USD500 million bridge Acquisition of 90% of New Look Acquisition of 29.9% of UK Murabaha Sukuk syndicated loan facility facility to bond by Brait for GBP780 million leading pri
Slide 36: Capital
CAPITAL FIRSTRAND BANK 36
Slide 37: Final capital framework for South Africa fully aligned to Basel III
37 Final capital framework for South Africa fully aligned to Basel III Individual capital requirement or Pillar 2B 14.0* • Bank-specific individual capital requirement 2.5 • Not disclosed externally • Met with all components of capital 2.0 D-SIB 8.5* 1.5 • Systemic importance of banks 1.0 • Reflects
Slide 38: Comfortably exceed internal target and regulatory minimums
38 Comfortably exceed internal target and regulatory minimums % December 2016 Targets Regulatory minimum* CAPITAL CET1 14.1 10.0 – 11.0 8.50 Tier 1 14.5 >12.0 10.75 Total 17.7 >14.0 14.0 LEVERAGE 7.4 >5.0 4.0 • Targets aligned to end-state minimum requirements • Target and maintain optimal level and
Slide 39: Solid CET1 ratio as at December 2016
39 Solid CET1 ratio as at 31 December 2016 CET1 RATIO 14.1% 13.7% 14% ZAR15.7bn 12% surplus CET1 target range: 10% Management 10% – 11% buffer 2.5% 8% 6% SARB end-state minimum 4% requirement 8.5% 2% 0% Target Column2 Regulatory X actual Economic actual Column1 Appropriately positioned for future re
Slide 40: Superior returns and strong capital maintained
40 Superior returns and strong capital positioned maintained 30% 24.3% 25% 22.9% 22.6% 21.1% 20% 15% 13.6% 13.6% 13.6% 14.1% 10% 5% 0% Dec 2013 Dec 2014 Dec 2015 Dec 2016 CET1 capital* ROE * Reflects FRB including foreign branches. Ratios include unappropriated profits.
Slide 41: Domestic market embracing new generation instruments
41 Domestic market already embracing new generation instruments; language aligned to Basel III TIER 2 ISSUANCE IN SOUTH AFRICA FRB TIER 2 ISSUANCE R billion 2014 4.4 FRB: 30% 2015 4.4 2016 4.9 Remaining Total 13.7 banks = 2.4% of RWA • Tier 2 issuance since 2014; limited AT1 issuance • Well understo
Slide 42: South Africa evolving resolution regime
42 South Africa evolving resolution regime • Broadly in line with FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions • White paper jointly released in September 2015, Strengthening South Africa’s Resolution Framework for Financial Institutions • Concept of point of resol
Slide 43: A framework to differentiate between issuers
43 A framework to differentiate between issuers • 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, volatility and g
Slide 44: Conclusion
CONCLUSION FIRSTRAND BANK
Slide 45: FirstRand Bank is well positioned for the cycle
45 In summary, FirstRand Bank is well positioned for the cycle • Strong financial position • Proactively provided for credit cycle • Strong capital position • Integrated funding and liquidity management • Pre-emptive action was taken to in the event of a downgrade: • Protect market access • Diversif
Slide 46: Important notice
46 Important notice THIS PRESENTATION IS NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR USE AT AN INVESTOR MEETING AND IS PROVIDED FOR INFORMATION ONLY. THIS PRESENTATION IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, INTO AUSTRALIA, CA
Slide 47: Important notice (continued)
47 Important notice (continued) This presentation does not constitute an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of FRB nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment wh
Slide 48: South African sovereign credit rating update
48 South African sovereign credit rating update SOUTH AFRICAN SOVEREIGN CREDIT RATING Action date FC LC Outlook S&P 3 April 2017 BB+ BBB- Negative Fitch 7 April 2017 BB+ BB+ Stable Moody’s 3 April 2017 Baa2 Baa2 Review for downgrade South Africa’s FC is rated as sub-IG status by 2 agencies – only Fi
Slide 49: Proactive funding strategies
49 Proactive funding strategies EMTN programme Syndicated loans • USD 500 million 5-year bond due 2020 DFI facilities CHF programme (Six Swiss Exchange) Trade finance facilities MotoNovo Finance • USA, Europe • Turbo ABS securitisation programme • Middle East and Asia • 6 successful issues • Committ
Slide 50: Simplified legal structure
50 Simplified legal structure Strategy set at group level Listed holding company (FirstRand Limited, JSE: FSR) 100% 100% 100% 100% 100% Platforms FirstRand EMA FirstRand Investment Holdings FirstRand Investment FirstRand Insurance FirstRand Bank Limited (FRB) (Pty) Ltd (FREMA) (Pty) Ltd (FRIHL) Mana
Slide 51: Difference between group and bank
51 Difference between group and bank
Slide 52: Paying debt review customers require lower coverage
52 Paying debt review customers require lower coverage DEBT REVIEW COVERAGE NON-DEBT REVIEW TOTAL NPL COVERAGE Dec Dec Dec Dec Dec Dec COVERAGE RATIOS (%) 2016 2015* 2016 2015 2016 2015 FNB credit card 42.2 - 75.7 71.8 67.6 71.8 FNB retail other 43.4 - 79.8 78.3 71.6 78.3 FNB loans 71.5 - 70.1 7
Slide 53: Overall coverage remains appropriate
53 Overall coverage remains appropriate COVERAGE RATIOS (%) Dec 2016 Dec 2015 NPLs (R million) Retail – secured 26.3 28.2 20 000 1% 1% Residential mortgages 22.1 21.9 1% 29% 24% VAF 29.8 34.2 15 000 34% - SA 28.6 33.5 22% - MotoNovo (UK) 60.9 60.0 20% 10 000 16% Retail – unsecured 60.5 67.1 - Card 6
Slide 54: Total portfolio provisions increased with franchise overlays maintained
54 Total portfolio provisions increased with franchise overlays maintained PORTFOLIO IMPAIRMENTS (R million) 8 000 7 000 6 000 Dec Dec 2016 2015 5 000 Portfolio impairments 0.98 0.99 4 000 as % of performing book 3 000 Credit loss ratio (%) 0.79 0.79 2 000 Portfolio impairments (R 7 456 7 311 1 000
Slide 55: Market developments
55 Market developments • Clearstream collateral management has gone live in SA: • Implementation of automated bond transfers and settlements • Enables efficient collateralization & secured square-off between clearing banks • Improving domestic market liquidity conditions and liquidity of National Tr
Slide 56: www.firstrand.co.za
www. firstrand.co.za FIRSTRAND BANK
FirstRand Bank — Debt Investor Presentation (June 2017) on 6ix