Firstrand Limited · JSE:FSR
Firstrand — UBS Annual Financial Services Conference 2009
27 slides from Firstrand's conference presentation, Oct 22, 2009
Slide 1: A new playing field - what is the game plan for growth?
A new playing field - what is the game plan for growth? Johan Burger CFO & COO UBS Annual Financial Services Conference 2009
Slide 2: What is the new playing field?
What is the new playing field? • Muted economic growth till 2011? • Cyclical not structural • However unwind of risk costs boost earnings to 2011 • Increased regulation • Cyclical issue for SA banks • Provided banks remain disciplined in pricing
Slide 3: Muted economic growth – implications for banks
Muted economic growth – implications for banks • Unwind of the leverage in the system • Reduction in risk costs; but • Limited top line growth • Subdued credit and transactional growth • Revised risk appetite in banks • Consumer remains under pressure • Cycle not yet peaked in corporate and commerci
Slide 4: Unwind of risk costs will lead to short term recovery in earnings
Unwind of risk costs will lead to short term recovery in earnings • Bad debts will unwind slower than previous cycles • Retail has peaked, however high level of indebtness and debt counselling • Corporate p and commercial will p peak by y June 2010 • Expected bad debt charge to June 2010 140 -150 bp
Slide 5: Consumer needs to de-leverage
Consumer needs to de-leverage • Although macro indicators are improving, asset growth is expected to remain low in the short to medium term as consumers de de-leverage leverage 1.7 1.6 1.5 Credit to GDP rratio dex: 1970 = 1) 14 1.4 1.3 1.2 (ind 1.1 1.0 09 0.9 0.8 70 72 74 76 78 80 82 84 86 88 90 92
Slide 6: FirstRand's response to subdued credit growth
FirstRand’s response to subdued credit growth • Retail • Selectively pro-active in certain low risk sub segments • Corporate • Re-balancing of portfolio and increasing exposure to certain investment grade and defensive counterparts • Credit re re-pricing pricing positive impact
Slide 7: New business mix migrated to lower risk
New business mix migrated to lower risk HomeLoans A B C D E F G H I Low risk High risk 2007 Q1 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2
Slide 8: FirstRand's response to subdued credit growth
FirstRand’s response to subdued credit growth • Retail • Selectively pro-active in certain low risk sub segments • Corporate • Re Re-balancing balancing of portfolio and increasing exposure to certain investment grade and defensive counterparts • Credit re-pricing positive impact
Slide 9: Opportunity to improve balance between retail and corporate
Opportunity to improve balance between retail and corporate Ad Advances Dark = Retail R millions Light = Corporate/Wholesale 900,000 800 000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Jun2008 Dec2008 Jun2009 Jun2008 Dec2008 Jun2009 Jun2008 Dec2008 Jun2009 Jun2008 Dec2008 Jun20
Slide 10: FirstRand's response to subdued credit growth
FirstRand’s response to subdued credit growth • Retail • Selectively pro-active in certain low risk sub segments • Corporate • Re-balancing of portfolio and increasing exposure to certain investment grade and defensive counterparts • Credit re re-pricing pricing positive impact
Slide 11: Retail has repriced
Retail has repriced H HomeLoans L weighted i ht d average di discountt tto prime i -1.45% -1.60% -1.50% -1.40% -1.40% -1.30% -1.35% -1.20% -1.10% -1.30% -1.00% -0.90% -1.25% -0.80% Jan-07 Apr-07 Sep-07 Oct-07 Dec-07 Jan-08 Apr-08 Sep-08 Oct-08 Dec-08 Jan-09 Apr-09 Feb-07 Mar-07 Jun-07 Jul-07 Aug-07
Slide 12: Corporate has repriced
Corporate has repriced South African composite spreads per rating band (listed bonds vs government benchmarks)* bps AAA band b d AA band b d Ab band d 300 250 200 150 100 50 0 Oct 07 Oct-07 Feb 08 Feb-08 Jul 08 Jul-08 Dec 08 Dec-08 May 09 May-09 Oct 09 Oct-09 *National scale credit ratings
Slide 13: Regulation – impact on banks
Regulation – impact on banks • Higher cost of capital • Hi Higher h capital it l llevels l • Increased focus on core Tier 1 • Counter cyclicality y y of capital p • Increased cost of liquidity • Limit reliance on wholesale funding • Limit liquidity gaps • Reduced innovation? • Constrained cross bord
Slide 14: Capital strategy in line with Basel II developments
Capital strategy in line with Basel II developments • 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 IFRS
Slide 15: Regulation – impact on banks
Regulation – impact on banks • Higher cost of capital • Hi Higher h capital i l llevels l • Increased focus on core Tier 1 • Counter cyclicality y y of capital p • Increased cost of liquidity • Limit reliance on wholesale funding • Limit liquidity gaps • Reduced innovation? • Constrained cross borde
Slide 16: Focus on reducing liquidity costs and recovery
Focus on reducing liquidity costs and recovery Liquidity Premium Spread Curve 1.40 e Jibar 1.20 1.00 0 80 0.80 • Minimum liquidity % above 0.60 0.40 premium for term 0.20 - assets 4m 5m 6m 7m 8m 9m 10 m 11 m 12 m 18 m 24 m 36 m 48 m 60 m 2 3 4 6 Term • Integrated approach to funding to build Aug-09
Slide 17: Regulation – impact on banks
Regulation – impact on banks • Higher cost of capital • Hi Higher h capital i l llevels l • Increased focus on core Tier 1 • Counter cyclicality y y of capital p • Increased cost of liquidity • Limit reliance on wholesale funding • Limit liquidity gaps • Reduced innovation? • Constrained cross borde
Slide 18: Long term growth strategy
Long term growth strategy
Slide 19: FirstRand's refocused strategy (South Africa)
FirstRand’s refocused strategy (South Africa) • Group’s portfolio already has • Diverse revenue streams • Strong operating franchises • Asset origination and distribution capabilities • Building blocks for access to profit pools in financial services SA • Increase organic growth opportunities that c
Slide 20: Opportunities in the "life space"
Opportunities in the “life space” • Momentum already unlocking more opportunities in traditional markets • Product and channel diversification • Momentum also sees opportunities in new segments • Lower end through g FNB Life • Looking at other distribution models • Asset management – currently an un
Slide 21: Opportunities in "retail space"
Opportunities in “retail space” • Leverage off FNB and WesBank’s continued investment in footprint and innovation • Utilising telecommunications and cellphone platforms • Growing electronic customer channels • Mass segment a key area of growth for FNB • Affordable housing • Increased focus on deposi
Slide 22: Opportunities in "corporate space"
Opportunities in “corporate space” Potential growth drivers Share New Geographic Increase use of Client activities expansion business line expansion balance sheet IBD FICC Equities q
Slide 23: Focus on efficiencies and cost control
Focus on efficiencies and cost control O Operational ti l efficiency ffi i Improved Investment Cost control processes • RMB platform • Staff numbers • Eliminate duplication • Group HR and MIS systems • Centralised • House keeping p g procurement • Shared services Move from cost control to long g ter
Slide 24: Re-focused international strategy
Re-focused international strategy • Operate p in markets that strengthen g the Group’s p p position as a leading g African financial services group • F Focus on Africa Af i and d key k African-Asian Af i A i corridors id • In the medium to long term consider expanding into selected markets on the ot
Slide 25: Growing the African footprint
Growing the African footprint • FirstRand’s key growth markets are: • Zambia Z bi • Nigeria • Tanzania • Angola • Mixture of greenfields and/or acquisitions • Utilise the FNB platform to build a meaningful banking franchise on the continent • Other businesses will leverage off platform
Slide 26: Why FirstRand's corridor strategy is key
Why FirstRand’s corridor strategy is key • I di and India d Chi China kkey tto th the Af African-continent’s i ti t’ growth th story t • Key markets that FirstRand is targeting in Africa are major trading partners with Asia • Capture these flows through presence in India, China and Africa • Use Firs
Slide 27: In summary – FirstRand's growth driven by
In summary – FirstRand’s growth driven by • The short term recovery story • Unwind of the cycle will positively impact earnings to 2011 • Legacy portfolios • Longer term • Delivery on domestic and international strategy • The group has the appropriate platform in South Africa • Internationally the f
FirstRand — UBS Annual Financial Services Conference 2009 on 6ix