Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (June 2016)
40 slides from Firstrand's debt investor presentation, June 2016
Slide 1: Financial and Strategic Update
FINANCIAL AND STRATEGIC UPDATE June 2016
Slide 2: Agenda
Agenda Overview FirstRand Bank financial performance Alan Pullinger, Group Deputy CEO Asset quality Capital, funding and liquidity Andries du Toit, Group Treasurer
Slide 3: Overview of the FirstRand Group and FirstRand Bank (Issuer)
OVERVIEW OF THE FIRSTRAND GROUP AND FIRSTRAND BANK (ISSUER)
Slide 4: Introducing FirstRand group – financial position and track record
Introducing FirstRand group – financial position and track record ZAR USD NORMALISED EARNINGS FINANCIAL HIGHLIGHTS for the six months ended 31 December 2015 million million ZAR million 11 000 +9% Normalised total assets 1 139 523 72 860 10 915 Normalised net asset value 95 878 6 130 9 993 9 000 Norm
Slide 5: FirstRand's operating model
FirstRand’s operating model LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) Retail and commercial bank Corporate and investment bank Instalment finance Investment management Group-wide functions Customer-facing Stakeholder management
Slide 6: Group statement of intent
Group statement of intent • FirstRand’s portfolio of leading financial services franchises: • provides a universal set of transactional, lending, investment and insurance products and services • seeks to operate in markets and segments where franchises can deliver competitive and differentiated clie
Slide 7: FirstRand Bank is the debt issuer and holds the group's South African banking franchises
FirstRand Bank (FRB) is the debt issuer and holds the group’s South African banking franchises… BOND ISSUER Listed holding company (FirstRand Limited, JSE: FSR) 100% 100% 100% 100% 100% FirstRand Investment FirstRand Investment FirstRand EMA FirstRand Insurance FirstRand Bank Limited* Holdings (Pty)
Slide 8: FRB is one of South Africa's Big 4 banks
For context, FRB is one of South Africa’s Big 4 banks… Assets* (ZAR billion) Gross advances* (ZAR billion) Residential mortgages* (ZAR billion) 4 767 3 612 886 1 202 912 226 300 970 179 907 740 690 799 653 127 Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SB
Slide 9: A significant contributor to the group's financial position
… and a significant contributor to the group’s financial position 11% 29% FirstRand FirstRand Bank FirstRand Bank FirstRand normalised Other legal entities* Other legal entities* assets earnings 71% 89% 1% 5% 4% 22% FRB South Africa FirstRand FirstRand Bank geographical Other Africa capital and rese
Slide 10: Focus on growing the transactional and lending franchises
Focus on growing the transactional and lending franchises GROUP REVENUE SPLIT Insure International Rest of Save and Africa invest Transact South Africa Lend SA = 88% Lend and transact = 85% South African core banking businesses still critical to the group’s growth
Slide 11: Strategies to protect and grow transactional and lending franchises
Strategies to protect and grow transactional and lending franchises • Continuing innovation and differentiation in mature markets • Cross-sell and collaborate • Strategic allocation of financial resources • Drive efficiencies
Slide 12: Significant cross-sell opportunities through group customer bases
For example, significant cross-sell opportunities through the mining of group customer bases DIRECT WESBANK AXIS MOTOR 30% 40% 340 000 680 000 accounts accounts 60% 70% FNB banked Non-FNB FNB banked Non-FNB
Slide 13: FirstRand Bank Financial Performance
FIRSTRAND BANK FINANCIAL PERFORMANCE
Slide 14: SA's economy facing headwinds
SA’s economy facing headwinds Inflation to lift until year end Trade balance improving % R Billion South African Trade Balance - 12-month rolling sum Inflation 14 100 50 12 0 -50 10 -100 8 -150 May-07 Sep-07 May-08 Sep-08 May-09 Sep-09 May-10 Sep-10 May-11 Sep-11 May-12 Sep-12 May-13 Sep-13 May-14 S
Slide 15: FirstRand Bank performance highlights
FirstRand Bank performance highlights Normalised results Dec 15 Dec 14 Change Profit before tax (ZAR million) 10 661 9 672 10% Earnings (ZAR million) 7 712 7 139 8% Return on equity (%) 21.1 22.9 Return on assets (%) 1.57 1.65 Credit loss ratio (%)* 0.79 0.78 Cost-to-income ratio (%) 55.4
Slide 16: Topline continues to drive earnings growth
Topline continues to drive earnings growth Normalised earnings (ZAR million) 10 000 +8% +6% 9 000 +8% +13% 963 (982) +12% 8 000 8% 1 279 (345) (342) 7 712 7 000 7 139 6 000 5 000 4 000 3 000 2 000 1 000 0 Dec 14 NII Impairments NIR Opex Tax and other Dec 15
Slide 17: Asset Quality
ASSET QUALITY FIRSTRAND BANK
Slide 18: Retail advances reflect both macros and specific origination strategies
Retail advances reflect both macros and specific origination strategies ZAR million Dec 15 Dec 14 % change Retail unsecured 16% Residential mortgages 184 641 175 097 5 4% Vehicle asset finance (VAF) 125 198 109 229 15 7% 5% - SA 96 748 97 539 (1) - MotoNovo (UK)* 28 450 11 690 >100 Retail advances 5
Slide 19: Solid growth across most domestic corporate books
Solid growth cross most domestic corporate books ZAR million Dec 15 Dec 14 % change RMB IB core South Africa 149 748 159 659 (6) HQLA corporate advances 15 280 - - 4% 17% Investment banking-related 165 028 159 659 3 corporate advances Corporate 11% RMB CIB cross-border 29 670 25 930 14 advances brea
Slide 20: Contextualising risk in the RMB CIB credit portfolio
Contextualising risk in the RMB CIB credit portfolio South Africa 88% RMB CIB Rest of RMB CIB advances Africa* performing split 12% book Elevated risk 2.2% • Elevated risk exposures represent 2.2% of the performing book (oil and gas exposures in the rest of Africa and certain resources counters) • R
Slide 21: FNB agri book well diversified within commercial portfolio
FNB agri book well diversified within commercial portfolio Total agriculture = 28% FNB Drought- affected commercial 7% advances split Other commercial 72% Drought-affected commodities = 7% of total commercial portfolio
Slide 22: NPL trend reflects macros and cycle
NPL trend reflects macros and cycle… NPLs (ZAR million) Dec 14 Dec 15 20 000 Origination Specific Credit cycle action and counterparties worsening +9% 18 000 workout 17 522 16 000 16 021 14 000 12 000 10 000 8 000 (16%) +21% 6 000 +21% 6 021 4 000 5 037 4 968 +20% 4 253 4 447 3 690 2 000 2 801 2 326
Slide 23: Credit performance not yet fully reflecting that cycle has turned
..but the actual credit performance not yet fully reflecting that cycle has turned 6 5.00 Credit loss ratio (%) Dec 15 Dec 14 5.7 4.50 Retail – secured 0.61 0.44 5 5.0 4.00 Residential mortgages 0.18 0.06 3.50 VAF 1.27 1.04 4 4.4 3.00 Retail – unsecured 4.98 5.35 3.6 3 2.50 Card 2.18 0.19 1.89 2.9 P
Slide 24: Proactive provisioning – prudently positioned for credit cycle
Started early with proactive provisioning – prudently positioned for credit cycle Portfolio impairments (ZAR million) 8 000 7 000 6 000 Dec 15 Dec 14 5 000 Portfolio impairments as 0.99% 1.07 % of performing book 4 000 3 000 Bad debt charge (%) 0.79% 0.78% 2 000 Portfolio impairments 1 000 7 311 7 1
Slide 25: Capital, Funding and Liquidity
CAPITAL, FUNDING AND LIQUIDITY
Slide 26: Conservative approach to financial resource management
Conservative approach to financial resource management • Subsidiaries are managed on a stand-alone basis • No implicit or explicit support from the group • Subsidiaries in each jurisdiction capitalised on a Basel lll basis in accordance with its risk profile and fully funded to support its growth as
Slide 27: Further strengthening the SA financial system
Further strengthening the SA financial system • SA is adopting the Twin Peaks model of financial sector regulation • Prudential Authority with the SARB • Financial Sector Conduct Authority • Regulation and legislative frameworks • South Africa aims to adopt G20 and FSB recommendations in line with g
Slide 28: FSB implementation dashboard
FSB implementation dashboard
Slide 29: Basel III update
Basel III update • Liquidity coverage ratio (LCR) • LCR phase in requirements continue with minimum requirement (2016: 70%, 2017: 80%) • FRB exceeds minimum requirements – optimisation and phase-in will continue • Net stable funding ratio (NSFR) • SARB announced amendments to the NSFR* • Indicating
Slide 30: Strong focus on building a diversified funding base
Strong focus on building a diversified funding base Sources of funding R544bn R599bn R657bn R731bn R795bn 3%2% 5% 5% 6% 6% 12% 8% 23% 5% 6% 5% 5% 5% 10% 9% 10% 4% 11% 10% 1% 4% Funding 17% 17% 17% instruments 18% 4% 19% Other 19% Foreign 22% 22% 23% SMEs 24% 22% Public sector 28% Retail Corporate In
Slide 31: Deposit franchise growing strongly across all portfolios
Deposit franchise growing strongly across all portfolios Deposits (ZAR billion) Deposit franchise +13% Funding +7% Other 298 279 +14% +14% +12% Dec 15 171 169 Dec 14 150 149 154 137 9 12 Retail Commercial CIB deposits Institutional funding* Other deposits * Excludes operational deposits from financi
Slide 32: Sustainable, efficient diversified funding strategy for international market access
FRB requires a sustainable, efficient diversified funding strategy for international market access • Group has adopted a conservative approach to external financing risk • Considering the external debt of all South African entities • Considering all claims on SA Inc’s repayment capacity • Confidence
Slide 33: Proactive funding strategies
Proactive funding strategies • EMTN programme • Bilateral facilities • USD500 million 5-year bond due 2020 • Syndicated loans • CHF programme (Six Swiss Exchange) • CHF160 million 5-year bond due 2019 • DFI facilities • MotoNovo Finance • Trade finance facilities • Turbo ABS securitisation programme
Slide 34: Bank remains well capitalised
Bank remains well capitalised Adjusted for: CET1 ratio • Available-for-sale reserves • Anticipated Basel III changes 14% 13.6% 0.5% 13.1% ZAR11.0bn 12% surplus CET1 target range: FSR 10% – 11% 10% management buffer 2.5% 8% 6% SARB end-state minimum 4% requirement 8.5% 2% 0% Target Column2 Regulatory
Slide 35: Managing the Risk of an SA Ratings Downgrade
MANAGING THE RISK OF AN SA RATINGS DOWNGRADE
Slide 36: Credit ratings for FirstRand Bank Limited – debt issuer
Credit ratings for FirstRand Bank Limited (subsidiary of FirstRand) – debt issuer FIRSTRAND BANK SOUTH AFRICA Standard & Poor’s Foreign currency long-term BBB- BBB- Local currency long-term BBB- BBB+ National scale za.AA- za.AAA Moody's Foreign currency long term Baa2 Baa2 Local currency long term B
Slide 37: A rating agency view of FirstRand Bank Limited
A rating agency view of FirstRand Bank Limited Anchor rating Economic risk Industry risk 5 6 7 4 bbb bbb- bb+ 5 bbb- bbb- bb+ CAPITAL BUSINESS RISK FUNDING AND SACP/ ANCHOR AND ICR POSITION POSITION LIQUIDITY GCP EARNINGS FIRSTRAND Adequate (0) bbb BANK Average (0) Adequate bbb- Strong (+1) and bbb-
Slide 38: Protect and enhance market access
Protect and enhance market access • Possible rating downgrade reflected in stress testing, credit origination and balance sheet strength • FRB is now an operating CLS member • FRB is a member of Euroclear and Clearstream • Submitted application to become a LCH member via FirstRand Securities Limited
Slide 39: Our banking businesses are very well positioned for the cycle
In summary, our banking businesses are very well positioned for the cycle • Strong financial position • Proactively provided for credit cycle • Strong capital position • Integrated funding and liquidity management • Earnings should remain resilient • Quality and diversification underpin earnings res
Slide 40: Questions?
QUESTIONS? FIRSTRAND BANK
FirstRand Bank — Debt Investor Presentation (June 2016) on 6ix