Firstrand Limited · JSE:FSR
Firstrand — Debt Investor Presentation (October 2010)
103 slides from Firstrand's debt investor presentation, Oct 20, 2010
Slide 1: Debt investor presentation
Debt investor p presentation Cape Town, 20 October 2010
Slide 2: Overview of FirstRand
2 Overview of FirstRand Johan Burger
Slide 3: Strategic overview
2010 Strategic overview FIRSTRAND
Slide 4: FirstRand's strategic intent
4 FirstRand’s strategic intent • To be the African financial services ggroupp of choice • Create long-term franchise value • Deliver superior and sustainable economic returns within acceptable p levels of volatility y
Slide 5: Growth strategies
5 Growth strategies • Dominant South African player focussing on existing and under d represented t d markets k t • Grow African franchise, franchise targeting: • Above average domestic growth markets • Markets strongly gyp positioned to benefit from trade and investment flows between Africa and Asi
Slide 6: SA growth in perspective
6 SA growth in perspective China 9.81 Ghana 8.35 High India 8.28 growth Mozambique 7.46 Tanzania 7.07 Nigeria 6 74 6.74 Angola 6.72 Uganda 6.72 EM Average 6.55 Indonesia 6.48 Zambia 6.15 Kenya 5.85 Medium Sub-Saharan Africa 5.43 growth Botswana 5.40 Brazil 4.72 Mexico 4.64 World 4 43 4.43 Russia 4.1
Slide 7: Growth areas in South Africa
7 Growth areas in South Africa • Retail • Mass market • Wealth segment • Corporate • CIB initiative • RMB FICC • Risk appetite for corporate lending
Slide 8: Domestic retail growth opportunities
8 Domestic retail growth opportunities Mass segment strategies • Cellphone banking • More than doubled customer base in FY10 (from 950k to 1.95 million) • FNB EasyPlan • 15 branches at 30 June 2010 • Target 100 branches in 2011 • eWallet • Launched in October 2009 • 222 539 Wallets at September 2010
Slide 9: Domestic corporate growth opportunities
9 Domestic corporate growth opportunities • Corporate and Investment Banking • CIB and Coverage units formed • RMB FICC strategy t t • Focus on flow and client drive • Wholesale credit focus • Adjusted prudential limits • Increased appetite for investment-grade defensive counters
Slide 10: Africa is core to the Group's international strategy
10 Africa is core to the Group’s international strategy London branch China India Corridors Existing countries: Namibia Botswana Lesotho Mozambique Swaziland Zambia Flows and Priority countries: distribution Nigeria Tanzania Angola Ghana FirstRand Bank branch Representative office
Slide 11: International strategy
11 International strategy • Regional integrated financial services group • Roll-out FirstRand’s businesses in targeted countries across sub- Saharan Africa • Co-ordinate activities across FirstRand’s brands • Preserve and grow current franchises and create sustainable profits • Universal banking • P
Slide 12: Entry strategy – international
12 Entry strategy – international • Our entry into new countries will be a combination of acquiring existing banks or Greenfields as appropriate • We will do Greenfields if: • New banking licenses are available • Environment is conducive to Greenfields • No suitable acquisitions are available
Slide 13: Growth opportunities in Africa
13 Growth opportunities in Africa • Nigeria • Representative office staffed • Still assessing acquisition of small, healthy local bank • Entry into investment banking being investigated • Tanzania • Core team identified • Systems, premises and infrastructure in place • Awaiting final regulatory appr
Slide 14: Coordinated focus on Africa and corridors
14 Coordinated focus on Africa and corridors • Growth in FICC business in existing African subsidiaries • Namibia – number 1 in the market • Zambia – breakeven in year 1 • Mozambique – ahead of budget • Corridor strategies in India and China gaining traction • India branch • Profitable from May 2010
Slide 15: FirstRand rebalancing its portfolio
15 FirstRand rebalancing its portfolio • Retail vs corporate p • CIB initiative, increase appetite for investment-grade defensive counters • Better balance between mass mass, consumer and wealth revenue streams in the retail portfolio • Clientt flflows vs secondary Cli d markets k t within ithi corp
Slide 16: Strategy and risk profile aligned
16 Strategy and risk profile aligned
Slide 17: Aligning strategy and risk
17 Aligning strategy and risk • Risk management deeply embedded in tactical and strategic decision-making • Apply the basic disciplines • Hold appropriate levels of core capital • Manage liquidity prudently • Manage diversified portfolio on a holistic basis, utilising natural hedges and business mix
Slide 18: Financial performance & risk profile
18 Financial performance & risk profile
Slide 19: Banking Group key financial ratios
19 Banking Group key financial ratios Jun ’10 Jun ’09 Change Normalised earnings1 (R million) 8 535 6 056 41% N Normalised li d return t it 2 (%) on equity 18 13 Return on assets (%) 1.24 0.80 Credit loss ratio (%) 1.30 1.81 Cost to income ratio – normalised (%) 57.1 58.1 Tier 1 capital ra
Slide 20: Drivers of FY10 earnings
20 Drivers of FY10 earnings Macro • Low asset g growth and Legacy reduced margin • Endowment • Reduced losses • Bad debts • NIR Strategy • Cost containment • Improving quality of earnings • Geographical diversification • Capture white space in SA
Slide 21: Bad debts reduction adds R2.3bn of PBT
21 Bad debts reduction adds R2.3bn of PBT Impairment charge (%) 30 3.0 Retail 2.5 2.66 2.0 Total 1 84 1.84 1.79 1.81 1.5 1 28 1.28 1.30 1.13 1.0 0.83 Corporate 0.73 0.42 0.5 0.62 0.51 0.44 0.32 0.34 0.05 0.17 0 19 0.19 00 0.0 2005 2006 2007 2008 2009 2010
Slide 22: Retail unwind faster than corporate
22 Retail unwind faster than corporate p Bad debts 6 months to 6 months to 6 months to Percentage of average advances Jun ’10 Dec ’09 Jun ’09 Retail 1.41 2.08 2.97 - Residential mortgages g g 0.73 1.17 1.76 - Credit card 5.73 8.14 12.51 - Vehicle and asset finance 1.45 2.20 2.70 Wholesale* 0.81 0.71
Slide 23: NPLs remain sticky
23 NPLs remain sticky 6 5.6 6 5 5.0 4 4.2 3.4 3 2.8 2.9 2.6 2 2.3 1.5 1.5 1 1.2 1.1 0.8 0.8 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total NPLs (%) Debt counselling (%)
Slide 24: Number of debt counselling accounts stabilising
24 Number of debt counselling accounts stabilising t bili i W B k and WesBank dHHomeLoans L d debt bt counselling lli accounts t 25 000 53% 20 000 74% 15 000 47% 26% 10 000 5 000 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun • Inflows into debt review are stabilising • The underlying risk profil
Slide 25: Positive trend, but absolute level remains high
25 Positive trend, but absolute level remains high NPL J ’10 Jun D ’09 Dec J ’09 Jun Percentage of advances Retail 6.94 7.43 8.15 - Residential mortgages 8.24 8.71 9.21 - Credit card 6.28 8.50 12.31 - Vehicle and asset finance 5.17 5.03 5.52 Wholesale* 2.52 2.72 2.29 Total NPL ratio 5.00 5.42 5.64 *
Slide 26: Lower NPL inflows reflect better macro and origination actions
Jul '08 Aug '08 Aug '08 Sep '08 Sep '08 Oct '08 Oct '08 Nov '08 Nov '08 Dec '08 Dec '08 Jan '09 Jan '09 Feb '09 Feb '09 Mar '09 Apr '09 Mar '09 May '09 Apr '09 Jun '09 May '09 Jul '09 Jun '09 Aug '09 Jul '09 and origination actions Sep '09 Aug '09 Oct '09 Sep '09 Nov '09 Oct '09 FNB HomeLoans - New
Slide 27: Effective credit and pricing strategies – FNB HomeLoans
27 Effective credit and pricing strategies – FNB HomeLoans • New business weighted heavily towards lower risk customers • R i i iinitiative Repricing iti ti successful f l even though th h low l risk i k customers t qualify lif ffor relatively higher discounts Higher 100% discount 90% d deals 80% 70
Slide 28: Corporate portfolio resilient
28 Corporate portfolio resilient Rating distribution: FRB Corporate book 35% June 2009 30% June 2010 25% 20% 15% 10% 5% 0% A/ BBB / BB+ / BB- / B+ / B B- / CCC / AAA (zaf) A (zaf) BBB- (zaf) BB (zaf) BB- (zaf) B+ (zaf) B (zaf) CCC+ (zaf) International / local rating • Majority of negative credit mig
Slide 29: Growth in client revenue improves quality of earnings
29 Growth in client revenue improves quality lit off earnings i 2007 2010 2% 7% 7% 8% Client activities Investment activities Trading activities 85% 91% Based on gross revenue
Slide 30: Quality improvement driven by RMB strategy
30 Quality improvement driven by RMB strategy t t 2007 2010 9% 29% 39% Client activities Investment activities 37% 54% Trading activities 32% Based on gross revenue
Slide 31: Geographic diversification – mix changing
31 Geographic diversification – mix changing 2007 2010 10% 4% 7% 5% South Africa Rest of Africa International 85% 89% Based on gross revenue
Slide 32: Earnings mix provides risk capacity
32 Earnings mix provides risk capacity Normalised NIR breakdown 38% 62% N iinterest Non t t revenue Transactional income Client activity Net interest income Annuity fair value income Operational associated income 87% Insurance C Other primary income nd trading Investment Fair value risk income Priva
Slide 33: Risk profile summary
33 Risk profile summary • Continued improvement in asset quality (in-force and new business) • De-risking has reduced the potential impact of legacy portfolios • Remaining portfolio size • Interest rate risk in the banking book – hedged • Endowment impact: R543 million per 100 bps • Capital position
Slide 34: Prospects: Modest economic recovery
34 Prospects: Modest economic recovery
Slide 35: South Africa's GDP growth
35 South Africa’s GDP growth Y/y % 10 0 10.0 7.5 5.0 25 2.5 0.0 Folder: F ld Y:\C Y \C - Macro\Macroeconomic M \M i pack\201009 k\201009 File: Key variables for ppt.xlsx -2.5 Sheet: 1 -5 5.0 0 61 66 71 76 81 86 91 96 01 06 11 SA growth is expected to remain on the highway Source: I-Net and FirstRand
Slide 36: Cyclical vs structural forces
36 Cyclical vs structural forces Cyclical • Wide output gap • Low food prices p • Strong rand Structural • Wage increases • Administered prices • Inflation expectations Downward pull from cyclical forces will be temporary temporary, structural pressures will eventually drive CPI towards the top of b
Slide 37: SA inflation back in the target band
37 SA inflation back in the target band % y/y 20 15 Folder: Y:\C - Macro\macroeconomic pack\201009 10 File: Key variables for ppt Sheet: 2 5 0 61 66 71 76 81 86 91 96 01 06 11 Expect inflation to stay in the 3-6% band Source: I-Net and FirstRand Research
Slide 38: Repo rate below the highway
38 Repo rate below the highway 24 18 6 5 9 5% 6.5-9.5% 12 Folder: Y:\C – Macro\Macroeconomic pack 6 File: Key variables for ppt Sheet: 0 79 83 87 91 95 99 03 07 11 Repo rate below the highway – but temporary (short-term range 5.5-7.5%) Source: I-Net and FirstRand Research
Slide 39: Asset growth is about affordability
39 Asset growth is about affordability 19 Debt servicing cost 18 FRB historical impairment (bps x 10) 17 Debt servicing cost threshold 16 120bps impairment tolerance 15 14 13 12 DSC threshold 11 10 9 8 7 6 5 4 3 2 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 Max debt- Prime rate Debt/income servicin
Slide 40: Income growth
40 Income growth % y/y 45 30 15 0 -15 15 67 72 77 82 87 92 97 02 07 12 Income growth expected to be in line with nominal GDP Source: I-Net and FirstRand Research
Slide 41: Wage increases at the expense of jobs
41 Wage increases at the expense of jobs Income growth Employment growth Wage growth Yoy 11.6% 12% 10% 8% 7.1% 7 0% 7.0% 6% 4.5% Inflattion 4% Inflation 2% 0% % Folder: Y:\C – Macro\Analysis -2% File: Employment & wages -2.6% -4% 4% Sheet: 3 -4.7% -6% Jun'09 Jun'10 Income up due to rising wages (des
Slide 42: Excess capacity in the corporate sector
42 Excess capacity in the corporate sector Real private investment, R'bn 260 210 Folder: Y:\C - Senior exec\AFS & budgets\201006 File: Extra trend requested for key themes.xlsx Sheet: RpiData 160 110 60 80 83 86 89 92 95 98 01 04 07 10 Source: SARB Quarterly Bulletin and FirstRand Research
Slide 43: Slow credit growth
43 Slow credit growth % y/y Folder: Y:\C - Senior exec\AFS & budgets\201006 File: Extra trend requested for key themes 40 Sheet: Credit data Corporate 30 20 Total 10 Retail 0 -10 10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Credit to grow slower than nominal GDP Retail credit to outpa
Slide 44: Conclusion
2010 Conclusion FIRSTRAND 44
Slide 45: In conclusion…
45 In conclusion… • Risk profile continues to improve • Expect revenue growth in the medium term to remain challenging • Subdued growth in retail and corporate advances • Manage costs and optimise operational leverage • Significant room for improvement • “Grow muscle, cut fat” • Will continue to gro
Slide 46: Capital management
46 Capital p management g Samantha Balsdon
Slide 47: Providing resources to back the Group's strategy
47 Providing resources to back the Group’s strategy FirstRand Group Setting the portfolio strategy Current portfolio Ensure Business and Growth, resources are Identifying trends, trends demographic, action plans available to opportunities and threats technological, provide for the regulatory, etc. s
Slide 48: Contextualising capital strategy
48 Contextualising capital strategy Earnings Residual risks to Solvency / Tail risk - earnings g Capital Expected scenario Good scenario Severe scenario Cost base Very severe Catastrophic Outstanding scenario scenario year Revenue Expected earnings Zero profit Zero revenue Loss at 99.9% Loss Earning
Slide 49: Capital levels exceed targets and quality is good
49 Capital levels exceed targets and quality is good Minimum capital adequacy Capital p adequacy q y June 2010 ((%)) 15.6 off Primary Max 50% 14.0 12.0 -13.5 2.1 Lower Tier 2 Seccondary and 11.5 -13.0 Terrtiary 2.5% ary Max 100%% M 23 2.3 09 0.9 of Prima 1.0 3.5 3.5 Pilla Upper Tier 2 9 5* 9.5 ar 1
Slide 50: Strengthening capital position over time
50 Strengthening capital position over time 60,000 15.6% 13.8% 14.6% 55,000 12.8% 13.6% 15.0% 50,000 7 344 9 816 10 0% 10.0% 7 410 45,000 40,000 10 222 5.0% 35,000 0.0% 10 373 30,000 25,000 46 116 -5.0% 20,000 41 566 40 612 36 754 -10.0% 15,000 10,000 24 129 -15.0% 5,000 - -20.0% Jun 06 Jun 07 Jun 0
Slide 51: The Group backs economic capital with Tier 1
51 The Group backs economic capital with Tier 1 46 116 41 566 40 612 36 754 35 491 35 947 35 024 24 129 25 154 19 885 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10 Economic capital required (Rmillion) Tier 1 capital (Rmillion)
Slide 52: Economic profit returned to positive territory
52 Economic profit returned to positive territory % 7,000 15.0 14 6 14.6 6,000 14.3 14.5 14.1 5 639 5,000 14.0 4,000 13.5 3 971 3,000 13.0 13.2 2 719 2,000 12.5 12.4 1 662 1,000 12.0 - 11 5 11.5 - 474 Jun 06 Jun 07 Jun 08 June 09 June 10 -1,000 11.0 NIACC (R million) illi ) A Average costt off equit
Slide 53: Unprecedented number of regulatory changes
53 Unprecedented number of regulatory changes Proposed changes to Proposed changes to Proposed changes to SA Bank Regulations Basel ll framework Basel ll framework 1 January 2012 Minorities Credit risk scalar Deferred tax assets Securitisations Liquidity ratios Credit valuation Market risk adjustmen
Slide 54: What's the "new normal" for core?
54 What’s the “new normal” for core? • Calibration of capital levels in three categories • Domestic banks • Systemically important domestic banks • Systemically important international banks • The “new normal” for core: 8-10% • Basel = 7% • Emerging market banks will be higher • Systemically importa
Slide 55: The regulatory outlook for capital instruments
55 The regulatory outlook for capital instruments • Considerable uncertainty • Ambitious global liquidation and resolution mechanisms under consideration – likely to affect the conditions of instruments • Grandfathering period equal to the shorter of 10 years or the step step-up up date (begins Jan
Slide 56: Tier 2 call dates
56 Tier 2 call dates R million 2 500 2 110 2 000 1 740 1 500 1 000 1 000 628 500 440 300 100 100 - 5 Nov 2012 6 Dec 2012 15 Sept 2014 10 June 2016 10 June 2017 21 Dec 2018 21 Dec 2018 22 Dec 2018 Lower Tier 2 Upper Tier 2
Slide 57: FirstRand Bank's Tier 2
57 FirstRand Bank’s Tier 2 • E Expect t to t redeem d subordinated b di t d d debt bt on callll d dates t • Likely to continue to take impairments against Tier 2 until the regulations are changed • Little appetite to raise Tier 2 until the regulatory uncertainty is resolved
Slide 58: Conclusion on capital
58 Conclusion on capital • Capital management strategy remains unchanged • Manage the business on the principle that economic risk is backed by Tier 1 • Principle remains that excess capital will be returned • Point in time capital levels are strong • Capital planning is done on a three year horizon
Slide 59: Funding & liquidity
59 Funding g & liquidity q y Andries du Toit
Slide 60: Agenda
60 Agenda • Funding and liquidity management philosophy • Funding & liquidity risk management • Regulatory impact • FirstRand’s risk profile • Liquidity premium • International developments • FirstRand’s FirstRand s response to the challenges of funding and liquidity
Slide 61: Funding & liquidity management philosophy
61 Funding & liquidity management philosophy
Slide 62: Liquidity risk management philosophy
62 Liquidity risk management philosophy • Continuous funding and liquidity cycle • Forward looking Funds Target transfer • Integrated across risk pricing profile • Macro economic environment • All business units • All financial risk disciplines Funding Risk • Financial markets outlook profile framew
Slide 63: Funding & liquidity management: Regulatory impact
63 Funding & liquidity management: Regulatory impact
Slide 64: External influences on funding strategy
64 External influences on funding strategy • Bank for International Settlement (BIS) • P Principles i i l ffor SSound d Li Liquidity idit Ri RiskkMManagementt anddS Supervision, i i August 2008 • International framework for liquidity risk measurement, standards and monitoring, December 2009 • Financ
Slide 65: Basel III – new liquidity rules
65 Basel III – new liquidity rules • Liquidity Coverage Ratio (LCR) • Addresses short-term short term liquidity risk and cash management • Banks must hold high-quality liquid assets sufficient to cover • All net cash outflows • Over a 30-day period • Under an acute liquidity stress scenario (combine
Slide 66: 'Basel III' – initial amendments (26 July 2010)
66 ‘Basel III’ – initial amendments (26 July 2010) • Liquidity Coverage Ratios (LCR) • 2015 implementation • Reduced the severity of the outflow factors • Opened the door for national discretion in some areas • Widened the previously very narrow definition of liquid assets • Allowed for two tiers of
Slide 67: Structural funding and liquidity task team
67 Structural funding and liquidity task team • Motto: Better life for all • Members: M b ASISA ASISA; 5 banks; b k Banking B ki A Association; i ti National N ti lTTreasury; SARB SARB; FSB; Asset management • Document: Recommendation to Finance Minister,, earlyy 2011 • Workstreams: 1. Understand fe
Slide 68: Macro-prudential limit approach to exchange control
68 Macro-prudential limit approach to exchange control 4.7% 4.8% 5.5% 4.7% 4.8% Feb '10 Mar '10 Apr '10 Ma '10 May J n '10 Jun Average foreign exposure Limit = 25% • Macro prudential limit of 25% of bank’s Macro-prudential bank s total liabilities • (Excluding shareholders equity) • Applies to SA Au
Slide 69: Taylor Rafferty debt investor perception study
69 Taylor Rafferty debt investor perception study • Every two years independent research on FirstRand regarding: 1. 1 Debt strategy 2. Product offering 3. People 4. Service 5. Pricing of debt instruments • This forms an input into strategy formulation, customer and client execution
Slide 70: Funding & liquidity management: FirstRand's risk profile
70 Funding & liquidity management: FirstRand’s risk profile
Slide 71: Debt profile summary
71 Debt profile summary • Strong financial position • C Conservative ti prudential d ti l and d regulatory l t requirements i t • Robust capital • Excess liquidity q y buffer,, although g liquidity q yggap p is a SA banking g industry issue • Conservative exchange control utilisation • Impro ed asse
Slide 72: FirstRand Bank Ltd's diversified asset profile
72 FirstRand Bank Ltd’s diversified asset profile 100% 21 39 49 60 Other 90% 95 132 132 Derivatives 80% 115 13 15 42 17 19 70% 47 Investments 45 47 41 44 60% 29 38 Africa 50% 42 47 45 46 Cash, fixed assets and other 40% 30% Corporate 20% 233 257 250 254 Wholesale 10% Retail 0% 2007 2008 2009 2010
Slide 73: Rating distribution of advances
73 Rating distribution of advances Rating distribution FirstRand Bank June 2010 25% % 22% 20% 20% 18% 15% % 14% 12% 10% 9% 5% 3% 2% 0% A/ BBB / BB+ / BB- / B+ / B B- / CCC / AAA (zaf) A (zaf) BBB (zaf) BBB- BB (zaf) BB (zaf) BB- B+ (zaf) B (zaf) CCC+ (zaf) Source: FirstRand Pillar III disclosures
Slide 74: FirstRand's advances show an improving rating distribution
74 FirstRand’s advances show an improving rating distribution Rating distribution – FirstRand Bank’s lending book 30% 25% 20% 2007-2010 Average rating for the book maps to an equivalent BB- (international scale) 15% 10% 5% 0% A/ BBB / BB+ / BB- / B+ / B B- / CCC / AAA (zaf) A (zaf) BBB- (zaf) BB (za
Slide 75: Stable debt margin after credit impairments
75 Stable debt margin after credit impairments 600 350 R bn bps 550 300 500 250 450 200 400 150 350 100 300 50 250 - FY06 FY07 FY08 FY09 FY10 Investment Securities Cash & Short Term Funds Advances Interest Margin After Impairements† (RHS) Net interest margin + other annuity income + income from inve
Slide 76: FirstRand Bank Limited's external ratings
76 FirstRand Bank Limited’s external ratings Standard & Poor’s Moody’s Fitch Ratings FOREIGN CURRENCY Long term/Outlook BBB+/Negative A3/Stable BBB+/Stable Short term A-2 P-2 F2 LOCAL CURRENCY Long term/Outlook BBB+/Negative A2/Stable BBB+/Stable Short term A-2 P-1 - NATIONAL Long term/Outlook - Aa2
Slide 77: Strong credit enhancement for senior debt investors
77 Strong credit enhancement for senior debt investors 100% 2 2% 2.2% Provisions 90% 80% 1.9% Profit after tax 0.2% 70% 1 1% 1.1% 0.6% Upper Tier II 60% Sub Debt 50% 481 280 40% Preference Shares 30% 10% E it Equity 20% Depositors 10% 0% Funding Liabilities Loss absorption capacity Equates to a 16%
Slide 78: SA banking system liquidity gap
78 SA banking system liquidity gap 10% • On a contractual basis 6% where retail and 5% 2% 2% 1% 6% corporate balances are 1% 0% 0% -1% treated as demand -4% there is liquidity in gap -5% in the SA system -10% reflecting the extent of maturity transformation -15% -20% • The SA banking -21% 21% system
Slide 79: Increased reliance on institutional funding
79 Increased reliance on institutional funding 50% 40% 30% 20% 10% 0% Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 FRB SBK ABSA NED The SA banking system has increasingly been funded in the institutional market Source: SARB BA returns, Dec 2009
Slide 80: Creating appropriate liquidity buffers
80 Creating appropriate liquidity buffers 14% 12% 10% 8% 6% 4% J 08 Jan-08 A 08 Apr-08 J l 08 Jul-08 O t 08 Oct-08 J 09 Jan-09 A 09 Apr-09 J l 09 Jul-09 O t 09 Oct-09 J 10 Jan-10 A 10 Apr-10 Buffer Liquidity Statutory Liquidity Increased liquidity q y buffers by y R15bn over FY10 Note: SARB liquid a
Slide 81: Funding & liquidity management: Liquidity premium
81 Funding & liquidity management: Liquidity premium
Slide 82: FirstRand's funding curve
82 FirstRand's funding curve Term structure of FirstRand’s funding spreads Horizon for Basel III’s NSFR 200 168 170 145 147 150 134 123 135 112 107 121 100 109 78 98 65 68 57 78 45 50 37 54 23 36 31 31 27 0 19 22 0 12 3M 0 4M 5M 6M 7M 8M 9M 12M 18M 2Y 3Y 4Y 5Y 7Y 10Y 14-Oct-10 30-Jun-10 31-Dec-09 30
Slide 83: FirstRand's funding curve
83 FirstRand's funding curve 12m Funding Spread 100 90 80 70 60 50 40 30 20 10 0 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 12M 60 per. Mov. Avg. (12M) Source: FirstRand Research, Oct 2010
Slide 84: How does SA compare to the US$ market
84 How does SA compare to the US$ market Spread between 12m deposit & swap rate 120 100 80 60 40 20 0 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 -20 SA 12m US 12M Funding Spreads Source: FirstRand Research, Bloomberg Data, Oct 2010
Slide 85: Funding & liquidity management: International developments
85 Funding & liquidity management: International developments
Slide 86: The offshore interbank funding market
86 The offshore interbank funding market • While there has been a clear recovery the 140 interbank funding 120 market as measured by the LIBOR-OIS 100 spread, the market is still nervous 80 • Recent volatility is related to Eurozone 60 sovereign stresses • Since USD LIBOR is a 40 global rate which i
Slide 87: EM investment theme
87 EM investment theme Asset allocation to emerging markets Portfolio flows to emerging markets 18% 550 US$ bn Potential flows resulting from a 1% Share of emerging market reallocation of global funds to EM. 15.9% 485 16% equities in total U.S. holdings This number was exceed before the 450 half yea
Slide 88: Emerging market investment theme
88 Emerging market investment theme Money flows to bonds, EM stocks in first half By Sujata Rao LONDON | Fri Jul 2, 2010 3:38pm BST ((Reuters)) - A massive $453 billion ((298 billion pounds) fled safe-haven money funds in the first half of 2010, heading for bonds and emerging stocks as investors fre
Slide 89: Net global financial flows
89 Net global financial flows US$ bn 1000 800 600 400 200 0 -200 -400 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 USA & Canada Japan UK Euro area EM'ss EM Source: FirstRand Research, IMF Statistics, Oct 2010
Slide 90: South Africa is a beneficiary of EM rotation
90 South Africa is a beneficiary of EM rotation Net purchases/sales by foreigners 80 ZAR bn 69 72 63 61 60 44 40 27 23 19 20 7 - -4 -20 -14 -40 -60 60 -54 -80 2005 2006 2007 2008 2009 2010 YTD Bond Equities Source: FirstRand Research, Bloomberg Data, Oct 2010
Slide 91: South African sovereign spreads have contracted
91 South African sovereign spreads have contracted bps 700 600 500 400 300 Nov-09 Oct-10 10-yr: 10 yr: 190 bps 10-yr: 10 yr: 141 bps 5-yr: 170 bps 5-yr: 117 bps 200 Jan-07 10-yr: 60 bps 5 yr: 40 bps 5-yr: 100 - Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 SA Sov CDS 1Yr SA Sov CDS 5Yr SA
Slide 92: International funding markets
92 International funding markets 5-year sovereign spreads 1 000 1,000 900 800 700 600 500 400 300 200 100 - Jun-08 Aug-08 Nov-08 Feb-09 May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 5-Yr Sov CDS Portugal 5-Yr Sov CDS Brazil 5-Yr Sov CDS Greece 5-Yr Sov CDS Spain 5-Yr Sov CDS SA 5-Yr Sov CDS China
Slide 93: FirstRand's response
93 FirstRand’ss response FirstRand
Slide 94: Create efficient, flexible and diversified funding platforms
94 Create efficient, flexible and diversified funding platforms Regulated platforms FirstRand Bank, (branches: London, India), African banking platform, (licenced) OUTsurance RMB Morgan Stanley OUTsurance, Exchanges (LSE, JSE, BESA) Unregulated entities FirstRand Investment Holdings (un-licenced) (u
Slide 95: Strong focus on building a diversified funding base
95 Strong focus on building a diversified funding base Sources of funding Funding instruments (30 June 2010) ZAR450bn ZAR481bn (CAGR 12%) Other deposits 100% 7% Derivative Senior Debt Conduits 6% 5% 5% Other 7% 3% 3% 90% (3Y CAGR 9%) NCD's 9% 8% 6% Sub Debt 11% 2% 80% Repo's Foreign Trading liabilit
Slide 96: Retail and corporate funding strategy key
96 Retail and corporate funding strategy key 100% 13% Retail ((CAGR 9%)) 14% 14% 15% 90% 10% 11% 80% 12% 11% Commercial (CAGR 4%) 70% 27% 26% 26% Corporate (CAGR 8%) 60% 26% 50% 40% 24% 25% Wholesale (CAGR 10%) 27% 29% 30% 4% 4% 20% 2% 1% Africa (CAGR 15%) 4% 5% 2% 1% Capital markets (CAGR -2%) 2%)
Slide 97: FirstRand – leading bond issuer…
97 FirstRand – leading bond issuer… FirstRand Bond Sales Bloomberg News 2010-10-06 20:01:01.0 GMT By Garth Theunissen Oct. 7 (Bloomberg) -- FirstRand Ltd., South Africa Africa’ss second second- largest financial services company, is leading bond sales in Africa’s biggest economy by locking in record
Slide 98: Diversified listed debt maturity profile
98 Diversified listed debt maturity profile FirstRand Bank’s listed debt 5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2020 2022 2023 2024 2028 2033 2045 CLN Sub Senior - Inflation Linked Senior Source: FirstRand Research, JSE-BESA Bond Data
Slide 99: SA banking sector issuance profile
99 SA banking sector issuance profile 100% 90% 80% 70% % 60% 50% 40% 30% 20% 34% 10% 13% 17% 0% 0-3yrs 3-7yrs 7yrs + Other Banking g Institutions Investec Nedbank SBSA ABSA FirstRand Source: JSE-BESA Bond Data, Sep 2010
Slide 100: Conduits: Assets under management
100 Conduits: Assets under management R18 bn R15 bn 100% 80% Indwa 46% 48% 52% 62% 60% Ivuzi 40% 31% 24% 38% 25% 20% Inkhotha 24% 23% 12% 14% 0% 2007 2008 2009 2010
Slide 101: Securitisation notes outstanding
101 Securitisation notes outstanding R17 bn R26 bn 100% 2% 1% 7% 4% 4% 8% 5% Nitro1 90% 7% 7% 11% 5% 80% 23% 7% 8% Nitro2 5% 70% 7% 7% 6% Nitro3 60% 29% 50% Ikhaya1 40% 76% Ikhaya2 11% 68% 30% 61% Procul 20% 17% 10% Fresco 12% 0% 2007 2008 2009 2010
Slide 102: Funding strategy
102 Funding strategy • Deposit franchise • A Aggressive i client li t acquisition i iti and d retention t ti strategies t t i • New product and channel development • Wholesale market • Extending the term • Diversify new sources • Africa • Aggressive expansion into new markets • Enhancing existing de
Slide 103: In summary
103 In summary • Integrated funding & liquidity framework • Aim to be in excess of minimum requirements of SARB, FSA & Basel II Minimum Liquidity standards (2009) • Strong management in building deposit franchises in retail, commercial and corporate segment • Strong African deposit raising franchise
FirstRand — Debt Investor Presentation (October 2010) on 6ix