Slide 1: Absa Group FY23 results presentation
Absa Group FY23 results presentation 11 March 2024
Slide 2: Arrie Rautenbach, Group Chief Executive
Arrie Rautenbach Group Chief Executive
Slide 3: Challenging operating environment
Challenging operating environment Global environment Sub-Saharan Africa South Africa • Geopolitical risks elevated • Sovereign risk remains • Disappointing growth • High inflation remains sticky elevated • Interest rate cycle at its peak • Monetary policy expected to be • Policy rates elevated • Hig
Slide 4: South Africa pressures remain elevated
South Africa pressures remain elevated Real GDP (Index, 4Q19 =100) Escalating loadshedding versus private generation 105 Load shedding intensity - daily Generation capacity registered 100 (GWh) (GWh) 24 854 4 490 95 11 711 1 664 90 2 494 1 747 1 286 134 220 85 53 26 23 80 2019 2020 2021 2022 2023 20
Slide 5: Pressure mounted on SA consumer and expected to persist
Pressure mounted on SA consumer and expected to persist SA Headline CPI (%) Quarterly Household Debt service costs (%) 10 9.5 8 9.0 8.5 6 8.0 4 7.5 2 7.0 0 6.5 2015 2016 2017 2018 2019 2020 2021 2022 2023 2015 2016 2017 2018 2019 2020 2021 2022 2023 Inflation adjusted gross earnings per person, two
Slide 6: Our strategy and medium-term targets remain relevant
Our strategy and medium-term targets remain relevant Financial targets RoE sustainably above 17% Cost-to-income in the low 50s 6
Slide 7: Strategic execution highlights since 2018
Strategic execution highlights since 2018 • Grown customer numbers after years of decline RBB SA • Fixed product pricing and proposition with redesigned value for money product suite Product Solutions • Holistic multi-channel customer experience remediation Everyday Banking Relationship Banking • En
Slide 8: RBB SA renewal across differentiating capabilities
RBB SA renewal across 3 differentiating capabilities Value for money proposition Integrated digital and data Empathetic and seamless for active customers + powered engagements + customer experience Customer experience index • R1bn fee transformation journey • 109% increase in digital active 107 sinc
Slide 9: RBB SA acquisition momentum and activation on track
RBB SA acquisition momentum and activation on track Acquisition Activation Digitally active retail customers Average SA retail product New to bank Relationship Bancassurance (K) 8% holding SA retail Banking 109% 978K insurance 2 996 2.64 transactional policies sold in 2023 2 776 2.59 Transactional 2
Slide 10: CIB delivered on its 2019 commitments
CIB delivered on its 2019 commitments Corporate Banking revenues (Rbn) CIB revenues contribution (%) 14.1 SA Africa regions 11.8 42 9.9 38 9.2 35 8.2 65 62 58 FY19 FY20 FY21 FY22 FY23 FY21 FY22 FY23 Connecting global clients with Africa CIB RORC (%) 31.0 30.3 FY19 FY23 23.9 20.6 17.8 13.4 SA Africa
Slide 11: RBB ARO delivering a more diversified and sustainable business
RBB ARO delivering a more diversified and sustainable business Diversified geographic and business revenues (%) Customer numbers (K) Big 4 Retail Business Bank ChartRemaining Title 6 2 354 29 24 28 2 027 36 1 828 1 826 1 747 1 409 71 76 72 64 FY18 FY23 FY18 FY23 FY18 FY19 FY20 FY21 FY22 FY23 Digital
Slide 12: Colleague efforts creating an engaged workforce
Colleague efforts creating an engaged workforce We have invested in our colleagues …and are being recognized for our efforts eNPS (%) • Launched our employee incentive 36.1 scheme – eKhaya with 35k now shareholders 24.0 • Top Employer in South Africa – Forbes annual ‒ Increased sense of ownership an
Slide 13: Our ESG agenda has progressed
Our ESG agenda has progressed Committed to Closed R84bn 93rd percentile in cumulative net zero 5.4GW Climate in S&P Global sustainability-linked emissions of renewable power Sustainability rating financing by 2050 deals to date Consumer Disbursed Affordable financial Market first Financial Inclusion
Slide 14: Resulted in a very different business to 2018
Resulted in a very different business to 2018 Strengthened our growing Diversified our business Grew while focusing on efficiency balance sheet Africa regions contribution* (%) 57.7 58.0 56.0 55.2 120 29 55% 52.1 CET1 LCR 51.0 20 50% 12.5% 124% 100 104.5 7% CAGR 96.8 45% (2018: 12.0%) (2018: 109.9%)
Slide 15: 2023 performance overview
2023 performance overview • Normalised headline earnings growth of 1% was below our expectation Pre-provision Cost-to-Income profit • Credit loss ratio above through-the-cycle range largely due to SA retail R50bn 52.1% (2022: 51.0%) consumer stress +6% • RoE of 15.3% remains above cost of equity Nor
Slide 16: Business unit performance
Business unit performance Product Solutions Cluster Everyday Banking Relationship Banking • Market sentiment in secured lending • Customer growth improving – focus • Segment based operating model lowest in years on targeted customer segments embedded • Elevated consumer strain • Deepening customer r
Slide 17: Business unit performance
Business unit performance CIB ARO RBB • Diversified business model paying • Diversified into bancassurance and dividends Business Banking • Strong client acquisition • Improving efficiency • Absa Access migration progressing • Digital adoption accelerating well • Leader in Sustainable finance Credit
Slide 18: We remain committed to our strategy
We remain committed to our strategy • Consistent strategic execution • Growth orientation • Deliver medium-term targets 18
Slide 19: Chris Snyman, Interim Financial Director
Chris Snyman Interim Financial Director
Slide 20: Net interest income drove earnings growth
Net interest income drove earnings growth Normalised headline earnings (Rbn) Pre-provision profit up 6% (6% CCY) 12% 1% 10% (10% CCY) 7.5 0.3 5.1 13% 5% 1% 20.7 1.8 0.0 0.6 20.9 FY22 Net interest Non-interest Operating Credit Other* FY23 income income expenses impairments Revenue up 8% (8% CCY) 20 N
Slide 21: Healthy net interest margin improved further
Healthy net interest margin improved further Change in net interest margin* (basis points) 12 (25) 11 16 (5) 10 (1) 466 10 456 (1) 3 446 Loans Deposits 2 22 FY21 FY22 Pricing Mix Pricing Mix Endowment Capital ** Hedge *** Other FY23 21 Note: * average interest bearing assets; ** group equity endowme
Slide 22: Considerably lower contribution from structural hedge
Considerably lower contribution from structural hedge Structural hedge release to income statement (Rbn) 3.2 2.6 1.6 0.5 0.6 (1.6) FY18 FY19 FY20 FY21 FY22 FY23 22
Slide 23: Loan growth slowing, particularly South African retail
Loan growth slowing, particularly South African retail Net customer loans (Rbn) 12% FY21 FY22 FY23 8% 484 9% 4% 432 400 415 399 368 7% 8% 135 146 9% 12% 7% 126 13% 67 72 64 72 79 60 Product Solutions Everyday Banking Relationship Banking ARO RBB CIB Cluster 23
Slide 24: Reduced Home Loans production, in line with market
Reduced Home Loans production, in line with market South Africa retail net customer loans (Rbn) 3% 9% 302 293 270 FY21 FY22 FY23 9% 6% 107 113 98 13% 8% 44 47 10% 3% 39 19 20 21 Home Loans Vehicle and Asset Credit card Personal loans Finance 24
Slide 25: Broad based deposit growth remains an opportunity
Broad based deposit growth remains an opportunity Customer deposits (Rbn) FY21 FY22 FY23 7% (0%) 435 409 407 7% 4% 309 278 290 15% 7% 231 201 188 9% 10% 110 121 101 Everyday Banking Relationship Banking ARO RBB CIB 25
Slide 26: Insurance underpinned non-interest income growth
Insurance underpinned non-interest income growth Non-interest income (Rbn) Non-interest income by division (Rbn) 0% 2% FY22 FY23 12.1 12.1 FY22 FY23 24.5 25.0 0% 10.3 10.3 1% 15% 12% 5.1 5.1 4.6 4.5 (5%) 4.0 4.0 7.7 7.3 (13%) 16% 3.0 1.4 2.5 1.6 Net fee and Net trading Insurance Other Product Everyd
Slide 27: Cost growth reflects substantial investment in franchise
Cost growth reflects substantial investment in franchise FY23 Change Mix Cost-to-income ratio (%) Rm % % 58.0 Staff 31 515 13 58 56.0 Property 1 910 3 4 55.2 Technology 6 028 9 11 Depreciation 3 024 (3) 6 52.1 51.0 Professional fees 2 809 (3) 5 Marketing 2 032 18 4 Communication * 1 578 6 3 Cash tra
Slide 28: Credit charge increased across divisions, besides CIB
Credit charge increased across divisions, besides CIB Credit impairments (Rm) 49% 4 316 FY22 FY23 16% 29% 2 888 2 828 2 442 2 447 160% 1 898 30% 1 789 1 540 1 378 33% 1 182 (45%) 822 764 688 618 Home Loans Vehicle and Asset Card Personal Loans Relationship ARO RBB CIB Finance Banking 28 Note: Exclud
Slide 29: Credit impairment trends diverge significantly
Credit impairment trends diverge significantly Credit impairments (Rm) Credit loss ratio (bps) FY22 FY23 45% 13 761 FY22 FY23 125 122 92 9 466 80 4 237 (58%) 1 774 South Africa Africa regions South Africa Africa regions 29
Slide 30: Credit loss ratio well above through-the-cycle range
Credit loss ratio well above through-the-cycle range Group credit loss ratio (bps) Credit loss ratio (%) FY22 FY23 118 TTC range 75-100 Product Solutions Cluster 0.65 0.99 96 Home Loans 0.24 0.58 Vehicle and Asset Finance 1.76 2.08 77 Everyday Banking 6.45 8.35 Relationship Banking 0.45 0.56 ARO RBB
Slide 31: Credit impairments reflect stage migration
Credit impairments reflect stage migration Customer loans by stage (Rbn) Non-performing loans (%) 7% 6.3 981 6.1 919 5.4 5.3 FY22 FY23 (3%) 20% 95 92 67 80 Stage 1 Stage 2 Stage 3 FY20 FY21 FY22 FY23 31
Slide 32: NPL and total loan coverage remain robust
NPL and total loan coverage remain robust NPL coverage (%) Total loan coverage (%) 4.1 4.1 46.1 3.9 45.0 44.6 FY21 FY22 FY23 FY21 FY22 FY23 32
Slide 33: Material benefit from portfolio diversification …
Material benefit from portfolio diversification … Headline earnings (Rbn) 23% FY22 FY23 11.0 9.0 (1%) (17%) (24%) 4.0 4.1 4.1 3.1 3.4 27% 2.4 1.2 1.5 90% (0.7) (1.4) Product Everyday Relationship ARO RBB CIB Head Office, Solutions Banking Banking Treasury, other Pre-provision 9% 7% 1% 27% 13% - prof
Slide 34: … evident in earnings contributions and returns
… evident in earnings contributions and returns Group earnings mix (%) * Return on regulatory capital (%) 11 25.5 24.4 23.9 15 49 18 10.5 11.2 7 Product Solutions Cluster Everyday Banking Relationship Banking ARO RBB Product Everyday Relationship ARO RBB CIB Solutions Banking Banking CIB 34 Note: *
Slide 35: CIB benefits from its improving scale and diversification
CIB benefits from its improving scale and diversification Headline earnings (Rm) 23% 11 033 FY22 FY23 9 006 18% 3% 6 740 6 103 6 304 63% 30% 5 704 4 729 4 293 3 302 2 903 Corporate Bank Investment Bank Total CIB South Africa ARO Pre-provision profit growth: 27% 5% 13% 4% 26% 35
Slide 36: Secured lending credit charge reduced PSC earnings
Secured lending credit charge reduced PSC earnings Headline earnings (Rm) FY22 FY23 3 096 (24%) 2 368 2 100 (36%) 13% 1 336 1 194 1 053 (48%) 458 (23%) 236 (515) (398) Home Loans Vehicle and Asset Insurance SA Non-Banking Financial Product Solutions Finance Services and Other Cluster Pre-provision p
Slide 37: Lending businesses reduced Everyday Banking earnings
Lending businesses reduced Everyday Banking earnings Headline earnings (Rm) FY22 FY23 (5%) 4 047 (17%) 3 611 3 434 3 354 841 (56%) 369 27% 7% (77) (98) (328) (351) Card Personal Loans Transactions and Other Everyday Banking Deposits Pre-provision profit growth: 16% 14% (3%) - 7% 37
Slide 38: Relationship Banking investing for growth
Relationship Banking investing for growth Headline earnings (Rm) 5% 9% 771 694 33% (4%) (1%) 0 4 077 (204) 72 Pre-provision profit up 1% 4 132 FY22 Revenue Operating Credit Other* FY23 expenses impairments 38 Note: * Includes other expenses, JVs and associates, taxation, headline earnings adjustment
Slide 39: Africa regions drove group revenue and earnings growth
Africa regions drove group revenue and earnings growth Revenue (Rbn) Normalised headline earnings (Rm) 2% 17 933 73.8 72.3 FY22 FY23 (18%) FY22 FY23 14 676 26% 30.7 124% 24.5 6 250 2 792 South Africa Africa regions South Africa Africa regions 39
Slide 40: Substantial operational improvement in ARO RBB
Substantial operational improvement in ARO RBB Pre-provision profit (Rbn) Headline earnings (Rbn) 27% 27% 30% 5.4 >100% 1.5 4.3 1.2 3.1 0.2 FY21 FY22 FY23 FY21 FY22 FY23 RoRC (%) Cost-to-income ratio (%) 73.0 10.9 11.2 69.0 66.7 1.1 FY21 FY22 FY23 FY21 FY22 FY23 40
Slide 41: CET1 ratio at the top end of Board target range
CET1 ratio at the top end of Board target range Group common equity tier 1 ratio (%) 1.9 (1.1) 12.1 (0.5) 12.8 (0.6) 0.0 12.5 Board target range 11.0% - 12.5% FY22 RWA Profit Dividend Other FY23 41
Slide 42: No longer normalising for Barclays Separation in FY24
No longer normalising for Barclays Separation in FY24 Normalised Barclays separation IFRS Rm effects (Rm) Rm Net interest income 67 927 128 68 055 Non-interest income 36 603 (16) 36 587 Total income 104 530 112 104 642 Credit impairment charges 15 535 15 535 Operating expenses 54 467 1 237 55 704 Ot
Slide 43: 2024 outlook (on an IFRS basis)
2024 outlook (on an IFRS basis) High single digit revenue growth, driven by both net interest income and non-interest Revenue income. Slower first half growth given a high 1H23 base. Balance sheet High single digit customer loan and customer deposit growth. Credit loss ratio expected to exceed throu
Slide 44: Arrie Rautenbach, Group Chief Executive
Arrie Rautenbach Group Chief Executive
Slide 45: Pathway to our medium-term targets
Pathway to our medium-term targets 2023 (IFRS) 2024 >> 2026 2026 (IFRS) Growing capital lite revenues Cost-to-income + Cost-to-income 53.2% Credit loss ratio within the through-the- low 50s cycle range + Productivity focus RoE RoE sustainably 14.4% + > 17% Faster growth in Africa regions 45
Slide 46: Disclaimer
Disclaimer Certain statements (words such as ‘anticipates’, ‘estimates’, ‘expects’, ‘projects’, ‘believes’, ‘intends’, ‘plans’, ‘may’, ‘will’ and ‘should’ and similar expressions in this document are forward looking. These relate to, among other things, the plans, objectives, goals, strategies, futu