Absa Group Limited · JSE:ABG
Absa — H1 2020 Earnings Presentation
35 slides from Absa's earnings presentation, Aug 24, 2020
Slide 1: Absa Group 1H20 results presentation
Absa Group 1H20 results presentation 24 August 2020
Slide 2: Daniel Mminele, Chief Executive
Daniel Mminele Chief Executive
Slide 3: A crisis like no other, an uncertain recovery
A crisis like no other, an uncertain recovery SA’s real GDP growth (%) Reduction in expected 2020 GDP (%) 4 0 2 -2 -4 0 -6 -8 -2 -10 -4 -12 -14 -6 -16 -18 -8 Botswana Mauritius Mozambique Tanzania Ghana Uganda Zambia South Africa Kenya Seychelles -10 15 16 17 18 19 20F 21F 22F 23F 3 |
Slide 4: Absa's initial response to Covid-19 pandemic
Absa’s initial response to Covid-19 pandemic Payment relief provided (Rbn) • Ensure colleague safety and wellbeing • Open for business to support customers 534 Customer loans Relief on loans • Provided substantial payment relief • Supporting vulnerable communities 308 • Protecting balance sheet and
Slide 5: Separation progress from Barclays completed
Separation Separation progressfrom to date Barclays completed 5 |
Slide 6: Main 1H20 messages
Main 1H20 messages Revenue versus cost growth (%) • Resilient revenue 8 Revenue • Operating costs well managed 6 Costs • Solid pre-provision profit growth 4 • Substantially higher credit impairments 2 • Benefit of diversity 0 • Balance sheet strength maintained -2 -4 1H17 1H18 1H19 1H20 6 |
Slide 7: 1H20 salient features
1H20 salient features Pre-provision profit (Rbn) Diluted normalised HEPS (c) 9% 18.5 3% 7% 950 976 16.9 15.9 (82%) 173 1H18 1H19 1H20 1H18 1H19 1H20 RoE (%) NAV per share (R) 6% 17.1 16.4 131 7% 123 115 2.6 1H18 1H19 1H20 1H18 1H19 1H20 7 |
Slide 8: Divisional performances
Divisional performances RBB SA CIB total ARO • Resilient transactional franchises • Separation complete • Separation complete • Benefit of restructuring • Broad-base revenue growth • Strong digital growth • Costs well contained • Strong deposit growth • Benefit of diversification • Strengthened digi
Slide 9: Jason Quinn, Financial Director
Jason Quinn Financial Director
Slide 10: Income statement reflects impact of Covid-19
Income statement reflects impact of Covid-19 Change Normalisation 1H19 1H20 Rm (%) adjustments Net interest income 22 667 24 072 6 (52) Non-interest income 16 404 16 006 (2) (225) Total income 39 071 40 078 3 (277) Credit impairments 3 695 14 661 297 - Operating expenses 22 136 21 613 (2) 1 427 Othe
Slide 11: Customer loan growth slowed
Customer loan growth slowed … Gross customer loans (Rbn) RBB SA gross customer loans (Rbn) 600 4% 4% 500 1H19 1H20 245 237 1H19 1H20 400 6% 300 3% 123 127 200 7% 82 88 9% 100 25% 26% 10% 41 45 22 25 0 RBB CIB RBB CIB Home Loans VAF Personal Credit Relationship loans cards Banking South Africa Absa R
Slide 12: As lockdown reduced second quarter production
… as lockdown reduced second quarter production Home Loans production (Rbn) Vehicle and Asset Finance production 3.5 (Rbn) 20% 2.5 2Q: (47%) 4% 3.0 (27%) 11% 2.0 2.5 2Q: (72%) 2.0 1.5 1.5 1.0 1.0 0.5 0.5 0.0 0.0 1Q19 2Q19 1Q20 April May June July 1Q19 2Q19 1Q20 April May June July Note: Quarterly da
Slide 13: Robust deposit growth across the board
Robust deposit growth across the board Deposits (Rbn) 12% 392 1H19 1H20 349 17% 243 208 26% 176 140 8% 101 109 RBB SA CIB Absa Regional Operations Treasury and other South Africa up 13% 13 |
Slide 14: Significant policy rate cuts reduced net interest margin
Significant policy rate cuts reduced net interest margin Change in net interest margin* (basis points) 4 (5) 3 (2) (11) 452 11 (4) (7) (16) (2) 423 Loans Deposits 7 (18) 1H19 Pricing Mix Pricing Mix Endowment Capital Hedge ** ARO *** Prime reset Other 1H20 Note: * average interest bearing assets; **
Slide 15: Non-interest income decreases slightly
Non-interest income decreases slightly … Non-interest income (Rbn) Non-interest income by division (Rbn) 3% (2%) (7%) 16.4 11.6 15.9 16.0 10.7 1H19 1H20 14% 3.3 1% 2.9 1.8 1.8 RBB South Africa CIB South Africa Absa Regional Operations 1H18 1H19 1H20 15 |
Slide 16: Due to substantial impact of lockdown
… due to substantial impact of lockdown RBB SA fee and commission income Monthly average debit and credit card turnover (Rbn) (Rbn) 20 18 (1%) 2Q: (22%) 1.5 9% 8% 1.4 1.4 16 1.3 14 (18%) (23%) 1.2 (26%) 12 10 0.9 8 9% 6% (55%) 6 (7%) (7%) 4 (17%) (47%) 2 0 1H19 1Q20 April May June July 1Q19 2Q19 1Q2
Slide 17: Rebound in Markets revenue
Rebound in Markets revenue Markets revenue (Rbn) SA Markets revenue by type (Rm) SA ARO 42% 1.4 37% 26% 1% 987 (5%) 1% 0.6 1.0 0.8 (11%) 765 769 722 1.0 2.0 1.8 1.7 1.7 (113%) 1.2 37 1H19 1H20 -285 1H16 1H17 1H18 1H19 1H20 Corporate Institutional Client facilitation risk 17 |
Slide 18: Operating expenses well managed and responsive
Operating expenses well managed and responsive 1H20 Change Mix Rm % % Cost-to-income ratio (%) Staff 11 919 (5) 55 58.0 57.7 Property-related 1 034 11 5 56.7 56.7 56.7 Technology 2 007 7 9 55.5 55.2 Depreciation 1 794 3 8 53.9 Professional fees 1 118 25 5 Marketing 534 (8) 2 Communication 708 (7) 3
Slide 19: Significant increase in credit impairments
Significant increase in credit impairments ... Credit impairments (Rbn) Credit loss ratio (%) 1H19 1H20 388% 297% (0.6) 2.1 14.7 RBB SA 1.12 3.77 483% Everyday Banking 4.93 11.76 259% 1.4 7.5 Vehicle and Asset Finance 1.39 4.91 Home Loans 0.13 1.43 Relationship Banking 0.32 2.11 CIB SA 0.18 0.93 3.7
Slide 20: Reflecting three drivers
... reflecting three drivers Credit impairment drivers (Rbn) Single name credit impairments (%) 297% 5.5 14.7 6 14 1.8 43 3.7 37 3.7 1H19 Portfolio Single MEV 1H20 SA Relationship Banking CIB SA performance names management adjustment CIB ARO ARO Business Banking 20 |
Slide 21: Relatively low exposure to Covid-19 impacted industries
Relatively low exposure to Covid-19 impacted industries Wholesale lending to key Covid-19 impacted industries (% of total loans) 8.2 4.9 2.9 1.1 1.1 0.6 0.4 0.4 0.3 Property Manufacturing Retail Hospitality and Construction Oil and gas Aviation Healthcare Automotive non-food entertainment 21 |
Slide 22: Noticeable 1H20 delinquency stage migration
Noticeable 1H20 delinquency stage migration Group stage 2 loans to total (%) Group stage 3 loans to total (%) 5.65 10.02 5.31 8.95 5.10 8.66 4.79 4.67 7.91 7.67 1H18 FY18 1H19 FY19 1H20 1H18 FY18 1H19 FY19 1H20 22 |
Slide 23: Provided extensive Covid-19 payment relief
Provided extensive Covid-19 payment relief Gross carrying value of customer loans granted payment relief at 30 June 2020 (Rbn) RBB SA: R154bn, 29% of total book 84 37 29 27 25 8 7 Home Loans Vehicle and Asset Card Personal Loans Relationship CIB SA ARO Finance Banking Of book: 34% 33% 18% 29% 21% 12
Slide 24: Macroeconomic variables management adjustments
Macroeconomic variables management adjustments SA real GDP baseline scenarios (2019 = 100) MEV management adjustments (Rm) 110 11176 176 55517 517 105 776 100 33565 565 95 FY19 90 1H20 Current view 85 2019 2020 2021 2022 2023 2024 RBB SA CIB SA ARO Total 24 |
Slide 25: Material increase in loan coverage
Material increase in loan coverage Loan coverage (%) 6.15 Group RBB SA 4.73 4.57 4.46 3.73 3.36 3.01 3.12 2.37 2.35 1H16 1H17 1H18 1H19 1H20 IAS 39 IFRS 9 25 |
Slide 26: Significant decrease in divisional earnings and returns
Significant decrease in divisional earnings and returns Normalised headline earnings (Rm) Return on regulatory capital 1H20 (%) * 4 847 1H19 1H20 22.5 1H19 1H20 18.5 13.3 1 727 1 546 (47%) 6.2 (67%) 5.1 (91%) 817 569 415 1.8 RBB SA CIB SA Absa Regional RBB SA CIB SA Absa Regional Operations Operatio
Slide 27: RBB SA earnings fell, with losses in lending products
RBB SA earnings fell, with losses in lending products Headline earnings (Rm) 1H19 1H20 1 998 1 684 (38%) 21% 1 046 750 709 584 … (93%) (143%) (916%) (320) 135 (996) Home Loans Vehicle and Asset Everyday Banking Insurance Cluster Relationship Banking Finance Pre-provision profit growth: 12% 27% 5% 12
Slide 28: Transactional and Deposits held up relatively well
Transactional and Deposits held up relatively well Headline earnings (Rm) 1 998 1H19 1H20 (5%) 1 232 1 170 523 243 (93%) (197%) (318%) 135 (505) (530) Everyday Banking Card Personal Loans Transactional and Deposits Pre-provision profit growth: 2% 16% 2% 28 |
Slide 29: CIB earnings down despite strong pre-provision profits
CIB earnings down despite strong pre-provision profits Headline earnings (Rm) 2 780 1H19 1H20 (43%) CIB SA down 47% CIB ARO down 37% 1 590 1 100 (52%) 835 14% (35%) 529 (62%) 446 399 456 288 317 Corporate Investment Bank Corporate Investment Bank Total CIB Pre-provision profit growth: 18% 34% 15% 33
Slide 30: Absa Regional Operations enhance revenue growth
Absa Regional Operations enhance revenue growth Absa Regional Operations revenue (Rbn) Absa Regional Operations revenue to group (%) 16% 10.3 26 18% 8.6 23 7.6 21 1H18 1H19 1H20 1H18 1H19 1H20 30 |
Slide 31: ARO earnings fell despite strong pre-provision profits
ARO earnings fell despite strong pre-provision profits Headline earnings (Rm) 1H19 1H20 1 727 1 234 (37%) (67%) 773 569 417 (122%) (91) Absa Regional Operations RBB ARO CIB ARO Pre-provision profit growth: 14% 20% 21% 31 |
Slide 32: Focus on preserving capital and liquidity
Focus on preserving capital and liquidity Absa group capital adequacy (%) Sources of liquidity (Rbn) 317 2.8 2.8 3.0 0.9 0.9 0.9 233 213 218 217 12.1 11.3 11.0 FY19 1Q20 1H20 CET1 Other tier 1 Tier 2 FY17 FY18 1H19 FY19 1H20 32 |
Slide 33: 2020 outlook
2020 outlook • Net interest margin expected to decline YoY, with the second half likely to improve slightly • Loan and deposit growth should slow in the second half • Costs are expected to decline YoY, resulting in pre-provision profit growth • Credit loss ratio expected to be well above global fina
Slide 34: Daniel Mminele, Chief Executive
Daniel Mminele Chief Executive
Slide 35: Disclaimer
Disclaimer Forward-looking statements 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, objectiv