Firstrand Limited · JSE:FSR
Firstrand — Securing South Africa's Prosperity conference hosted by Bloomberg 2013
62 slides from Firstrand's conference presentation, Oct 7, 2013
Slide 1: Overview of FirstRand
OVERVIEW OF FIRSTRAND FIRSTRAND
Slide 2: FirstRand has pursued a very consistent growth strategy
FirstRand has pursued a very consistent growth strategy • To be the African financial services group of choice • By creating long-term franchise value • Through delivering superior and sustainable returns • Within acceptable levels of earnings volatility • Maintaining balance sheet strength
Slide 3: Portfolio of operating franchises
Portfolio of operating franchises Listed holding company (FirstRand Limited, JSE: FSR) Retail and Corporate and Instalment Investment commercial bank investment bank finance management
Slide 4: Simplified legal structure – FirstRand Bank is the debt issuer
Simplified legal structure – FirstRand Bank is the debt issuer Listed holding company (FirstRand Limited, JSE: FSR) 100% 100% 100% 100% FirstRand EMA FirstRand Investment Ashburton Investment FirstRand Bank Limited Holdings Limited Holdings (Pty) Ltd (FRIHL) Holdings Limited Africa and Banking Other
Slide 5: Good progress on execution of strategy in SA…
Good progress on execution of strategy in SA… • Strengthened the relative positioning of franchises • FNB’s differentiated customer offering, based on a unique value proposition underpinned by innovative products, channels and rewards programmes • RMB’s CIB strategy to leverage quality of investment
Slide 6: …and in the corridors and rest of Africa
…and in the corridors and rest of Africa • Strong profit growth from the Group’s Indian strategy continues • RMB leveraging the platform for corridor and in-country growth • Commercial gaining momentum; retail still in pilot phase • Rest of Africa – good progress on strategy to expand whilst protect
Slide 7: Key performance ratios
Key performance ratios FirstRand Group 2013 2012 % change Return on equity (%) 22.2 20.7 Return on assets (%) 1.87 1.73 Credit loss ratio (%) 0.99 1.08 Credit loss ratio (%)* 0.95 0.94 Cost-to-income ratio (%) 51.9 53.4 Tier 1 ratio (%)** 14.8 13.2 Common equity Tier 1(%)** 13.8 12.3 N
Slide 8: Sustainability and predictability of earnings
Sustainability and predictability of earnings Geographic diversification is a long-term strategy Segment diversification reflects structure of SA growth profile 2012 2013 2012 2013 1% 1% 9% 9% South Africa 28% Retail 29% International 50% Commercial 52% Rest of Africa CIB & corridors 22% 19% 90% 90%
Slide 9: Quality of returns and strong capital position
Quality of returns and strong capital position ROE driven by ROA not gearing CET1 ratio reflects strong capitalisation and capacity for expansion ROA Gearing CET1 ratio 6% 18 13.8% 14% 13% 14.8 16 5% 13.9 12% R10bn surplus 12.5 11.9 11.9 14 10% FSR management CET1 target range: 9.5% – 11.0% 4% 12 bu
Slide 10: Overview of SA & FirstRand Bank
OVERVIEW OF SA & FIRSTRAND BANK
Slide 11: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 12: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 13: Understand what drives savings flows to platforms
Understand what drives savings flows to platforms Decision Decision Investments Investors Institutions levers l levers ll (AUM) Cash and near cash Pension funds Individuals Economic Economic Money market funds incentives Long term incentives insurance Banks Corporates Corporate bonds Investment fund
Slide 14: Financial institutions in South Africa
Financial institutions in South Africa • Asset managers (ASISA) • R1 204bn AUM Assets under management • Number of funds • 266 equity • 483 balanced • 31 property • 187 fixed interest funds Pension funds • Banks 21% Banks • R3 600bn AUM 36% • 31 banks Unit trusts • Life companies 12% • R1 950bn AUM
Slide 15: SA Inc – liquidity profile of assets and liabilities
SA Inc – liquidity profile of assets and liabilities Illiquid (banks) Long term Mortgages & asset based finance - 14% Pension funds 17% Loans - 2% Other - 4% PIC Credit card, overdrafts 13% & unsecured - 12% LT insurers 19% Equity 31% Unit trusts 11% Fixed income 23% Banks 39% Cash & deposits 13% Li
Slide 16: However, banks are mismatched
However, banks are mismatched Illiquid (banks) Short term Mortgages & asset based finance - 14% Loans - 2% Other - 4% Banks Credit card, overdrafts 39% & unsecured - 12% Unit trusts Equity 11% 31% LT insurers 19% Fixed income PIC 23% 13% Pension funds Cash & deposits 17% 13% Liquid (savings) Long te
Slide 17: Relating financial assets to the monetary base
Relating financial assets to the monetary base 14,000 Foreign held debt R348bn 12,000 Foreign held Liability to The money base represents equities foreigners R1 667bn R2 015bn a fraction of financial assets 10,000 in the system. 8,000 Locally held Mark-to-market The savings allocated to equities* R5
Slide 18: South Africa benefitting from the rotation into EM
South Africa benefitting from the rotation into EM Net purchases/sales by foreigners (Rbn) 100 92 80 75 60 66 62 56 40 46 48 36 37 20 27 27 19 7 Bonds - -4 -14 -4 Equities -19 (20) (40) -55 (60) (80) 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD Source: Bloomberg data (SABO and SAEQ indices).
Slide 19: South Africa's net capital formation – funded by foreigners and corporate balances
South Africa’s net capital formation – funded by foreigners and corporate balances Net capital formation (current prices) 400 300 200 100 - (100) (200) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Savings by households Corporate s
Slide 20: Government investment spending forecast
Government investment spending forecast 350 • RMB – sole mandated lead arranger: • Financing two solar PV power 300 Water 10 Water 10 Transport plants (in Aurora and Vredendal) Water 9 Transport 28 250 Transport 27 • 96MW Jasper Solar PV project 25 (in the Northern Cape) Energy Energy 101 200 • R3.5
Slide 21: Income inequality – impacts savings channels and risk
Income inequality – impacts savings channels and risk 20 25 30 35 40 45 50 55 60 65 70 Rank 138 South Africa Rank 128 Brazil Rank 105 Argentina Rank 101 United States Rank 87 China Rank 79 Turkey South Africa has one of the Rank 61 Japan most unequal societies in the Rank 58 India Rank 46 United Kin
Slide 22: Household savings flows
Household savings flows Household flow (Rbn) 250 206 200 4 17 186 2 21 169 62 24 150 128 126 18 78 118 12 19 92 8 95 9 100 35 91 89 6 87 55 23 6 66 72 11 13 3 45 30 56 11 44 16 19 29 26 26 29 9 122 15 12 50 13 19 27 85 71 71 45 45 52 54 49 49 53 53 49 29 - -9 -10 -12 -3 -3 -8 -50 1999 2000 2001 2002
Slide 23: Household balance sheet – household net savings has turned positive
Household balance sheet – household net savings has turned positive Household balance sheet (constant 2012 prices) 100 30 18 19 16 16 20 20 15 14 Source 50 11 11 10 11 10 Lending of funds -2 - - -6 (10) -17 -50 -23 (20) -29 Use of (30) Borrowing funds -100 (40) -44 -44 -150 (50) 1995 1996 1997 1998
Slide 24: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 25: Financial market infrastructure
Financial market infrastructure • Capital markets (debt and equity markets) • Financial Markets Bill – legal framework • Comparison of LIBOR, EURIBOR and JIBAR • SIRESS (SADC Integrated Regional Electronic Settlement System) • Regulatory reforms • Twin peaks • Central clearing, trade repositories •
Slide 26: Well-developed capital markets
Well-developed capital markets Global Competitiveness Index Rank of 144 Efficacy of corporate bonds 1st Strength of auditing and reporting standards 1st Regulation of securities exchanges 1st Legal rights index, 0-10 (10 = best) 10 Soundness of banks 2nd Availability of financial services 2nd Financ
Slide 27: Global capital market composition
0% 100% 20% 40% 60% 80% Taiwan South Africa Singapore Russia India China Source: BIS, The World Bank. Equity Switzerland Malaysia Brazil Australia Equity-to-debt composition Canada South Korea Mexico Debt UK Nordic area USA Japan EU 0 50 100 150 200 Switzerland Global capital market composition Sout
Slide 28: Global capital market composition
Global capital market composition Listed debt as a percentage of banking system assets 250% In South Africa debt funding occurs primarily on bank balance sheets. 200% This feature would be more pronounced if we 150% removed government debt. It should also be 221% 100% considered in light of the hist
Slide 29: Financial Markets Bill – legal framework
Financial Markets Bill – legal framework Bill aims to increase confidence in the South African financial markets and promoting the protection of regulated persons and clients 1 Regulatory model/effectiveness 2 Investor/client protection and systemic risk 3 Central counterparty, financial stability a
Slide 30: Comparison of LIBOR, EURIBOR and JIBAR
Comparison of LIBOR, EURIBOR and JIBAR LIBOR EURIBOR JIBAR Calculation and publication Thomson Reuters on Thomson Reuters JSE of rates behalf of the BBA Number of rates published 150 LIBOR rates 15 EURIBOR rates 5 JIBAR rates Traded rates of NCD Underlying info quoted rates Estimated rates (include
Slide 31: SADC Integrated Regional Electronic Settlement System
SADC Integrated Regional Electronic Settlement System • Project vision – each SADC country has • An efficient and effective payment system • Internationally acceptable • Interlinked within the region • Supports the SADC aims of free trade • International organisations • BIS, IMF and World Bank • Com
Slide 32: Twin peaks – prudential and market conduct regulation
Twin peaks – prudential and market conduct regulation Twin peaks Access to financial Combating financial Financial stability Consumer protection services crime Treasury to lead Financial Services Enforcement Board and National Further support to agencies to lead Reserve Bank to lead Credit Regulator
Slide 33: Regulatory reforms
Regulatory reforms • OTC derivatives • South Africa should carefully assess the cost and benefits of mandating central clearing for its OTC derivatives markets: • Size of SA derivatives market and breakdown by asset class • High concentration by five dealers • Allocation of SA derivatives market as
Slide 34: Regulatory reforms (cont.)
Regulatory reforms (cont.) • Central counterparty clearing • CCP should a robust risk management program (stringent membership, level of initial and additional margin, calculation of daily MTM exposure, payment and receipt of variation margin • Adequate financial resources (guarantee fund deposits,
Slide 35: Regulatory reforms (cont.)
Regulatory reforms (cont.) Example of recovery and resolution regime – timing and regulation TBA by SARB New resolution regime applicable to SIFIs Appropriate risk Recovery actions Resolution appetite Fulfill creditor requirements Offer positive NAV to shareholders SARB may call PONV Level 1 Level 2
Slide 36: Gateway to Africa – helping South African companies expand internationally
Gateway to Africa – helping South African companies expand internationally • Over 1 billion people on the African continent • Presents substantial economic opportunities for South Africa • Between 2007 and 2011 SA undertook • Nearly 1 000 new investments… • …in 36 countries (Nigeria, Zambia, Angola,
Slide 37: South African Holdco - Excon
South African Holdco - Excon • One subsidiary per JSE listed entity • Parent to the HoldCo up to ZAR750m per year • Certain tax incentives being finalised (TBA) • Manage offshore operations from South Africa • Avoid expensive offshore operational costs • Freely raise and deploy capital offshore • Ho
Slide 38: IMF Article IV: A strong banking system but increasing risk
IMF Article IV: “A strong banking system but increasing risk” “South Africa remains at the forefront of financial sector regulatory reform globally The adoption of Basel III earlier this year, the envisaged implementation of the Twin Peaks system from 2014, and several financial sector initiatives w
Slide 39: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 40: Well-regulated, well-capitalised banking system with low leverage
Well-regulated, well-capitalised banking system with low leverage SA banking system ranked 2nd globally Global Competitiveness Index Rank of (1 = insolvent and may require government bailout; 7 = generally healthy with sound balance sheets) 144 Canada (1) 6.8 Efficacy of corporate bonds 1st South Af
Slide 41: South African banking liquidity gap
South African banking liquidity gap Business as usual gap Contractual maturity gap 2 000 10% 2 000 10% 7% 6% Contractual Maturity of Assets 5% 5% 1 500 1 500 Contractual Maturity of Liabilities Contractual Cumulative Gap 0% 0% 0% 1% 0% 1 000 1 000 -1% -2% -5% -5% -4% 500 -7% 500 -10% -10% 0 -15% 0 -
Slide 42: FirstRand Bank is one of South Africa's Big 4 banks – liabilities and capital
FirstRand Bank is one of South Africa’s Big 4 banks – liabilities and capital Deposits Capital adequacy R3 141bn 16.8% 14.9%* 3.6% 14.2% 1.7% 13.6% 41% 0.6% 1.0% 2.1% 2.9% R803bn 1.4% R640bn R646bn 36% R558bn 39% 42% 12.6% 12.2% 47% 11.3% 59% 10.1% 64% 61% 58% 53% Industry FRB ABSA NED SBK FRB ABSA
Slide 43: Influences on household credit extension
Influences on household credit extension Debt service costs Disposable income of households 16 % 20 % 14 15 12 10 10 8 5 6 0 4 -5 2 0 -10 1996 1999 2002 2005 2008 2011 2000 2003 2006 2009 2012
Slide 44: Credit extension supported M3
Credit extension supported M3 Credit extension & bank assets Money supply and credit extension (%) 30 % % 80 30 25 25 75 20 20 70 15 15 65 10 10 60 5 5 55 0 Total private sector credit (y/y) 0 PCE/(Banking system assets) (RHS) 1998 2001 2004 2007 2010 2013 -5 50 1998 2000 2002 2004 2006 2008 2010 20
Slide 45: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 46: Key stakeholders of the bank to whom we have a fiduciary responsibility
Key stakeholders of the bank to whom we have a fiduciary responsibility Regulator Debt Share Stability and holders Performance holders Performance metrics, resilience metrics funding mix Asset & risk Asset & risk quality, balance Return and quality sheet structure, volatility credit rating Prudentia
Slide 47: Economic view of the balance sheet
Economic view of the balance sheet Nominal gearing: 15 times 5% 5% 8% 16% Deposits & current accounts 87% of liabilities 3% Retail 20%# AAA/A 2%* High quality diversified advances A-/BBB- 25%* Commercial 20%# Diversified funding Net advances 76% of assets & equity CIB deposits 18%# BB+/BB- 32%* CIB
Slide 48: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 49: Strong focus on building a diversified funding base
Strong focus on building a diversified funding base Sources of funding Funding instruments 1% R481bn R516bn R558bn R640bn 5 6 6 3% 5 5 5 5 6 10% 21% 8 9 11 9 4% 1% 16 Other 16 17 16 5% Foreign 4% 22 SME 21 22 20% 22 Public sector Retail Corporate 31% 42 40 Institutional 37 39 Current and savings acc
Slide 50: 83% of liability growth attributed to better source and term
83% of liability growth attributed to better source and term 17% of growth 13% of growth R26bn 70% of growth R21bn R110bn WART R249bn 20.4 months WART R202bn 17.4 months R390bn R280bn 2010 Deposit x Capital y Other institutional z 2013 franchise markets funding* Deposit franchise Institutional fundi
Slide 51: Basel III update
Basel lll update • During January 2013 the Basel Committee reaffirmed the LCR as an essential component of the Basel lll reforms • Phased-in approach – extended timeframe for full compliance to 2019 from 2015 • Minimum requirement = 60% at 1 Jan 2015, 10% incremental step ups each year to 2019 • Exp
Slide 52: Revised LCR regulations improve Bank's position and already meet 2015 requirement
Revised LCR regulations improve Bank’s position and already meet 2015 requirement LCR 100% SARB committed liquidity facility 100% 90% 80% 70% 60% 0% Jun ’13 2015 2016 2017 2018 2019 LCR based LCR requirement on revised regulations
Slide 53: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 54: CET1 ratio reflects strong capitalisation
CET1 ratio reflects strong capitalisation CET1 ratio 14% 12.6% 12.5% 12% FSR CET1 target range: 10% management buffer 9.5% – 11.0% 2.5% 8% 6% SARB end-state 4% minimum requirement 8.5% 2% 0% Column2 X 2013 Economic view of capital Column1 SARB actual (end state)
Slide 55: South African banking sector conservative in RWA and level of capital
South African banking sector conservative in RWA and level of capital Low capital ratios & Well capitalised & high risk weights US high risk weights South Africa China Greece Italy Spain Total assets UK RWA Total EMEA France Germany/Austria Japan Benelux Nordic Low capital ratios Well capitalised &
Slide 56: CET1 challenges given Basel III approach to minorities
CET1 challenges given Basel III approach to minorities • The reality • Subsidiaries’ in-country minimum higher than SARB minimum capital requirement • Local shareholding requirement • Basel III rule and consequence • Limited inclusion of minorities where a bank-regulated subsidiary carries capital i
Slide 57: Agenda
Agenda • Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector • FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans
Slide 58: FirstRand's philosophy on foreign currency external debt
FirstRand’s philosophy on foreign currency external debt • Framework for the management of external debt takes into account sources of sovereign risk: • Unsustainable debt path (solvency) crisis • Liquidity crisis • Exchange rate and macroeconomic crisis • We consider the external debt of all South
Slide 59: Conceptual liquidity in FX market
Conceptual liquidity in FX market Liquidity 1,200 1,000 800 600 USD14bn daily average 400 200 Very liquid USD175m daily average (est.) - Spot O/N 1M 3M 1YR 2R 3Yr 4YR 5Yr 10YR Liquid Reduced liquidity Limited liquidity Daily average spot USDZAR turnover is estimated as US$14bn BIS Triennial Central
Slide 60: Reasons for swap based funding
Reasons for swap based funding • Reduced credit costs in funding • A currency swap is a net transaction, subject to ISDA • Offset results in reduced credit risk • Usually under CSA, zero threshold becoming more common • You do not have to pay sovereign credit spread • By giving funders the opportuni
Slide 61: International funding activities
International funding activities • Syndicated loans • EMTN program • Stanchart arranged $215m maturing • Reg S Jan 2014 • USD 500 million 5-year bond due 2016 • Commerzbank arranged $200m maturing • Private placements Dec 2014 • African currencies BWP, ZMK, NGN settled in USD/EUR • DFI facilities •
Slide 62: FirstRand
FIRSTRAND
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