Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (October 2020)
51 slides from Firstrand's debt investor presentation, Oct 20, 2020
Slide 1: Financial and strategic update
financial and strategic OVERVIEW AND FINANCIAL RESULTS update
Slide 2: Agenda
2 Agenda Overview of the group Alan Pullinger Overview of the bank (debt issuer) CEO: FirstRand Financial resource management Funding and liquidity Andries du Toit Capital FirstRand Group Treasurer South African financial sector and market infrastructure Alan Pullinger Conclusion CEO: FirstRand
Slide 3: Overview of the group
overview of OVERVIEW AND FINANCIAL RESULTS the group
Slide 4: FirstRand's portfolio
4 FirstRand’s portfolio LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) Retail and commercial Corporate and Instalment UK specialist Asset Group-wide banking, insurance investment banking credit and fleet bank management functions and investments management
Slide 5: Current portfolio mix – activity, geography and business
5 Current portfolio mix – activity, geography and business Investing Other UK UK operations‡ Insure Transact Save Rest of WesBank 5% and invest** Africa 4% 4% 12% Geographic Normalised earnings Revenue split PBT mix# 30% by activity* per operating (i.e. pre-minorities) business† 62% RMB 83% Lend FNB
Slide 6: Key group performance metrics
6 Key group performance metrics Normalised Pre-provision operating Interim dividend per earnings profit share R17.3bn R48.3bn 146 cents (2019: R27.9bn) i38% (2019: R49.2bn) i2% (2019: 139 cents) h5% Return on assets Return on equity No final dividend in line with regulatory 0.96% 12.9% guidance (201
Slide 7: COVID-19 pandemic led to a global economic crisis
7 COVID-19 pandemic led to a global economic crisis HEALTH CRISIS ECONOMIC CRISIS National State of Disaster declared Global policy actions spanned all channels Control the spread Economic stability Protect the vulnerable Monetary stability Treat the infected Financial stability Protect lives, flatt
Slide 8: Government and regulatory response was comprehensive
8 Government and regulatory response was comprehensive ECONOMIC STABILITY MONETARY STABILITY FINANCIAL STABILITY Government fiscal and economic • 275 bps in interest rate cuts • SARB took action to support support measures, reprioritisation and to date liquidity transmission and guarantees = R500 bi
Slide 9: The group focused on serving the needs of multiple stakeholders
9 The group focused on serving the needs of multiple stakeholders CUSTOMERS EMPLOYEES SOCIETY • Debt relief • Work from home • In SA, supported Solidarity Fund • Retail: emergency cash flow relief • Provided required equipment, VPN and B4SA facility, payment holidays, extension access, hardware supp
Slide 10: Deepest nominal GDP contraction in SA since WWII
10 Deepest nominal GDP contraction in SA since WWII YEAR-ON-YEAR GROWTH % 40 35 30 25 Nominal GDP growth 20 15 Average: 1946 to date 10 Baseline forecast 5 Previous low: +3.1% (1958) 0 -5 Expected new low: Nominal GDP -4.8%, real GDP -8% (2020) -10 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1
Slide 11: Growing concern regarding SA sovereign debt sustainability
11 Growing concern regarding SA sovereign debt sustainability Debt to GDP, debt service cost to revenue (passive scenario) SA financing gap % of GDP % of revenue R trillion Government expenditure 180 50 (saa, 4mma)* 600 160 140 40 500 120 100 400 Debt to GDP 30 80 Debt service cost (LHS) 300 Governm
Slide 12: Significant deterioration across key SA macro variables
12 Significant deterioration across key SA macro variables Interest rates Unemployment rate PRIME RATE % % 32 30 30 28 Repo rate 26 25 24 22 20 20 Mar 08 Sep 09 Mar 11 Sep 12 Mar 14 Sep 15 Mar 17 Sep 18 Mar 20 Household income and credit growth 15 30% Household 25% income 10 20% 15% 5 10% 5% Private
Slide 13: Impact of macro shocks on business performance
13 Impact of macro shocks on business performance OPERATING ENVIRONMENT BUSINESS IMPACT Low real GDP growth • Low real disposable income growth – Negative impact on corporate activity, retail and commercial transactional volumes (negative NIR impacts) • Low real corporate profitability growth – Mate
Slide 14: Overview of the bank (debt issuer)
overview of the bank OVERVIEW AND FINANCIAL RESULTS (debt issuer)
Slide 15: FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited
15 FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) OTHER WHOLLY-OWNED SUBSIDIARIES OF FIRSTRAND LIMITED 100% FirstRand EMA Holdings (Pty) Ltd (FREMA) DEBT ISSUER FIRSTRAND BANK LIMITED Rest of Africa SA banking FirstRand Internati
Slide 16: FRB a significant contributor to group's financial position
16 FRB a significant contributor to group’s financial position 20% 27% Group FirstRand Bank FirstRand Bank normalised Group Other legal entities* Other legal entities* earnings assets 80% 73% 2% 3% 4% 31% South Africa Group FRB FirstRand Bank Rest of Africa normalised geographical net asset Other le
Slide 17: Group strategic framework
17 Group strategic framework FirstRand commits to building a future of SHARED PROSPERITY through enriching the lives of its customers, employees and the societies it serves. This is the foundation to a sustainable future and will preserve the group’s enduring promise to create long-term value and su
Slide 18: Protecting and growing SA banking businesses key to group's growth
18 Protecting and growing SA banking businesses key to group’s growth SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Grow a more valuable banking businesses services offering to the rest of Africa UK business The bank continues to focus on The group’s strategy t
Slide 19: The bank supports the group's rest of Africa strategy
19 The bank supports the group’s rest of Africa strategy SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Grow a more valuable banking businesses services offering to the rest of Africa UK business • The bank’s balance sheet is utilised in RMB’s cross-border lendi
Slide 20: UK – MotoNovo integration into Aldermore completed
20 UK – MotoNovo integration into Aldermore completed SOUTH AFRICA REST OF AFRICA UK Protect and grow Broaden financial Portfolio approach Grow a more valuable banking businesses services offering to the rest of Africa UK business • FirstRand acquired Aldermore in 2018 (Aldermore is not part of Firs
Slide 21: Group crisis response framework to protect shareholder value
21 Group crisis response framework to protect shareholder value • FirstRand implemented specific actions in March to weather the storm and ensure the group can fully capitalise on recovery • Anchored business to financial resource management principles for next 18 to 24 months: • Carefully price for
Slide 22: Bank has protected its balance sheet
22 Bank has protected its balance sheet ACTUAL TREND Assets in marketable format >R335 billion Increased (improved liquidity) Liquid assets as % total assets 23.8% Increased (improved liquidity) LCR: 124% The group entered COVID-19 in a strong liquidity LCR and NSFR* position, which has been maintai
Slide 23: Key performance metrics (normalised)
23 Key performance metrics (normalised) 2020 2019 % change Earnings (R million) 13 762 21 152 (35) q Pre-provision operating profit 35 778 37 072 (3) q Net interest margin (%) 4.65 4.97 q Credit loss ratio (%) 2.00 0.95 p Cost-to-income ratio (%) 54.8 53.4 p Return on equity (%) 14.6 23.7 q Return o
Slide 24: Earnings decline driven by significant increase in credit impairments in the second half
24 Earnings decline driven by significant increase in credit impairments in the second half NORMALISED EARNINGS CREDIT IMPAIRMENT CHARGE R million R million p>100% 12 000 13 380 10 000 10 594 10 558 10 289 4 342 4 889 4 118 8 000 H1 FY20 on H1 FY19: q3% 6m to 6m to 6m to 6m to Dec 18 Jun 19 Dec 19 J
Slide 25: Unpack of credit impairment charge demonstrates prudent forward-looking provisioning
25 Unpack of credit impairment charge demonstrates prudent forward-looking provisioning IMPAIRMENT CHARGE BREAKDOWN IMPAIRMENT CHARGE COMPOSITION R million % 14 000 13 246 100% 12 000 80% 10 000 8 631 NPLs, write-offs 73% 60% and recoveries 8 000 102% 6 000 40% 4 000 3 670 5% Debt relief impact 20%
Slide 26: Financial resource management
financial resource OVERVIEW AND FINANCIAL RESULTS management
Slide 27: Disciplined approach to financial resource management
27 Disciplined approach to financial resource management • Strong capital position Capital • Appropriate buffers in excess of minimum management Balance sheet strength • Distance-to-trigger/default Assets • Quality Liabilities • Integrated funding and liquidity • Quality Earnings resilience, volatil
Slide 28: FirstRand's philosophy on funding and capital
28 FirstRand’s philosophy on funding and capital Funding Capital Risk appetite measures • Diversify across business, • Capital planning performed • Regulator – comfortably markets, currencies, maturities on forward-looking basis, exceed minimum prudential and instrument types not point-in-time requi
Slide 29: Funding and liquidity
funding and liquidity OVERVIEW AND FINANCIAL RESULTS
Slide 30: FRB exceeds LCR and NSFR requirement
30 FRB exceeds LCR and NSFR requirement Liquidity coverage ratio (LCR) Net stable funding ratio (NSFR) • June 2020: 124% • June 2020: 116% • Effective 1 April 2020, temporary COVID-19 relief • In addressing the LCR, the bank adopted strategies measures introduced, reducing the LCR minimum to reduce
Slide 31: Continued improvements to balance sheet liquidity
31 Continued improvements to balance sheet liquidity BALANCE SHEET GROWTH LIQUID ASSET GROWTH AND MIX R billion R billion 1 600 249 250 1 400 1 364 CAGR CAGR 15.9% 8.3% 200 1 200 1 000 917 150 800 119 600 100 400 50 200 0 0 2015 2020 2015 2020 Cash and central bank deposits Government bonds and bill
Slide 32: Strength of deposit franchise benefited given COVID-19 response from institutional funders
32 Strength of deposit franchise benefited given COVID-19 response from institutional funders LIABILITIES R billion 450 400 2019 2020 350 300 p16% p19% 288 285 250 q17% 248 240 244 200 p8% 203 150 157 146 q6% 100 112 105 q25% 50 68 p2% 51 27 28 0 SA retail SA commercial Corporate and Group Treasury
Slide 33: Continued focus on optimising the funding base…
33 Continued focus on optimising the funding base… SOURCES OF FUNDING FUNDING INSTRUMENTS R826bn R885bn R974bn R1 065bn R1 095bn 37% 36% 35% 36% 32% Deposit franchise*: 72% 22% 20% 21% 21% 21% June 2020 19% 20% 20% 21% 23% 10% 11% 11% 11% 11% 6% 5% 5% 5% 6% 7% 6% 8% 6% 6% 1% 1% Current and savings a
Slide 34: … and lengthening the term profile of institutional funding
34 … and lengthening the term profile of institutional funding Institutional funding as % of total funding Diversified institutional funding mix and term profile 42% Institutional funding composition Months 100% 40 40% 90% 38 37 80% 36 38% 36 70% 60% 34 33 34 36% 50% 31 32 40% 34% 30% 30 20% 32% 28
Slide 35: Capital
capital OVERVIEW AND FINANCIAL RESULTS
Slide 36: Healthy capital position
36 Healthy capital position CET1 RATIO* % 14.5 • Risk migration and Net internal capital downgrade of corporates generation and 14.0 muted RWA growth • Rand depreciation and ▲50 bps MTM volatility 13.5 13.7 ▼140 bps • Muted growth in SA 13.4 13.0 ▲20 bps ▼80 bps 12.5 ▲10 bps 12.3 12.0 11.5 11.0 10.5
Slide 37: Ongoing internal capital generation increases capacity
37 Ongoing internal capital generation increases capacity CET1 RATIO 14% 12% Current CET1 capacity above capital conservation: CET1 target 11% – 12% R34.3 billion 12.3% 10% • Surplus above target: R10.0 billion • Demonstrates dividend affordability for the group 8% 7.75% • Surplus sufficient to supp
Slide 38: Financial sector and market infrastructure
financial sector and OVERVIEW AND FINANCIAL RESULTS market infrastructure
Slide 39: Regulatory update
39 Regulatory update • Financial Sector Laws Amendment Bill tabled by the Minister of Finance on 20 August 2020 • Established Corporation of Deposit Insurance – designed to protect depositors’ funds and enhance financial stability • Discussion documents released in 2020: Coverage and reporting rules
Slide 40: Resolution blueprint – proposed hierarchy in insolvency
40 Resolution blueprint – proposed hierarchy in insolvency CURRENT AMENDED Secured Secured • Allows for setoff up to the value of security held (up to the (up to the • Residual claims rank pari passu with all other unsecured creditors value of value of security) security) • Assets under repo GMRA, I
Slide 41: FRB credit ratings
41 FRB credit ratings SOUTH AFRICA FIRSTRAND BANK LIMITED SOVEREIGN RATINGS CREDIT RATINGS FOREIGN CURRENCY LOCAL AND FOREIGN CURRENCY Long term/ Long term/ Long-term Standalone outlook outlook national scale credit rating* S&P Global BB-/Stable BB-/Stable zaAA bbb- Moody’s Ba1/Negative Ba1/Negative
Slide 42: Conclusion
conclusion OVERVIEW AND FINANCIAL RESULTS
Slide 43: COVID-19 is a 2020 calendar year event for FirstRand – base effect in Dec 2020
43 COVID-19 is a 2020 calendar year event for FirstRand – base effect in Dec 2020 NORMALISED EARNINGS FOR THE SIX MONTHS TO R million 16 000 GROUP: 14 000 14 552 14 009 • Pressure on earnings remains for next 12 000 six months 10 000 • On a rolling six-month basis: 8 000 • Earnings bottomed in June
Slide 44: SA post year-end trends show improvement
44 SA post year-end trends show improvement High-level, early indications: • Volumes have improved since lockdown, but still lower compared to prior year and show that strain continues • Early indications that average financial transactions recovered to ±90% of pre-lockdown levels (value per transac
Slide 45: FirstRand's recovery and eventual outperformance underpinned by distinctive proposition
45 FirstRand’s recovery and eventual outperformance underpinned by distinctive proposition THE GROUP IS: • A portfolio of multi-branded businesses providing a broad range of financial services • A market leader in SA with ambitions to achieve leadership in all chosen markets • Differentiated by a lo
Slide 46: FirstRand's unique portfolio will support earnings and ROE recovery
46 FirstRand’s unique portfolio will support earnings and ROE recovery • Relative size of transactional franchise • Capital light • Digital platform strategy enables regular interactions, ecosystems and network effects – outcome is growth and efficiencies • Deposit franchise provides cost of funds a
Slide 47: Appendix
appendix OVERVIEW AND FINANCIAL RESULTS
Slide 48: Reduction in normalised earnings driven by impairments
48 Reduction in normalised earnings driven by impairments NORMALISED EARNINGS R million 24 000 q1% p>100% 20 000 21 152 (451) 16 000 (9 809) q45% q35% - 13 762 12 000 6 p2% 3 732 (868) 8 000 4 000 0 Jun 19 NII Impairments NIR Opex Tax and other Jun 20
Slide 49: Important notice
important notice OVERVIEW AND FINANCIAL RESULTS
Slide 50: Important notice
50 Important notice The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable legislation or an offer or solicitation of an offer to buy or sell securities or financial instruments or any advice or recommendation to buy such securit
Slide 51: Important notice (continued)
51 Important notice (continued) The information in this presentation is given in confidence and the recipients of this presentation should not engage in any behaviour which would or might amount to market abuse for the purpose of Regulation (EU) 596/2014 (the Market Abuse Regulation). This presentat
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