Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (October 2022)
47 slides from Firstrand's debt investor presentation, Oct 3, 2022
Slide 1: Financial and strategic update
financial and strategic update
Slide 2: Agenda
2 Agenda Group overview and strategic update Alan Pullinger Overview of the bank (debt issuer) and financial performance CEO: FirstRand Financial resource management Funding and liquidity Andries du Toit Capital FirstRand Group Treasurer South African financial sector and market infrastructure Alan
Slide 3: Group overview and strategic update
group overview and strategic update
Slide 4: FirstRand's portfolio
4 FirstRand’s portfolio Retail and commercial banking, insurance and investments Corporate and investment banking Vehicle asset finance and fleet management Listed holding company UK specialist bank (FirstRand Limited, JSE: FSR) Asset management Group-wide functions
Slide 5: Portfolio mix at June 2022 – activity, geography and business
5 Portfolio mix at 30 June 2022 – activity, geography and business UK operations† Investing Other Transact UK operations† Insure FNB Broader WesBank Save/invest** Africa# 9% 9% 9% RMB 5% Geographic Normalised Revenue split normalised earnings per by activity* earnings mix 25% operating business‡ 61%
Slide 6: Group strategic framework presents distinctive investment proposition
6 Group strategic framework presents distinctive investment proposition 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 enduri
Slide 7: Disciplined execution of specific strategies shaped growth and ROE outcomes
7 Disciplined execution of specific strategies shaped growth and ROE outcomes Earnings fully recovered • R32.7 billion normalised earnings KEY OBJECTIVES • 17% above peak 2019 level • Carefully price for financial resources Strong economic profit (NIACC*) generation: • Appropriately provide against
Slide 8: Performance demonstrates full recovery
8 Performance demonstrates full recovery Normalised Pre-provision operating Total distributions (annual earnings profit + special dividend) R32.7bn R53.8bn R26.2bn (2021: R26.6bn) 23% (2021: R50.6bn) 6% (2021: R14.8bn) 78% Return on assets Return on equity Net asset value 1.69% 20.6% R164.9bn (20
Slide 9: Overview of the bank (debt issuer) and financial performance
overview of the bank (debt issuer) and financial performance
Slide 10: FirstRand Bank is a wholly owned subsidiary of FirstRand Limited
10 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 (FRB) Broader Africa SA banking FirstRand Int
Slide 11: FRB a significant contributor to group's financial position
11 FRB a significant contributor to group’s financial position 24% 25% Group FirstRand Bank FirstRand Bank normalised Group Other legal entities* Other legal entities* earnings assets 76% 75% 3% 3% 2% 35% South Africa Group FRB normalised FirstRand Bank geographical Broader Africa net asset Other le
Slide 12: SA banking business remains underpin to group's growth
12 SA banking business remains underpin to group’s growth SOUTH AFRICA BROADER AFRICA UK Platform-enabled integrated financial Modernise, digitise and scale Build competitive advantage services providing ecosystems that to a more valuable UK business and scale to deliver economic create long-term va
Slide 13: The bank supports the group's broader Africa strategy
13 The bank supports the group’s broader Africa strategy SOUTH AFRICA BROADER AFRICA UK Platform-enabled integrated financial Modernise, digitise and scale Build competitive advantage services providing ecosystems that to a more valuable UK business and scale to deliver economic create long-term val
Slide 14: UK – MotoNovo integration into Aldermore completed
14 UK – MotoNovo integration into Aldermore completed SOUTH AFRICA BROADER AFRICA UK Platform-enabled integrated financial Modernise, digitise and scale Build competitive advantage services providing ecosystems that to a more valuable UK business and scale to deliver economic create long-term value
Slide 15: Key performance metrics – normalised
15 Key performance metrics – normalised 2022 2021 % change Earnings (R million) 24 742 19 032 30 Pre-provision operating profit (R million) 39 366 37 366 5 Net interest margin (%) 4.74 4.72 Credit loss ratio (%)* 0.68 1.30 Cost-to-income ratio (%) 54.3 54.0 Return on equity (%) 23.4 19.1
Slide 16: Significant reduction in cost of credit continued to drive absolute earnings growth
16 Significant reduction in cost of credit continued to drive absolute earnings growth Normalised earnings Credit impairment charge R million R million 25 000 30% 18 269 24 742 11 115 47% 20 000 21 152 8 460 20 170 5 891 19 032 2019 2020 2021 2022 15 000 13 762 Credit loss ratio* % 10 000 2.08 1.3
Slide 17: Growth in PPOP reflects deliberate origination tilt and rebound in NIR
17 Growth in PPOP reflects deliberate origination tilt and rebound in NIR Pre-provision operating profit R million • NII reflects: 45 000 • Muted average advances growth 5% 40 000 given origination strategies 39 366 35 000 37 072 37 366 35 778 • Decline in advances margins driven 30 000 by mix chan
Slide 18: Topline growth and credit unwind contribute to earnings growth
18 Topline growth and credit unwind contribute to earnings growth Normalised earnings R million 35 000 30 000 6% 6% 47% 2 236 (2 654) 16% (1 311) 30% 25 000 5 224 Effective tax rate 24 742 5% 2022: 24.3% 20 000 2 215 (2021: 25.5%) 19 032 15 000 10 000 5 000 - 2021 NII Impairments NIR Opex Tax
Slide 19: Grew advances cautiously but tactically into an uneven recovery
19 Grew advances cautiously but tactically into an uneven recovery R billion 1 050 9% Core client advances: 1 000 +R47.2 billion 950 Core client advances: +R28.2 billion 900 850 800
Slide 20: Sensible balance sheet provisions and coverage maintained
20 Sensible balance sheet provisions and coverage maintained Total provisions (R million) and coverage (% of core lending advances) Total provisions R38 469m Total provisions R35 349m Total provisions R27 303m 46.4% 50.8% 45.8% 12.00% 10.78% 9.80% 0.76% 1.06% 0.95% 2019 2021 2022 Stage 1 Stage 2 Sta
Slide 21: Strength of deposit franchise underpins improved cost of funds
21 Strength of deposit franchise underpins improved cost of funds Deposit franchise R billion • Deposit franchise growth driven by 1 000 • Customer acquisition 14% 900 • Good growth in cash investment and 901 800 transactional products 792 700 • FNB remained the top household deposit 600 franchise
Slide 22: Group Treasury ALM strategies – protect and enhance earnings
22 Group Treasury ALM strategies – protect and enhance earnings • Natural risk position maintained • ALM objectives • Be countercyclical to operating businesses • Add resilience to group’s balance sheet and risk profile – ALM matching philosophy • Provide the best group outcome through the cycle on
Slide 23: ALM strategies significantly added to shareholder value over multiple reporting periods
23 ALM strategies significantly added to shareholder value over multiple reporting periods Stylised view of the outcomes of group’s ALM strategy Market-implied Total revenue forward rates contribution from group ALM strategies • ALM strategy OUTCOMES • Enhanced earnings with lower volatility • Growt
Slide 24: Financial resource management
financial resource management
Slide 25: Dynamic financial resource management protected returns
25 Dynamic financial resource management protected returns Origination strategies BALANCE SHEET TILT • Sensible advances growth into sustained recovery • Appropriate risk-adjusted margins • Muted average advances growth • Stronger momentum in second half Funding and liquidity strategies • Continued
Slide 26: FirstRand's philosophy on funding and capital
26 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 27: Funding and liquidity
FOR THE YEAR ENDED 30 JUNE 2022 FirstRand Bank
Slide 28: FRB exceeds LCR and NSFR requirements
28 FRB exceeds LCR and NSFR requirements LIQUIDITY COVERAGE RATIO (LCR) NET STABLE FUNDING RATIO (NSFR) • June 2022: 124% • June 2022: 120% • Temporary relief measures withdrawn and LCR • In addressing the LCR, the bank adopted strategies requirement phased back to reduce structural liquidity risk,
Slide 29: Continuing focus on optimising the funding base
29 Continuing focus on optimising the funding base Sources of funding Funding instruments R974bn R1 065bn R1 095bn R1 155bn R1 249bn Deposit franchise* = 72% 6% 5% 5% 4% 6% 10% 10% 10% 14% 13% 5% 5% 6% 6% 6% 20% 21% 23% 23% 23% 2022 20% 20% 22% 23% 24% 2% 4% 12% 2% 11% 2% 11% 2% 11% 10% 25% 24% 21%
Slide 30: Strength of deposit franchise supported lower cost of funds
30 Strength of deposit franchise supported lower cost of funds R billion 2021 2022 18% 9% 368 332 313 305 16% 201 4% 174 165 12% 159 132 117 8% 47 6% 43 26 28 SA retail SA commercial CIB* Group Treasury Debt securities Other deposits AT1 and T2 capital deposits** Other funding Deposit franchi
Slide 31: Less reliance on institutional funding, term maintained
31 Less reliance on institutional funding, term maintained Institutional funding as % of total funding Diversified institutional funding mix and term profile 42% Institutional funding composition Months 100% 45 40% 90% 40 41 38% 80% 39 37 35 36 36% 70% 34 30 34% 60% 25 50% 32% 20 40% 30% 15 30% 28%
Slide 32: Capital
FOR THE YEAR ENDED 30 JUNE 2022 FirstRand Bank
Slide 33: Strong CET1 ratio maintained at June 2022
33 Strong CET1 ratio maintained at 30 June 2022 CET1 ratio* % NAV accretion: +55 bps 18 17 (288 bps) 347 bps 16 15 11 bps (15 bps) (85 bps) 14 14.5 5 bps 14.2 13 • Credit ▼75 bps • Operational risk and other ▼10 bps 12 11 10 2021 Earnings Dividends FCTR Other** RWA FRM 2022 optimisation strategies *
Slide 34: Financial sector and market infrastructure
financial sector and market infrastructure
Slide 35: Regulatory update
35 Regulatory update • Financial Sector Laws Amendment Act 23 of 2022 (FSLA) was promulgated on 28 January 2022 • South African Reserve Bank (SARB) will become the designated resolution authority with the necessary powers to operationalise an effective resolution regime • Provisions of the FSLA (inc
Slide 36: Proposed implementation dates – final Basel III reforms
36 Proposed implementation dates – final Basel III reforms 2022 and 2023 2024 onwards 1 October 2022 1 January 2024 • Revisions to the securitisation framework • Interest rate risk in the banking book: disclosure requirements • Revised standardised approach for credit risk framework • Revised intern
Slide 37: FRB credit ratings
37 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-/Positive BB-/Positive zaAA bbb- Moody’s Ba2/Stable Ba2/Stable
Slide 38: Looking ahead
FirstRand Bank
Slide 39: SA inflation should turn and rates likely to peak by 2H FY23
39 SA inflation should turn and rates likely to peak by 2H FY23 Headline inflation rate (CPI) Repo rate % y/y % 15 14 14 12 13 12 10 11 Recent falls in oil prices 10 8 suggest peak in inflation Nominal repo rate 9 is in sight 6 8 7 4 6 Real repo rate 5 2 4 - 3 2 (2) 1 - (4) Sources: StatsSA, FirstRa
Slide 40: Execution on reforms could lift potential growth further
40 Execution on reforms could lift potential growth further Contribution of structural reforms to potential growth Evidence of reform momentum % • Spectrum auction concluded 4.0 Green arrows = promising signs 0.20 • Renewable energy programme opened for wind and 3.5 3.70 0.30 solar power 3.0 0.60 •
Slide 41: FirstRand Bank's portfolio has attractive growth prospects
41 FirstRand Bank’s portfolio has attractive growth prospects • SA advances growth will accelerate as macros improve • Momentum in second half expected to continue • Cautiously increasing credit appetite • Stronger trajectory in SA NIR • Customer growth • Increased volumes on platform • Continued im
Slide 42: Appendix
FirstRand Bank
Slide 43: Bank has strengthened its balance sheet
43 Bank has strengthened its balance sheet ACTUAL TREND Marginally lower as structured liquid assets have Assets in marketable format >R434 billion amortised Liquid assets as % of total assets 28.9%* Marginally lower LCR: 124% The bank’s liquidity position remains healthy, with LCR and NSFR NSFR: 12
Slide 44: Resolution blueprint – proposed hierarchy in insolvency
44 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 45: Continued improvements to balance sheet liquidity
45 Continued improvements to balance sheet liquidity Balance sheet growth Liquid asset growth and mix R billion R billion 304 1 600 300 1 480 38 1 400 CAGR CAGR ▲7.1% 250 ▲10.7% 1 200 1 050 200 1 000 183 31 800 150 232 600 100 93 400 50 200 59 34 0 0 2017 2022 2017 2022 Cash and central bank deposit
Slide 46: Important notice
46 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 47: Important notice (continued)
47 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
FirstRand Bank — Debt Investor Presentation (October 2022) on 6ix