Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (April 2018)
48 slides from Firstrand's debt investor presentation, April 2018
Slide 1: FirstRand Bank Tier 2 Roadshow Presentation
FIRSTRAND BANK TIER 2 ROADSHOW PRESENTATION April 2018
Slide 2: Presentation teams
2 Presentation teams UK AND EUROPE ASIA • Harry Kellan: CFO • Jaco van Wyk: Head of Group Finance • Andries du Toit: Group Treasurer • Frikkie Kleinhans: Head of Capital Management • Melanie Kleinhans: Investor Relations • Bhulesh Singh: Group Treasury • Kalai Govender: Group Treasury
Slide 3: Overview of the FirstRand group and FirstRand Bank (issuer)
FIRSTRAND BANK TIER 2 | ROADSHOW PRESENTATION April 2018 Overview of the FirstRand group and FirstRand Bank (issuer)
Slide 4: Introducing the FirstRand group – financial position and track record
4 Introducing the FirstRand group – financial position and track record FINANCIAL HIGHLIGHTS USD NORMALISED EARNINGS – YEAR ENDED 30 JUNE for the year ended 30 June 2017 ZAR million million ZAR million Total assets (normalised) 1 217 745 92 958 25 000 Normalised net asset value 108 922 8 315 24 471
Slide 5: FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited
5 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 (Pty) Ltd (FREMA) Banking subsidiaries ISSUER FIRSTRAND BANK LIMITED in the rest of Africa FirstRand Intern
Slide 6: A significant contributor to the group's financial position
6 … and a significant contributor to the group’s financial position 11% 26% FirstRand FirstRand Bank FirstRand Bank normalised FirstRand Other legal entities* Other legal entities* earnings assets 74% 89% 6% 2% 3% 23% South Africa FirstRand FRB FirstRand Bank Other Africa normalised geographical net
Slide 7: FRB is one of South Africa's 'Big 4' banks
7 FRB is one of South Africa’s ‘Big 4’ banks Assets* (ZAR billion) Gross advances* (ZAR billion) CET1 ratios and ROE** (%) CET1 ROE 5 158 3 822 21.1% 17.8% 1 255 16.4% 16.6% 930 1 121 814 984 13.9% 13.4% 13.6% 754 12.6% 889 705 Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA FRB Absa N
Slide 8: The bank's focus is on protecting and growing its transactional and lending franchises
8 The bank’s focus is on protecting and growing its valuable transactional and lending franchises • Gain profitable market share by growth and retention of customers across all segments • Differentiated client-centric customer value propositions • Leveraging the group’s platforms (customer bases, di
Slide 9: FirstRand Bank's credit ratings
9 FirstRand Bank’s 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 Baa3/Stable Baa
Slide 10: Financial performance
TIER 2 ROADSHOW PRESENTATION April 2018 Financial performance FIRSTRAND BANK 10
Slide 11: FRB normalised performance highlights
11 FRB normalised performance highlights Dec 17 Dec 16 % change Earnings (ZAR million) 9 168 9 081 1% Return on equity (%) 21.1 22.6 Return on assets (%) 1.64 1.75 Credit loss ratio (%)* 0.84 0.79 Cost-to-income ratio (%) 55.2 53.8 Tier 1 ratio (%)** 14.1 14.5 Common Equity Tier 1 ratio
Slide 12: Overview of results
12 Overview of results Normalised earnings R million 12 500 +11% +9% +4% +14% 10 000 1 530 (1 742) 1% 704 (437) (1%) 9 081 32 9 168 7 500 5 000 2 500 0 Dec 16 NII Impairments NIR Opex Tax and other* Dec 17 Includes indirect tax, income tax expense and NCNR preference share dividends.
Slide 13: Overview of results for the six months ended December 2017
13 Overview of results for the six months ended 31 December 2017 • Normalised earnings negatively impacted by change in MotoNovo securitisations in current period and non-recovery of certain operational expenses relating to rest of Africa operations • Excluding these impacts operational performance
Slide 14: Retail advances growth reflect specific origination strategies
14 Retail advances growth reflect specific origination strategies R million Dec 17 Dec 16 % change Residential mortgages 198 704 191 437 4 Retail unsecured 17% Vehicle asset finance 133 502 114 252 17 4% - South Africa 97 069 92 016 5 7% 6% - MotoNovo* 36 433 22 236 64 Card 25 063 22 495 11 Retail a
Slide 15: Corporate and commercial advances growth remained resilient
15 Corporate and commercial advances growth remained resilient R million Dec 17 Dec 16 % change CIB core advances – South Africa 240 891 216 184 11 4% 22% - Investment banking 183 685 169 244 9 - High quality liquid assets 16 980 18 862 (10) Corporate and commercial - Corporate banking 40 226 28 078
Slide 16: NPLs trending in line with expectations
16 NPLs trending in line with expectations NPLs* R million NPLs* R billion 8 000 Origination Reflects credit cycle Specific 20 Overall NPLs +1% action and counterparties workout impacted by write-offs and 4.0 5.0 6 000 +17% 6 167 work-outs 15 +2% 5 291 +17% 4 535 4 670 4 552 4 462 (31%) 10 4 000 3 9
Slide 17: Credit loss ratio remains below TTC
17 Credit loss ratio remains below TTC Credit loss ratio (%) Dec 17 Dec 16 2.4 Retail – secured 0.83 0.67 2.4 2.3 Residential mortgages 0.15 0.14 2.2 2.3 2.3 0.5 0.5 2.2 VAF 1.87 1.50 0.6 0.6 SA 1.87 1.44 1.9 1.9 MotoNovo 1.86 1.74 1.7 1.6 Retail – unsecured 5.48 5.91 Card 2.41 2.60 Personal loans 6
Slide 18: Financial sector and market infrastructure
TIER 2 ROADSHOW PRESENTATION April 2018 Financial sector and market infrastructure FIRSTRAND BANK 18
Slide 19: Further strengthening the SA financial system
19 Further strengthening the SA financial system • SA benefits from world class market infrastructure in payments, exchanges and securities clearing • SA benefits in financial stability from the closed rand system • SA is adopting the Twin Peaks model of financial sector regulation • Regulation and
Slide 20: South Africa is progressing on G20 reforms and alignment
20 South Africa is progressing on G20 reforms and alignment Table on implementation of reforms in priority areas by FSB jurisdictions (as of 30 June 2017) REFORM AREA SOUTH AFRICA Risk-based capital In force LCR In force G-SIB Not applicable Basel III D-SIB In force Leverage ratio In force NSFR Publ
Slide 21: South Africa's evolving resolution regime
21 South Africa’s evolving resolution regime • Broadly in line with FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions • Adoption of Twin Peaks supervisory framework • Prudential Authority effective 1 April 2018 – one of two pillars for regulation of financial sector • L
Slide 22: Funding and liquidity
TIER 2 ROADSHOW PRESENTATION April 2018 Funding and liquidity FIRSTRAND BANK 22
Slide 23: Strong focus on building a diversified funding base
23 Strong focus on building a diversified funding base Sources of funding Funding instruments R795bn R826bn R857bn R885bn R939bn Deposit franchise: 70% 34% 37% 34% 36% 37% 22% 20% 22% 21% 22% Dec 17 19% 19% 20% 20% 20% 10% 10% 11% 11% 9% 5% 6% 6% 5% 5% 8% 7% 6% 6% 7% 2% 1% 1% 1% Dec 15 Jun 16 Dec 16
Slide 24: Financial resource management strategies have delivered balance sheet optimisation
24 Financial resource management strategies have delivered balance sheet optimisation Balance sheet growth How balance sheet growth was funded Liquid asset growth Total assets Liquid assets R billion R billion 15% of 1 200 +R210 billion increase: CAGR 9% CAGR 8% 200 CAGR 17% total assets 10% 180 CAG
Slide 25: FRB on track to comply with 2019 end-statement requirements
25 FRB on track to comply with 2019 end-statement requirements LCR – 101% (Dec 2017) Net stable funding ratio (NSFR) • LCR phase-in requirements continue with • SARB adopted an available stable funding (ASF) for minimum requirement financial institution deposits <6m of 35%, (2017: 80% and 2018: 90%)
Slide 26: Stylised view of FirstRand's external debt philosophy
26 Stylised view of FirstRand’s external debt philosophy… Solvency Net asset value Sustainability Asset quality Structural borrowing limit Liquidity risk Cash flow and earnings profile Structural borrowing capacity of all SA entities Debt level Liquidity limits Liquidity mismatch SA Inc’s repayment
Slide 27: Sustainable FX balance sheet structure
27 …which results in a sustainable FX balance sheet structure Assets Short-term trading assets Liquid trading assets Trade and working capital MotoNovo vehicle finance facilities Interbank placing Short-term Long-term lending FX liquidity buffers Cross border acquisition bridge finance loans (capex)
Slide 28: Capital
TIER 2 ROADSHOW PRESENTATION April 2018 Capital FIRSTRAND BANK 28
Slide 29: Final capital framework for South Africa fully aligned to Basel III
29 Final capital framework for South Africa fully aligned to Basel III Individual capital requirement or Pillar 2B 14.0* • Bank-specific individual capital requirement 2.5 • Not disclosed externally • Met with all components of capital 2.5 D-SIB 8.5* 1.0 • Systemic importance of banks 1.0 2.0 • Refl
Slide 30: Capital and leverage position as at December 2017
30 Capital and leverage position as at 31 December 2017 % Dec 17 Targets Regulatory minimum** CAPITAL CET1* 13.9 10.0 – 11.0 8.5 Tier 1 14.1 >12.0 10.75 Total 17.3 >14.0 14.0 LEVERAGE 7.3 >5.0 4.0 • Targets aligned to end-state minimum capital requirements • Target and maintain optimal level and com
Slide 31: Return profile protected and strong capital position maintained
31 Return profile protected and strong capital positioned maintained 25% 23.0% 22.9% 22.6% 22.2% 21.1% 20% 15% 14.2% 13.9% 14.1% 14.1% 13.9% 10% 5% 0% Jun 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017 CET1 capital* ROE * Reflects FRB including foreign branches. Ratios include unappropriated profits.
Slide 32: Impact of the group's Aldermore acquisition
32 Impact of the group’s Aldermore acquisition • FirstRand acquired Aldermore Bank plc, a UK-based specialist lender and savings bank • Transaction completed 14 March 2018 • MotoNovo • Contributed 1.6% of FRB’s normalised earnings for the six months ended 31 December 2017 • Historically funded throu
Slide 33: Domestic market supports Basel III-compliant Tier 2 issuances
33 Domestic market supports Basel III-compliant Tier 2 issuances SA banks Basel III-compliant Tier 2 issuances FRB Tier 2 issuance Basel III R billion % of RWA FRB: 30% 2014 4.3 2015 4.4 2016 4.9 2017 2.7 Total Basel III 16.3 2.6% Remaining banks Total old-style 3.1 0.5% • Frequent issuer, managing
Slide 34: Summary features of Tier 2 capital under Basel III
34 Summary features of Tier 2 capital under Basel III FEATURES BASEL III SARB Ranking Subordinated to senior unsecured obligations Maturity Dated (minimum 5-year maturity) Optional redemption Callable only after 5 years Early redemption Tax and regulatory only Incentives to redeem Step-ups n
Slide 35: Transaction overview
35 Transaction overview Issuer FirstRand Bank Limited Issuer ratings Baa3 stable (Moody’s) / BB stable (S&P) Expected issue ratings Ba2 (Moody’s) Offering USD [•] Fixed Rate Tier 2 Notes (the "Notes") Regulatory treatment USD benchmark Tier 2 Notes The Tier 2 Notes constitute direct, unsecured and s
Slide 36: Conclusion
TIER 2 ROADSHOW PRESENTATION April 2018 Conclusion FIRSTRAND BANK 36
Slide 37: A framework to differentiate between issuers
37 A framework to differentiate between issuers • Strong capital position Capital • Appropriate buffers in excess of minimum management Balance sheet • Distance-to-trigger/default strength Assets • Quality Liabilities • Integrated funding and liquidity • Quality Earnings resilience, volatility and g
Slide 38: In summary, FirstRand Bank remains well positioned
38 In summary, FirstRand Bank remains well positioned • Strong balance sheet • Proactively provided for credit cycle • Strong capital position • Integrated funding and liquidity management • Pre-emptive action taken prior to ratings downgrade • Protect market access • Diversify funding • Maintain ba
Slide 39: Important notice
39 Important notice THIS PRESENTATION IS AN ADVERTISEMENT AND NOT AN OFFER OR SOLICITATION OF AN OFFER TO BUY OR SELL SECURITIES. IT IS SOLELY FOR USE AT AN INVESTOR MEETING AND IS PROVIDED FOR INFORMATION ONLY. THIS PRESENTATION IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTL
Slide 40: Important notice (continued)
40 Important notice (continued) This presentation does not constitute an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities of FRB nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment wh
Slide 41: Annexures
TIER 2 ROADSHOW PRESENTATION April 2018 Annexures FIRSTRAND BANK 4
Slide 42: Macroeconomic environment continues to improve
42 Macroeconomic environment continues to improve Economic growth has increased Current account deficit reflects reduced external imbalances % % 2 7.0 6.0 0 5.0 -2 4.0 3.0 -4 2.0 -6 1.0 -8 0.0 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec -1.0 94 95 96 97 99 00 01 0
Slide 43: Government debt has increased, households are deleveraging
43 Government debt has increased, households are deleveraging Government debt to GDP ratio Government debt service costs % 12.5 National Treasury forecast 55 12.0 50 45 11.5 40 11.0 35 10.5 30 10.0 25 20 9.5 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2014/15 2015/16 2016/17 2017/18 2018/19 20
Slide 44: IMF Review: South Africa's financial stability assessment
44 IMF Review: South Africa’s financial stability assessment • Financial sector operates in challenging economic environment • Relatively high capital buffers as well as sound regulation and supervision have helped mitigate risks • Stress tests confirm the capital adequacy resilience of banks and in
Slide 45: Paying debt review customers require lower coverage
45 Paying debt review customers require lower coverage Restructured debt- Non-debt review Total NPL coverage review coverage coverage Coverage ratios % Dec 17 Dec 16 Dec 17 Dec 16 Dec 17 Dec 16 Change FNB credit card 52.5 42.2 78.6 75.7 66.9 67.6 FNB retail other 36.2 43.4 80.4 79.8 70.0 71.6 FN
Slide 46: Overall coverage remains appropriate
46 Overall coverage remains appropriate NPLs Coverage ratios R million % Dec 17 Dec 16 20 000 Retail – secured 27.3 26.3 Residential mortgages 22.5 22.1 20% 17% 25% VAF 30.8 29.8 15 000 SA 29.6 28.6 24% 25% 22% MotoNovo 58.6 60.9 10 000 Retail – unsecured 55.4 60.5 29% 31% 33% Card 66.9 67.6 5 000 P
Slide 47: Loss absorbency requirements for capital instruments
47 Loss absorbency requirements for capital instruments • Basel III framework has redefined bank capital instruments, globally • SARB requirements fully aligned Europe Statutory • Principal loss absorbency requirements applicable to Additional Tier 1 and Tier 2 Turkey, Brazil, Singapore, Contractual
Slide 48: Notes
Notes
FirstRand Bank — Debt Investor Presentation (April 2018) on 6ix