Firstrand Limited · JSE:FSR
Firstrand — FirstRand Bank — Debt Investor Presentation (June 2015)
37 slides from Firstrand's debt investor presentation, June 2015
Slide 1: Financial and Strategic Update
FINANCIAL AND STRATEGIC UPDATE June 2015
Slide 2: Agenda
Agenda Overview of the FirstRand group and FirstRand Bank FirstRand Bank financial performance Harry Kellan, Group CFO Asset quality Capital, funding and liquidity Andries du Toit, Group Treasurer
Slide 3: Overview of the FirstRand Group and FirstRand Bank (Issuer)
OVERVIEW OF THE FIRSTRAND GROUP AND FIRSTRAND BANK (ISSUER)
Slide 4: Introducing FirstRand group – financial position and track record
Introducing FirstRand group – financial position and track record ZAR USD NORMALISED EARNINGS* FINANCIAL HIGHLIGHTS for the six months ended 31 December 2014 million million ZAR million 10 000 Normalised total assets 980 176 84 717 15% 9 993 9 000 Normalised net asset value 85 241 7 367 8 691 8 000
Slide 5: Group's growth strategy
Group’s growth strategy BE THE AFRICAN FINANCIAL SERVICES GROUP OF CHOICE • Underpinned by our commitment to: Deliver superior and sustainable Create long-term Maintain balance economic returns franchise value sheet strength within acceptable levels of volatility 5
Slide 6: Group's unique operating structure
Group’s unique operating structure Listed holding company (FirstRand Limited, JSE: FSR) Group-wide Retail and Corporate and Instalment Investment functions commercial bank investment bank finance management Stakeholder Customer-facing franchises management 6
Slide 7: FirstRand Bank is the debt issuer and holds the group's South African banking franchises
FirstRand Bank (FRB) is the debt issuer and holds the group’s South African banking franchises… Listed holding company (FirstRand Limited, JSE: FSR) 100% 100% 100% 100% 100% FirstRand Investment FirstRand EMA Ashburton Investments FirstRand Insurance FirstRand Bank Limited* Holdings (Pty) Ltd (Pty)
Slide 8: A significant contributor to the group's financial position
… and is a significant contributor to the group’s financial position… 11% 29% FirstRand FirstRand Bank FirstRand Bank FirstRand normalised Other legal entities* Other legal entities* assets earnings 71% 89% 3% 4% 25% FirstRand FRB South Africa capital FirstRand Bank geographical and Other Africa Oth
Slide 9: One of South Africa's Big 4 banks
…and one of South Africa’s Big 4 banks Assets* (ZAR billion) Gross advances* (ZAR billion) Residential mortgages* (ZAR billion) 4 183 3 254 854 1 100 845 291 225 857 807 690 624 170 711 588 125 Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA Industry FRB Absa Nedbank SBSA Deposits* (ZA
Slide 10: FirstRand Bank Financial Performance
FIRSTRAND BANK FINANCIAL PERFORMANCE
Slide 11: Key themes for South Africa's macroeconomic outlook
Key themes for South Africa’s macroeconomic outlook • Sub-par growth • Structural constraints (incl. electricity, skills shortage, labour market rigidities) • Faded commodity price tailwind • Indebtedness • Inflation lifting from cyclical lows • Limited room for policy support • Monetary policy cons
Slide 12: FirstRand Bank performance highlights
FirstRand Bank performance highlights Normalised results Dec 14 Dec 13 Change Profit before tax (ZAR million) 9 672 8 814 10% Earnings (ZAR million) 7 139 6 582 8% Return on equity (%) 22.9 24.3 Return on assets (%) 1.65 1.67 Credit loss ratio (%)* 0.80 0.78 Cost-to-income ratio (%) 56.3 5
Slide 13: Adjusting for accounting change at WesBank
Adjusting for accounting change at WesBank – strong operational performance from banking franchises As reported Operational performance Normalised PBT (ZAR million) Dec 14 Dec 13# % change Dec 14 Dec 13# % change FNB 6 578 5 544 19 6 578 5 544 19 RMB 1 868 2 918 (36) 1 868 2 918 (36) WesBank
Slide 14: Continued strong topline drives earnings growth
Continued strong topline drives earnings growth Normalised earnings (ZAR million) 10 000 +9% +12% 9 000 +14% +16% 972 (363) (1 796) 8 000 +11% 2 042 (298) 8% 7 000 7 139 6 582 6 000 5 000 4 000 3 000 2 000 1 000 0 Dec 13 NII Impairments NIR Opex Tax and other Dec 14 14
Slide 15: Structure of balance sheet reflects strategy and SA market structure
Structure of balance sheet reflects strategy and SA market structure Other assets 5% Capital 9%# Liquid assets 7% Other liabilities 4% Cash/cash equivalents 5% Equity investments 4% Retail 21%** Corporate and 49%* 21%** Net advances = 79% commercial advances Commercial Deposits = 87% Average rating
Slide 16: Asset Quality
ASSET QUALITY FIRSTRAND BANK
Slide 17: Retail advances reflects strength of lending franchises
Retail advances reflects strength of lending franchises Retail advances breakdown Retail unsecured 15% ZAR million Dec 14 Dec 13 % change 3% 7% Residential mortgages 175 097 166 954 5 5% Vehicle and asset finance (VAF)* 115 039 99 242 16 Card 17 356 14 173 22 51% Personal loans 22 654 20 471 11 34%
Slide 18: Corporate advances resilient but slowing
Corporate advances resilient but slowing, reflecting lower levels of activity ZAR million Dec 14 Dec 13 % change Corporate advances breakdown RMB core South Africa 159 617 128 001 25 17% RMB core cross-border 27 001 24 775 9 RMB IB core advances 186 618 152 776 22 11% Repurchase agreements 35 837 36
Slide 19: Increase in impairment charge driven by franchise overlays
Increase in impairment charge driven by franchise overlays 6 5.00 Credit loss ratio (%) Dec 14 Dec 13 5.7 4.50 Retail – secured 0.44 0.48 5.0 5 4.00 Residential mortgages 0.06 0.10 4.4 3.50 VAF 1.04 1.13 4 3.6 3.00 Retail – unsecured 5.35 6.16 3.2 2.9 Card 0.19 0.22 3 2.9 2.50 2.6 2.4 2.4 Personal l
Slide 20: Unsecured portfolios benefiting from post write-off recoveries
Unsecured portfolios benefiting from post write-off recoveries 3% 10.48* 10.50* 10.10* 0.93 1.94 26% 3.93 9.57 3.49* 8.16 71% 6.55 3.30 0.19 Retail secured Card FNB WesBank Retail loans loans other Retail unsecured Corporate Recoveries as a % of average advances Credit loss ratio net of recoveries (
Slide 21: Not a function of defaults but reflects strengthening of balance sheet
Not a function of defaults but reflects strengthening of balance sheet… Total corporate Rest of Africa credit exposures* credit exposures* Impacted Africa (cross border) Impacted* R13bn 5% exposures consist of: Africa • Mining and metals R27bn 11% • Oil and gas Non impacted R14bn 6% Domestic R214bn
Slide 22: Continued reduction in residential mortgages NPLs
Continued reduction in residential mortgages NPLs from work-out strategy NPLs (ZAR million) Dec 13 Dec 14 18 000 Origination Specific Credit cycle action and counterparties worsening 4% 16 000 workout 16 021 15 419 14 000 12 000 10 000 8 000 (17%) 6 000 17% 6 089 5 037 30% 4 000 4 968 4 258 4% 3 690
Slide 23: Overlays reflect countercyclical actions
Overlays reflect countercyclical actions Portfolio impairments (ZAR million) 8 000 7 000 6 000 Dec 14 Dec 13 5 000 Portfolio impairments as 1.11% 1.02% % of performing book 4 000 3 000 Bad debt charge (%) 0.80% 0.78% 2 000 Portfolio impairments 1 000 7 148 5 829 (R million) - Dec 13 Dec 14 Franchise
Slide 24: Capital, Funding and Liquidity
CAPITAL, FUNDING AND LIQUIDIT Y
Slide 25: Capitalisation and liquidity principles for group subsidiaries
Capitalisation and liquidity principles for group subsidiaries • Subsidiaries are managed on a stand-alone basis • No implicit or explicit support from the group • Subsidiaries in each jurisdiction capitalised on a Basel lll basis in accordance with its risk profile and fully funded to support its g
Slide 26: Strong capital position
Strong capital position… Adjusted for: • Available-for-sale reserves CET1 ratio • Anticipated Basel III changes 14% 13.7% 0.4% 13.3% ZAR10.2bn 12% surplus CET1 target range: FSR 10% – 11% 10% management buffer 2.5% 8% 6% SARB end-state minimum 4% requirement 8.5% 2% 0% Target Column2 Regulatory X Ec
Slide 27: Capital stack
Regulatory and market developments will require higher level, but different mix of capital Level of capital to increase Review target mix due to regulatory changes to optimise WACC* Tier 2 3.25%** Tier 2 Tier 2 AT1 Introduction of 2.25%** AT1 capital floors based Capital stack on revised standardise
Slide 28: Strong focus on building a diversified funding base
Strong focus on building a diversified funding base Sources of funding 1% R544bn R599bn R657bn R731bn 3% 5% 5% 6% 6% 12% 5% 22% 6% 5% 5% 4% 10% 9% 10% 1% 11% 4% Funding 17% 17% 17% 5% instruments 18% Other 20% Foreign 22% 22% 23% SMEs 24% Public sector 28% Retail Corporate Institutional Current and
Slide 29: Deposit franchise growing strongly across all portfolios
Deposit franchise growing strongly across all portfolios Deposits (ZAR billion) Deposit franchise +18% Funding +2% 2% 265 269 14% 14% 28% Dec 14 Dec 13 150 149 156 132 131 122 Retail Commercial CIB Institutional deposits deposits deposits funding* * Includes CIB institutional funding and marketable
Slide 30: International funding activities
International funding activities • EMTN programme • Bilateral facilities • Reg S • USD500 million 5-year bond due 2016 • USD500 million 5-year bond due 2020 • Syndicated loans • Private placements • African currencies BWP, ZMK, NGN settled in USD/EUR • DFI facilities • CHF programme (Six Swiss Excha
Slide 31: Listed debt maturity profile
Listed debt maturity profile Maturity profile of FRB’s capital market instruments (ZAR billion – April 2015) 18 EMTN issuance 16 Credit-linked notes 14 Subordinated debt Inflation-linked senior debt 12 Senior debt 10 8 6 4 2 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2028 2030 203
Slide 32: Basel III updates
Basel III updates • Liquidity coverage ratio (LCR) • SA adopted the LCR phased-in approach from 2015 to 2019 • Expansion of eligible collateral, with appropriate haircuts • Level 2A (AA-.zaf or better) and Level 2B (BBB-.zaf or better) • SA has been approved as a jurisdiction eligible for a CLF give
Slide 33: Already compliant with LCR and strengthening liquidity position
Already compliant with LCR and implementing strategies to further improve liquidity position FRB liquidity coverage ratio (LCR) 100% Off-balance sheet Management buffer facilities and CLF (subject to SARB approval) Target buffer of 10% above Public sector regulatory 2015: Current HQLA (buffer) requi
Slide 34: IMF review: South Africa's financial system stability assessment
IMF review: South Africa’s financial system stability assessment • Financial sector operates in a challenging economic environment • Relatively high capital buffers as well as sound regulation and supervision have helped mitigate risks • Stress tests confirm the capital resiliency of banks and insur
Slide 35: Further strengthening the banking system
Further strengthening the banking system • SA is adopting the Twin Peaks model of financial sector regulation • Prudential Authority with the SARB • Financial Sector Conduct Authority • Resolution framework is in development • South Africa aims to address the “too big to fail” perception in line wit
Slide 36: Summary
Summary • Strong financial position • FirstRand Bank’s long-term external ratings constrained by the sovereign • Sovereign rating under pressure • Proactively provided for credit cycle • Strong capital position • Integrated funding and liquidity management • Earnings should remain resilient • Qualit
Slide 37: Questions?
QUESTIONS? FIRSTRAND BANK
FirstRand Bank — Debt Investor Presentation (June 2015) on 6ix