Firstrand Limited · JSE:FSR
Firstrand — Debt Investor Presentation (March 2010)
128 slides from Firstrand's debt investor presentation, Mar 26, 2010
Slide 1: Debt investor presentation London, 26 March 2010
1 2010 Debt investor presentation London,, 26 March 2010
Slide 2: Overview of the key macro trends impacting FirstRand
2 Overview of the key macro trends impacting FirstRand Jaco van der Walt
Slide 3: Executive summary
3 Executive summary • Global • Global recovery is underway • Severe imbalances remain • Macros for international strategy • S bS h Sub-Saharan Af Africa i tto outperform t f global l b l growth th • Healthy fiscal positions of Sub-Saharan African countries • Sub-Saharan Africa benefits from increase
Slide 4: Global outlook
4 Global outlook
Slide 5: Global recovery – driven by EMs
5 Global recovery – driven by EMs Global GDP Growth Contribution to Global GDP Growth y/y% 70% 6 G7 60% BRICs 5 4 50% 3 40% 2 30% 1 20% 0 10% -1 0% -2 1990-2000 2000-08 2009-14e '00 '02 '04 '06 '08 '10 '12 '14 So rces IMF (historical data) Sources: data), FirstRand (forecast) S Source: IMF
Slide 6: Imbalances remain
6 Imbalances remain Household debt still high G7 public debt increasing % disposable % GDP income 110 180 United States United Kingdom 100 150 90 120 80 90 70 60 60 1995 2000 2005 2009 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: OECD Source: EIU
Slide 7: Risk monitor shows concern for tail risk
7 Risk monitor shows concern for tail risk 4
Slide 8: Macros for international strategy
8 Macros for international strategy
Slide 9: Targeting growth opportunities
9 Targeting growth opportunities China 8.2 High Hi h I di India 66 6.6 growth* Brazil 4.6 Russia 4.5 Nigeria 5.8 Egypt 5.3 Medium Indonesia 5.2 growth Turkey 5.1 Poland 4.5 South Africa 4.1 Australia 2.3 2 3 US 2.2 Low UK 2.1 growth Germany 1.5 Japan 1.1 Note: Figures represent GDP growth forecasts
Slide 10: Sub-Saharan Africa to outperform global growth
10 Sub-Saharan Africa to outperform global growth % y/y 8 SSA GDP 6 4 2 Global GDP 0 -2 80 84 88 92 96 00 04 08 12 Source: IMF
Slide 11: Sub Saharan Africa in context
11 Sub Saharan Africa in context GDP Growth rates GDP (2009 PPP USD billions) Average 5 year forecast Angola Angola B Botswana B t Botswana Kenya Kenya Lesotho Lesotho Mozam- Mozam- M bique bique Namibia Namibia Nigeria Nigeria South South Africa Africa Swaziland Swaziland Tanzania Tanzania Zambia Z
Slide 12: SSA cyclical growth drivers
12 SSA cyclical growth drivers Fiscal stimulus swing Export volumes % y/y Change in fiscal deficit/surplus 12 (2008 11 ave - 2004-07 (2008-11 2004 07 ave)) 8 Angola 4 Botswana 0 Kenya -4 Mozam- -8 q bique 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: IMF Namibia Nigeria Terms of tra
Slide 13: SSA fiscal balances remain healthy
13 SSA fiscal balances remain healthy Fiscal deficits Public debt 2008-2011 Average 2008-2011 Average Angola Angola Botswana Botswana Kenya Kenya Lesotho Lesotho Mozam- Mozam- bique bique Namibia Namibia Nigeria Nigeria South S th South S h Africa Africa Swaziland Swaziland Tanzania Tanzania Zambia
Slide 14: Exploiting trade and investment linkages
14 Exploiting trade and investment linkages Export destinations Foreign direct investment % of total % of world FDI exports 4 60 Inward FDI flow into Sub Sahara Africa 3 1999 2003 2008 2 50 1 40 Excl. South Africa 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Source: UNCTAD 30 Top 10
Slide 15: South African economic outlook
15 South African economic outlook
Slide 16: Impact of the global financial crisis on SA
16 Impact of the global financial crisis on SA • No direct impact on the banking sector • Impact on real economy via the usual channels • Impact on the banking sector via the real economy • No government support required for banking sector • Orthodox policy stimulus to counter recession • SA GDP to
Slide 17: SA imbalances improving
17 SA imbalances improving Before the Latest crisis Series Metric (2004-07 Ave) Credit extension %y/y 19% -1.0% House price growth %y/y 21% 6.0% Current account deficit % GDP -4.8% 4 8% -2.8% 2 8% Government budget % GDP 0.4% -7.2%
Slide 18: SA returning to the growth highway
18 SA returning to the growth highway % y/y 6 SA GDP 5 4 3 2 1 0 -1 -2 -3 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Source: SARB, FirstRand
Slide 19: SA domestic demand reviving 2011
19 SA domestic demand reviving 2011 % of GDP growth 70 2010 50 2011 30 10 -10 Consumption Investment Government Current account Source: SARB
Slide 20: Current account at better levels
20 Current account at better levels ZAR billions 150 FDI inflows 100 Other investment Portfolio flow flo 50 0 -50 Current account balance -100 -150 00 01 02 03 04 05 06 07 08 09 10 11 12 Sources: SARB, FirstRand
Slide 21: SA inflation returning to the target
21 SA inflation returning to the target % y/y 14 12 CPI Inflation 10 8 6 4 2 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Sources: SARB, FirstRand
Slide 22: The MPC's inflation dilemma
22 The MPC’s inflation dilemma % GDP 6 5 4 Demand pull 3 Potential GDP Excess inflation 2 1 0 supply capacity = pressures -1 absent -2 -3 03 04 05 06 07 08 09 10 11 12 • But cost-push pressures: • Eskom • Wage pressures • Food prices by year-end
Slide 23: SA rates to normalise gradually
23 SA rates to normalise gradually % 14 Repo 12 10 8 6 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 1Q 00 01 02 03 04 05 06 07 08 09 10 11 12 Sources: SARB, FirstRand
Slide 24: SA nominal GDP growth below average
24 SA nominal GDP growth below average % y/y 18 Nominal GDP growth 14 10 6 2 94 96 98 00 02 04 06 08 10 12 Sources: SARB, FirstRand Note: Nominal GDP growth ≈ GDP growth + CPI inflation
Slide 25: SA household income recovering slowly
25 SA household income recovering slowly Employment stabilising Disposable income recovering thousands % q/q ann Quarterly change in employment 25 250 Nominal disposable income growth 20 15 0 10 5 -250 0 Real disposable income growth -5 -500 -10 4Q08 1Q09 2Q09 3Q09 4Q09 00 01 02 03 04 05 06 07 08 09
Slide 26: Household debt to remain affordable
26 Household debt to remain affordable % 18 16 Debtservice Debt servicecost cost 14 12 10 Average Average 8 6 4 2 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Sources: SARB, FirstRand
Slide 27: Opportunities to rebalance across bands
27 Opportunities to rebalance across bands % % Debt to disposable 180 SA debt to disposable 90 income income 160 80 140 120 70 100 80 60 60 50 40 20 40 0 30 81 85 89 93 97 01 05 09 Source: SARB SA income bands Sources: BMR Unisa, FirstRand
Slide 28: House prices have stabilised
28 House prices have stabilised Recovery in house price growth… …but gains are below inflation % y/y % y/y 45 35 Real house Nominal house price i growth th 35 price growth 25 25 15 15 5 5 -5 -5 -15 -15 -25 81 84 87 90 93 96 99 02 05 08 11 81 84 87 90 93 96 99 02 05 08 11 Sources: INet Bridge, FirstR
Slide 29: Corporate SA tentatively optimistic
29 Corporate SA tentatively optimistic Investment Employment % q/q saa Index 20 Private sector GDP 10.0 60 PMI: Employment p y i investment t t growth th 15 7.5 spending (Lhs) (Rhs) 10 5.0 55 5 2.5 50 0 0.0 5 -5 25 -2.5 45 -10 -5.0 40 -15 -7.5 -20 -10.0 35 00 01 02 03 04 05 06 07 08 09 03 04 05 06 0
Slide 30: Advances growth to lag economic activity
30 Advances growth to lag economic activity Private sector credit Private sector credit / GDP % y/y Ratio 30 Credit growth 85 25 20 75 15 65 10 5 Nom GDP growth 55 0 -5 45 82 85 88 91 94 97 00 03 06 09 12 82 86 90 94 98 02 06 10 Sources: SARB, FirstRand Source: SARB, FirstRand
Slide 31: SA government debt servicing cost still manageable
31 SA government debt servicing cost still manageable % % 20 45 17 Gov debt/GDP (rhs) 36 14 27 Gov debt servicing 11 18 cost/expenditure (lhs) 8 9 5 0 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 Sources: National Treasury, FirstRand
Slide 32: SA fiscal stimulus to counter recession
32 SA fiscal stimulus to counter recession % of total expenditure % GDP 10 Fiscall b Fi balance l -8 (rhs) 9 -7 8 -6 6 7 -5 Govt investment spending (lhs) 6 -4 4 5 -3 4 -2 3 -1 2 0 1 1 0 2 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 Sources: National Treasury, FirstRand
Slide 33: Appendix
33 Appendix pp
Slide 34: South Africa fact sheet
34 South Africa fact sheet Population (millions) 49.1 Labour force (millions) 17 1 17.1 Employed (millions) 13.8 Unemployment rate 24.3% N i l GDP (ZAR billions) Nominal billi ) 2 431 2,431 Nominal GDP (USD billions) 324 GDP per capita (ZAR) 36 951 GDP per capita (USD) 4 926 Budget deficit 7.3% Gove
Slide 35: SA GDP fact sheet
35 SA GDP fact sheet GDP growth (y/y) -1.4% GDP growth (q/q annualised) 3 2% 3.2% Nominal GDP growth (y/y) 6.9% Nominal GDP growth (q/q annualised) 2.4% Savings (% GDP) 17% Investment (% GDP) 25% Consumption (% GDP) 62% Government spending to GDP ratio 21% Remuneration to employees (% GDP) 47% Gross
Slide 36: Financial market summary
36 Financial market summary 2yr – 10yr rates Rand & NEER % Index Jan07 = 100 Index, ZAR/$ 16 10-year government 200 Nominal effective 13 bond yield exchange rate (lhs) ZAR/$ 14 160 (rhs) 11 12 120 9 10 80 7 40 5 8 0 3 6 94 96 98 00 02 04 06 08 10 00 01 02 03 04 04 05 06 07 08 09 Sources: Bloomberg,
Slide 37: Overview of FirstRand: Structure, results & strategy
Overview of FirstRand: Structure, results & strategy Johan Burger g
Slide 38: Current structure
38 Current structure Listed entity (FirstRand Limited, JSE: FSR) 100% 100% 100% FirstRand Investment FirstRand Bank Momentum Holdings Limited Holdings Limited Group Limited Unregulated Banking Insurance & asset management 100% FirstRand International Ltd FirstRand Bank Limited FNB Africa 100% 100% 1
Slide 39: Proposed structure
39 Proposed structure Consolidated supervision Bank controlling company, listed entity (FirstRand Limited, JSE: FSR) FirstRand FirstRand FirstRand Momentum Bank Africa Other Group FNB Botswana Non-banking activities: Insurance & FNB Namibia - FR International I t ti l assett managementt FNB Swazilan
Slide 40: Financial review
40 Financial review Johan Burger g
Slide 41: Macro remains challenging
41 Macro remains challenging • Weak GDP growth • Continuing job losses • Lower interest rates • High levels of consumer leverage, but some de-risking taking place • Corporate sector cautious about recovery • Recovery in equity markets
Slide 42: High-level impact on performance
42 High-level impact on performance – Negative balance sheet growth – Lower growth in transaction volumes – Negative endowment effect + Reduction in retail bad debts + Level of losses from legacy portfolios reducing + Increase in fees earned on investment business
Slide 43: Despite challenges, profitability improving
43 Despite challenges, profitability improving Normalised earnings* R millions 6 000 5 990 5 953 ROE = 17% 5 000 5 319 1% 4 576 4 605 4 445 4 000 79% 3 000 2 575 2 000 1 000 0 Dec '06 Jun '07 Dec '07 Jun '08 Dec '08 Jun '09 Dec '09 * December 2006 to December 2007 normalised earnings exclude contrib
Slide 44: Franchises show mixed performance year on year but trend positive
44 Franchises show mixed performance year on year but trend positive year-on-year, Profit before tax 6 months 6 months Change 6 months Change R millions illi t Dec to D ’09 t Jun to J ’09 (6 /6 ) (6m/6m) t Dec to D ’08 ( / ) (y/y) FNB 2 895 2 185 32% 2 875 1% FNB Africa 643 564 14% 658 (2%)
Slide 45: Earnings diversification
45 Earnings diversification B franchise By f hi B segmentt By 17% 17% 37% 7% 46% 23% 23% 7% 23% FNB Retail FNB Africa Corporate RMB Investment banking WesBank Momentum Insurance
Slide 46: Banking Group key financial ratios
46 Banking Group key financial ratios Dec ’09 Dec ’08 Change Normalised earnings (R millions) 4 038 4 149 (3%) Return on equity (%) 17 18 Return on assets (%) 1.26 1.23 Credit loss ratio (%) 1.51 1.64 Cost to income ratio – normalised (%) 55 5 55.5 52 9 52.9 Tier 1 capital ratio* (%) 12.7
Slide 47: Diversification ratios (interest vs non-interest)
47 Diversification ratios (interest vs non-interest) Current Current adjusted for endowment Interest 40% 48% Non-interest 60% 52% NIR composition Current Client activities 90% Investment/risk (secondary markets) 10% Composition of NIR from client activities Current Transactional income (commercial a
Slide 48: Net interest income
48 Net interest income
Slide 49: Bad debt unwind drives recovery in retail
49 Bad debt unwind drives recovery in retail NII after impairments Net interest income after bad debts Dec ’09 09 Dec ’08 08 Change R millions Bad de HomeLoans (138) (705) (80%) ebt decrease WesBank 779 109 >100% Card 92 (18) (>100%) FNB Africa 745 736 1% Endowme Other consumer banking 853 1
Slide 50: Corporate and commercial net interest income reflects endowment
50 Corporate and commercial net interest income reflects endowment Net interest income after bad debts Dec ’09 Dec ‘08 Change R millions End dowment FNB Commercial 1 191 1 761 (32%) FNB Corporate 313 212 48% de Bad debt ecrease RMB 5 (113) (>100%) Ba increase ad debt WesBank 42 332 (87%) p C
Slide 51: Margin hit by endowment, but partly offset by asset pricing
51 Margin hit by endowment, but partly offset by asset pricing Percentage of average interest-earning banking assets % D ’08 normalised Dec li d 5 17 5.17 Asset price movement 0.50 Capital and deposit endowment effect (0 91) (0.91) Retail deposit pricing (0.04) Wholesale liquidity pricing (0 05) (0.
Slide 52: Bad debts
52 Bad debts
Slide 53: Bad debts have peaked, but NPLs sticky
53 Bad debts have peaked, but NPLs sticky 6.0 2.0 1.8 5.6 56 5.4 18 1.8 5.0 1.6 1.4 1.5 1.4 4.0 4.2 1.3 1.3 1.2 3.4 1.0 1.1 3.0 Long-run expected loss: 0.9 1.0 2.8 2.9 2.6 0.8 0.8 0.8 20 2.0 2.3 0.5 0.4 0.6 1.5 0.3 1.5 0.4 1.0 1.2 1.1 0.2 0.0 0.0 Jun '99 Jun '00 Jun '01 Jun '02 Jun '03 Jun '04 Jun '
Slide 54: Retail NPL flows decline
54 Retail NPL flows decline R millions Retail NPL quarterly flows 4 000 3 000 2 000 1 000 0 -1 000 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009
Slide 55: All retail lending books improving and corporate more robust than expected
55 All retail lending books improving and corporate more robust than expected Bad debts 6 months 6 months 6 months Percentage of average advances to Dec ’09 to Jun ’09 to Dec ’08 Retail 2.08 2.97 2.63 - Residential mortgages g g 1.17 1.77 1.48 - Credit card 8.14 12.51 9.77 - Vehicle and asset financ
Slide 56: HomeLoans' new credit origination strategies improving quality
56 HomeLoans’ new credit origination strategies improving quality of business written H HomeLoans L vintage i t analysis l i 15% 10% 5% 0% 200606 200609 200612 200703 200706 200709 200712 200803 200806 200809 200812 200903 200906 200909 Time since registration: 3 6 12 months
Slide 57: Non interest revenue
57 Non interest revenue
Slide 58: NIR driven by organic growth and turnaround
58 NIR driven by organic growth and turnaround R millions Dec ’09 Dec ’08 Change Client activities/primary markets 11 493 10 964 5% - Transactional T ti l iincome 8 555 7 964 7% - Annuity fair value income 1 469 1 343 9% - Operational associates income 422 434 (3%) - Other primary income 1 0
Slide 59: Reasonable growth in transactional volumes despite tough conditions
59 Reasonable growth in transactional volumes despite tough conditions Transactional revenue R millions 7% 2009 breakdown by franchise* 7 500 5 000 2 500 FNB FNB Africa Af i RMB W B k WesBank 0 Dec '08 Dec '09 * Excluding Corporate Centre
Slide 60: Sustained performance from lending business dampened by lower market activity
60 Sustained performance from lending business dampened by lower market activity Fair value annuity revenue R millions 1 500 9% R millions Dec ’09 Dec ’08 Change Annuity 1 469 1 343 9% - Lending 1 092 868 26% 1 000 - Client flows 377 475 (21%) Client flows flo s 377 475 (21%) - Forex 209 286
Slide 61: Turnaround in risk income
61 Turnaround in risk income Fair value risk R millions 1 000 R millions Dec ’09 Dec ’08 Change g Risk 439 (767) (>100%) 500 (>100%) - Equities q 127 ((1 101)) ((>100%)) - Commodities 22 91 (76%) 0 - Interest rates 226 384 (41%) - Credit 35 (336) (>100%) - Forex 29 195 (85%) - 500 -1 000
Slide 62: Private equity reflecting current cycle
62 Private equity reflecting current cycle R millions Dec ’09 Dec ’08 Change Annuity income 229 431 (47%) p Realisations and impairments ((233)) 882 ((>100%)) Total private equity income (4) 1 313 (>100%) Unrealised profits at R1.5 billion (Dec ’08: R1 billion)
Slide 63: Costs
63 Costs
Slide 64: Normalised cost growth below inflation
64 Normalised cost growth below inflation R millions 14 000 (2%) (2%) 12 000 (8%) 1% 11 751 10 543 10 000 10 438 8 000 6 000 4 000 2 000 0 As per Fund liabilities New Revenue Comparable Normalised normalised subsidiaries related cost base cost Dec '08 i income and d expansion i expenses D '09 Dec st
Slide 65: Results in a nutshell
65 Results in a nutshell
Slide 66: Operational performance reflects underlying franchise strength
66 Operational performance reflects underlying franchise strength Profit before tax R millions 7 000 10% 6 000 8% 5 955 5 421 5 000 (19%) 18% 9% (19%) 12% 4 000 3 000 Market FirstRand specific 2 000 1 000 0 Dec 08 Endowment Decrease in Private equity q y Legacy g y Other Organic g Dec 09 bad debts p
Slide 67: Capital
67 Capital
Slide 68: Banking Group's capital position remains robust
68 Banking Group’s capital position remains robust FRBH Tier 1% Total % FRBH capital adequacy (%) 14.34 Capital adequacy ratio 12.19 14.34 12.97 2 15 2.15 Regulatory minimum 7.00 9.50* 0.9 1.89 0.86 Target 10.00 12.00 – 13.50 FRB Tier 1% Total % 11.29 10 22 10.22 Capital adequacy ratio 10.55 12.83 R
Slide 69: Banking ROEs continue to recover
69 Banking ROEs continue to recover 30% 20% 10% Jun '04 Jun '05 Jun '06 Jun '07 Jun '08 Jun '09 Dec '09 Return on equity (actual) Return on equity (adjusted for the cycle) Average cost of equity Average ROE through the cycle
Slide 70: Strategy
70 Strategy Johan Burger g
Slide 71: Strategy & growth opportunities
71 Strategy & growth opportunities • SADC strategies • Rest of Africa strategies
Slide 72: FirstRand's refocused strategy (South Africa)
72 FirstRand’s refocused strategy (S th Africa) (South Af i ) • Group’s portfolio already has • Diverse revenue streams • Strong operating franchises • Asset origination and distribution capabilities • Building blocks for access to profit pools in SA financial services • Increase organic growth oppo
Slide 73: Opportunities in retail space
73 Opportunities in retail space • Leverage off FNB’s continued investment in footprint and innovation • Utilising telecommunications and cellphone platforms • Growing electronic customer channels • Mass segment a key area of growth for FNB • Easy Plan • Continued focus on deposit franchise • WesBan
Slide 74: Opportunities in the corporate and investment banking space
74 Opportunities in the corporate and i investment banking b ki space • Integrate CIB approach to grow in corporate space • Aligned Ali d FNB C Corporate t with ith RMB and d iintegrated t t d client li t coverage tteam • Enhanced service offering • Improve our share of revenues across corporate and
Slide 75: Strategy & growth opportunities
75 Strategy & growth opportunities • SADC strategies • Rest of Africa strategies
Slide 76: Update on international strategy
76 Update on international strategy • Operate in markets that strengthen the Group’s position as a leading African financial services group – key growth markets are: • Nigeria • Staffing Nigeria rep office • Investigating g g acquisition q opportunities pp • Zambia • Tanzania • Awaiting regulatory a
Slide 77: FirstRand rebalancing its portfolio
77 FirstRand rebalancing its portfolio • Retail vs corporate (CIB alignment) • Retail portfolio (mass vs consumer segments) • SADC vs rest of Africa • Client franchises vs secondary market businesses • Asset pools vs savings pools • Bottom-up strategies vs top-down strategies Maintain sound financia
Slide 78: FirstRand growth prospects
78 FirstRand growth prospects • Short term recovery story • Unwind of the cycle will positively impact earnings to 2011 • Reducing negative impact of legacy portfolios • Medium term • Subdued GDP recovery expected to put pressure on top line growth • Continued focus on unlocking synergies and managi
Slide 79: Capital management
79 Capital management Samantha Balsdon
Slide 80: Providing resources to back the Group's strategy
80 Providing resources to back the Group’s strategy FirstRand Group Setting the Portfolio strategy Today’s portfolio Ensure Growth,, Business and action plans resources are demographic, Id tif i ttrends, Identifying d opportunities t iti andd available to technological, threats provide for the regul
Slide 81: Contextualising capital strategy
81 Contextualising g capital p strategy gy Earnings Residual risks to Solvency / Tail risk - earnings Capital p Expected scenario Good scenario Severe scenario Cost base Very severe Outstanding scenario Catastrophic year scenario Revenue Expected earnings Zero profit Zero revenue Loss at 99.9% Loss
Slide 82: Strengthening capital position over time
82 Strengthening capital position over time FirstRand Bank Holdings Ltd (R million) % 13.6% 13 8% 13.8% 14 6% 14.6% 14 3% 14.3% 55,000 12.8% 15.0% 50,000 9 816 10.0% 45,000 7 410 7 446 40,000 10 222 5.0% 35,000 0.0% 10 373 30,000 25,000 -5.0% 20,000 41 566 40 612 42 173 36 754 -10.0% 15,000 10,000 2
Slide 83: A similar picture for the bank
83 A similar picture for the bank FirstRand Bank Ltd (R million) 12.3% 13.1% 12.8% 12.0% 40,000 15.0% 11.4% 6 751 35,000 10.0% 6 706 30,000 8 202 5.0% 25,000 8 577 0.0% 20,000 9 026 -5.0% 15,000 29 721 31 117 27 356 10,000 22 666 -10.0% 16 507 -15.0% 5,000 - -20.0% Jun 06 Jun 07 Jun 08 Jun 09 Dec 09
Slide 84: Capital levels exceed targets and quality is good
84 Capital levels exceed targets and quality i good is d Minimum capital adequacy Capital adequacy December 2009 14.34% 12.0%-13.5% off Primary Max 50% Lower Tier 2 11.5%-13.0% 2.15% 12.83% M of Primary Max 100% Secondary and Tertiary 2.28% 0.90% 2.5% 3.5% 3.5% 1.02% Upper pp Tier 2 1.75% % 9 5%* 9.
Slide 85: The Group backs economic capital with Tier 1
85 The Group backs economic capital with Tier 1 41 566 42 173 40 008 40 612 36 754 39 115 35 491 35 947 35 716 25 154 Jun 07 Jun 08 Dec 08 Jun 09 Dec 09 Economic capital (R million) Tier 1
Slide 86: Economic profit returns to positive territory
86 Economic profit returns to positive territory 7,000 15.0 14.6 14.3 6,000 14.5 14.1 5 639 5,000 14.0 4,000 13.5 13.1 3 971 3,000 13.2 13.0 3 164 2 719 2,000 12.5 12.4 1,000 12.0 632 - 11.5 - 474 -1,000 11.0 Jun 05 Jun 06 Jun 07 Jun 08 June 09 Dec 09 Net income after cost of capital (R million) Ave
Slide 87: Key conclusions on capital
87 Key conclusions on capital • Capital p levels are strong g and the outlook for capital p g generation is robust • Continue to focus on quality loss absorbing capital • Capital is available to back the current strategy and expansion initiatives • “Basel Basel III” III proposals are attainable if i
Slide 88: Funding and liquidity management
88 Funding and liquidity management Andries du Toit
Slide 89: Agenda
89 Agenda • F di and Funding d liliquidity idit managementt philosophy hil h • Funding & liquidity risk management • FirstRand’s strategy • Macro factors impacting funding • FirstRand’s FirstRand s risk profile • Regulatory impact • Fi tR d’ response to FirstRand’s t the th challenges h ll off fundi
Slide 90: Funding and liquidity management philosophy
90 Funding and liquidity managementt philosophy hil h
Slide 91: Funding & liquidity risk management philosophy
91 Funding & liquidity risk management philosophy • Liquidity risk is the risk that the bank will not be able to meet all payment obligations as liabilities fall due (normally a consequential risk) • Funding liquidity risk • Market liquidity risk • Context • FirstRand Limited’s board principles and
Slide 92: Liquidity risk management philosophy
92 Liquidity risk management philosophy • Continuous funding and liquidity cycle • Forward Looking Funds Target transfer • Integrated across risk pricing profile • Macro economic environment • All business units • All financial risk disciplines Funding Risk • Financial markets outlook profile framew
Slide 93: FirstRand's strategy
93 Funding & liquidity management FirstRand’s FirstRand s strategy
Slide 94: Funding platforms to support international strategy
94 Funding platforms to support international strategy United Kingdom - Greece London Cyprus Iraq China Iran Middle East Qatar Taiwan United Arab Emirates India - Dschibuti Nigeria Indo-Africa trade Ghana Kenya - Tanzania Angola Africa-China trade Zambia Malawi Mozambique Namibia Zimbabwe Botswana O
Slide 95: Macro factors impacting funding
95 Funding & liquidity management Macro factors impacting funding
Slide 96: South Africa's ratings by World Economic Forum
96 South Africa’s ratings by World Economic Forum Category Rankings Financial market sophistication 5th Regulations of securities exchange 2nd Strength of auditing and reporting standards 1st Private monitoring of the banking industry 1st Efficiency of corporate boards 2nd Quality y of math and scie
Slide 97: Growing balance sheets in excess of income
97 Growing balance sheets in excess of income Private Credit to GDP 200% United States Switzerland 150% Spain Germany 100% South Africa 50% De-leveraging United Kingdom Credit growth in has begun excess of GDP growth 0% ec-60 ec-65 ec-70 ec-75 ec-80 ec-85 ec-90 ec-95 ec-00 ec-05 ec-10 De De De De De
Slide 98: Funding pressures – shift from households to public sector
98 Funding pressures – shift from households to public sector Private credit/GDP ratio Government debt/GDP ratio 95% % 55 90% 50 85% 80% 45 75% 40 70% 35 65% 30 60% 25 55% 50% 20 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-12 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Private Sector C
Slide 99: SA Banks monetised foreign liquidity
99 SA Banks monetised foreign liquidity Current account deficit & PCE Foreign investment & PCE 10 - 600 250 - 500 50 200 -10 400 100 -20 150 300 -30 150 200 -40 100 200 100 -50 50 -60 250 0 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 Mar-90 Mar-92 Mar-94 Mar-96 Mar-9
Slide 100: Comparing SA to international 1-year funding spreads
100 Comparing SA to international 1-year funding spreads • Comparing the 1-year bank funding spreads to mid- 1-year y US v SA bank spreads swaps in SA vs the US 250 • Spreads in the US initially widened more severely than 200 in SA, however the US spreads have also 150 contracted more aggressively p
Slide 101: Increased reliance on institutional funding
101 Increased reliance on institutional funding 50% 40% 30% 20% 10% 0% Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 FRB SBK ABSA NED The SA banking system has increasingly been funded in the institutional market Source: SARB BA returns, Dec 2009
Slide 102: Funding more expensive across the term structure
102 Funding more expensive across the term structure Liquidity q y premium p curve spread p to mid swaps p 160 140 120 100 Average term 9 months +55bps over 2 years 80 70 bps 60 +27bps 40 +28bps 20 0 3 6 9 12 18 24 36 48 60 31-Dec-09 31-Dec-08 31-Dec-07 Source: FirstRand Financial Market Research
Slide 103: FirstRand's risk profile
103 Funding & liquidity management FirstRand’s risk profile
Slide 104: FirstRand Bank Limited's external ratings
104 FirstRand Bank Limited’s external ratings Standard & Poor’s Moody’s Fitch Ratings FOREIGN CURRENCY Long term/Outlook BBB+/Negative A3/Stable BBB+/Negative Short term A-2 P-2 F2 LOCAL CURRENCY Long term/Outlook BBB+/Negative A2/Stable BBB+/Negative Short term A-2 P-1 - NATIONAL Long term/Outlook
Slide 105: FirstRand Bank Limited's external ratings history
105 FirstRand Bank Limited’s external ratings history BBB+ Pos i ti ve BBB+ Sta bl e BBB+ Ne ga ti ve BBB Pos i ti ve BBB Sta bl e BBB Ne ga ti ve BBB‐ Pos i ti ve BBB‐ Sta bl e BBB‐ Ne ga ti ve BB+ Pos i ti ve BB+ Sta bl e BB+ Ne ga ti ve BB Pos i ti ve BB Sta bl e BB Ne ga ti ve Oct-99 Oct-00 Oct-
Slide 106: FirstRand's diversified asset profile
106 FirstRand’s diversified asset profile 100% 40 38 33 64 69 - 9% 90% 80% 174 214 214 209 - 26% 134 70% 12 13 16 18 - 2% 60% 11 71 78 93 102 - 13% 60 50% 73 80 68 75 Corporate - 9% 40% 51 104 133 116 - 14% 74 30% 48 20% 119 165 206 227 222 - 27% 10% 0% FY05 FY06 FY07 FY08 FY09 Source: FirstRand sha
Slide 107: FirstRand's advances rating distribution
107 FirstRand’s advances rating distribution Rating distribution - FirstRand total book, Dec 2009 25% 21% 20% 20% 18% 15% 15% 12% 10% 9% 5% 3% 2% 0% International A/ BBB / BB+ / BB- / B+ / B B- / CCC / L Locall AAA (zaf) A (zaf) BBB- (zaf) BB (zaf) BB- (zaf) B+ (zaf) B (zaf) CCC+ (zaf) Source: First
Slide 108: FirstRand's advances show an improving rating distribution
108 FirstRand’s advances show an improving rating distribution 30% Rating distribution – FirstRand Bank’s lending book 25% 20% 15% 2007-2009 00 009 Average rating for the book maps to an equivalent BB- (international scale) 10% 5% 0% International A/ BBB / BB+ / BB- / B+ / B B- / CCC / Local AAA (za
Slide 109: Stable debt margin after credit impairments
109 Stable debt margin after credit impairments 550 350 R bn bp ps 300 500 250 450 200 400 150 350 100 300 50 250 - FY06 FY07 FY08 FY09 HY10 Investment Securities Cash & Short Term Funds Advances Interest Margin After Impairements† (RHS) † Net interest income + debt annuity income + income from inve
Slide 110: Strong credit enhancement for senior debt investors
110 Strong credit enhancement for senior debt investors 100% 0.6% Provisions 90% 2.0% 2 0% 80% 0.3% 1.4% Profit after tax 70% % 0.7% Upper Tier II 60% 50% 429 851 Sub Debt 40% Preference Shares 11.00% 30% Equity 20% 10% Depositors 0% Funding Liabilities Loss absorption capacity Equates to a 16% “fir
Slide 111: Regulatory impact
111 Funding g & liquidity q y management g Regulatory impact
Slide 112: SA banking liquidity gap
112 SA banking liquidity gap Business as usual gap Contractual maturity gap 2,000 10% 2,000 10% Contractual Maturity of Assets BAU Maturity 5% 5% 1,500 of Assets 7% 1,500 Contractual Maturity of Liabilities 6% 0% Contractual Cumulative Gap 0% 1,000 0% 1% 0% 1,000 -1% -2% -5% -5% -4% 4% 500 -7% 500 -
Slide 113: External influences on funding strategy
113 External influences on funding strategy • Basel II focused largely on credit risk • Misdirected the attention of banks and regulators to focus mostly on credit risk • Bank failures have proved to be as a result of liquidity risk • No sensible amount of capital can protect a bank from a liquidity
Slide 114: Basel III – new liquidity rules
114 Basel III – new liquidity rules • Liquidity Coverage Ratios (LCR) • Addresses short-term short term liquidity risk and cash management • Banks must hold high-quality liquid assets sufficient to cover • all net cash outflows • over a 30-day period • under an acute liquidity stress scenario (combi
Slide 115: Basel III – Impact of new liquidity rules
115 Basel III – Impact of new liquidity rules • Latest research by the BIS suggests enhancements to theory of the role banks in the transmission mechanism of monetary policy • Original theory suggests deposits constitute the stock of loanable funds, acting as the driving force of bank lending† • Bro
Slide 116: Macro-prudential limit approach to exchange control
116 Macro-prudential limit approach to exchange control • M Macro-prudential d ti l lilimit it off 25% off b bank’s k’ ttotal t l liliabilities biliti • (Excluding shareholders equity) • Applies to SA Authorised Dealers (banks), • N t SA corporates Not t or other th sectors t • Banks may acquire for
Slide 117: FirstRand's response
117 FirstRand’s FirstRand s response
Slide 118: Create efficient, flexible and diversified funding platforms
118 Create efficient, flexible and diversified funding platforms Regulated platforms FirstRand Bank, (branches: London, India), African banking platform, (licenced) Momentum OUTsurance, Momentum, OUTsurance RMB Morgan Stanley Exchanges (LSE, JSE, BESA) Unregulated entities* FirstRand Investment Hold
Slide 119: Funding assets under management
119 Funding assets under management R465 bn R838 bn (CAGR 16%) 100% 90% 22% 22% 25% 27% 25% (CARG 13%) 80% 70% 19% 14% 22% (CARG ‐7%) 60% 33% 32% 50% 40% 30% 60% 64% (CARG 29%) 52% 20% 42% 41% 10% 0% 2005 2006 2007 2008 2009
Slide 120: Diversified funding sources
120 Diversified funding sources 100% R453 bn R570 bn 90% 80% Franchise deposit (CAGR 12%) 47% 48% 53% 70% 60% 50% Wholesale (CAGR 14%) 40% 27% 28% 27% 30% 4% 4% Africa (CAGR 21%) 20% 2% 1% Capital markets (CAGR 24%) 4% 1% 10% 14% 14% Financial markets (CAGR 19%) 12% 3% 6% 5% Off Balance sheet Assets
Slide 121: Retail and corporate funding strategy key
121 Retail and corporate funding strategy key R453 bn R570 bn 100% 14% 13% 14% Retail (CAGR 12%) 90% 80% 10% 11% Commercial (CAGR 4%) 12% 70% 24% 23% Corporate (CAGR 5%) 60% 26% 50% 40% Wholesale (CAGR 14%) 27% 28% 27% 30% 4% Africa (CAGR 21%) 20% 4% 4% 2% 1% Capital markets (CAGR 24%) 1% 14% 14% Fi
Slide 122: Funding strategy
122 Funding strategy • Deposit franchise • A Aggressive i client li t acquisition i iti and d retention t ti strategies t t i • New product and channel development • Wholesale market • Extending the term • Diversify new sources • Africa • Aggressive expansion into new markets • Enhancing existing de
Slide 123: Diversified portfolio of funding instruments
123 Diversified portfolio of funding instruments Securitisation NCD's 5.3% Other Trading g 7 7% 7.7% Repo's R ' Liabilities 6.0% Derivative 3% 7.9% Senior Debt 2.0% Sub Debt 1.5% Other Deposits Conduits 9.2% 0.7% Savings Deposits 0.4% Call Deposits 13.1% Fixed & Notice Deposits 25.3% Current Account
Slide 124: Creating appropriate liquidity buffers
124 Creating appropriate liquidity buffers 15% 13% 11% 9% 7% 5% May-08 May-09 Oct-08 Oct-09 Mar-08 Apr-08 Jan-08 Feb-08 Jun-08 Jul-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 Jun-09 Jul-09 Nov-09 Dec-09 Aug-08 Sep-08 Aug-09 Sep-09 M M A S A S Buffer Liquidity Satutory Liquidity Increased liquidity
Slide 125: In summary
125 In summary • Integrated funding & liquidity framework • Aim to be in excess of minimum requirements of SARB, FSA & Basel II Minimum Liquidity standards d d (2009) • Strong management in building deposit franchises in retail, commercial and corporate segment • Strong African deposit raising franc
Slide 126: Appendix
126 Appendix
Slide 127: FirstRand Bank Limited's external ratings
127 FirstRand Bank Limited’s external ratings Moody’s Investor Fitch Standard Firstrand Bank Limited Service Firstrand Bank Limited Ratings Firstrand Bank Limited & Poor’s Foreign currency counterparty Foreign Currency credit rating Foreign currency Long term issuer default rating BBB+ counterparty
Slide 128: FIRSTRAND
FIRSTRAND 128