OVERVIEW OF FIRSTRAND FirstRand has pursued a very consistent growth strategy
• To be the African financial services group of choice
• By creating long-term franchise value
• Through delivering superior and sustainable returns
• Within acceptable levels of earnings volatility
• Maintaining balance sheet strength Portfolio of operating franchises
Listed holding company (FirstRand Limited, JSE: FSR)
Retail and Corporate and Instalment Investment commercial bank investment bank finance management Simplified legal structure – FirstRand Bank is the debt issuer
Listed holding company (FirstRand Limited, JSE: FSR)
100% 100% 100% 100%
FirstRand EMA FirstRand Investment Ashburton Investment FirstRand Bank Limited Holdings Limited Holdings (Pty) Ltd (FRIHL) Holdings Limited
Africa and Banking Other activities Investment management emerging markets
Debt issuer Good progress on execution of strategy in SA…
• Strengthened the relative positioning of franchises • FNB’s differentiated customer offering, based on a unique value proposition underpinned by innovative products, channels and rewards programmes • RMB’s CIB strategy to leverage quality of investment banking franchise to build full-service offering for large corporates • WesBank’s strategy to broaden alliances and diversify products and segments (corporate and commercial)
• Focused on growing client-based revenue • Success of FNB’s strategy to grow transactional accounts and cross sell • RMB’s client-related activities now represent 84% of its earnings (2007: 39%)
• Expanded into new profit pools • Investment management through Ashburton Investments …and in the corridors and rest of Africa
• Strong profit growth from the Group’s Indian strategy continues • RMB leveraging the platform for corridor and in-country growth • Commercial gaining momentum; retail still in pilot phase
• Rest of Africa – good progress on strategy to expand whilst protecting shareholder returns • Consistent execution through operating franchises matched with disciplined capital deployment • Country selection focused on main economic hubs of east and west Africa • Three pillars to strategy: • Utilise existing balance sheet and intellectual capital • Greenfields • Corporate action Key performance ratios
FirstRand Group 2013 2012 % change
Return on equity (%) 22.2 20.7
Return on assets (%) 1.87 1.73
Credit loss ratio (%) 0.99 1.08
Credit loss ratio (%)* 0.95 0.94
Cost-to-income ratio (%) 51.9 53.4
Tier 1 ratio (%)** 14.8 13.2
Common equity Tier 1(%)** 13.8 12.3
Net interest margin (%) 4.97 4.92
Gross advances (R billion) 612 536 14%
* Excluding the impact of the merchant acquiring event. ** 2013 capital ratios are calculated on a Basel III basis; 2012 capital ratios are calculated on a Basel 2.5 basis. Sustainability and predictability of earnings
Geographic diversification is a long-term strategy Segment diversification reflects structure of SA growth profile
2012 2013 2012 2013
1% 1% 9% 9%
South Africa 28% Retail 29% International Commercial 50% 52% Rest of Africa CIB & corridors 22% 19% 90% 90%
Franchises* provide diversification Client franchise contributes 95% of gross revenue
Net interest income (NII) = 49% Non-interest revenue (NIR) = 51% 2012 2013 Transactional income* Lending 30% 29%
20% 18% FNB RMB 52% 53% WesBank 28% 29% ** Investment banking transactional income Deposits 8% Insurance Capital endowment FNB Africa Fair value trading income Fair Deposit endowment Other income 7% Group Treasury and other
6% Investing 1% Other client 1% 4% 4% 4% 3% 1% 2% Risk income and * Excluding Corporate Centre and consolidation adjustments. Client franchise = 95% investing = 5% Quality of returns and strong capital position
ROE driven by ROA not gearing CET1 ratio reflects strong capitalisation and capacity for expansion ROA Gearing CET1 ratio 13.8% 6% 18 14% 13% 14.8 16 5% 13.9 12% R10bn surplus 12.5 11.9 11.9 14 10% FSR management CET1 target range: 9.5% – 11.0% 4% 12 buffer 2.5% 10 8% 3% 8 SARB 1.87% 6% 1.73% end-state 2% 1.27% 1.49% 6 0.88% 4 4% minimum 1% requirement 2 2% 8.5% 0% 0 0% 2009 2010 2011 2012 2013 2013 Economic view of capital ROA Gearing (times) Column2SARB X actual Column1(end state)
ROA reflects quality of earnings Strong ROE and capital position – lower dividend cover
% ROE 8 24% 22.2% 6 22% 2.9 3.0 3.4 3.5 20.7% 2.7 4 20% Target range 18.7% 17.7% 1.27 1.49 1.73 1.87 2 0.88 18% 3.8 3.6 3.6 3.5 0 3.3 16% 13.1% -2 (3.1) (3.7) (3.5) (3.6) (3.7) 14% 12% -4 (1.1) (1.0) (0.7) (0.5) (0.7) 2009 2010 2011 2012 2013 10% -6 2009 2010 2011 2012 2013 % of avg assets NII NIR Opex Impairments ROA OVERVIEW OF SA & FIRSTRAND BANK Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Understand what drives savings flows to platforms
Decision Decision Investments Investors Institutions levers l levers ll (AUM)
Cash and near cash Pension funds Individuals Economic Economic Money market funds incentives Long term incentives insurance Banks
Corporates Corporate bonds Investment funds Tax incentives Tax incentives Government bonds Banks Government Equity
Alternative investments Corporate - JSE Regulatory Regulatory Property Foreign incentives incentives Government Foreign sector
Banks only one of many platforms
Source: National Treasury Structural Liquidity & Funding Task Group. Financial institutions in South Africa
• Asset managers (ASISA) • R1 204bn AUM Assets under management • Number of funds • 266 equity • 483 balanced • 31 property • 187 fixed interest funds Pension funds • Banks 21% Banks • R3 600bn AUM 36% • 31 banks Unit trusts • Life companies 12% • R1 950bn AUM • 81 life companies PIC 1% • Pension funds LT insurers 14% ST assets 16% • R2 145bn AUM • Short-term insurers • R107bn AUM • 108 short term insurers SA Inc – liquidity profile of assets and liabilities
Illiquid (banks) Long term Mortgages & asset based finance - 14% Pension funds 17% Loans - 2% Other - 4% PIC Credit card, overdrafts 13% & unsecured - 12%
LT insurers 19% Equity 31% Unit trusts 11%
Fixed income 23% Banks 39%
Cash & deposits 13% Liquid (savings) Short term Assets Liabilities SA Inc. system matched…
Source: SARB Quarterly Bulletin, FirstRand Research. However, banks are mismatched
Illiquid (banks) Short term Mortgages & asset based finance - 14% Loans - 2% Other - 4% Banks Credit card, overdrafts 39% & unsecured - 12%
Unit trusts Equity 11% 31%
LT insurers 19%
Fixed income PIC 23% 13%
Pension funds Cash & deposits 17% 13% Liquid (savings) Long term Assets Liabilities …is the mismatch appropriate? Source: SARB Quarterly Bulletin, FirstRand Research. Relating financial assets to the monetary base
14,000 Foreign held debt R348bn 12,000 Foreign held Liability to The money base represents equities foreigners R1 667bn R2 015bn a fraction of financial assets 10,000 in the system.
8,000 Locally held Mark-to-market The savings allocated to equities* R5 278bn R5 280bn equities cannot be 6,000 significantly re-allocated. Debt Issued Locally held debt* Debt issued 4,000 A greater allocation of R1 220bn Derivatives R1 222bn R269bn Other LT R783bn savings to fixed income is Bank 2,000 required in order to unwind assets Deposits (M3) R3 650bn R2 598bn maturity transformation in the banking sector. - Assets Liabilities
Note: Excludes unlisted equity and debt to the extent not in regulated entities. South Africa benefitting from the rotation into EM
Net purchases/sales by foreigners (Rbn) 100
92 80 75 60 66 62 56 40 46 48 36 37 20 27 27 19 7 Bonds - -4 -14 -4 Equities -19 (20)
(40) -55 (60)
(80) 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD
Source: Bloomberg data (SABO and SAEQ indices). South Africa’s net capital formation – funded by foreigners and corporate balances
Net capital formation (current prices) 400
300
200
100
-
(100)
(200) 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Savings by households Corporate saving Net saving by general government Net capital inflow from rest of the world Change in gold and other foreign reserves Net capital formation
Source: SARB Quarterly Bulletin, National Accounts. Government investment spending forecast
350 • RMB – sole mandated lead arranger: • Financing two solar PV power Water 10 300 Water 10 Transport plants (in Aurora and Vredendal) Water 9 28 Transport • 96MW Jasper Solar PV project 250 Transport 27 25 (in the Northern Cape) Energy 200 Energy 101 Energy 95 • R3.5-billion Kathu Solar Energy 88 Project 150 • 75MW Lesedi Solar Power PV
100 Project and 75MW Letsatsi Solar Other Other Other 162 Power PV Project 141 152 50 • Umoya Energy’s 67MW Hopefield Wind Farm 0 2010/11 2011/12 2012/13 • RMB – sole co-ordination bank and
Government’s planned 3-year investment spending joint mandated lead arranger for the totals R846bn. Will impact the flow of funds. Dependent 100MW Kaxu Solar One CSP Project on GDP growth. Averaging 9.5% of GDP p.a. (Northern Cape) Income inequality – impacts savings channels and risk
20 25 30 35 40 45 50 55 60 65 70
Rank 138 South Africa Rank 128 Brazil Rank 105 Argentina Rank 101 United States Rank 87 China Rank 79 Turkey South Africa has one of the Rank 61 Japan most unequal societies in the Rank 58 India world ranking 138th of 142 Rank 46 United Kingdom Rank 43 Switzerland countries according to the UN. Rank 40 Greece Rank 39 France Rank 36 Canada Income inequality impacts both Rank 34 Spain the capacity for savings as well Rank 34 Italy Rank 26 Australia as the channels for savings. Rank 19 Denmark Rank 15 Iceland Rank 15 Belgium Rank 12 Germany Rank 11 Finland Rank 4 Norway Rank 1 Sweden
Source: United Nations, 2011. Household savings flows
Household flow (Rbn) 250
206 200 4 17 186 2 21 169 150 62 24 128 126 118 18 12 78 92 19 8 95 9 100 35 91 89 6 87 55 23 6 66 72 13 3 45 30 11 44 16 56 19 11 29 26 9 26 29 122 15 50 13 19 12 27 85 71 71 45 45 52 54 49 49 53 53 49 29 - -3 -9 -10 -3 -12 -8
-50 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Direct Investment Deposits with Other FI's Household bank deposits Pension & Life Co
Source: SARB Quarterly Bulletin, National Accounts Household balance sheet – household net savings has turned positive
Household balance sheet (constant 2012 prices) 100 30
19 16 18 20 20 15 16 14 Source 50 11 11 10 11 10 of funds Lending -2 - - -6
(10) -17 -50 -23 (20) -29 Use of (30) Borrowing funds -100 (40)
-44 -44 -150 (50) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Consumption of fixed capital(Depreciation) Net Capital transfers Net Savings of Households and NPISHs Gross fixed capital formation (Investment) Change in inventories Net lending (+) or Net borrowing (-) (RHS)
Source: SARB Quarterly Bulletin. Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Financial market infrastructure
• Capital markets (debt and equity markets)
• Financial Markets Bill – legal framework
• Comparison of LIBOR, EURIBOR and JIBAR
• SIRESS (SADC Integrated Regional Electronic Settlement System)
• Regulatory reforms • Twin peaks • Central clearing, trade repositories • Resolution and recovery planning
• Gateway to Africa
• South African Holdco Well-developed capital markets
Global Competitiveness Index Rank of 144
Efficacy of corporate bonds 1st Strength of auditing and reporting standards 1st Regulation of securities exchanges 1st Legal rights index, 0-10 (10 = best) 10 Soundness of banks 2nd Availability of financial services 2nd Financing through local equity markets 3rd Strength of investor protection 10th Affordability of financial services 22nd Ease of access to loans 30th Venture capital availability 37th
Source: World Economic Forum, Global Competitive Report 2012 – 2013. Global capital market composition
Equity-to-debt composition Equity-to-GDP (%) 100% 200 2012
80% 159% 150
60%
100
40%
50 20%
0% 0 UK EU India USA India Brazil China Brazil Japan China Japan Mexico Russia Mexico Taiwan Canada Canada Australia Malaysia Australia Malaysia Singapore Singapore Switzerland Korea, Rep. Switzerland area Nordic South Africa South Africa South Korea United States United Kingdom Equity Debt Union European
Source: BIS, The World Bank. Federation Russian Global capital market composition
Listed debt as a percentage of banking system assets 250% In South Africa debt funding occurs primarily on bank balance sheets. 200% This feature would be more pronounced if we 150% removed government debt. It should also be
100% 221% considered in light of the historic exchange control restrictions applicable to
50% 122% 110% South Africa.
63% (UK, German & Swiss banks, 57% 51% 47% 43% 42% 37% 35% 32% 31% 31% 1% for example, have very large 26% 0% 14% foreign assets on their bank EU UK USA India Brazil China Japan balance sheets.) Russia Mexico Taiwan Canada Australia Malaysia Singapore Switzerland South Africa South Korea Larger listed debt market relative banking assets
Source: BIS. Financial Markets Bill – legal framework
Bill aims to increase confidence in the South African financial markets and promoting the protection of regulated persons and clients
1 Regulatory model/effectiveness
2 Investor/client protection and systemic risk
3 Central counterparty, financial stability and cross-border participation
4 Securities ownership register and IFRS
5 OTC regulation
6 Settlement assurance and certainty
7 Regulatory cooperation and competition/ownership issues
8 Limitation of liability Principle issues Comparison of LIBOR, EURIBOR and JIBAR
LIBOR EURIBOR JIBAR
Calculation and publication Thomson Reuters on Thomson Reuters JSE of rates behalf of the BBA
Number of rates published 150 LIBOR rates 15 EURIBOR rates 5 JIBAR rates
Traded rates of NCD Underlying info quoted rates Estimated rates (include deposit and forward rates)
Financial transactions worth USD300trillion Not available ZAR3–4 trillion 15 (for each of the 10 Panel of banks 44 8 currencies) Scale of market activity; active players and if they Voluntary: No formal Guiding principles credit rating; and are able to handle good inclusion and/or perceived expertise volumes exclusion Trimmed arithmetic. A mid-rate: Contributions are ranked The highest and lowest The 2 highest and Calculation method in descending order. The 15 per cent of all quotes 2 lowest mid-rates are highest and lowest 25 collected is eliminated discarded per cent are excluded
Source: Bank of England, European Central Bank, European Banking Federation, and the JSE. SADC Integrated Regional Electronic Settlement System
• Project vision – each SADC country has • An efficient and effective payment system • Internationally acceptable • Interlinked within the region • Supports the SADC aims of free trade • International organisations • BIS, IMF and World Bank • Committee of Central bank Governors • Steering group
Country representatives SIRESS implemented (CMA countries) Twin peaks – prudential and market conduct regulation
Twin peaks
Access to financial Combating financial Financial stability Consumer protection services crime
Treasury to lead Financial Services Enforcement Board and National Further support to agencies to lead Reserve Bank to lead Credit Regulator to lead cooperative and dedicated banks, Investigating and Establish a Financial New market conduct including Postbank prosecuting abuses Stability Oversight regulator for banking Committee services in the Financial Treasury to introduce a Continued work with Services Board micro-insurance international partners framework
Council of Financial Regulators Ensures coordination where necessary
Source: National Treasury – A safer financial sector to serve South Africa better. Regulatory reforms
• OTC derivatives • South Africa should carefully assess the cost and benefits of mandating central clearing for its OTC derivatives markets: • Size of SA derivatives market and breakdown by asset class • High concentration by five dealers • Allocation of SA derivatives market as between dealer-to-dealer and dealer-to-customer transaction • Incremental benefit of a multilateral netting benefits achieved as to existing bi-lateral “ISDA” • Existing efficiency and market infrastructure of foreign exchange markets • Liquidity of individual products in specific asset classes • Existence of a domestic or foreign CCP to clear such products • If no domestic CCP exists, the cost, risk and benefit if a foreign CCP exists Regulatory reforms (cont.)
• Central counterparty clearing • CCP should a robust risk management program (stringent membership, level of initial and additional margin, calculation of daily MTM exposure, payment and receipt of variation margin • Adequate financial resources (guarantee fund deposits, standby funding, high level of surplus capital sufficient to withstand the default of one or two), the concentration in CCP could result in a greater potential for systemic risk • Trade repositories • Key recommendation that arose of 2009 G20 Pittsburgh Summit • Financial Markets Bill appropriately establishes the function and responsibilities of trade repositories and provides a framework for their supervision • There is a need for flexibility in implementing requirements as systems, technology and data formats will evolve over time • Volker rule - no decision have been made in terms of these principles across the markets we operate, except for the Nigeria market Regulatory reforms (cont.) Example of recovery and resolution regime – timing and regulation TBA by SARB
New resolution regime applicable to SIFIs
Appropriate risk Recovery actions Resolution appetite Fulfill creditor requirements Offer positive NAV to shareholders SARB may call PONV
Level 1 Level 2 – more disruptive Level 3 – very disruptive Resolution – controlled by Business-as-usual policies – risk SARB appetite, Liquidity risk management Recovery actions likely Recovery actions likely Recovery actions likely framework, capital management controlled by controlled by still controlled by Regulatory intervention at framework, BCP management of the bank management of the bank management of the bank point of non-viability timing uncertain
Established In development
Increasing level of stress and recovery actions – all instruments already face an implicit PONV
Legal framework currently applicable
SARB curatorship Liquidation (Section 69: Banks Act) • Management of bank Insolvency Banks Act vest on the curator • Management may be law removed (Section 68: • Sanctions on professional Banks Act) funding, write down Gateway to Africa – helping South African companies expand internationally
• Over 1 billion people on the African continent • Presents substantial economic opportunities for South Africa • Between 2007 and 2011 SA undertook • Nearly 1 000 new investments… • …in 36 countries (Nigeria, Zambia, Angola, etc.) • In 2012, Africa accounted for 17.6% of South Africa’s total exports
• Gateway to Africa proposal 1. SA companies that want to expand into rest of Africa and offshore 2. Will boost local tax revenue, dividends, competitiveness and jobs 3. Supports economic growth 4. Supports regional integration across the continent
Source: National Treasury – Gateway to Africa and other reforms. South African Holdco - Excon
• One subsidiary per JSE listed entity • Parent to the HoldCo up to ZAR750m per year • Certain tax incentives being finalised (TBA) • Manage offshore operations from South Africa • Avoid expensive offshore operational costs • Freely raise and deploy capital offshore • Holdco may operate as an • offshore treasury SA Holdco • and facilitate cash pooling • freely transferable
JSE listed parent • Income generated from cash management operations is considered offshore income
Source: National Treasury – Gateway to Africa and other reforms. IMF Article IV: “A strong banking system but increasing risk”
“South Africa remains at the forefront of financial sector regulatory reform globally The adoption of Basel III earlier this year, the envisaged implementation of the Twin Peaks system from 2014, and several financial sector initiatives will further reinforce South Africa’s already strong financial architecture. Including the National Credit Regulator within the Twin Peaks System, as recommended by the 2012 FSB peer review, would consolidate regulation and supervision and market conduct for all financial institutions. The SARB last year introduced a committed liquidity facility that enables banks to meet the liquidity coverage ratio, and very limited new style Basel III type of bail-in capital instruments have been issued by local banks to strengthen banks’ loss absorption capacity and enhance long-term stable funding sources, though banks would still find it difficult to meet the net stable funding ratio (NSFR) in the form currently envisaged. A deposit insurance scheme is being developed and the crisis management framework is being improved.”
Source: IMF – South Africa: 2013 Article IV Consultation. Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Well-regulated, well-capitalised banking system with low leverage
SA banking system ranked 2nd globally (1 = insolvent and may require government bailout; 7 = generally healthy with sound Global Competitiveness Index Rank of balance sheets) 144 Canada (1) 6.8 Efficacy of corporate bonds 1st South Africa (2) 6.7 Strength of auditing and reporting 1st Australia (5) 6.5 standards Finland (6) 6.5 Regulation of securities exchanges 1st Singapore (8) 6.5 Legal rights index, 0-10 (10 = best)10 Luxemborg (18) 6.1 Soundness of banks 2nd Sweden (19) 6.1 Availability of financial services 2nd Switzerland (26) 5.9 Financing through local equity markets 3rd France (54) 5.4 Strength of investor protection 10th Germany (75) 5.1 Affordability of financial services 22nd United States (80) 5 Ease of access to loans 30th United Kingdom (97) 4.6 Venture capital availability 37th
07
Four pillar banks (known as the “Big 4”) - FirstRand Bank, Standard Bank, ABSA and Nedbank. South Africa adheres to Basel lll capital adequacy and funding and liquidity guidelines. 90% of credit is local with low exposure to international wholesale funding and low gearing ratios.
Source: World Economic Forum, Global Competitive Report 2012 - 2013 South African banking liquidity gap
Business as usual gap Contractual maturity gap
2 000 10% 2 000 10% 7% 6% Contractual Maturity of Assets 5% 5% 1 500 1 500 Contractual Maturity of Liabilities Contractual Cumulative Gap 0% 0% 1% 1 000 0% 0% 1 000 -1% -2% -5% -5% -4% 500 -7% 500 -10% -10%
0 -15% 0 -15%
-20% -20% - 500 - 500 -19% -19% BAU Maturity of Assets -25% -25% -1 000 BAU Maturity of Liabilities -1 000 -25% BAU Cumulative Gap -30% -30% -29% -30% -1 500 -1 500 -35% -33% -35% -35% -2 000 -40% -2 000 -40% 1D 2D-7D 8D-1M 1M-2M 2M-3M 3M-6M 6M-1YR 1Yr+ 1D 2D-7D 8D-1M 1M-2M 2M-3M 3M-6M 6M-1YR 1Yr+ • Liquidity risk is largely managed on a business as usual (BAU) • The contractual maturity profile is also managed within the basis context of the structure of the SA economy • However under stressed conditions the BAU conditions no longer apply. Source: SARB BA returns. FirstRand Bank is one of South Africa’s Big 4 banks – liabilities and capital
Deposits Capital adequacy
R3 141bn 16.8%
14.9%* 3.6% 14.2% 1.7% 13.6% 41% 0.6% 1.0% 2.1% 2.9% R803bn 1.4% R646bn R640bn 36% R558bn 39% 42% 12.6% 12.2% 11.3% 59% 47% 10.1% 64% 61% 58% 53%
Industry FRB ABSA NED SBK FRB ABSA NED SBK
Deposit DepositfranchiseInstitutional Institutional funding CET1CET1 TierT1 1 T2 Tier 2
Source: SARB BA returns – June 2013. * Reflects solo supervision, i.e. the Bank excluding branches, subsidiaries and associates. Influences on household credit extension
Debt service costs Disposable income of households
16 % 20 %
14 15
12
10 10
8 5
6 0
4
-5 2
0 -10 1996 1999 2002 2005 2008 2011 2000 2003 2006 2009 2012 Credit extension supported M3
Credit extension & bank assets Money supply and credit extension (%) 30 %%80 30
25 75 25
20 20 70
15 15 65 10 10 60 5 5 55 0 Total private sector credit (y/y) 0 PCE/(Banking system assets) (RHS) 1998 2001 2004 2007 2010 2013 -5 50 1998 2000 2002 2004 2006 2008 2010 2012 M3 (y/y) Household credit extension (y/y)
• Private sector credit extension (PCE) as a percentage of SA banking system assets is relatively stable at 80% • In the context of the volatile PCE y/y growth this suggests that banks are the primary funders of PCE Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Key stakeholders of the bank to whom we have a fiduciary responsibility
Regulator Debt Share holders Performance holders Stability and Performance metrics, resilience metrics funding mix
Asset & risk Asset & risk quality, balance Return and quality sheet structure, volatility credit rating
Prudential Appropriate Acceptable risk requirements prudential limits return profile
An effective and executable resolution plan with associated resolution powers best serves the interest of all stakeholders platforms Economic view of the balance sheet
Nominal gearing: 15 times 5% 5% 8% 16%
3% Retail 20%# AAA/A 2%*
A-/BBB- 25%* Commercial 20%#
CIB deposits 18%# BB+/BB- 32%*
& equity CIB Institutional funding 8%# Diversified funding B+/B upper 29%* Group Treasury
Net advances 76% of assets 76% Net advances institutional funding** 28%# B/B- 8%* Deposits & current accounts 87% of liabilities CCC 2%* High quality diversified advances Default 2%* Assets Liabilities and equity
Other assets Other liabilities Cash, cash equivalents and liquid assets Ordinary equity and NCNR preference Trading and equity investments shares and Tier 2 liabilities Net advances Deposits and current accounts * of net advances # of deposits and current accounts. ** includes consolidation and IFRS adjustments. Derivative-,securities lending- and short trading position asset and liabilities have been netted off. Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans Strong focus on building a diversified funding base
Sources of funding Funding instruments 1% R481bn R516bn R558bn R640bn 3% 5 5 66 5 10% 5 5 6 21% 8 9119 4% 1% 16 Other 16 17 16 5% Foreign 4% 22 SME 21 22 20% 22 Public sector
Retail
Corporate 31%
42 Institutional 40 37 39 Current and savings account Call deposits Fixed and notice deposits NCDs Deposits under repurchase Securities lending agreement 2010 2011 2012 2013 Credit-linked notes and cash Fixed and floating collateral rate notes Other Tier 2 issuance 83% of liability growth attributed to better source and term
17% of growth 13% of growth R26bn 70% of growth R21bn
WART R110bn R249bn 20.4 months
WART R202bn 17.4 months
R390bn R280bn
2010Deposit x Capital y Other institutional z 2013 franchise markets funding*
Deposit franchise Institutional funding
* Includes NCD, structured funding and other deposits. WART = Weighted average remaining term of institutional funding. Basel lll update
• During January 2013 the Basel Committee reaffirmed the LCR as an essential component of the Basel lll reforms • Phased-in approach – extended timeframe for full compliance to 2019 from 2015 • Minimum requirement = 60% at 1 Jan 2015, 10% incremental step ups each year to 2019 • Expansion of eligible collateral to include level 2A and 2B with qualifying criteria • Ratings now refer to national scale ratings for liquidity risk in that local currency • On 2 August 2013, SARB released Guidance Note 6 of 2013 • Confirms maximum facility size to be set at 40% of high quality liquid assets • Eligible collateral for facility • Listed debt securities (minimum A- national scale credit rating) • Listed equities on the main board of the JSE • Notes of self-securitised eligible residential mortgages • Selection of on-balance sheet ring-fenced assets • NSFR – Expectations for updated measure to be released by Basel Committee in 2014 Revised LCR regulations improve Bank’s position and already meet 2015 requirement
LCR
100% SARB committed liquidity facility
100% 90% 80% 70% 60%
0% Jun ’13 2015 2016 2017 2018 2019 LCR based LCR requirement on revised regulations Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans CET1 ratio reflects strong capitalisation
CET1 ratio 14% 12.6% 12.5% 12%
FSR CET1 target range: 10% management buffer 9.5% – 11.0% 2.5% 8%
6% SARB end-state 4% minimum requirement 8.5% 2%
0% Column22013 XEconomic Column1 view of capital SARB actual (end state) South African banking sector conservative in RWA and level of capital
Low capital ratios & Well capitalised & high risk weights US high risk weights
South Africa
China
Greece Italy Spain UK RWA Total EMEA Total assets France Germany/Austria Japan
Benelux Nordic
Low capital ratios Well capitalised & & low risk weights low risk weights
Capital level (Basel III estimates) CET1 challenges given Basel III approach to minorities
• The reality • Subsidiaries’ in-country minimum higher than SARB minimum capital requirement • Local shareholding requirement • Basel III rule and consequence • Limited inclusion of minorities where a bank-regulated subsidiary carries capital in excess of SARB minimum requirement (example FNB Botswana Limited) • No inclusion of minorities held in an entity other than a bank (example FNB Namibia Holdings Limited, even though consolidated supervision applied to bank controlling company) • FirstRand’s response • All entities within the Group – continue to apply core principles • Appropriate capitalisation on a stand-alone basis • Ensure treatment of majority and minority interests prudently sound • Ongoing education of investors around anomalies in Basel III consolidated CET1 ratio Agenda
• Overview of South Africa’s • Flow of funds • Financial market infrastructure • Banking sector
• FirstRand Bank • Balance sheet strength • Funding and liquidity • Capital position • International funding and capital plans FirstRand’s philosophy on foreign currency external debt
• Framework for the management of external debt takes into account sources of sovereign risk: • Unsustainable debt path (solvency) crisis • Liquidity crisis • Exchange rate and macroeconomic crisis • We consider the external debt of all South African entities… • Private and public sector • Financial institutions • …as all these entities utilise the South African system’s capacity • Confidence and export receipt
• Therefore FirstRand places internal constraints that are more stringent than the macro prudential limit Conceptual liquidity in FX market
Liquidity 1,200
1,000
800
600 USD14bn daily average 400
200 Very liquid USD175m daily average (est.) - Spot O/N 1M 3M 1YR 2R 3Yr 4YR 5Yr 10YR
Liquid Reduced liquidity Limited liquidity
Daily average spot USDZAR turnover is estimated as US$14bn BIS Triennial Central Bank Survey, 2010 Reasons for swap based funding
• Reduced credit costs in funding • A currency swap is a net transaction, subject to ISDA • Offset results in reduced credit risk • Usually under CSA, zero threshold becoming more common • You do not have to pay sovereign credit spread • By giving funders the opportunity to frequently reassess and reprice you – the cost charged is much less • Results in increased liquidity risk
• Swap market is more liquid than term funding market
• Interbank funded not capital market based • Less lead times • No programs and extensive documentation International funding activities
• Syndicated loans • EMTN program • Stanchart arranged $215m maturing • Reg S Jan 2014 • USD 500 million 5-year bond due 2016 • Commerzbank arranged $200m maturing • Private placements Dec 2014 • African currencies BWP, ZMK, NGN settled in USD/EUR • DFI facilities • DEG €85m & $55m maturing Nov 2017 • MotoNovo Finance • DEG €45m & E35m maturing Jun 2019 • Turbo ABS securitisation programme • EIB €50m maturing Dec 2025 • 3 Successful issues – with significant • EIB €62m maturing Sep 2032 spread compression for the Aaa notes from 180 to 60 over 3 years • Pursuing opportunities with IFC and AfDB • Further issuances to follow
• Bilateral facilities • Tier 2 capital • Several bilateral facilities in place with GCC and Asian banks • Awaits final guidance from the SARB on loss absorbency requirements for capital • EUR, USD, AUD, INR instruments