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). Source: SARB Quarterly Bulletin, National Accounts. SARB Quarterly Source: (200) (100) and corporatebalances South Africa’snetcapitalformation– funded byforeigners 100 200 300 400 Net capital formation(currentprices) - 1990 1991 Change ingold and Net saving by generalgovernment Savings byhouseholds 1992 1993 1994 1995 other foreignreserves 1996 1997 1998 1999 2000 2001 2002 Net capital formation Net capital inflowfrom Corporate saving 2003 2004 2005 2006 2007 restofthe world 2008 2009 2010 2011 2012 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.