Absa Group Limited Optimising return on capital in a challenging new landscape Group Financial Director: David Hodnett UBS Conference 21 October 2010

Transcription

1 Absa Group Limited Optimising return on capital in a challenging new landscape Group Financial Director: David Hodnett UBS Conference 21 October 2010

2 A challenging new landscape Well positioned Our response 2

3 A challenging landscape tough macro backdrop Trends Macro Backdrop Weaker than expected global recovery Income rather than credit-driven recovery High unemployment, household debt ratio improving slowly Muted consumer and corporate sectors Low interest rates for longer Strong Rand Implications for Absa Modest credit demand retail and corporate Hedge reduces margin pressure (endowment) Low, but steady growth in transaction activity Client-driven trading volumes under pressure Normalising impairments 3

4 A challenging landscape notable regulatory change Regulatory Changes Basel Amendments Consumer Protection Act Companies Act Implications for Absa Maintain high capital and liquidity levels Margin compression (funding) Impacts product profitability e.g. equity products, term lending Implementation costs Process optimisation Rising consumerism 4

5 A challenging landscape rising competition Competition International banks enter/return Rivals focus on unsecured lending, deposits, non-interest revenue and primary customers Niche banks making gaining market share Greater focus on Africa Non-banks Implications for Absa Increased competition, particularly in growth segments and for deposits and liquidity Impacts ability to re-price Cost pressures, given limited skills pool Maintain channel presence 5

6 A challenging new landscape Well positioned Our response 6

7 A robust starting point Full strength management team Attributable profit mix Well capitalised Leading distribution network Large customer base Strong brand Better diversified earnings Retail banking leader Strong investment bank Unique bancassurance model 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% H10 Target mix Retail Bancassurance Commercial Investment banking Source: ABSA

8 A challenging new landscape Well positioned Our response 8

9 One Absa strategy Sustainable growth in targeted markets Balance sheet optimisation and proactive risk management Simple, streamlined Group for customer delivery Customer and people centred organisation 9

10 Absa One strategy generates 13 key workstreams Sustainable growth in targeted markets Enhancing business as usual Core fundamentals Position corporate bank alongside IB Establish ABB s market leadership Entry level banking proposition Wealth and investment advisory Grow African earnings Leading FX franchise Grow retail business Grow deposits Streamline the group Performance through people strategy Strengthen risk management Optimise balance sheet Implement target operating model 10

11 Grow Retail we have a distribution edge Branches, 1H10 ATMs, 1H % % Number two Absa Number two Absa Source: ABSA, company reports Source: ABSA, company reports 11

12 Corporate bank seeing early success Share of profit pool well below customer relationships Extend Abcap s coverage model to our top corporate customers Grow primary customer base Holistic customer solutions Performed well in 1H10 Gained customers Increased transaction volumes Corporate PBT, Rm 99% 0 Source: ABSA 1H09 1H10 12

13 Business Bank significant upside potential Business banking NIR to total income Large business products per customer 60% 57% 54% 51% 48% 45% 3x 42% 39% 36% 33% 30% Absa current Leader Non-primary customer Primary customer Source: ABSA Source: ABSA 13

14 Establish a leading FX centre Build a scalable platform Installed Barclays PACE system Several early successes Consolidated 5 divisions into one Forex Operation Reduced turnaround times Rolled out PACE in Tanzania Performed relatively well in 1H Net average daily turnover on SA foreign exchange market, US$ 6 01/08 04/08 07/08 10/08 01/09 04/09 07/09 10/09 01/10 04/10 07/10 Source: SARB 14

15 A new entry level banking model Leading customer base... 33% banking customers 16% social grants (AllPay)... brand, distribution and product Piloting new model Low cost of delivery Simple products Customer education Deepen share of wallet Cellphone customers (thousand) FY05 FY06 FY07 FY08 FY09 1H10 Source: ABSA 15

16 Grow deposits 29% Individual deposit market share 28% 27% 26% 25% 24% 23% 12/05 06/06 12/06 06/07 12/07 06/08 12/08 06/09 12/09 06/10 Source: BA 900 data 16

17 Balance sheet optimisation ABSA long-term funding ratio Long-term funding ratios, 1H10 28% 28% 24% 27% 26% 20% 25% 16% 24% 12% 23% 8% 22% 4% 21% 0% 2Q06 1H10 20% ABSA Bank 1 Bank 2 Bank 3 Source: ABSA Source: ABSA, company reports 17

18 Low risk three-prong rest of Africa strategy Grow existing franchises Replatforming NBC IPO in Tanzania Barclays Absa Egypt Enhanced Barclays collaboration Bancassurance Ghana Kenya Uganda Investment banking Tanzania Seychelles Other products e.g. Islamic banking, agri Zambia Botswana Zimbabwe Mauritius Enter key new markets South Africa Nigeria (rep office) Namibia (rep office) Source: ABSA, Barclays 18

19 Innovative, particularly electronic and payments CashSend Western Union POS dynamic currency conversion CashSend redeemed, Rm CashSend volumes PayPass contactless card Absa.mobi Agri card st public corporate switch auction in SA Debt Capital Markets CashSend amount redeemed CashSend transactions (RHS) st USD CPI note placed with an SA investor 1 st high-yield bond issuance in SA Source: ABSA 19

20 Cost to income ratios capture key dynamics Pressure on ratio medium-term Past staff optimisation evident Clear hedging benefit Costs Revenue = Costs RWA Revenue RWA Non-interest revenue opportunity Absa Capital Bancassurance cross sell into retail, Africa, commercial Corporate and business banking transaction volumes To average RWA (1H10) ABSA Peers Costs 5.8% 6.0% Staff costs 3.0% 3.2% Other costs 2.8% 2.8% Revenue 10.7% 10.3% Net interest income 5.8% 4.8% Non-interest revenue 5.0% 5.5% Source: ABSA

21 H10 Cost to income ratio under pressure, but competitive Cost to income ratio Big 4 bank cost to income ratios 68% 66% 62% 60% FY09 1H10 64% 62% 60% 58% 56% 58% 54% 56% 54% 52% 52% 50% 50% 48% 48% 46% 46% 44% Absa FirstRand Nedbank Standard Bank Source: ABSA Source: ABSA, company reports

22 Well capitalised, but still several moving parts Still some Basel uncertainty Upward pressure on RWAs + Substantial rise in market risk + Increasing credit risk RWAs (model refinements) Various optimisation initiatives Implement AIRB (wholesale) Reduce equity risk 14% 13% 12% 11% 10% 9% 8% 7% 6% 5% 4% Tier 1 capital ratio H10 We will review capital level medium-term Source: ABSA

23 Greater focus on RORWA Further impairment tailwind Improve revenue growth Non-interest revenue initiatives Wider margins Loan growth picks up Manage cost growth Given initiative spend, staff cost pressures 3.0% 2.6% 2.2% 1.8% 1.4% 1.0% RORWA UniFer Financial crisis Flex cost growth to revenues Optimise RWA 0.6% H10 Source: ABSA

24 In summary Strong franchise Right strategy Execution, execution, execution 24