2020 BASA Transformation Report 05 March 2020 Dr Stuart Theobald, - PowerPoint PPT Presentation

2020 BASA Transformation Report 05 March 2020 Dr Stuart Theobald, CFA Orin Tambo,CFA Letta Maponyane Colin Anthony

Background 1 Methodology Economic context & 2 Presentation highlights outline 3 Findings 2

Background Data covers FY16-FY18 for all banks with December year ends (most), and 2 FY17-FY19 for those with March year ends (Capitec, African Bank and Investec) Data supplied by the banks were based on the Financial Sector Code scorecard methodology Methodology Ownership and management control data were weighed by banks’ total assets to determine industry aggregates Earlier year figures (2016, 2017) were recalculated to reflect changes in the same group to allow year-on-year comparisons (two banks exited and four banks entered) and therefore differ from last year’s report 4 Submitting banks: Absa, African Bank, Albaraka, GroBank, Bidvest Bank, Capitec, Finbond, FirstRand, Grindrod, Investec, Mercantile, Nedbank, Sasfin, Standard Bank, China Construction Bank Corporation, Citi, Ubank and HBZ Bank 3

Findings Economic context Economic environment Impact on transformation Difficult to drive • Weak economy transformation that depends • Worsening credit on lending growth to environment targeted sectors • Bank balance sheets grew Difficult for banks to incur the 6.5% (inflation 4%) costs of enhanced skills and • Bank ROE declining supplier development • Bank profit growth of only 4.7% Limited promotion opportunity 4

Background Black board directors up from 43% to 51%. Black board directors up from 43% to 51%. Top black senior managers up from 32% to 36% Socioeconomic development spending 6% up to R666m Socioeconomic development spending 6% up to R666m Supplier development almost doubled to R795m Highlights Black skills development spend up 23% to R3.3bn Spending on consumer education up 24% to R180m Exposure to black SMEs 13% up to R28.8bn Exposure to black SMEs 13% up to R28.8bn Black agricultural financing up 41% 5

Findings Ownership Black ownership percentage in banks • Black ownership measures have declined across the three years on all measures 40% but on aggregate remain above the FSC 32,8% targets, except for black economic 29,7% 29,0% 28,7% 30% interest. 24,8% 25,0% 25,0% 24,2% • Economic interest of black women, which had improved marginally in 2017, 20% also declined during 2018 but remains 12,9% 12,8% 11,3% 11,8% 11,1% above the FSC target for individual banks 10,5% 10,0% 10,0% 9,2% 10% of 10%. 5,3% 4,3% 3,0% • The decline in black interest is mostly due 0% to a continued exit of black shareholders Black Voting Black Women Black Economic Black Women Economic who received shares through black Rights Voting Rights Interest Economic interest of Interest designated empowerment schemes established by black groups the large banks that matured 2015/16. 2016 2017 2018 Target 6

Findings Management control – board Number of directors Proportion of directors who are black 200 60,0% 186 177 175 180 51% 50% 50% 50,0% 160 43% 40% 140 40,0% 36% 37% 38% 120 30,0% 100 25% 25% 25% 80 75 19% 20% 80 20,0% 63 60 56 54 60 37 10,0% 40 7% 30 6% 6% 26 19 16 15 20 5 4 0,0% 2 2016 2017 2018 Target 2016 2017 2018 Target 2016 2017 2018 Target 2016 2017 2018 Target 0 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 Total number of Black board Black women Total executive Black executive Black women Black board Black women Black executive Black women board members board directors directors executive members directors executive directors members members directors 7

Findings Management control Black representation in management (X axis log 10 scale) Black representation in executive management 10000 85% 90% 83% 82% 1000 80% 70% 65% 63% 60% 60% 100 47% 46% 50% 41% 36% 40% 32% 29% 30% 10 20% 10% 1 0% Top senior Senior Middle Junior Top senior Senior Middle Junior 2016 Black 104 2920 25803 51103 2017 Black 66 3164 27338 51218 2018 Black 90 3651 28807 51682 • The number of black managers across all levels has ticket up over the past three years and has grown in every category in percentage terms. • Overall, black managers accounted for 74.7% of bank management teams during 2018, up from 72.8% in the previous year Black top senior management roles climbed to 36% during 2018 from 32% in the previous year • 8

Findings Break down of race categories (1/2) Middle management across banks Junior management 18 000 15 859 33 143 35 000 15 043 16 000 14 955 32 354 14 733 31 661 13 822 14 000 30 000 12 609 12 000 25 000 10 000 7 745 7 991 8 054 20 000 8 000 5 347 5 525 5 710 15 000 6 000 12 306 11 985 11 758 10 284 10 0928 753 4 000 10 000 7 090 6 879 6 781 1 064 1 101 1 082 2 000 5 000 495 470 392 0 0 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner African Indian Coloured White Foreigner • There has been a sustained increase in the number of black managers (particularly African) in junior and middle management level. • Conversely, the number of whites in junior and middle management is declining. 9

Findings Break down of race categories (2/2) Top senior management Senior management across banks 250 4 000 3 707 3 668 205 3 377 3 500 200 3 000 145 150 2 500 117 2 000 1 466 1 356 1 437 1 609 100 1 500 1 199 1 006 53 53 1 000 43 42 576 528 50 489 34 412 30 398 356 500 21 19 15 12 7 5 0 0 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner African Indian Coloured White Foreigner • The number of white, African and Indian top senior management and senior management increased 10

Findings Skills development • Banks continued to channel more Skills development spend (Rm) resources towards initiatives aimed at developing black skills. 4 000 3 347 • During FY18 banks spent R3.3bn on 3 500 black skills development, 23% 3 000 2 730 more than the previous year. 2 512 2 500 • Notably, more than 60% of banks’ 1 908 1 893 2 000 1 688 spend on skills development of 1 573 1 475 1 500 black employees over the past three years was on black female 1 000 526 employees. 500 • More than half of spending was on 0 black Africans. Black spend Black women spend African spend 2016 2017 2018 11

Findings Socioeconomic development • Socioeconomic Socioeconomic development spend (R'm) 680 development spending, 666 which includes spending on 660 organisations that 640 628 predominantly benefit black 6% growth 620 people, increased 6% between 2017 and 2018. 600 584 580 560 540 2016 2017 2018 12

Findings Preferential Procurement • Banks’ total measured Preferential procurement (R'm) 140 637 160 000 procurement spending 119 287 140 000 almost doubled during 120 000 2018, with a large portion of 100 000 that going to black 72 135 71 564 71 833 65 637 suppliers. 80 000 60 000 • All categories of black 28 286 25 932 25 944 21 054 40 000 suppliers benefited from 16 480 15 696 14 783 14 783 13 173 9 257 9 338 6 034 20 000 the increased expenditure. 0 Total measured All BEE QSE (same as EME (same as 51% black 30% black compliant EME for 2016) QSE for 2016) owned women owned suppliers 2016 2017 2018 13

Findings Consumer education • Bank spending on various Consumer Education (R’m) consumer education 200 180 180 initiatives increased 24% 160 146 24% 140 growth 116 120 26% growth 100 80 60 40 20 0 2016 2017 2018 14

Findings Empowerment financing • Banks’ total balance sheet Overal empowerment financing within the big six (R'm) exposure to empowerment 500 000 financing jumped 18% while 450 000 targeted investments 318 958 400 000 270 957 increased 4%. 350 000 224 648 300 000 250 000 154 580 148 134 120 928 200 000 150 000 100 000 50 000 0 Empowerment financing Targeted investments 2016 2017 15

Findings Empowerment financing: components Empowerment financing (R'bn) Balance sheet exposures to transformational • infrastructure financing were largely flat 180 164 between 2017 and 2018. 160 Overall exposure to black farmers rose 41% • 140 from 2017 to 2018. 123 120 104 Exposure to the affordable housing market • 100 increased slightly as growth in mortgage loan books and residential development 80 68 67 loan books were offset by declines in non- 53 52 60 47 44 mortgage home loans and wholesale loans. 40 29 27 25 Exposure to black SMEs jumped 13% to • 20 R28.8bn with EMEs accounting for the lion’s 4 3 3 share of that increase. 0 Transformational Black SME Black Affordable B-BBEE Exposure to BEE deals stood at R164bn, 34% • infrastructure financing agricultural housing transaction higher than the previous year. financing financin 16