Debt Investor Presentation November 2009 November 2009
Agenda • Fi FirstRand and Group Treasury tR d d G T • Funding & Liquidity Risk Management Funding & Liquidity Risk Management • Capital Management p g 2
Agenda • Fi FirstRand and Group Treasury tR d d G T • Funding & Liquidity Risk Management Funding & Liquidity Risk Management • Capital Management p g 3
FirstRand’s Balance Sheet Management • Pillars of Balance Sheet Management • Capital Management Capital Management • Capital planning • Capital allocations • Economic capital process p p • Credit Portfolio Management • Manage the credit portfolio from a macro economic perspective • Influences credit origination strategy • Macro Portfolio Management • Manage banking book interest rate risk • D Devise and implement hedges to protect i d i l t h d t t t the groups balance sheet and earnings • Group Treasury • Funding & liquidity management Funding & liquidity management • Manage the liquidity risk of the group • Devise and implement group’s funding strategy • Multicurrency funds transfer pricing 4
Group Treasury Group Treasury Set Strategy, Risk Appetite & Framework Centralised Treasury Functions Group Treasury Group Treasury Finance Funding & Liquidity Desk Exchange Control Management Strategic Treasury ALM y Relationship Relationship Management Alternative Funding Multi Currency Funds African International Strategies Transfer Pricing Subsidiaries Branches Integrated Approach to Funding 5
Agenda • Fi FirstRand and Group Treasury tR d d G T • Funding & Liquidity Risk Management Funding & Liquidity Risk Management • Funding and liquidity management philosophy • Macro economic influence on funding • External influence on funding • FirstRand’s response • Capital Management 6
Funding and liquidity management philosophy management philosophy 7
Funding and liquidity management • Li Liquidity risk is the risk that the bank will not be able to meet all payment idit i k i th i k th t th b k ill t b bl t t ll t obligations as liabilities fall due. In addition not able to realise assets when required to meet obligations (normally a consequential risk) • Funding liquidity risk – risk that the bank is unable to fund obligations when falling due, or meet collateral requirements, without impacting the normal course of business its financial position or its reputation of business, its financial position or its reputation • Market liquidity risk – risk that the bank may be unable to meet its obligations due to market disruption or a lack of market liquidity • Context • FirstRand Limited Board principles and limits • • South African banking and exchange control system South African banking and exchange control system • This is managed as part of Group Treasury 8
Banks are in the business of maturity transformation transformation Core Function of Banks in an Economy C F ti f B k i E C Cost of Liquidity Risk t f Li idit Ri k • Maturity transformation is the defining • There are costs incurred for running aspect of banking liquidity risk • Short term funded • Statutory • Long term lender • Cash reserves on deposit with the SARB SARB • Carry cost of statutory liquid assets • The resultant liquidity risk has to be • Cost of term funding in order to meet managed statutory minimum liquidity gap y q y g p • In the context of • Board prudential limits • Statutory liquidity requirements • SA Inc’s structural supply of money • Risk appetite • Risk appetite pp • Cost • Cost of term funding in order to meet liquidity gap targets set by the Group • Competitiveness 9
Liquidity risk management philosophy • Continuous funding and liquidity cycle Funds Target Transfer Risk Pricing Profile • Integrated across Integrated across • All financial risk disciplines • Macro economic environment • All business units All business units Risk Funding • Financial markets Framework Profile • Forward looking • Ensure compliance with Ensure compliance with • Internal risk appetite • Regulatory requirements Liquidity Stress Buffer Buffer Testing Testing 10
11 Macroeconomic influences on funding
Growing balance sheets in excess of income income Total Private Credit to GDP 200% United States Switzerland 150% Spain Germany 100% S South Africa h Af i 50% De-leveraging Credit growth in United Kingdom has begun excess of GDP Growth 0% c-60 c-65 c-70 c-75 c-80 c-85 c-90 c-95 c-00 c-05 c-10 De De De De De De De De De De De Source: World Bank 2007, Extended SA & US , Bloomberg , June-2009 12
Credit extension supported M3 Credit extension & bank assets Money supply & credit extension 100% 30% 30% 25% 25% 90% 20% 20% 80% 80% 15% 15% 70% 10% 10% 60% 5% 5% 50% 0% 0% Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 PCE/(Banking System Assets) Total Private Sector Credit Y/Y M3 Y/Y House Hold 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. Source: iNet Data Service 13
Banks monetised foreign liquidity Current account deficit & PCE Foreign investment & PCE 10 - 600 250 - 500 50 200 -10 10 400 100 -20 150 300 -30 150 200 100 -40 200 100 -50 50 0 0 -60 250 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 -100 - Current Account Current Account Total Private Credit Extension (RHS) Total Private Credit Extension (RHS) Cumulative FDI & Portfolio Investment Total Private Credit Extension (RHS) Source: iNet Data Service 14
Increased reliance on professional funding funding 50% 40% 30% 20% 10% 0% Jan-98 J 98 J Jan-99 99 J Jan-00 00 J Jan-01 01 Jan-02 J 02 J Jan-03 03 J Jan-04 04 J Jan-05 05 Jan-06 J 06 J Jan-07 07 J Jan-08 08 J Jan-09 09 FRB SBK ABSA NED Source: SARB BA Returns 15
Funding pressures – demand for credit Total Private Credit to GDP ratio Nominal GDP vs government revenue y/y 30 Index, 1970 =1 1 8 1.8 25 20 1.6 15 Trend 10 1.4 5 5 0 1.2 Credit/Nom GDP -5 -10 1 -15 93 95 97 99 01 03 05 07 Dec-9 Nov-9 Nov-9 Nov-9 Nov-0 Nov-0 Nov-0 Nov-0 0.8 70 75 80 85 90 95 00 05 10 Nominal GDP growth Government revenue growth Source: iNet Data Service 16
Funding pressures – government Government debt/GDP ratio SOEs borrowing requirement % 55 180 50 160 140 140 45 120 40 100 35 35 80 30 60 40 40 25 25 20 20 ar ‐ 80 ar ‐ 82 ar ‐ 84 ar ‐ 86 ar ‐ 88 ar ‐ 90 ar ‐ 92 ar ‐ 94 ar ‐ 96 ar ‐ 98 ar ‐ 00 ar ‐ 02 ar ‐ 04 ar ‐ 06 ar ‐ 08 ar ‐ 10 ar ‐ 12 0 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Ma Government debt/GDP National Treasury forecast OTHER SANRAL TRANSNET ESKOM Source: iNet Data Service & National Treasury 17
The funding market Array of issuers SOEs dominate term issuance Standard Bank Basil Read Omnia FirstRand FirstRand COJ COJ Unitrans Unitrans Securitisations Securitisations SOEs SOEs Rb Rbn Municipal Corporates ABSA Bidvest Denel 36 Banks / Financials Gold Fields Netcare Unilever Rbn ACSA Toyota FS Transnet SOEs have entered the 32 24 Mercedes-Benz AngloAmerican capital market in a big p g way especially in the Increased competition for 28 long term space funding in short term space 20 from corporates 24 with CP programmes 16 20 16 12 12 8 8 4 4 4 0 0 Q06 Q07 Q07 Q07 Q07 Q08 Q08 Q08 Q08 Q09 Q09 Q09 Q09 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Source: RMB FICC Research, 30 September 2009 18
The private sector Household savings Private sector investment 20% 2.5% 2 5% 2.0% 15% 1.5% 10% 1.0% 5% 5% 0.5% 0.0% 0% 98 99 00 01 02 03 04 05 06 07 08 09 8 9 0 1 Mar-02 2 3 4 Mar-04 5 6 Mar-06 7 8 9 Mar-9 Mar-9 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-9 Mar-9 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 Mar-0 -0.5% -5% -1.0% -10% -1.5% Real Private Sector Investment y/y Household Savings/Disposable Income -15% -2.0% 2.0% Source: iNet Data Service 19
Funding base 500 35% 32% 450 30% 400 25% 25% 25% 350 16% 20% 300 13% 13% 250 15% 200 10% 150 5% 100 0% 0% 0% 50 0 -5% Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-09 Prof Corporate Retail Gov & PSE's Other Annualised Growth (RHS) Source: 31-Aug- 2009 SARB BA Returns 20
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