FINANCIAL AND STRATEGIC UPDATE June 2017 2 Agenda Overview of - PowerPoint PPT Presentation

FINANCIAL AND STRATEGIC UPDATE June 2017

2 Agenda Overview of the FirstRand group Overview of FirstRand Bank (debt issuer) Alan Pullinger, Group Deputy CEO FirstRand Bank financial performance Macroeconomic environment Financial sector and market infrastructure Andries du Toit, Group Treasurer Funding and liquidity Capital

3 OVERVIEW OF THE FIRSTRAND GROUP

4 Introducing the FirstRand group – financial position and track record ZAR USD NORMALISED EARNINGS – YEAR ENDED 30 JUNE FINANCIAL HIGHLIGHTS million million for the year ended 30 June 2016 ZAR million Total assets (normalised) 1 149 326 78 399 25 000 Normalised net asset value 99 794 6 807 22 855 21 286 Normalised earnings 22 855 1 575 20 000 18 663 Normalised ROE 24.0% Capital adequacy – CET1 ratio 13.9% 15 000 15 420 Conversion rates at 30 June 2016: Income statement: USD1 = ZAR14.51, balance sheet: USD1 = ZAR14.66. 12 730 10 000 KEY OPERATING STATISTICS Number for the six months ended 31 December 2016 Employees 45 490 5 000 Physical representation points * 831 ATMs * 7 487 0 * Relates to FNB’s representation points and ATMs in South Africa and rest of Africa. 2012 2013 2014 2015 2016 Sources: FirstRand, I-Net.

5 FirstRand’s operating model LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) Retail and commercial bank Corporate and investment bank Instalment finance Investment management Group-wide functions Stakeholder Customer-facing management

6 FirstRand’s statement of intent • FirstRand’s portfolio of leading financial services franchises: • provides a universal set of transactional, lending, investment and insurance products and services • seeks to operate in markets and segments where franchises can deliver competitive and differentiated client-centric value propositions… • …by leveraging the relevant distribution channels, product skills, licences and operating platforms of the wider group • Strategy is executed on the back of disruptive and innovative thinking underpinned by: • owner-manager culture • disciplined allocation of financial resources • Underpinned by the group’s commitment to: Deliver superior and Create long-term sustainable economic Maintain balance franchise value returns within acceptable sheet strength levels of volatility

7 Group strategic framework presents broader opportunities for growth Other South Africa Rest of Africa (UK, Channel Islands and India) Protect and grow banking franchises Protect and diversify Broaden financial services offering Portfolio approach to capitalise on long-term growth opportunity

8 OVERVIEW OF FIRSTRAND BANK (DEBT ISSUER)

9 FirstRand Bank is a wholly-owned subsidiary of FirstRand Limited… LISTED HOLDING COMPANY (FIRSTRAND LIMITED, JSE: FSR) OTHER WHOLLY-OWNED SUBSIDIARIES 100% OF FIRSTRAND LIMITED FIRSTRAND BANK LIMITED DEBT ISSUER FirstRand EMA (Pty) Ltd (FREMA) DIVISIONS Banking subsidiaries in the rest of Africa Retail and commercial bank FirstRand Investment Management Holdings Limited Corporate and investment bank Investment management activities FirstRand Insurance Holdings Instalment finance (Pty) Ltd Insurance activities BRANCHES London, Guernsey * and India FirstRand Investment Holdings (Pty) Ltd (FRIHL) REPRESENTATIVE OFFICES Kenya, Angola, Dubai and Shanghai Other activities * Trading as FNB Channel Islands.

10 … and a significant contributor to the group’s financial position FirstRand normalised earnings FirstRand normalised assets 11% 22% FirstRand Bank FirstRand Bank Other legal entities * Other legal entities * 78% 89% FirstRand normalised net asset value FRB geographical advances split 2% 3% 3% 21% South Africa FirstRand Bank Other Africa Other legal entities * United Kingdom Other 79% 92% * Comprises FREMA, FRIHL, FirstRand Investment Management Holdings Ltd and FirstRand Insurance Holdings (Pty) Ltd.

11 Protecting and growing SA banking franchise key to group’s growth Other Insure • Growing and retaining customers across all Save and segments invest • Cross-sell and up-sell key to growth in retail and commercial franchises • E-migration underpins sustainability of retail transactional franchise Transact • Targeted, prudent origination strategies across all portfolios Lend • Disciplined allocation of financial resources • Driving efficiencies Transact and lend = 85% of group revenue

12 Diversification in UK still presents growth opportunities for the bank Other markets (incl. UK and India) 4% Rest of Africa 10% • Continued growth in motor distribution footprint • Investing in product diversification • Funding strategies still supportive of growth plans • Origination strategies have been adjusted South Africa 86% for macros Chart shows group revenue split

13 FRB normalised performance highlights Dec 2016 Dec 2015 % change 15%  Profit before tax (ZAR million) 12 269 10 661 18%  Earnings (ZAR million) 9 081 7 712  Return on equity (%) 22.6 21.1  Return on assets (%) 1.75 1.57 Credit loss ratio (%) * 0.79 0.79 -  Cost-to-income ratio (%) 53.8 55.4  Tier 1 ratio (%) ** 14.5 14.0  Common Equity Tier 1 ratio (%) ** 14.1 13.6  Net interest margin (%) 5.22 4.95  Average gross loan-to-deposit ratio (%) 93.2 93.3 3%  Gross advances (ZAR billion) 782 760 * Credit loss ratio = impairments/average gross advances. ** Reflects FRB including foreign branches. Ratios include unappropriated profits.

14 MACROECONOMIC ENVIRONMENT

15 The macroeconomic cycle has turned Economic growth at cyclical lows Trade balance has pushed the CA deficit % GDP % y/y 6 7 4 6 2 5 0 -2 4 -4 3 -6 2 -8 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep 1 94 95 96 97 99 00 01 02 04 05 06 07 09 10 11 12 14 15 16 0 Net income and transfers (% GDP) Trade balance (% GDP) -1 -2 A lower rate of household and government dissaving Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep R billion 94 95 97 98 00 01 03 04 06 07 09 10 12 13 15 16 18 19 Household savings Corporate savings 600 GDP growth Forecast Net savings by government Net capital inflow from the rest of the world 350 Inflation back in the target band % % y/y 100 16 14 -150 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 12 10 Repo rate has peaked 8 % 6 Repo rate Forecast Real repo 15 4 10 2 5 0 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov 0 00 01 02 03 04 05 07 08 09 10 11 12 14 15 16 17 18 19 -5 Inflation Forecast Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 00 01 02 03 04 05 06 07 08 09 10 11 13 14 15 16 17 18 19 Sources: SARB, StatsSA, FirstRand.

16 Government debt has lifted; households have delevered Government debt to GDP ratio Government debt service costs % % GDP 55 12.8 50 12.6 45 12.4 40 12.2 12.0 35 11.8 30 11.6 25 11.4 20 11.2 1994 1997 2000 2003 2006 2009 2012 2015 2018 2016/17 2017/18f 2018/19f 2019/2020f Government revenue to income ratio Government: gross debt to GDP ratio National Treasury: forecast Household debt to disposable income growth Household debt service cost to disposable income % income % income 16 90 14 80 12 70 10 60 8 50 6 40 4 Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov 94 95 97 98 99 01 02 04 05 06 08 09 11 12 14 15 16 94 95 97 98 99 01 02 04 05 06 08 09 11 12 14 15 16 Household debt to disposable income Debt service cost to disposable income ratio Sources: SARB, StatsSA, FirstRand.

17 FINANCIAL SECTOR AND MARKET INFRASTRUCTURE

18 Further strengthening the SA financial system • SA benefits from world class market infrastructure in payments, exchanges and securities clearing • SA benefits in financial stability from the closed rand system • SA is adopting the Twin Peaks model of financial sector regulation • Prudential Authority with the SARB • Financial Sector Conduct Authority • Regulation and legislative frameworks REGULATION LEGISLATION Prudential • Financial Markets Bill 2012 • • Basel III Financial Services General Laws Amendment Act, 2013 • • Solvency assessment and management (Solvency II) Banks Act Amendment Bill (B17 2014) • Financial conglomerates • Financial Markets Act Market conduct • Credit Ratings Services Bill • JIBAR code of conduct • Resolution policy framework (2015) • Code of conduct for OTC market • Deposit insurance policy framework (2017) • Treating customers fairly

19 SA is progressing on G20 reforms and alignment Source: FSB.