Nedbank Group Vehicle finance & the SA consumer November 2019
Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market 2 NEDBANK GROUP LIMITED – MFC presentation
Credit demand – by financing category Credit growth (%) 45 Total loans Instalment sales and leasing Mortgage finance 35 Other Personal loans 25 15 5 -5 -15 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: Nedbank Economic Unit 3 NEDBANK GROUP LIMITED – MFC presentation
Vehicle sales – impact of the macro environment Correlation between passenger vehicle sales, GDP growth & Rand/ US$ exchange rate Correlation: GDP & vehicle sales Correlation: Fx & vehicle sales 40 20 30 15 20 10 10 5 0 0 -10 -5 -20 -10 -30 -15 -40 -20 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 GDP yoy% Car sales yoy% R/US$ Source: Nedbank Economic Unit 4 NEDBANK GROUP LIMITED – MFC presentation
Transunion industry insights – Q2 2019 “The VAF market continues to show signs of strain as originations decline & delinquencies continue to rise steadily. Lender portfolio management and effective risk reduction strategies at origination & throughout the account lifecycle are critical to contain this continued deterioration in delinquencies.” – Transunion VAF metrics Q2 2019 QoQ change YoY change Number of accounts 2.3m 2.2% 2.0% Outstanding balance R427b 0.9% 5.4% Average balance (per account) R187,103 -1.2% 3.4% Origination volumes 136,680 -4.2% -3.1% Average new account loan amount R294,868 -2.1% -1.7% Account-level delinquency rate (3+ MIA) 5.4% 20 bp 60 bp Q2 2019 marks 8th consecutive quarter of incremental increases in serious delinquencies yoy 5 NEDBANK GROUP LIMITED – MFC presentation
Industry sales trends – market share gains in lower value vehicle categories 6 NEDBANK GROUP LIMITED – MFC presentation
Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market 7 NEDBANK GROUP LIMITED – MFC presentation
MFC’s positioning in the Nedbank Group Nedbank Nedbank Nedbank Clusters Nedbank CIB RBB Wealth RoA Divisions MFC Business Unsecured Card and Forex and Home Loans Transactional Banking Lending payments investments (vehicle finance) Advances Headline earnings 21% 29% Financial Metrics (June 2019) 71% 79% MFC Rest of RBB 8 NEDBANK GROUP LIMITED – MFC presentation
Strong relationships with motor dealerships (MFC’s primary channel) support client growth MFC’s motor dealership Clients (#, 000) relationships Sustainable • MFC Exco alliances with • Head of sales larger motor • Provincial managers 591 groups 541 380 Regular tactical • 6 Provincial managers collaboration Clients with transactional • 24 Regional managers with dealer partners products (# 000, %) 24% • 180 Dealer relationship 23% Meeting the motor managers dealer’s day to • 400 Credit hub staff day needs • 230 Aftercare staff 16% 144 126 60 MFC’s dedicated motor dealer service structure results in fast turnaround, swift escalation, 2010 2014 2019 resolution & access to decision-makers H1 9 NEDBANK GROUP LIMITED – MFC presentation
MFC strategy Motor dealer centric model (B2B) delivering industry leading customer experience enabled by Service levels Negotiability Pricing / incentives Risk appetite • • Utilise electronic portals Accessibility to credit Based on: Risk profile determined by: • • • First time right approach assessors Margin Credit Bureau information • • • • Fully mandated credit Risk Independent application Streamlined processes • • Market leader speed assessors Volume scorecard • • • • Consistency Open market communication Partnership strength NCA 2 rule set • • Hub efficiency Counter-cyclicality delivered through Focused relationships (with Manufacturers, Dealer Groups & Dealerships) leveraging off Dedicated Head Office Dedicated Hubs aligned to Easy access to decision Consistent dealer calling programmes/high visibility relationship management specific dealerships makers leading to Strong support & great experiences at dealership level resulting in Market share Sustainable revenue leadership growth 10 NEDBANK GROUP LIMITED – MFC presentation
Payouts & pricing trends Asset payouts grew Higher cost of funds adversely in 2017 / 2018 impacting the consumer Asset payouts Pricing (Rbn) (%) CAGR +6%, yoy +2% 12,1 14,0 14,7 15,9 14,6 16,2 14,1 16,5 14,1 17,4 15,2 19,5 17,9 20,0 18,3 2,42 2,49 2,36 2,41 2,39 2,52 2,56 2,49 2,64 2,71 2,74 2,78 2,87 3,14 3,21 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 13 13 12 14 15 16 17 18 19 12 14 15 16 17 18 19 11 NEDBANK GROUP LIMITED – MFC presentation
Selective growth strategy in taxi finance Production (turnover) relative to exposure ▪ MFC’s taxi finance portfolio is a very healthy book. 1,5 ▪ MFC differentiates strongly between seasoned fleet owners who receive beneficial client- centric pricing due to their 1,0 proven track record & new R billion entrants who have been granted valid operating permits & route licences are lent to on more conservative asset-centric 0,5 criteria. ▪ MFC has chosen strategically to increase its participation in this market as can be seen in the 0,0 increased taxi finance turnover 201612 201704 201708 201712 201804 201808 201812 201904 201908 in 2019 after observing the results of a successful 2017 Exposure Production pilot. 12 NEDBANK GROUP LIMITED – MFC presentation
MFC turnover vs units financed long run trend Stable unit growth yoy vs upward trending production 18 R6 ▪ MFC’s units declined in 2013 / 2014 & have 16 R5 remained flat since. 14 ▪ The main drivers of balance 12 R4 Production (Rbn) sheet growth have been: Units (000) 10 R3 ▪ VPIX (c10%) > greater 8 than CPIX (c6%) 6 R2 ▪ Average duration 4 lengthening from 36 R1 months to 42 months 2 0 R0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Production Units Average Units 13 NEDBANK GROUP LIMITED – MFC presentation
MFC has grown into a key market player proving an element of countercyclicality New business market share 1 (%) Balance sheet market share 2 50% 50% 40% 40% Nedbank 30% 30% FirstRand Absa 20% 20% Standard 10% 10% Other 0% 0% 12 13 14 15 16 17 18 19 12 13 14 15 16 17 18 19 1 Source: Transunion. | 2 Source: BA900 including securitisation, Wesbank excluding Toyota & VW financial services 14 NEDBANK GROUP LIMITED – MFC presentation
MFC new & used vehicle distribution over time relative to prime rate 100% 18% 90% 16% 80% 14% 70% 12% 60% 10% 50% 8% 40% 6% 30% 4% 20% 2% 10% 0% 0% 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Prime Rate (%) New (%) Used (%) 15 NEDBANK GROUP LIMITED – MFC presentation
Vehicle finance peer comparison 2019 Interim 2018 Full year MFC Bank A Bank B* Bank C* MFC Bank A Bank B* Bank C* CLR ratio 1.72% 2.14% 1.39% 1.05% 1.53% 1.72% 1.02% 0.72% NPL % 4.0% 6.7% 6.3% 4.1% 3.6% 6.7% 6.0% 3.7% Coverage 44.4% 33.8% 39.4% 47.0% 34.6% 32.3% 39.2% 45.0% Cost-to-income** 28.7% 46.9% 53.6% 56.9% 29.1% 47.5% 49.1% 58.1% ROE (Normalised) 15.0% 17.1% 4.3% 7.7% 16.0% 19.5% 10.5% 7.9% * Bank B and Bank C do not separately disclose Retail ABF and Commercial ABF, whereas MFC is Retail ABF only. ** NIR is not comparable across VAF houses due to material differences in where insurance revenues are reflected at a Group l evel and the fee income from servicing equity-accounted manufacturer (OEM) joint ventures. 16 NEDBANK GROUP LIMITED – MFC presentation
Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market 17 NEDBANK GROUP LIMITED – MFC presentation
Digital channels vs Motor Dealership channels MFC private-to-private online solution Safe, hassle-free financing ▪ Facilitating safe, secure and hassle-free purchase of vehicles from private seller to private buyer ▪ Ensure technical inspection & roadworthy is done by seller ▪ Ensure the vehicle has an existing warranty or help a client buy one 18 NEDBANK GROUP LIMITED – MFC presentation
SA consumers still expect price negotiation to be done at the dealer with a person Complete at the dealership Online/Virtual Environment Negotiate price 84% Negotiate price 16% Finance and insurance Finance and insurance 66% 34% process & finalise purchase process & finalise purchase Vehicle tutorial 61% Vehicle tutorial 39% Credit application 51% Credit application 49% Learn about different Learn about different models, models, packages & 38% 62% packages & features features Majority of consumers would prefer to complete the finance & insurance process at the physical dealership, while being pre-approved Source: 2019 Deloitte Global Automotive Consumer Study 19 NEDBANK GROUP LIMITED – MFC presentation
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