Post on 07-Feb-2018
Making the investment case
UBS conference
Louis von Zeuner, Deputy Group Chief Executive Officer
27 October 2011
Deteriorating global backdrop ...
Elevated VIX Index signals greater ‘fear’
50
60
70
80
90
EU bank CDS spreads increased sharply
200
250
300
350EU banks* 5-year CDS spread (bp)VIX Index *
2
0
10
20
30
40
7/0
6
1/0
7
7/0
7
1/0
8
7/0
8
1/0
9
7/0
9
1/1
0
7/1
0
1/1
1
7/1
1
0
50
100
150
10/0
7
1/0
8
4/0
8
7/0
8
10/0
8
1/0
9
4/0
9
7/0
9
10/0
9
1/1
0
4/1
0
7/1
0
10/1
0
1/1
1
4/1
1
7/1
1
10/1
1
Source: BloombergNote: *Chicago Board Options Exchange Market Volatility Index - measuring the impliedvolatility of S&P 500 index options
Source: BloombergNote: *Average Euro CDS (senior, 5 year) for Societe Generale, RBS, Lloyds, BBVA, Credit Agricole, Commerzbank, BNP Paribas, Barclays, Deutsche Bank, Standard Chartered, HSBC, Santander, Unicredit
... dampens our macro outlook
... dampening South Africa’s outlook
3.3%
3.5%
3.8%
4.0% 2012E GDP growth
Expected global GDP growth reduced* ...
5%
6%
7%
8%
9%
3
Source: IMF, Absa, SARB
2.5%
2.8%
3.0%
3.3%
Absa IMF SARB
Previous Updated
0%
1%
2%
3%
4%
Advanced economies
Latam & the Caribbean
SA Sub-Saharan Africa
Developing Asia
April 2011 September 2011
Source: IMFNotes: * Average, constant prices (2011-16E)
One Absa is delivering
Balance sheet optimisation and
proactive risk
management
Sustainable
growth in targeted markets
4
Customer and
people-centred organisation
Simple,
streamlined
Group for customer
delivery
Hedging policy paying dividends
Rates expected to remain low for longer
20%
25%
30%Prime rate
800
1000
1200
1400
1600
Hedge protects our margin
Net interest income (Rm)
5
5%
10%
15%
1Q
90
1Q
92
1Q
94
1Q
96
1Q
98
1Q
00
1Q
02
1Q
04
1Q
06
1Q
08
1Q
10
1Q
12
Source: Absa Capital estimates, I-Net
0
200
400
600
800
FY10 1H11
Endowment cost of lower rates Hedging benefit
Source: Absa
Focus on returns rather than market share
20%
25%
30%
35%
Personal loan market share dropped ...
12
16
20
... despite strong book growth since FY05
Personal and microloan book (Rbn)
6
0%
5%
10%
15%
12/05 12/06 12/07 12/08 12/09 12/100
4
8
FY05 1H11
Source: AbsaSource: Statutory returns
Quality non-interest revenue growing
• Robust bancassurance growth
• FX offering transformed
• Business Banking gaining traction6
8
10
12Non-interest revenue 1H11 (Rbn)
High level of annuity non-interest revenue
7
• Retail positioned to capture uptick
Source: AbsaNote: RBB is Retail and Business Banking
0
2
4
RBB net fees & comm
Financial Services
Markets (net
trading)
PE/CPF revals
Other investment
income
Other income
Total
Sustainable cost containment
60%
65%
70%
75%
Efficiency ratio has turned the corner Headcount slightly below FY07 levels
36000
37000
38000
39000
40000
Cost to income ratio * Staff numbers
8
45%
50%
55%
60%
FY
95
FY
96
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
1H
11
Source: AbsaNote: * March year end until FY05, IFRS from FY06
32000
33000
34000
35000
36000
FY05 FY06 FY07 FY08 FY09 FY10 1H11
Source: AbsaNote: Excludes contract workers
Scope for credit costs to normalise
1.5%
1.8%
2.1%
2.4%
Credit costs still above historical average
0.8%
1.0%
1.2%
1.4%
1H11 credit loss ratio relatively high
UniFer
Financial crisis
Credit loss ratio *
9
0.0%
0.3%
0.6%
0.9%
1.2%
FY
97
FY
98
FY
99
FY
00
FY
01
FY
02
FY
03
FY
04
FY
05
FY
06
FY
07
FY
08
FY
09
FY
10
1H
11
Source: Absa Note: * March year end until FY05; IFRS from 2006
0.0%
0.2%
0.4%
0.6%
Bank 1 Absa Bank 2 Bank 3
Source: Company reports
Excluding
UniFer
Average
Several drivers to improve our returns
1H07%
1H08%
1H09%
1H10%
1H11%
Income to RWAs 10.6 11.6 10.9 10.9 10.8
Cost to income ratio 52.8 49.3 46.6 53.6 54.8
Credit losses to income 5.9 10.8 23.0 17.6 13.0
Operating margin * 26.1 23.4 18.2 18.4 20.6
Return on risk-weighted assets 2.77 2.72 1.99 2.00 2.23
Financial leverage * 9.7 9.0 8.2 7.5 7.2
Return on equity 26.8 24.6 16.3 15.0 16.2
* Note: Operating margin = headline earnings / total revenue; Financial leverage = average RWAs / average shareholders equity
Source: Absa
10
We will maintain a strong balance sheet
11%
13%
15%
Capital levels well above target
15
20
25
Continue to build our surplus liquidity
Surplus liquid assets (Rbn) Absa Group tier 1 capital ratio
11
Source: Absa
5%
7%
9%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 1H110
5
10
FY08 FY09 FY10 1H11
Source: AbsaNotes: March year end until FY05, Basel II from FY08
Excess capital masks improving underlying returns
15
16
17
18
1.4%
1.5%
1.6%
1.7%
1.8%
RoA is recovering, but leverage remains sub-optimal
12
12
13
14
15
0.9%
1.0%
1.1%
1.2%
1.3%
1H07 1H08 1H09 1H10 1H11
Return on assets Average accounting leverage (RHS)
Source: Absa
Further runway to grow locally
Retail banking confidence remains low
50
60
70
80
90
100
110
• Retail and Business Banking
• Absa Capital
• Absa Financial Services
Average
13
0
10
20
30
40
50
1Q
02
3Q
02
1Q
03
3Q
03
1Q
04
3Q
04
1Q
05
3Q
05
1Q
06
3Q
06
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
Source: Ernst & YoungNote: Retail Banking business confidence index, % satisfactory
Absa Financial Services well-positioned to grow
8%
10%
12%
14%
16%
18%
Scope to increase our market share...
20%
25%
30%
35%
40%
45%
...while generating attractive returns
14
0%
2%
4%
6%
8%
Life Employee Benefits
Investments (unit trusts)
Short-term insurance
Trusts
Source: Absa, ASISA, RIA
0%
5%
10%
15%
20%
FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 1H11
RoE CoE
Source: Absa, I-NetNote: * March year end until FY05
Africa opportunity
Share ofassets (%)
Rank by Revenue
Presencesince
South Africa 1888 22 2
Egypt 1864 2 12
Tanzania 1916 18 3 *
Ghana 1917 4 2
Zimbabwe 1912 9 4
• Offers attractive growth potential
• Our Africa strategy has progressed
• We are part of a leading franchise
• Operate as One Bank to capture the
opportunity
15
Kenya 1925 12 1
Uganda 1927 10 3
Zambia 1918 10 1
Botswana 1950 26 1
Mauritius 1919 11 3
Mozambique 2002 7 4
Seychelles 1959 24 1
Source: Bank annual reports, central banks, Global Credit Ratings, McKinsey
Note: * Includes consolidated National Bank of Commerce and Barclays Tanzania data except for the ranking based on revenue where NBC is
ranked 3rd and Barclays 6th
We continue to deliver
This year
• Double digit non-interest revenue growth
• Single digit cost growth
• Positive JAWS
Medium term
16
Medium term
• Cost to income ratio of 50%
• RoRWA above 2.5%
• Sustainable RoE of 20%
Best bond house
2010
Questions
Best Retail Bank in South Africa
Best mobile phone banking (international)
2011
1st
Overall bank
1st
Overall currency
2011
Best debt house in South Africa
2010-2011
1st
Dealing: Fixed Interest Securities
2011
Best local bank in South Africa
2009-2011
17
Best Islamic Financial Institution in Non-Gulf Cooperation Council Middle East/Africa
2009-2011
Top Retail Bank
2010-2011
Coolest bank award
2006-2011
Banking Category Winner
2011
1st
Financial services
2nd
South African corporates
2011
1st
Banking
1st
Short-term household insurance
2011
Best Islamic Bank in South Africa
2009-2010
Top Companies Reputation Index
Business segment award
2011
Innovative Use of Technology
“Improve access to banking” category
2011
Peer Review
1s
Retail Lending and Deposits
2005-20111s
Retail Mortgages
2005-2011
Best debt house
2011
CSI award
2011