Results Presentation

AFRICAN BANK HOLDINGS LIMITED1 DECEMBER 2017

www.africanbank.co.za

For the financial year ended

30 September 2017

Contents

CEO review

Financial review

Outlook

2

Introduction

Good set of results

Core loans business performing well

Diversification strategy roll out progressing well

Building a competitive retail bank for South Africans

3

Highlights

4

Financial results

• Headline earnings up 75% (H2 2017 vs. H2 2016)

• Credit loss ratio down to 11.7% from 13.2% (H2 2017 vs. H2 2016)

• Core operating costs flat

• New business loan volumes down 9%, given conservative risk appetite

• Retail deposit book up 148% off a low base

Highlights

5

Significant business developments

• Branch Network

o right-sized cost base

o all branches to be refreshed by May 2018

• Credit Direct - progressing well

• Digital – core transactional banking system fully

operational, on track for 2018 launch

• Corporate – further reduction in negative carry, and

strengthened capital adequacy

• MMI partnership commenced

o July 2017 – Insurance

o October 2017 - Lending

Strategy overview

6

Strategy scorecard

* Comparative reference is to the September 2016 period 7

8

Retail deposits growthAn emerging product line gaining traction

Predominantly longer date deposits

• 5 year deposits amount to 60% of new business

Lower average cost of funding than wholesale funding

Market leading deposit rates

RETAIL DEPOSITS GROWTH

R 100 mR 144 m

R 204 m

R 357 m

4 Apr 2016 30 Sep 2016 31 Mar 2017 30 Sep 2017

Financial review

9

Operating profit R1 130 million

(excluding foreign exchange

movement)

Results

Strong capital and liquidity

• Core Equity Tier 1 ratio 29.9% (Bank)

• Available cash balances R10.1 billion

Full year RoE 9.0 % (Branch Network 20%)

Continuing risk, cost and efficiency focus,

contributing positively to the bottom line

10

R 379 m

R 501 m

R 629 m

R 1 130 m

6,7% 7,5%

10,6%9,0%

2%

7%

12%

17%

22%

27%

32%

0

200

400

600

800

1 000

1 200

H2 16 H1 17 H2 17 FY 17

Net profit before tax, FX and goodwill write off ROE (%)

Increasing operating profit

11

A

A

A

A

A

A

A

A

A

AA

RoE in later periods increasingly diluted by higher equity

H2 2016 includes R251 million buy back profit

EARNINGS AND RoE OVERVIEW

+32%

+26%

Returns on average gross advancesROA overview

Higher insurance earnings, after creation of IBNR (incurred but not reported) R440 million in H2 2016

Decreasing Net Interest Revenue (NIR) – larger loans to lower risk customers

Increasing Net Interest Income (NII) – impact of debt buybacks decreasing negative carry (excludes

profit on buybacks)

Decreasing impairment charge – reflective of lower risk customer base

Increasing operating costs – investment costs and a decreasing average advances balance12

13,2% 15,9% 15,6%

6,5% 6,1% 5,8%

2,0% 4,0% 5,1%

(13,2%) (13,8%) (11,7%)

(9,2%) (8,8%) (10,3%)

0,4% 1,7% 2.7%

H2 16 H1 17 H2 17

Insurance

Non-interest revenue

Net interest income

Impairments

Operating costs

ROA

13

Branch RoE above target rangeEmerging businesses and balance sheet overhang dilutes Group ROE

FY 2017 – RoE DRIVERS ANALYSIS

9,0%

20,0%

2,4%

5,8%

2,8%

Group ROE Credit Direct &Digital

Negative carry Surplus capital Branch ROE

0%

5%

10%

15%

20%

25%

30%

35%

2012Q

1

2012Q

2

2012Q

3

2012Q

4

2013Q

1

2013Q

2

2013Q

3

2013Q

4

2014Q

1

2014Q

2

2014Q

3

2014Q

4

2015Q

1

2015Q

2

2015Q

3

2015Q

4

2016Q

1

2016Q

2

2016Q

3

2016Q

4

2017Q

1

2017Q

2

2017Q

3

2017Q

4

Perc

enta

ge o

f ori

gin

al lo

an g

rante

d

4@12 : 12 Month moving average

4@12 : Quarterly data point

2@6 : 12 Month moving average

2@6 : Quarterly data point

1@3 :12 Month moving average

1@3 : Quarterly data point

Credit quality – early riskEarly risk continues to be indicative of overall risk experience

QUARTERLY DISBURSEMENT EARLY RISK EMERGENCE TRENDS (TOTAL BOOK)

10 Aug 14 4 Apr 16Old African Bank Curatorship New African Bank

14

Note: The last data point for all Early Risk Indicators are based on one month of results and not a full quarter

15

RISK BAND DISTRIBUTION (QUARTERLY)

Consistent focus on lower risk customers

Over 80% disbursements to lower risk customer base (best 5 risk bands of 22)

Larger, longer term loan sizes with better risk emergence

C

C

C

C

C

C

C

New to credit

71%76%

87% 88% 87% 89%

0%

100%

2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4

Perc

enta

ge D

istr

ibuti

on

Low Risk Medium Risk High Risk New To Credit

Term and loan size distributionReflection of lower risk customer base

TERM DISTRIBUTION

18 700

20 936

31 665 31 571 30 614

35 952

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4

Avera

ge loan s

ize

Perc

enta

ge d

istr

ibuti

on

CARD < R25K R25K < R50K R50K < R75K

R75K < R100K >= R100K Average Loan Size

2728

37 36 36

39

0

5

10

15

20

25

30

35

40

45

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4

Avera

ge t

erm

Perc

enta

ge d

istr

ibuti

on

CARD <11 12-35 36-59 60-71 > 72 Average Term16

Reduced appetite

for short term loans

Increased maximum

loan size

Increasing exposure

to lower risk

customers,

qualifying for larger

loans

72

LOAN SIZE DISBURSEMENTS

0%

5%

10%

15%

20%

25%

30%

35%

40%

2012Q

1

2012Q

2

2012Q

3

2012Q

4

2013Q

1

2013Q

2

2013Q

3

2013Q

4

2014Q

1

2014Q

2

2014Q

3

2014Q

4

2015Q

1

2015Q

2

2015Q

3

2015Q

4

2016Q

1

2016Q

2

2016Q

3

2016Q

4

2017Q

1

2017Q

2

2017Q

3

Perc

enta

ge o

f ori

gin

al lo

an g

rante

d

4@12 : 12 Month moving average (other)

4@12 : 12 Month moving average (> = R100K >= 60M)

2@6 : 12 Month moving average (other)

2@6 : 12 Month moving average (>= R100K >= 60M)

Credit quality – early riskLarger, longer term loans to low risk customers continue perform according to expectations

QUARTERLY DISBURSEMENT EARLY RISK EMERGENCE TRENDS (BOOK SPLIT)

10 Aug 14 4 Apr 16

Old African Bank Curatorship New African Bank

17Note: The last data point for all Early Risk Indicators are based on one month of results and not a full quarter

Credit quality – coverage and book splitA robust and prudent provisioning policy

Book remains well provided for

Steady, conservative provisioning

verified by back-testing

18

FY 2016 H1 2017 FY 2017

CD 0 54% 52% 53%

CD 1-3 15% 14% 13%

CD 4+ 31% 34% 34%

Total (R m) 27 638 28 135 26 513

W/Off Book (R m) 10 437 12 271 13 384

Reduced book as a result of

lower, new business volumes

(better risk) and earlier write-off

(Recency 5 vs. recency 6)

No value assigned to the written-

off book

No restructuring of loans in

arrears

FY 2016 H1 2017 FY 2017

CD 0 5% 5% 5%

CD 1-3 35% 35% 36%

CD 4+ 63% 67% 65%

Total Book 27.1% 30.0% 29.3%

COVERAGE BY CONTRACTUAL DELINQUENCY BUCKET

BOOK SPLIT AND SIZE

48%

57%

38% 42%

33%36%

01 03 05 07 09 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59

* Months from observation date: March 2015

Actual Actual Discounted Expected (Discounted)

*

Credit quality – collections vs. modelDiscounted actual cash flows continue to track above modelled cash flows

19

ACTUAL VS. EXPECTED CUMULATIVE % OF IN ARREARS BALANCES

38%

33%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

06 - Actual 06 - Expected 12 - Actual 12 - Expected 24 - Actual 24 - Expected

Credit quality – collections vs. modelConsistent out performance against model over time

20

ACTUAL VS. EXPECTED DISCOUNTED % OF ARREARS BALANCES

Collections/arrears migrationImproved collections resulting in positive arrears migration trend

Forward roll rates decreased

on a year-on-year basis

CONTRACTUAL DELINQUENCY (CD) FORWARD ROLL RATE

(BALANCE)

Collections

QUARTERLY COLLECTIONS Collections remain steady,

despite decreasing advances

book

0

1 000

2 000

3 000

4 000

5 000

2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4

R m

illion

FY 2017

21

A

A

A3,9%

3,4%

18%16%

39% 35%

51%49%

57%54%

CD4

CD3

CD2

CD1

CD0

22

Operating costs overviewIncrease <1% vs. FY 2016 – Business as usual basis

Total FY 2017 operating costs R2 605 million

FY 2017 operating costs increased due to once off payments

• Voluntary Severance Payments (VSPs) (R67 million)

• Transactional banking operating costs (R79 million)

Operating expenditure on a business as usual basis FY 2017 - R2 459 million

Increased <1% vs. FY 2016

2 445 2 459

FY16 * FY17

R m

illion

VSPs

Transactional Banking

Operating Costs (BAU)

* FY16 = H216 x 2

Core cost

Total disbursements R7 989 million, 9% down year-on-year

• Economic pressures

• Lower affordability

• Lower risk appetite

Credit Direct R298 million, up 142% year-on-year

New business disbursementsImpacted by risk appetite

23

-

500

1 000

1 500

2 000

2 500

3 000

Q1 Q2 Q3 Q4

FY2016 FY2017

R m

illion

TOTAL BANK DISBURSEMENTS BY QUARTER

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

<6M 6 - 12M 12 - 24M 24 - 36M 36 - 48M 48 - 60M >60M

R m

illion

FY 17 Liability profile excl 2017 buybacks FY 17 Liability profile

Liquidity Earliest funding maturity April 2018

24

MATURITY PROFILE – FUNDING LIABILITIES

FY 2017 Buybacks

Positive impact of a liability management exercise on earnings and capital

Bought back R4.1 billion ZAR denominated Domestic Medium Term Note Programme (DMTN)

and bilateral deposits (FY 2016 : total R11.7 billion)

Available total cash balance R10.1 billion, invested with large SA Banks and in RSA sovereign

Strong capital adequacy (CET1/Tier1)

• Significantly above CET1/Tier1 internal target of 27%

• Well positioned for International Financial Reporting Standard 9 (IFRS9) impact (R500 million –

R1 billion)

o Regulatory capital impact phased in FY19 – FY22

South African banks credit ratings downgrades decreased regulatory capital by 4% to 5%

Solid capital levels

25

REGULATORY CAPITAL ADEQUACY RATIOS

29,9% 30,0%31,5%

30,5%

36,2%

32,9%

38,3%

36,2%

ABL ABH ABL ABH

CET1/Tier1

Total

30 Sep 201730 Sep 2016

26

Outlook

• Increasing complexity

e.g. Risk Data Aggregation and Risk Reporting (RDARR)

• Increasing cost of compliance

• Protection vs. constraint/growth (opportunity cost)

• More competition in a reducing market

• Margin erosion is evident everywhere

• Cyber security threats escalating

• The only constant is change

Regulation

Industry

Outlook

• Struggling economy

• Indebted consumer in a static market

• Political instability adding further risk to the

downside

Business environment

27

Looking ahead

Conservative approach to credit will continue

Growth opportunities exist in all business units

Emphasis on customer experience paramount to success

Continuation of partnership strategy

• MMI partnership to create embedded value

• Telco relationship to be established

Strategic initiatives to be implemented

• Omni-channel banking

• Digital

• Branch network modernisation and additional

branches opened

Further right-sizing of liabilities and capital optimisation

28

Overview of Omni-channel approach

29

Concluding remarks

Delighted with progress to date

Strategy is on track

Success factors all achievable by 2021

Competition tough but we have a strong team

Moving brand from ‘recovery’ to ‘relevant’

30

Contact details and information

Investor relations

investor.relations@africanbank.co.za

Financial media

Louise Brugman

louise@vestor.co.za

Investor relations website

• African Bank Holdings Limited

Integrated Report | 2017

• African Bank Holdings Limited

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• African Bank Holdings Limited

Audited Consolidated Financial Statements | 2017

• African Bank Limited

Audited Financial Statements | 2017

• African Bank Holdings Limited and African Bank Limited

Basel III Pillar 3 Report | 2017

https://www.africanbank.co.za/financial_reporting.html

31