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
Financial media
Louise Brugman
Investor relations website
• African Bank Holdings Limited
Integrated Report | 2017
• African Bank Holdings Limited
Results presentation | 2017
• 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
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