Is SA an emerging or mature market?

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Elizabeth Ramsey
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1 Is SA an emerging or mature market? RMB Morgan Stanley Conference David Hodnett, Group Financial Director 26 September 2011

2 Expected growth between emerging and mature markets Expected GDP growth* ( E) GDP per capita** (thousands, 2010) April 2011 September Advanced economies Latam & the Caribbean SA Sub-Saharan Africa Developing Asia Sub-Saharan Africa Developing Asia SA Latam & the Caribbean Advanced economies Source: IMF, Absa Notes: * Average, constant prices; ** current international $ 2

3 Countries deepen financially as their income rises Financial services revenue to GDP Source: Global Insights, World Bank, Oliver Wyman analysis (2010) 3

4 Banking revenue/gdp SA banking penetration high versus emerging markets Banking revenue * share of GDP (nominal US$) % 2.1x 1.6x 1.3x 1.7x 1.3x 1.6x 1.3x 1.3x 1.7x 1.5x 1.1x 1.8x 1.3x 8% Developed market average ** 6% 4% 2% 0% Banking revenue/gdp Banking revenue growth Source: Bankscope, OECD, Central Banks, Oliver Wyman Analysis, Absa * Banking revenues include revenue only from the banking sector, exclude pure play insurance and asset management revenues from non bank financial institutions ** Sample OECD includes France, Germany, Italy, Spain, Canada, Japan and US; UK excluded given market typicality (banking hub) *** Nigeria s relatively high revenue to GDP due to underestimation of its GDP (informal/unrecorded GDP) 4

5 Interest rates likely to remain low for longer Interest rates 12.00% 8.25% 8.25% 6.56% 5.50% 1.50% 0.50% 0.25% Brazil Russia India China SA Europe UK US Source: Bloomberg 22 August

6 Hong Kong China Turkey Brazil Indonesia Singapore Russia South Korea India SA Loans to GDP SA loan penetration relatively high, albeit below trend Loans to GDP versus GDP per capita* Deviation of credit to GDP from trend (4Q10, % points) 250% 200% 150% 100% 50% SA % GDP per capita (2010) Source: IMF, UBS, Absa Note: * Emerging markets, based on purchasing-power-parity Sources: IMF, Thomson Reuters Datastream, national sources and Bank of England calculations. Note: The deviation of the credit to GDP ratio from its long-term trend at 2010 Q4 using a Hodrick-Prescott filter. 6

7 SA in context: divergent competitiveness rankings SA s WEF GCI ranking (out of 142) Source: World Economic Forum GCI Rankings 2011/12, Absa 7

8 Banking metrics 2012E Global Developed countries South Africa Emerging markets NIR/total revenue (%) Cost-to-income (%) NIM to RWA (%) Credit loss ratio (%) RoE (%) RoA (%) RoRWA (%) Leverage (x) Loans/deposits* (%) Source: UBS, Absa Note: * 2011E 8

9 Comparatively well capitalised Tangible equity/rwa (2010) Absa Group Tier 1 capital ratio % % 11% 5.8 9% 7% 5% Source: UBS, Absa Source: Absa Notes: Basel II from FY08 9

10 Strengthening our balance sheet a focus Long-term funding (%) Surplus liquid assets (Rbn) 30% % % 24% 22% 20% Absa Bank 1 Bank 2 Bank FY08 FY09 FY10 1H11 Source: BA900 statutory returns, June 2011 Source: Absa 10

11 A young population, but growth lags emerging markets Proportion of population 65+ and below 15 years Population growth rate <15 41% 2.3% % 31% 1.4% 17% 16% 0.9% 6% 5% 3% 0.2% More developed Less developed SA Least developed More developed Less developed SA Least developed Source: Population Reference Bureau, World Population Data Sheet

12 Banking usage far closer to emerging markets Adults that do not use financial services 80% 54% 58% 59% 65% 8% High income OECD SA South Asia East Asia Latam & the Caribbean Sub-Saharan Africa Source: Financial Access Initiative

13 Opportunity as customers move to higher LSMs Product use by LSM (2010) LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10 ATM Card Cheque Credit card Debit card Home loan Investments Microloan Mzansi Other p/loans Overdraft Garage card Savings S/loan Vehicle finance Source: AMPS, Absa 13

14 Innovating in entry level banking 14

15 Leading retail distribution capabilities Cellphone banking customers (m) ATMs, 1H % 8, Source: Absa FY07 FY 08 FY 09 FY 10 1H11 Number 2 Source: Absa, company reports Absa 15

16 Our insurance market is very mature Premiums to GDP (%, 2009) Absa market share (%) Emerging markets Africa Industrialised countries SA Life Employee Benefits Investments (unit trusts) Short-term insurance Trusts Source: Swiss Re Source: Absa, ASISA, RIA 16

17 One Africa a strategic priority Africa offers attractive growth potential Presence since Share by assets (%) Rank by Revenue Strategy has progressed We are part of a leading franchise Operate as One Bank to capture the opportunity Egypt South Africa Zimbabwe Tanzania * Ghana Zambia Mauritius Kenya Uganda Botswana Seychelles Mozambique 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 17

18 Summary South Africa falls somewhere between emerging and mature markets We see good growth opportunities locally One Africa strategy is a priority 18

The Global Markets Opportunity in Sub- Saharan Africa. 17 November 2010

The Global Markets Opportunity in Sub- Saharan Africa 17 November Emerging Markets to be dominant force in the long-term Emerging Markets share of World Percent, -2030 Compound annual real GDP growth %