2020 BASA Transformation Report 05 March 2020 Dr Stuart Theobald, - - PowerPoint PPT Presentation

2020 BASA Transformation Report

05 March 2020 Dr Stuart Theobald, CFA Orin Tambo,CFA Letta Maponyane Colin Anthony

Presentation

• utline

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Background

Methodology

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Economic context & highlights

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Findings

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Background Data supplied by the banks were based on the Financial Sector Code scorecard methodology Data covers FY16-FY18 for all banks with December year ends (most), and FY17-FY19 for those with March year ends (Capitec, African Bank and Investec) Submitting banks: Absa, African Bank, Albaraka, GroBank, Bidvest Bank, Capitec, Finbond, FirstRand, Grindrod, Investec, Mercantile, Nedbank, Sasfin, Standard Bank, China Construction Bank Corporation, Citi, Ubank and HBZ Bank

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Ownership and management control data were weighed by banks’ total assets to determine industry aggregates

Methodology

Earlier year figures (2016, 2017) were recalculated to reflect changes in the same group to allow year-on-year comparisons (two banks exited and four banks entered) and therefore differ from last year’s report

Economic context

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Findings

• Weak economy
• Worsening credit

environment

• Bank balance sheets grew

6.5% (inflation 4%)

• Bank ROE declining
• Bank profit growth of only

4.7% Economic environment

Difficult to drive transformation that depends

• n lending growth to

targeted sectors

Impact on transformation

Difficult for banks to incur the costs of enhanced skills and supplier development Limited promotion

• pportunity

Highlights

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Background

Black board directors up from 43% to 51%. Black board directors up from 43% to 51%. Top black senior managers up from 32% to 36% Socioeconomic development spending 6% up to R666m Socioeconomic development spending 6% up to R666m Supplier development almost doubled to R795m Black skills development spend up 23% to R3.3bn Spending on consumer education up 24% to R180m Exposure to black SMEs 13% up to R28.8bn Exposure to black SMEs 13% up to R28.8bn Black agricultural financing up 41%

Ownership

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• Black ownership measures have declined

across the three years on all measures but on aggregate remain above the FSC targets, except for black economic interest.

• Economic interest of black women,

which had improved marginally in 2017, also declined during 2018 but remains above the FSC target for individual banks

• f 10%.
• The decline in black interest is mostly due

to a continued exit of black shareholders who received shares through black empowerment schemes established by the large banks that matured 2015/16.

Findings

32,8% 12,8% 28,7% 11,1% 9,2% 29,7% 12,9% 24,8% 11,3% 5,3% 29,0% 11,8% 24,2% 10,5% 4,3% 25,0% 10,0% 25,0% 10,0% 3,0%

0% 10% 20% 30% 40% Black Voting Rights Black Women Voting Rights Black Economic Interest Black Women Economic Interest Economic interest of designated black groups

Black ownership percentage in banks

2016 2017 2018 Target

Management control – board

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Findings

175 186 177 63 75 80 26 30 37 54 56 60 19 16 15 2 4 5 20 40 60 80 100 120 140 160 180 200 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 Total number of board members Black board members Black women board members Total executive directors Black executive directors Black women executive directors

Number of directors

40% 43% 51% 50% 19% 20% 25% 25% 36% 37% 38% 50% 6% 6% 7% 25% 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 2016 2017 2018 Target 2016 2017 2018 Target 2016 2017 2018 Target 2016 2017 2018 Target Black board members Black women Black executive directors Black women executive directors

Proportion of directors who are black

Management control

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Findings

• The number of black managers across all levels has ticket up over the past three years and has grown in every category in

percentage terms.

• Overall, black managers accounted for 74.7% of bank management teams during 2018, up from 72.8% in the previous year
• Black top senior management roles climbed to 36% during 2018 from 32% in the previous year

29% 41% 60% 82% 32% 46% 63% 83% 36% 47% 65% 85% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Top senior Senior Middle Junior

Black representation in executive management

Top senior Senior Middle Junior 2016 Black 104 2920 25803 51103 2017 Black 66 3164 27338 51218 2018 Black 90 3651 28807 51682 1 10 100 1000 10000

Black representation in management (X axis log 10 scale)

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Findings

• There has been a sustained increase in the number of black managers (particularly African) in junior and

middle management level.

• Conversely, the number of whites in junior and middle management is declining.

31 661 32 354 33 143 7 090 6 879 6 781 12 306 11 985 11 758 10 284 10 0928 753 470 495 392 5 000 10 000 15 000 20 000 25 000 30 000 35 000 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner

Junior management

12 609 13 822 15 043 7 745 7 991 8 054 5 347 5 525 5 710 15 859 14 955 14 733 1 064 1 101 1 082 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner

Middle management across banks

Break down of race categories (1/2)

Break down of race categories (2/2)

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Findings

• The number of white, African and Indian top senior management and senior management increased

53 42 53 34 19 30 12 5 7 205 117 145 43 21 15 50 100 150 200 250 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner

Top senior management

1 006 1 199 1 466 1 356 1 437 1 609 489 528 576 3 707 3 377 3 668 356 398 412 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 2016 2017 2018 African Indian Coloured White Foreigner

Senior management across banks

Skills development

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• Banks continued to channel more

resources towards initiatives aimed at developing black skills.

• During FY18 banks spent R3.3bn on

black skills development, 23% more than the previous year.

• Notably, more than 60% of banks’

spend on skills development of black employees over the past three years was on black female employees.

• More than half of spending was on

black Africans.

Findings 2 512 1 573 526 2 730 1 688 1 475 3 347 1 908 1 893 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 Black spend Black women spend African spend Skills development spend (Rm) 2016 2017 2018

Socioeconomic development

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• Socioeconomic

development spending, which includes spending on

• rganisations that

predominantly benefit black people, increased 6% between 2017 and 2018.

Findings

584 628 666

540 560 580 600 620 640 660 680 Socioeconomic development spend (R'm) 2016 2017 2018

6% growth

Preferential Procurement

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• Banks’ total measured

procurement spending almost doubled during 2018, with a large portion of that going to black suppliers.

• All categories of black

suppliers benefited from the increased expenditure.

Findings

65 637 71 833 14 783 14 783 15 696 9 338 71 564 72 135 9 257 6 034 21 054 13 173 140 637 119 287 25 932 28 286 25 944 16 480 20 000 40 000 60 000 80 000 100 000 120 000 140 000 160 000 Total measured All BEE compliant suppliers QSE (same as EME for 2016) EME (same as QSE for 2016) 51% black

• wned

30% black women owned

Preferential procurement (R'm)

2016 2017 2018

Consumer education

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• Bank spending on various

consumer education initiatives increased 24%

Findings

116 146 180

20 40 60 80 100 120 140 160 180 200 Consumer Education (R’m) 2016 2017 2018

24% growth 26% growth

Empowerment financing

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• Banks’ total balance sheet

exposure to empowerment financing jumped 18% while targeted investments increased 4%.

Findings 224 648 120 928 270 957 148 134 318 958 154 580 50 000 100 000 150 000 200 000 250 000 300 000 350 000 400 000 450 000 500 000 Empowerment financing Targeted investments Overal empowerment financing within the big six (R'm) 2016 2017

Empowerment financing: components

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• Balance sheet exposures to transformational

infrastructure financing were largely flat between 2017 and 2018.

• Overall exposure to black farmers rose 41%

from 2017 to 2018.

• Exposure to the affordable housing market

increased slightly as growth in mortgage loan books and residential development loan books were offset by declines in non- mortgage home loans and wholesale loans.

• Exposure to black SMEs jumped 13% to

R28.8bn with EMEs accounting for the lion’s share of that increase.

• Exposure to BEE deals stood at R164bn, 34%

higher than the previous year.

Findings

47 27 3 44 104 67 25 3 52 123 68 29 4 53 164 20 40 60 80 100 120 140 160 180 Transformational infrastructure Black SME financing Black agricultural financing Affordable housing B-BBEE transaction financin

Empowerment financing (R'bn)

Supplier development contributions

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• This element was first introduced in
• 2017. Prior to that, related spend was

accounted for under enterprise development.

• Contributions more than doubled,

driven by growth from the likes of FirstRand (up R220m – the bank started tracking this element in 2018); Absa (up R48.3m) and Capitec (up R32.4m)

Findings 402 795 100 200 300 400 500 600 700 800 900

Supplier development contributions (Rm)

2017 2018

98%

Enterprise development financing

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• A significant drop in spend on

enterprise development between 2016 and 2017 is most likely a result of changes in the codes

• Bank spending on enterprise

development increased 19.5% between 2017 and 2018, with most major banks having increased their expenditure in this category.

Findings

352 149 178 50 100 150 200 250 300 350 400

Enterprise development spend (R'm)

2016 2017 2018

20%

Financial inclusion – geographic access

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Findings

• The banking industry’s

performance on service points and sales points is largely ahead of sector targets. This in a way indicates that the sector as a collective has done well

• n these two aspects.
• In contrast, achievements on

transactions points lag the sector target and have declined over the three years.

84% 84% 78% 84% 82% 77% 82% 79% 80% 85% 70% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Transaction points Service points Sales points

Geographic access

2016 2017 2018 FSC target

Financial inclusion – electronic access

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• Capitec and FirstRand excel

in this category.

• Generally, though, banks’

electronic penetration within low-income groups is still low and all banks reported declines on this measure between 2017 and 2018.

Findings

19% 13% 92% 42% 19% 5% 19% 12% 94% 49% 10% 30% 19% 12% 91% 48% 6% 18%

0% 20% 40% 60% 80% 100% FSC target Absa Capitec FirstRand Nedbank Standard Bank

Electronic access

2016 2017 2018

Financial inclusion – product access

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Banks remain well ahead of the targets on this aspect. However, there was a slight dip in the number of qualifying accounts between 2017 and 2018.

Findings

14,7 16,5 16,3 12,2 12,4 12,6 2 4 6 8 10 12 14 16 18 2016 2017 2018

Number of active accounts for qualifying products (millions)

Actual accounts Target accounts

The end

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