Nedbank Group Vehicle finance & the SA consumer November 2019 - - PowerPoint PPT Presentation

Nedbank Group

Vehicle finance & the SA consumer

November 2019

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NEDBANK GROUP LIMITED – MFC presentation

Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market

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NEDBANK GROUP LIMITED – MFC presentation

Credit demand – by financing category

Credit growth (%)

• 15
• 5

5 15 25 35 45 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Total loans Instalment sales and leasing Mortgage finance Other Personal loans

Source: Nedbank Economic Unit

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NEDBANK GROUP LIMITED – MFC presentation

Correlation between passenger vehicle sales, GDP growth & Rand/ US$ exchange rate

Vehicle sales – impact of the macro environment

• 20
• 15
• 10
• 5

5 10 15 20

• 40
• 30
• 20
• 10

10 20 30 40 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 GDP yoy% Car sales yoy% R/US$

Source: Nedbank Economic Unit

Correlation: GDP & vehicle sales Correlation: Fx & vehicle sales

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NEDBANK GROUP LIMITED – MFC presentation

VAF metrics Q2 2019 QoQ change YoY change Number of accounts 2.3m 2.2% 2.0% Outstanding balance R427b 0.9% 5.4% Average balance (per account) R187,103

• 1.2%

3.4% Origination volumes 136,680

• 4.2%
• 3.1%

Average new account loan amount R294,868

• 2.1%
• 1.7%

Account-level delinquency rate (3+ MIA) 5.4% 20 bp 60 bp “The VAF market continues to show signs of strain as originations decline & delinquencies continue to rise

• steadily. Lender portfolio management and effective risk reduction strategies at origination & throughout

the account lifecycle are critical to contain this continued deterioration in delinquencies.” – Transunion

Q2 2019 marks 8th consecutive quarter of incremental increases in serious delinquencies yoy

Transunion industry insights – Q2 2019

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NEDBANK GROUP LIMITED – MFC presentation

Industry sales trends – market share gains in lower value vehicle categories

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NEDBANK GROUP LIMITED – MFC presentation

Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market

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NEDBANK GROUP LIMITED – MFC presentation

Home Loans Business Banking

MFC (vehicle finance)

Unsecured Lending

Nedbank RBB Nedbank CIB Nedbank Wealth Nedbank RoA

Forex and investments Transactional Card and payments Clusters Divisions Financial Metrics (June 2019)

21% 79% Headline earnings 29% 71% Advances MFC Rest of RBB

MFC’s positioning in the Nedbank Group

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NEDBANK GROUP LIMITED – MFC presentation

380 541 591

Strong relationships with motor dealerships (MFC’s primary channel) support client growth

60 126 144 2010 2014 2019 H1 16% 23% 24%

Clients with transactional products (# 000, %) Clients (#, 000) MFC’s motor dealership relationships

Sustainable alliances with larger motor groups

• MFC Exco
• Head of sales
• Provincial managers

Regular tactical collaboration with dealer partners

• 6 Provincial managers
• 24 Regional managers

Meeting the motor dealer’s day to day needs

• 180 Dealer relationship

managers

• 400 Credit hub staff
• 230 Aftercare staff

MFC’s dedicated motor dealer service structure results in fast turnaround, swift escalation, resolution & access to decision-makers

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NEDBANK GROUP LIMITED – MFC presentation

MFC strategy

Consistent dealer calling programmes/high visibility Easy access to decision makers

Motor dealer centric model (B2B) delivering industry leading customer experience

enabled by Service levels

• Utilise electronic portals
• First time right approach
• Streamlined processes
• Market leader speed
• Consistency
• Hub efficiency

Negotiability

• Accessibility to credit

assessors

• Fully mandated credit

assessors

• Open market communication

Pricing / incentives

Based on:

• Margin
• Risk
• Volume
• Partnership strength

Risk appetite

Risk profile determined by:

• Credit Bureau information
• Independent application

scorecard

• NCA 2 rule set
• Counter-cyclicality

delivered through Focused relationships

(with Manufacturers, Dealer Groups & Dealerships)

leveraging off resulting in Market share leadership Sustainable revenue growth

Dedicated Head Office relationship management Dedicated Hubs aligned to specific dealerships

leading to Strong support & great experiences at dealership level

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NEDBANK GROUP LIMITED – MFC presentation

Payouts & pricing trends

Asset payouts grew in 2017 / 2018 Higher cost of funds adversely impacting the consumer

12,1 14,0 14,7 15,9 14,6 16,2 14,1 16,5 14,1 17,4 15,2 19,5 17,9 20,0 18,3

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 12 14 13 Asset payouts 18 17 16 15 19

CAGR +6%, yoy +2% 2,42 2,49 2,36 2,41 2,39 2,52 2,56 2,49 2,64 2,71 2,74 2,78 2,87 3,14 3,21

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 12 14 13 Pricing 18 17 16 15 19 (Rbn) (%)

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NEDBANK GROUP LIMITED – MFC presentation

Selective growth strategy in taxi finance

0,0 0,5 1,0 1,5 201612 201704 201708 201712 201804 201808 201812 201904 201908

R billion

Exposure Production ▪ MFC’s taxi finance portfolio is a very healthy book. ▪ MFC differentiates strongly between seasoned fleet owners who receive beneficial client- centric pricing due to their proven track record & new entrants who have been granted valid operating permits & route licences are lent to on more conservative asset-centric criteria. ▪ MFC has chosen strategically to increase its participation in this market as can be seen in the increased taxi finance turnover in 2019 after observing the results of a successful 2017 pilot.

Production (turnover) relative to exposure

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NEDBANK GROUP LIMITED – MFC presentation

MFC turnover vs units financed long run trend

R0 R1 R2 R3 R4 R5 R6 2 4 6 8 10 12 14 16 18 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Production (Rbn) Units (000) Production Units Average Units

▪ MFC’s units declined in 2013 / 2014 & have remained flat since. ▪ The main drivers of balance sheet growth have been: ▪ VPIX (c10%) > greater than CPIX (c6%) ▪ Average duration lengthening from 36 months to 42 months Stable unit growth yoy vs upward trending production

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NEDBANK GROUP LIMITED – MFC presentation

MFC has grown into a key market player proving an element of countercyclicality

0% 10% 20% 30% 40% 50% 12 13 14 15 16 17 18 19 0% 10% 20% 30% 40% 50% 12 13 14 15 16 17 18 19 Balance sheet market share2 New business market share1 (%)

1 Source: Transunion. | 2 Source: BA900 including securitisation, Wesbank excluding Toyota & VW financial services

Nedbank FirstRand Absa Standard Other

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NEDBANK GROUP LIMITED – MFC presentation

MFC new & used vehicle distribution over time relative to prime rate

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Prime Rate (%) New (%) Used (%)

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NEDBANK GROUP LIMITED – MFC presentation

Vehicle finance peer comparison

2019 Interim 2018 Full year MFC Bank A Bank B* Bank C* MFC Bank A Bank B* Bank C* CLR ratio 1.72% 2.14% 1.39% 1.05% 1.53% 1.72% 1.02% 0.72% NPL % 4.0% 6.7% 6.3% 4.1% 3.6% 6.7% 6.0% 3.7% Coverage 44.4% 33.8% 39.4% 47.0% 34.6% 32.3% 39.2% 45.0% Cost-to-income** 28.7% 46.9% 53.6% 56.9% 29.1% 47.5% 49.1% 58.1% ROE (Normalised) 15.0% 17.1% 4.3% 7.7% 16.0% 19.5% 10.5% 7.9%

* Bank B and Bank C do not separately disclose Retail ABF and Commercial ABF, whereas MFC is Retail ABF only. ** NIR is not comparable across VAF houses due to material differences in where insurance revenues are reflected at a Group l evel and the fee income from servicing equity-accounted manufacturer (OEM) joint ventures.

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NEDBANK GROUP LIMITED – MFC presentation

Agenda 1. The state of SA vehicle market 2. MFC positioning 3. Changes likely to impact the vehicle sales / finance market

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NEDBANK GROUP LIMITED – MFC presentation

Digital channels vs Motor Dealership channels

MFC private-to-private online solution

Safe, hassle-free financing ▪ Facilitating safe, secure and hassle-free purchase of vehicles from private seller to private buyer ▪ Ensure technical inspection & roadworthy is done by seller ▪ Ensure the vehicle has an existing warranty or help a client buy one

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NEDBANK GROUP LIMITED – MFC presentation

SA consumers still expect price negotiation to be done at the dealer with a person

84% 66% 61% 51% 38%

Negotiate price Finance and insurance process & finalise purchase Vehicle tutorial Credit application Learn about different models, packages & features

Complete at the dealership

16% 34% 39% 49% 62%

Negotiate price Finance and insurance process & finalise purchase Vehicle tutorial Credit application Learn about different models, packages & features

Online/Virtual Environment

Majority of consumers would prefer to complete the finance & insurance process at the physical dealership, while being pre-approved

Source: 2019 Deloitte Global Automotive Consumer Study

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NEDBANK GROUP LIMITED – MFC presentation

Motor industry – topical discussion items

▪ Aggressive offers relating to term structure of loan & balloons ▪ Guaranteed future value offers ▪ Australian ban on “flex commissions” ▪ UK proposed legislation on motor dealership commissions ▪ PCP (personal contract purchase) & EU / UK / USA debt bubble allegations ▪ Personal income tax increases – impact on car sales? ▪ Could there be changes to tax rates on luxury cars (ad valorem tariff)? ▪ WeBuyCars – current impact & the road ahead? ▪ Mercedes & BMW – first movers to a consignment model. How is it working & how does this play out? ▪ Levels of fixed versus variable rate car borrowing ▪ Medium term impact of electric vehicles in South Africa

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NEDBANK GROUP LIMITED – MFC presentation

Instalment credit (N$, bn) New vehicle sales in January ‘19

3,284 3,672 4,410 5,056 5,828 6,845 6,943 7,334 7,148 6,664 Jan'10 Jan'11 Jan'12 Jan'13 Jan'14 Jan'15 Jan'16 Jan'17 Jan'18 Jan'19

20,1% 1,4% 5,6% (2,5%) (6,8%)

Global vehicle finance legislative changes – impact of Namibian NCR

limiting term & outlawing balloons

Annual change Sentiment Passenger 330 (18,3%) Negative Light commercial 301 (28,3%) Negative Medium commercial 14 n/a Negative Heavy commercial 21 +61,5% Positive Total 666 (21,7%) Negative

11,8% 14,7% 15,3% 17,5%

Source: IJL Securities Source: Bank of Namibia

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NEDBANK GROUP LIMITED – MFC presentation

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Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities legislation. Forward-looking statements may be identified by words such as ‘believe’, 'anticipate', 'expect', 'plan', 'estimate', 'intend', 'project', 'target', 'predict' and 'hope'. Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group's future performance. No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation. Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage. Nedbank Group nedbankgroup.co.za Nedbank Group Limited Tel: +27 (0) 11 294 4444 Physical address 135 Rivonia Road Sandown 2196 South Africa Nedbank Investor Relations Head of Investor Relations Alfred Visagie Direct tel: +27 (0) 11 295 6249 Cell: +27 (0) 82 855 4692 Email: AlfredV@nedbank.co.za Investor Relations Larisa Masliukova Direct tel: +27 (0) 11 295 5261 Cell: +27 (0) 82 085 9914 Email: LarisaM@nedbank.co.za Investor Relations Vuyo Majija Direct tel: +27 (0) 10 234 5975 Cell: +27 (0) 76 785 3562 Email: VuyoMa@nedbank.co.za