trevor browse, managing executive: motor finance ... · mfc’s positioning in the nedbank group...
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NEDBANK GROUP LIMITED
Vehicle finance & the South African consumer
Trevor Browse, Managing Executive: Motor Finance Corporation
October 2014
MACRO-ECONOMIC
ENVIRONMENT
3
-12
-7
-2
3
8
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
35
40
45
50
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
GDP growth (%)
Vehicle Sales growth (%)
Rand/US$
Vehicle sales - impact of macro environment
Source: Nedbank Group Economic Unit
Strong correlation between passenger vehicle sales, GDP & R/US$ exchange rate
4
-10
0
10
20
30
40
04 06 08 10 12 14 16
Total credit excluding investments Hire Purchase & Leasing
Mortgages Other
Asset Based Finance Personal loans
Consumer health & credit demand
Credit demand by financing category
Source: Nedbank Group Economic Unit
Consumers remain under pressure
-6
-2
2
6
10
00 02 04 06 08 10 12 14
Consumer spending: q-o-q % change
Household disposable income: q-o-q% change
Credit growth (%)
Forecast for 2015 - 2017
VEHICLE FINANCE
INDUSTRY TRENDS
6
Vehicle finance – consumer affordability & the
increase in number of “finance schemes”
Factors influencing consumer’s purchasing decisions
Percentage of respondents that rated each topic as “extremely important’ or ‘very important’
Source: KPMG’s Global Automotive Executive Survey 2014
84%
83% 80%
80%
78%
60% 50%
48%
Brand
Competitive financing options
Warranty options
Responsiveness to
product recalls
Quick & conscientious
Responses to product recalls
Recommendations
On the internet/social media
Component financing
Financing of e-components
(if applicable)
Servicing options
During vehicle lifespan
Quality service experience
During purchase transaction
7
(45)
(30)
(15)
-
15
30
45
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
20000
30000
40000
50000
60000
70000
Vehicle sales growth (%) Total vehicle sales
New vehicle sales under pressure for the
foreseeable future
New vehicles sales similar to 2008 levels
Used car finance should not be underestimated
0.0
0.5
1.0
1.5
2.0
2.5
0
10 000
20 000
30 000
40 000
50 000
08 09 10 11 12 13
New Used Used/New Ratio
Source: TransUnion Credit Bureau
Source: Nedbank Group Economic Unit
(%) # Financial agreements
(%) # Vehicles
MFC OVERVIEW &
STRATEGY
9
MFC’s positioning in the Nedbank Group
Nedbank
Capital
Nedbank
Corporate
Nedbank
Business
Banking
Nedbank
Retail
Nedbank
Wealth
MFC Card Personal
Loans
Home
Loans
Retail
Relationship
Banking
Consumer
transactional
& deposits
Clu
ste
rs
Div
isio
ns
MFC
Rest of Retail
39%
61%
33%
67%
Assets Headline earnings
Fin
anci
al
met
rics
June 2014
11
MFC aligned to Group strategic focus areas
TO BE AFRICA’S MOST ADMIRED BANK
Client-centred innovation
Grow transactional
banking franchise
Optimiseand
invest
Strategic portfolio
tilt
Pan-African banking network
Strength
Opportunity
Opportunity
Strength
Opportunity
Strength
12
380 430
490 523 541
60 80
100 121 126
2010 2011 2012 2013 2014
Strong relationships with motor dealerships,
MFC’s primary channel, supports client growth
Motor dealership relationships Dealerships
• MFC Exco
• Head of sales
• Provincial Managers
Sustainable alliances with larger motor
groups
• 7 Provincial Managers
• 22 Regional Managers
Regular tactical
collaboration with dealer
partners
• 160 Dealer Relationship Managers
• 280 Credit Hub staff
• 230 Aftercare staff
Meeting the motor dealer’s
day to day needs
MFC’s dedicated motor dealer service
structure results in fast turnaround, swift
escalation, resolution & access to
decision-makers
# Clients
H1
(‘000)
# Clients with transactional products
23% (‘000)
16%
13
26,8 26,3
27,3 27,1 27,0 28,3 29,1
71,3
65,2 61,1 61,3
65,3
57,7 59,7 57,5
61,3
2008 2009 2010¹ 2011 2012 2013 2014
MFC VAF Total Retail
Efficient processes & excellent cost discipline
Consistently low efficiency ratios
Efficiency ratios (%)
H1
1: Imperial Bank was acquired in 2010 & MFC, a division of Imperial bank integrated with Vehicle Asset Finance (VAF), a division of Nedbank Retail
14
-25
61
177 209
280
379
518
Other CE RRB HL PL Card MFC
25,7 27,2
30,0
32,8
2011 2012 2013 2014
MFC a key growth area & earnings contributor
MFC vs Total Retail assets
(%)
Headline earnings
(Rm)
Asset mix change Relative earnings contribution
H1 2014 H1
¹
1: Personal loans HE is included in Consumer Transactional & Deposits but is shown as a separate product line in this graph
15
12,1
14,0 14,7
15,9 15,0
H1 H2 H1 H2 H1
Asset payouts driven by consumer demand &
pricing dynamics
2012 2013 2014 2012 2013 2014
Book growth YoY 12,5%
Asset payout slowing
2,42
2,49
2,36
2,41
2,30
H1 H2 H1 H2 H1
Competitive market forces
Pricing¹
(%)
Asset payout size
(Rbn)
16
12 14 13 14 13
90 101 107
119 117
Monthly average application & disbursals (# 000)
% Disbursals
10,6%
14,9%
3,5% 3,3%
7,0% 5,5%
9,0% 8,9%
PLs MFC Retail Total Prime
Well positioned for emerging consumer stress
PL defaults early credit distress indicator
Defaults by asset class
% of total advances
Coverage ratio
61,8% 58,6% 60,4% 67,0%
62,2%
H1 H2 H1 H2 H1
2012 2013 2014
Applications & disbursements
Credit loss ratio
1,00 1,10 1,15 1,26 1,30
H1 H2 H1 H2 H1
2012 2013 2014
(%) (%)
13,6% 13,5% 12,5% 12,0% 11,2%
17
MFC has grown into a key market player proving
an element of countercyclicality
Source: BA 900 (including securitisation)
Strong market share underpinned by strength in used cars
18
Outlook & prospects
Geared to interest
rate cycle
Cross-sell
insurance
Leveraging digital
channels
19
Self-service banking, opportunity to lower cost to serve & simplify processes
Successful HL app can be easily adapted for MFC requirements
Provides opportunity to cross-sell at the point of sale
Accessible to both dealers & clients
Leveraging digital channels
App suite downloads
‘000
Secure Approve-it transactions
# million
Digitally enabled clients
‘000
Source: Nedbank Retail analytics
20
Cross-sell insurance
Prior to acquisition, only one product was underwritten by Nedbank Group
− Today 7 products are underwritten by Nedbank Group
Currently sales of insurance is only through the aftersales team
Opportunity to cross-sell Nedbank underwritten products at point of sale
21
Favourable position for upward interest rate cycle
MFC new & used vehicles distribution over time relative to prime rate
Source: MFC value analytics
22
Summary & conclusion
Domestic
macro
environment
SA banking
industry
MFC
2014 GDP growth outlook 1,5% (downside risk from ongoing labour issues)
Inflation pressure from weaker currency
Repo rate started upward trajectory, but likely to be a lower rate cycle
Consumers under increasing pressure
New vehicle sales slowing
Low asset growth & margins under pressure
Consumer advances & transactional volume growth slowing, credit
pressures rising
Focus on bank fees & consumer protection
Well positioned for upward interest rate cycle
Excellent risk management
− Prudent disbursals, low CLR, high coverage ratios
Highly efficient business (low cost-to-income ratio)
Strong dealership relationships & net client gains
Growth opportunity – leverage digital channels & cross-sell insurance
THANK YOU
24
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