Nedbank Group · 2019-11-26 · NEDBANK GROUP LIMITED –MFC presentation 19 SA consumers still expect price negotiation to be done at the dealer with a person 84% 66% 61% 51% 38%

Nedbank Group

Vehicle finance & the SA consumer

November 2019

2NEDBANK 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


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


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

Vehicle sales – impact of the macro environment

-20

-15

-10

-5

0

5

10

15

20

-40

-30

-20

-10

0

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


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


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


Agenda


2. MFC positioning



Home LoansBusiness

Banking

MFC

(vehicle finance)

Unsecured

Lending

Nedbank

RBB

Nedbank

CIB

Nedbank

Wealth

Nedbank

RoA

Forex and

investmentsTransactional

Card and

payments

Clu

ste

rsD

ivis

ion

sF

ina

nc

ial

Me

tric

s

(Ju

ne

20

19

)

21%

79%

Headline earnings

29%

71%

Advances

MFC Rest of RBB

MFC’s positioning in the Nedbank Group


380541 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 collaborationwith 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


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 / incentivesBased on:

• Margin

• Risk

• Volume

• Partnership strength

Risk appetiteRisk 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


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 1413

Asset payouts

18171615 19

CAGR +6%,

yoy +2%

2,4

2

2,4

9

2,3

6

2,4

1

2,3

9

2,5

2

2,5

6

2,4

9

2,6

4

2,7

1

2,7

4

2,7

8

2,8

7

3,1

4

3,2

1

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1

12 1413

Pricing

18171615 19

(Rbn) (%)


Selective growth strategy in taxi finance

0,0

0,5

1,0

1,5

201612 201704 201708 201712 201804 201808 201812 201904 201908

R b

illi

on

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


MFC turnover vs units financed long run trend

R0

R1

R2

R3

R4

R5

R6

0

2

4

6

8

10

12

14

16

18

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Pro

du

cti

on

(Rbn)

Un

its (

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


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 share2New business market share1 (%)

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

Nedbank

FirstRand

Absa

Standard

Other


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 (%)


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 level and the fee income from servicing

equity-accounted manufacturer (OEM) joint ventures.


Agenda


2. MFC positioning



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


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

84%

66%

61%

51%

38%

Negotiate price

Finance and insuranceprocess & finalise purchase

Vehicle tutorial

Credit application

Learn about differentmodels, packages &

features

Complete at the dealership

16%

34%

39%

49%

62%

Negotiate price

Finance and insuranceprocess & 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


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


Instalment credit (N$, bn) New vehicle sales in January ‘193,

284

3,67

2

4,41

0

5,05

6

5,82

8

6,84

5

6,94

3

7,33

4

7,14

8

6,66

4

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 SecuritiesSource: Bank of Namibia


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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: [email protected]

Investor Relations

Larisa Masliukova

Direct tel: +27 (0) 11 295 5261

Cell: +27 (0) 82 085 9914


Investor Relations

Vuyo Majija

Direct tel: +27 (0) 10 234 5975

Cell: +27 (0) 76 785 3562


Documents

Nedbank Group · 2019-11-26 · NEDBANK GROUP LIMITED –MFC presentation 19 SA consumers still expect price negotiation to be done at the dealer with a person 84% 66% 61% 51% 38%