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31-05-2007 Investor Seminar - Credit Risk Management
31-05-2007 Investor Seminar - Credit Risk Management
31-05-2007 Investor Seminar - Credit Risk Management
Contents
Absas risk appetite Retail banking six months ago Retail banking - current situation and going forward Credit environment Advances growth Impairment trends Actions to mitigate trends Corporate and investment banking - current situation and going forward Credit environment Corporate and Business Bank - progress made Absa Capital - progress made Credit risk strategies and priorities Conclusion
Credit environment
Private sector credit extension
30 25 20 15 10 5 0 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jul-06 Jan-07
Private sector credit extension growing at a slower rate, from 27% end06 to 24% and expected to drop to 21% by end-07 Asset based finance growth slowing down Nominal house price growth stable at 15% over past quarter Higher interest rates, inflation, fuel prices and debt to income ratios likely to cool credit extension Short-term risk of interest rates rising as well
21 70 19 65 17 60
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55
13
11 50
45 7
40 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Household debt as % of household disposable income (LH) Prime rate (RH) Debt servicing costs as % of HDI (RH)
Credit environment
2004 Private sector credit % CPIX Real GDE Real GDP 19.2 4.3 7.9 4.8
Home loans still contributing nearly 60% to total advances Highest growth areas - Absa Card and Retail Banking Services Policy of cross selling into the existing customer base maintained in Absa Card, with the mono-line approach restricted to Virgin and Barclaycard
Impairment trends
South African banking sector at the end of a long downturn trend in impairments Clear evidence of a rise in delinquencies, owing to higher interest rates and household indebtedness in line with our 2006 expectations Absas internal data indicates a rise in arrears in line with our expectations Based on what weve seen to date, we expect the impairment ratio to be at the lower end of 60-70bps for 2007 The impact of the NCA remains uncertain, but will be clearer in the second half of 2007
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Credit environment remains benign Infrastructure investment will result in positive conditions remaining Absa intends to grow the earnings contributions from these areas Credit risk management is a source of competitive advantage (processes, people and systems)
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12
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Conclusion
The market is as we expected it to be Macro economic conditions remain attractive Retail delinquencies have risen, but are within our expectations/appetite We are working hard to mitigate these trends and to maintain income growth Significant progress in enhancing risk management in Absa Capital and Absa Corporate and Business Bank
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