May 2019

CAPITAL AND FUNDING UPDATE

• Frikkie Kleinhans Head: Capital Management

• Amit Mohanlal Head: Funding and Liquidity

Presentation team 2

Financial resource management

3

Disciplined financial resource management supports strategy4

Macro environment

Stress testing

Aspirations/ business

plans

Competitive environment

Regulatory environment

FRM Rating agency target

Risk constraints

Return

RiskGrowth

FRM

* FRM is defined as capital, funding and liquidity, as well as risk appetite.

FirstRand philosophy on capital and funding 5

• Diversify across business segments, markets, currencies, maturities and instrument types

• Flexibility across markets, products and investors

• Focus on alignment of funding strategies to asset growth and composition, incorporating risk-adjusted pricing

• Continued evolution of funding instruments and mix to reduce regulatory volatility and optimise asset/liability matching

• Capital planning performed on a forward-looking basis, not point-in-time

• Targets aligned to end-state minimums, including countercyclical buffer requirements

• Frequent issuer, managing rollover profile

• View Additional Tier 1 (AT1) and Tier 2 as sources of funding, i.e. not used to support economic risk

CAPITAL FUNDING

Capital

6

12.0 13.111.0

0.60.5

1.0

2.23.3

2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

FirstRand FRB TargetCET1 AT1 Tier 2

Ongoing optimisation of the capital stack7

%

14.8

16.9

>14.0

Note: Ratios as at 31 December 2018 including unappropriated profits. FirstRand Bank Limited (FRB) includes foreign branches.

FirstRand favours a ‘multiple point of entry’ strategy8

100%100% 100%

Listed holding company (FirstRand Limited, JSE: FSR)

Other activitiesRest of AfricaSA banking

100%

Investment management

FirstRand Bank Limited (FRB)

FirstRand Investment Holdings (Pty) Ltd

(FRIHL)

FirstRand EMA Holdings (Pty) Ltd

(FREMA)

FirstRand Investment Management Holdings

Limited

Entities

100%

Insurance

FirstRand Insurance Holdings (Pty) Ltd

FirstRand International Limited

(Guernsey) (FRI)

UK banking and hard currency platform

100%

Namibia

Botswana

Aldermore

Enabled by flexible issuance platforms – most suitable entity to be considered on a case-by-case basis

Existing platforms

ADDITIONAL TIER 1 TIER 2

• Focus on AT1 issuance in FY2019

• Positive from a ratings perspective

• US dollar issuance in April 2018

• Dollar capital to support cross-border lending and diversify funding base

• Remaining old-style Tier 2 instruments called in December 2018

• Future issuances to manage rollover risk of Basel III-compliant instruments

• IFC dollar Tier 2 redeemed in April 2019, no further instruments with contractual conversion feature

Optimal level of capital issuance for the bank9

R millionNovember 2018 2 265March 2019 2 477April 2019 223

Planned Tier 2 issuance to coincide with FRB12 redemption

• Basel IV reforms

• Guidance note 6 of 2018 – Proposed implementation dates for specified regulatory reforms

• Draft Financial Sector Laws Amendment Bill published for comment by National Treasury in October 2018

• Proposed amendments to various acts to support and empower the resolution regime

• Insolvency Act, South African Reserve Bank Act, Banks Act, Mutual Banks Act, Competition Act, Financial Markets Act and Insurance Act

• More specifically, new chapter (12A – Resolution of Designated Institutions) builds on the draft resolution framework released to the banking industry in January 2018

• Establishment of the Corporation of Deposit Insurance

• Designed to protect depositors’ funds and enhance financial stability (also covered in chapter 12A)

• Financial conglomerate framework

Regulatory update10

Funding and liquidity

11

Funding spreads remain elevated, with minor curve flattening12

Spreads have drifted lower (± 20 bps over the 36m to 120m) since April 2017,shorter-dated spreads remain high relative to historical levels

Source: Bloomberg, <RMBP3>.

0

50

100

150

200

250FRB floating rate note spreads (offer bps, transaction size <=R100 million)

12m 24m 36m 60m 120m

Maturity profile of capital market instruments13

R1.8 billion maturing in November 2019 – provides issuance flexibility for remainder of the calendar year

R billion

* Includes Tier 2 and AT1 capital instruments.

- 2 4 6 8

10 12 14 16 18 20 22

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2038 2042 2045 2046 2050

Senior Senior inflation-linked Subordinated debt* Credit-linked notes EMTN senior issuance EMTN subordinated debt

Current and savings accounts Call accounts

Customer fixed and notice deposits Institutional funding instruments

Capital market issuance Collateral received

Repo Other

Subordinated debt

The bank’s focus remains on building a diversified funding base

Sources of funding Funding instruments

14

Deposit franchise: 68%

1% 1%6% 6% 7% 8% 7%6% 5% 5% 5% 5%

11% 11% 9% 11% 10%

20% 20% 20% 20% 21%

22% 21% 22% 21% 21%

34% 36% 37% 35% 36%

Dec 16 Jun 17 Dec 17 Jun 18 Dec 18

Other Foreign SMEs Public sectorRetail Corporate Institutional

R857bn R885bn R939bn R974bn R1 028bn

Dec 18

217 207

142 119

196

52

19

239 232

141 128

228

63

26

Retail Commercial Corporate andinvestment

banking

Group Treasurydeposits

Debtsecurities

Otherdeposits

Subordinateddebt

Dec 17 Dec 18

Funding strategy continues to be anchored in the deposit franchise…

Deposit franchise +8% Institutional +14% Other funding Subordinated debt

R billion

15

Seek to protect and grow the deposit franchise across all segments, with increased emphasis on savings and investment products

…enabling robust deposit growth and market performance16

Source: SARB BA900 – South Africa operations only, February 2019.

1.0

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2.0

Jun 1

1De

c 11

Jun 1

2De

c 12

Jun 1

3De

c 13

Jun 1

4De

c 14

Jun 1

5De

c 15

Jun 1

6De

c 16

Jun 1

7De

c 17

Jun 1

8De

c 18

Deposit growth vs money supply

FRB Standard Bank ABSA Nedbank M3

0%

5%

10%

15%

20%

25%

30%

35%

Jul11

Jan12

Jul12

Jan13

Jul13

Jan14

Jul14

Jan15

Jul15

Jan16

Jul16

Jan17

Jul17

Jan18

Jul18

Jan19

Market share of retail deposits

FRB Standard Bank ABSANedbank Investec Capitec

• Continued focus on optimisation of maturity and liquidity profile to ensure regulatory compliance and

efficient funding of the business

• Funding levels in the SA market remain elevated

• Areas of focus:

• Senior issuance

• Simple, transparent and comparable securitisations, e.g. Nitro 7

• Institutional funding, e.g. prime-linked notes, fixed deposits, floating-rate notes and negotiable

certificate of deposits

Funding issuance considerations17

Annexures

18

FirstRand Bank’s credit ratings19

SOUTH AFRICA SOVEREIGN RATINGS

FIRSTRAND BANK LIMITED CREDIT RATINGS

FOREIGN CURRENCY LOCAL AND FOREIGN CURRENCY

Long term/outlook

Long term/outlook

Long term national scale

Standalone credit rating

S&P Global BB/Stable BB/Stable zaAA+ bbb-

Moody’s Baa3/Stable Baa3/Stable Aaa.za* baa3* Highest rated in South Africa.

Credit ratings as at 15 May 2019.Sources: S&P Global Ratings and Moody’s Investors Service.

Sovereign rating is a ceiling to standalone credit rating and credit profile

• Legal obligation on the SARB/Resolution Authority (RA) to develop resolution plans for all banks and non-banksystemically important financial institutions (SIFIs)

• Standards and information requirements are being developed• More detailed standards and directives for industry/public comment expected once the Financial Sector Laws

Amendment Bill (Bill) is promulgated, as well as the establishment of the RA

Resolution planning - key elements20

Key elements of resolution planning

Identification of resolution groups and resolution entities Interconnectedness

Critical functions and services (for financial stability) –operational continuity

Liability structure and loss-absorbing capacity per institution – new first loss after capital (FLAC) requirements

Asset structure and valuations (liquidation/resolution values for no creditor worse off in liquidation (NCWOL)) Resolution strategies (MPE/SPE*, open vs closed)

Funding in resolution Cross-border regulation

Detailed and mature recovery plan sets foundation for a resolution plan

* MPE – multiple point of entry, SPE – single point of entry.

Note: the above is dependent on final promulgation of the Bill and still subject to finalisation.

• Bill awaiting promulgation • SARB is working on the completion of a “resolution blueprint” with engagement from international consultants and

likely to cover, amongst others:• More context and detail around the elements included in future resolution standards/directives • Definition of resolution strategies and SARB/RA requirements to create individual resolution strategies• Key criteria to be considered to determine most appropriate strategy

• Multiple vs single point of entry, open vs closed market resolution• FLAC

• Instrument criteria to qualify as FLAC• Resolvability methodology to determine level of FLAC for designated institutions

• Early indications point to a small base minimum requirement• Bank-specific add-on imposed on larger banks based on individual resolvability

• Point of resolution/point of non-viability - amendment suggested to FSR Act• Resolution blueprint expected to be released for public comment in third quarter of 2019 calendar year

• To be followed by a public workshop hosted by RA

Resolution blueprint expected in second half of 201921

Note: the above is dependent on final promulgation of the Bill and still subject to finalisation.

Optimise institutional funding22

29%

30%

29%

27%

26%

27%

27%

29%

27%

28% 31%

30%

29%

19%

17%

13%

12%

12% 11%

12% 13

%

19% 21

% 19%

20%

19%

52%

52%

58%

61%

63%

62%

61% 58% 55% 51% 49%

49%

52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Feb18

Mar18

Apr18

May18

Jun18

Jul18

Aug18

Sep18

Oct18

Nov18

Dec18

Jan19

Feb19

Institutional funding by term

Source: SARB BA900 – South Africa operations only, February 2019.

Strategy to maintain low market share of institutional funding provides greater flexibility, better risk-adjusted profile and increased borrowing capacity

Short term Medium term Long term

15%

20%

25%

30%

35%

40%

45%

50%

Feb18

Mar18

Apr18

May18

Jun18

Jul18

Aug18

Sep18

Oct18

Nov18

Dec18

Jan19

Feb19

Institutional funding as a % of total funding

FRB Standard Bank ABSANedbank Investec

FirstRand Bank, 37%

LIQUIDITY COVERAGE RATIO (LCR) NET STABLE FUNDING RATIO (NSFR)

• December 2018 actual: 110%

• PA adopted an available stable funding (ASF) factor for financial institution deposits <6 months of 35%, considering regulatory and economic barriers that prevent liquidity from flowing out of the domestic economy

• PA includes the CLF in the NSFR with a 5% required stable funding (RSF) factor

• In addressing the LCR, the bank adopted strategies to improve structural liquidity risk and assist with NSFR compliance

• December 2018 actual: 130%

• LCR regulatory minimum requirement effective 1 January 2019: 100%

• FRB aims to exceed the minimum regulatory requirements incorporating a management bufferfor seasonal volatility

• Guidance Note 4/2018 published

• Industry notification from the SARB’s Prudential Authority (PA) of its intention to phase out the committed liquidity facility (CLF) by 1 December 2021

• PA will, in consultation with banks, investigate possible alternatives to the CLF

FRB on track to comply with 2019 end-state liquidity requirements 23

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Disclaimer24