Balance sheet analysis

1 2016 financial results booklet available for download here.

1

Our total assets decreased 4% to R1.1trn, largely due to substantial declines in our loans and advances to banks and trading portfolio assets of 42% and 30%, respectively. Excluding these, our assets grew 4%, with customer loans increasing 2%. Rand appreciation versus our Rest of Africa currencies also reduced our assets by 2%. On the funding side, debt securities grew 9%, while customer deposits decreased 2% and trading portfolio liabilities fell 48%. Equity grew 4% to R93bn, despite a decline in our foreign currency translation reserve, while borrowed funds increased 19% to R16bn.

2

Slower balance sheet growth

Net loans and advances to customers grew 2% to R720bn. The increase was over 4% in constant currency. The largest book, South African mortgages, declined 2%, reflecting muted industry growth and a lower share of new business. Excluding this book, our loans grew 4%.

In South Africa, Vehicle and Asset Finance grew 4%, despite an 8% drop in the vehicle finance market and 11% lower new car sales. We continue to benefit from partnerships here and the shift to used cars, where our market share is higher. Personal Loans grew 7%, with strong digital sales and a continued shift towards higher-quality customers. Card declined 4%, due to new income verification requirements and a reduction in our Edcon portfolio. Business Banking’s book rose 9%, its strongest growth for several years, as commercial property finance increased 14% and Agri loans 13%. In total then, RBB’s loans grew 1% in South Africa.

RBB Rest of Africa’s loans fell 11%, despite rising 2% in constant currency. This low underlying growth reflected the difficult macro backdrop – with substantial rate increases, high inflation and liquidity constraints in some markets – and us tightening lending criteria in personal loans. However, we had solid constant currency growth in mortgages of 8% and commercial loans of 12%.

CIB’s loans rose 7%, as growth slowed noticeably in the second half, although its average balances increased 23%, with term loans up 15%, while reverse repurchase agreements dropped 21% off a high base. Its SA loans grew 13% to R192bn, with high-quality new business across healthcare, technology, media, telecommunications and various industrial sectors. Growth was strong in target areas such as debt finance and trade loans. In the Rest of Africa, CIB’s book grew 1% in constant currency, which equated to a 14% decline in rand, while its average book grew 19%.

Our total customer deposits declined 2% to R675bn, although it increased 1% in constant currency. Retail deposits rose 7% in South Africa, with solid growth in investment products. Business Banking declined 1%, due to a sector-wide reduction in local and provincial government deposits, where we have a strong presence. As with loans, RBB Rest of Africa’s deposits grew 2% in constant currency, but fell 12% due to currency translation. Its low underlying growth reflects tight liquidity in some markets and a reduction in time deposits. CIB’s total deposits declined 7%, with the Rest of Africa down 20% (or 7% in constant currency) due to the strong rand and lower inflows. Its South African deposits decreased 2%, after losing a large, low margin client.

3

Capital and liquidity remain strong

Our Group risk-weighted assets grew marginally to R704bn, in part due to increased counterparty risk-weighted assets. We remain capital generative, with earnings adding 2.1% to our Common Equity Tier 1 ratio. Paying R 8.5bn of ordinary dividends reduced our ratio by 1.3%, while the R4.1bn decline in our foreign currency reserve was offset by the risk-weighted asset reduction of a stronger rand. Hence our Common Equity Tier 1 ratio increased to 12.1%, which is well above the 11.5% top end of our Board target range. Our Group leverage ratio including unappropriated profits improved to 7.1%, also well above the Board target of 4.5%. While we are still evaluating its likely impact, introducing IFRS 9 is likely to reduce our Common Equity Tier 1 next year. Our Group total capital ratio increased to 14.8%, at the top end of our board target range. Note that Absa Bank’s Common Equity Tier 1 improved to 11.6% from 10.5%.

Our liquidity profile also remains healthy, with liquid assets and other sources of liquidity growing 20% to R239bn. Absa Bank’s three-month average liquidity coverage ratio for the fourth quarter of 2016 was 98%, comfortably above the minimum hurdle of 70%. While net stable funding ratios only become effective on 1 January 2018, we are confident of complying with the 100% minimum.