nedbank group · 2019-11-26 · nedbank group limited –mfc presentation 19 sa consumers still...
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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
3NEDBANK GROUP LIMITED – MFC presentation
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
4NEDBANK GROUP LIMITED – MFC presentation
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
5NEDBANK GROUP LIMITED – MFC presentation
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
6NEDBANK GROUP LIMITED – MFC presentation
Industry sales trends – market share gains in lower value vehicle categories
7NEDBANK 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
8NEDBANK GROUP LIMITED – MFC presentation
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
9NEDBANK GROUP LIMITED – MFC presentation
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
10NEDBANK GROUP LIMITED – MFC presentation
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
11NEDBANK GROUP LIMITED – MFC presentation
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) (%)
12NEDBANK GROUP LIMITED – MFC presentation
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
13NEDBANK GROUP LIMITED – MFC presentation
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
14NEDBANK GROUP LIMITED – MFC presentation
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
15NEDBANK GROUP LIMITED – MFC presentation
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 (%)
16NEDBANK GROUP LIMITED – MFC presentation
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.
17NEDBANK 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
18NEDBANK GROUP LIMITED – MFC presentation
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
19NEDBANK GROUP LIMITED – MFC presentation
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
20NEDBANK GROUP LIMITED – MFC presentation
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
21NEDBANK GROUP LIMITED – MFC presentation
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
22NEDBANK GROUP LIMITED – MFC presentation
Contact us
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: AlfredV@nedbank.co.za
Investor Relations
Larisa Masliukova
Direct tel: +27 (0) 11 295 5261
Cell: +27 (0) 82 085 9914
Email: LarisaM@nedbank.co.za
Investor Relations
Vuyo Majija
Direct tel: +27 (0) 10 234 5975
Cell: +27 (0) 76 785 3562
Email: VuyoMa@nedbank.co.za
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