Absa Group Limited (ABG) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining our call. Having been part of Absa for just under 2 months, today presents a good opportunity for me to share my initial impressions of the group with you and to comment on our 2019 results before Jason unpacks our financials. I spent a significant part of the last 2 months on a listening to familiarize myself with our business. This entailed introductory sessions with my group executive committee and their teams, connecting with Board members, meeting some key clients and engaging with some large shareholders and also some of our regulators. As part of launching the Absa brand, I also had an opportunity to get a sense of operations in 2 of our largest markets outside South Africa, Ghana and Kenya, and I also visited a number of branches in South Africa and Ghana. My impressions of the organization are starting to take shape, giving me an appreciation of the key drivers of the business and where our opportunities and challenges lie. My sense is that Absa has great potential based on its product range from universal banking to bancassurance with solid businesses; a substantial customer base; and backed by both a strong, refreshed brand and talented, committed people. I also believe that the execution and change management capability we have gained through the separation can be leveraged to accelerate the execution of other strategic priorities. I believe that this will help us to continue to regain our rightful place in the South African market in terms of market share and earnings. Our pan-African ambition will also allow us to take full advantage of the opportunities that exist on the continent and to further diversify our earnings while making a meaningful contribution to Africa's growth and development. To achieve this, we will have to transform our culture, be consistent and agile in execution and harness digital technologies such that we can leverage our strengths to serve our customers better and to add value to our other stakeholders, including shareholders. Allow me to comment on Absa's strategy, as I'm aware that there have been questions around whether I buy into the strategy, whether I want to change it or even whether I have the space to make any changes. An important part of the conversations I had with the Board prior to joining Absa involved the future direction of the group, including its strategy. I was taken through the process of how it was developed, how data- and evidence-based it was. It is my understanding that it involved a thorough analysis of the operating environment and megatrends and was also co-created involving all levels of the organization. I'm comfortable with the strategic choices that Absa has made and believe that they match our growth ambition. Having said that, in a fast-changing environment, we need to ensure that we remain relevant, and we must be prepared to refine our strategy accordingly. It has been almost 2 years since we began implementing the strategy, and we're now in a position to evaluate whether we are seeing the desired outcomes. And in this regard, I have a full mandate to review our strategy and its execution and to make changes where necessary. The key elements of our strategy entail: restructuring the group to truly focus on customers, driving growth and regaining lost market share, leveraging digital and innovation, transforming our culture, being an active force for good in society and reinforcing our pan-African ambition. These strategic choices translated into the selection of 3 strategic focus areas, which are supported by 3 enablers to ensure that our strategy supports a holistic transformation of the business. Turning to the business of the day. Let me give you my high-level assessment of our business performance in 2019 before I hand over to Jason to delve into the financials. Overall, we have made progress, and the steady, strategic momentum yielded a resilient performance, achieved against a challenging macroeconomic backdrop. South Africa's GDP growth has consistently disappointed for the past 5 years, averaging just 0.8%, well below the 3.5% global GDP growth over the same period. GDP per capita has also regressed as population growth outstripped GDP and income growth rates. Last year, the weakness was evident across most sectors but particularly pronounced in energy, construction, transport, retail and communication. The worse-than-expected decline in the fourth quarter GDP growth, renewed load shedding, a deteriorating fiscal position and heightened uncertainty around global economic developments on account of the coronavirus outbreak all point to significant downside risks to growth forecasts. Economic developments in other markets have been mixed with some countries doing better than others. Our planning assumptions had higher GDP growth in 8 of our 10 markets, particularly in Mozambique and Zambia. Ghana, our largest market outside South Africa by earnings, was an exception with strong growth of 7%. A key issue that will require careful monitoring will be rising debt levels and increasing external vulnerability, which could undermine economic prospects and heighten country risk. Our balance sheet, revenue and earnings growth were all in line with peers after lagging for a number of years. However, the second half was tough for the industry. Positively, we maintained our balance sheet momentum with gross loans and deposits growing by 9% and 12%, respectively. The growth was broad-based across most businesses, and Jason will elaborate further on this. While our net interest margin declined by 14 basis points, it stabilized in the second half. Noninterest income grew by 4%, and there is still significant scope to grow our transactional revenue. Managing costs, while continuing to invest, is crucial in a low-growth environment, and underlying costs grew by just 2% in constant currency. This supported a 5% growth in pre-provision profits, which improved from 1% in 2018. Although our credit loss ratio increased to 80 basis points from 73, it remains at the bottom end of our through-the-cycle target range. With the tough operating environment and muted outlook in mind, we have maintained solid capital levels with an 11.8% common equity Tier 1 ratio, strong liquidity and prudent credit provisions. Our return on equity declined to 15.8% from 16.8%, which is indicative of the challenging operating environment but also is explained by some ones-off items. In Retail and Business Banking South Africa, the underlying momentum continues to show signs of a turnaround. We have gained market share in retail deposits and retail loans and advances, including personal loans, new home loans and vehicle finance. Our customer numbers grew by 1% to 9.7 million. And the number of products per customer is growing, supported by improved customer service metrics. In the third quarter of last year, we combined the wealth and insurance business with our RBB business in South Africa, creating an integrated bancassurance delivery model that is already yielding positive results. For example, Absa life was voted #1 in the industry for service according to the South African customer service index. In corporate and investment banking, client franchise revenues showed positive signs of growth in a challenging environment, and the client experience metrics are tracking positively. Our expertise has been acknowledged by numerous awards, including being named the Best Investment Bank in Africa in the African Banking Awards and the leading provider of cash management products and services by Euromoney. We made progress towards building a global coverage model that is responsive to the needs of our clients. In 2019, we received approval from the U.S. authorities to open our representative office in New York, and we signed a major collaboration agreement with Societe Generale, which enables us to deliver a joint value proposition across 27 African markets. Despite the challenges of managing a demanding separation program, our Absa regional operations delivered double-digit earnings growth after a strong second half. The primary customer base and number of products held per customer in our Retail and Business Banking portfolio improved, and our corporate and investment banking earnings grew by 15%. Digital adoption across our estate has improved meaningfully. In RBB South Africa, our active app users increased by 24%, and our banking app was rated #1 by customers on both iOS and Android in South Africa. We introduced a digital fraud warranty, the first of its kind in the South African market, that protects our customers in the event of digital fraud. We are leveraging robotics and artificial intelligence to automate our processes end-to-end. This has significantly reduced the processing and turnaround times in our business, notably in Vehicle and Asset Finance and in our call centers. And we continue to leverage strategic partnerships across our digital estate to deepen market reach and to create new revenue streams. In partnership with Jumo and MTN, we launched a mobile lending and savings proposition in Ghana and in Zambia. Timiza, the virtual banking proposition in Kenya launched only 2 years ago, has seen a 35% growth in loan disbursements and an eightfold increase in repeat borrowing customers, driving a revenue growth of 70%. From my various engagements across the organization thus far, it is encouraging to see that our people are supportive of our strategy and want to see further transformation of our business to meet our customer needs. I will now hand you over to Jason for more detail on our financials, after which I will make some concluding remarks before we take your questions.

Thanks, Daniel, and good morning, everybody. As usual, I'll cover our performance for the year and then update you on the finalization of our separation from Barclays before providing our guidance for 2020 and the medium-term. Before getting into the details, I want to pull out the key aspects of our 2019 performance. Firstly, as Daniel highlighted, the macroeconomic backdrop has been tougher than expected. That's been very evident in the current reporting season for South African corporates and particularly in the events of the last few days. The macro outlook is still weighted towards downside risk. Second, looking at our P&L, I'm pleased that our net interest margin stabilized in the second half. Most of the margin compression over the past 2 years came from adopting IFRS 9 and pressure on the funding side as our loan growth improved. Our structural hedge has provided us with some protection against falling rates, which will remain a feature near term. Third, as you'd expect, given the tough macros and the subdued environment for revenue, we continue to control costs well. Excluding one-off items and incremental rand costs from separating from Barclays, our underlying cost growth was sub-inflationary, although we continue to invest for growth. Looking at our businesses. RBB South Africa showed improving operational momentum as we delivered on our commitment to catch up with market growth. Meanwhile, our regional operations again underpinned group growth and returns, highlighting the diversity it provides. It's pleasing that our separation is now largely complete with less than 3 months to go, and we remain on track and within budget. As Daniel mentioned, we've used separation as a catalyst to reset our group, and we aim to deploy the core change skills we've developed during the process elsewhere. Lastly, given the market volatility and uncertainty, we focused on increasing coverage and maintaining solid capital and liquidity levels, which I'll cover a bit later. We built provisions with IFRS 9 last year, and its day 1 provisions are earlier, so there is new business strain. These are good things, especially in the current environment. We also proactively reduced approval levels in some areas at the end of last year. We are more actively managing our capital, while improved deposit growth strengthened our funding. Moving to our salient features. We continue to normalize our results while we separate from Barclays as it better reflects our underlying performance. I'll talk to our normalized financials throughout the presentation, and we reconcile our normalized and reported IFRS results in our booklet. Our diluted HEPS grew 1%, and we increased our dividend per share in line with this, putting us on a historical dividend yield of 9.3%. Our NAV per share grew 5% to ZAR 126, putting us on a historical price-to-book of below 1. Given 8% growth in our average equity and only 1% earnings growth, our return on equity declined to 15.8% from 16.8%. This reduced our PARC or profit after regulatory capital charge, for the period by 30% to ZAR 2.1 billion. As expected, our net interest margin declined year-on-year mostly on the funding and endowment side, although I was pleased to see our margin stabilizing in the second half. Our operating Jaws were slightly negative, increasing our cost-to-income ratio marginally to 58%, although our pre-provision profits grew 5% to almost ZAR 34 billion. New business strain and improved coverage increased our credit loss ratio to 80 basis points, dampening our pre-provision profit growth. Looking at our income statement. Its shape was again broadly as we guided. Currency translation effects only had a very small positive impact on our 2019 group performance. Revenue growth improved to 6% or 5% in constant currency due to 7% higher net interest income and 4% growth in noninterest income. This was despite prior year WIMI disposals reducing revenue by ZAR 300 million and a ZAR 350 million revenue drag from implementing IFRS 16. Operating expenses were again very well controlled, increasing by 6% or 5% in constant currency with low single-digit underlying growth, which I'll unpack further in a later slide. Credit impairments grew 24% off a low base and remain at the low end of our through-the-cycle credit loss ratio guidance range. The effective tax rate decreased to 26% from 28%, which we believe is a more sustainable level. The 31% rise in noncontrolling interest was largely due to raising over ZAR 3 billion of additional Tier 1 capital. Normalized headline earnings grew 1% to ZAR 16.3 billion. The normalization items are shown on the right. Separation-related operating expenses of ZAR 2.4 billion was the largest item, although this was 24% lower than in 2018, as services from Barclays were terminated on or ahead of schedule and expenses related to the planning phase reduced on completion of those initiatives. At a headline earnings level, we added back ZAR 1.7 billion, slightly less than last year's ZAR 2 billion with our IFRS reported headline earnings rising 3%. Balance sheet momentum continued with gross loans up 9% to ZAR 947 billion or 7%, excluding reverse repos. Growth was evident across most of our businesses. RBB South Africa, our largest book, grew 7% or 9% adjusting for the disposal of the Edcon store card portfolio, an improvement from last year's 6% growth. CIB South Africa's gross loans increased 9% to ZAR 300 billion with strong 34% growth in Commercial Property Finance off a relatively low base. Gross loans rose 4%, excluding reverse repos, with term loans up 2%. ARO's gross loans increased 15% with CIB up 21% and RBB up 9%. Looking at RBB's loan growth in South Africa on the right-hand side. Our key products all achieved good growth. Importantly, Home Loans' overall market share has now stabilized for the first time in several years. Vehicle and Asset Finance grew 9% despite 3% lower new car sales last year. Personal Loans grew 14% due to strong production via branches and digital channels and targeted marketing campaigns but remains very small in our overall portfolio. Credit cards increased 18%, adjusting for the Edcon store card portfolio, largely due to limit increases to existing high-quality customers. Lastly, the Relationship Banking grew 12% with double-digit growth in Commercial Property Finance, agri, term loans and overdrafts. Commercial growth was strong, while growth in the SME segment slowed, given the tough macro backdrop. We are pleased with the momentum within RBB South Africa lending as well as the quality of new production, which is translating well into improved annuity revenues. As you know, growing core deposits is one of our priorities, and it's an important sign of improving franchise health. Total deposits grew 12% year-on-year or 11%, excluding reverse repos, roughly double our 2018 growth. Adding ZAR 83 billion in deposits produced positive balance sheet Jaws. Customer deposits increased to 75% of our total funding mix from 72%. RBB South Africa grew 10% to ZAR 373 billion or 46% of our total deposits, given 15% growth in low-margin deposits with fixed deposits up 15% and savings 11%, while current account deposits increased 4%. Within RBB, our retail deposits rose 10% to ZAR 227 billion, increasing our market share slightly to 22%. Relationship Banking rose 10% with growth in transactional and savings due to new products and growth in the public sector. Deposits are also a key focus area for CIB South Africa and grew 19% or 9% on average off a low base with very strong growth in fixed deposits, reverse repos and notice deposits. Some of its growth is relatively volatile in nature, particularly reverse repos. ARO's deposits increased 13% or 19% in constant currency. RBB's deposits rose 11% in constant currency and CIB's 29% due to improved products and platforms and greater focus on key clients. Our proportion of long-term funding improved to a high of 28% from 26% in 2018. Our net stable funding ratio improved to 113% from 110%, well above the regulatory requirement of 100% and our target range of 104% to 107%. As we guided, our net interest margin decreased, mostly due to lower funding margins. Our average interest-bearing assets grew 10% to over ZAR 1 trillion, and our net interest income grew 7%. Our loan margins declined with lower pricing primarily in Investment Bank South Africa and Relationship Banking, although front book margins continued to improve in Home Loans and Personal Loans. Mix-wise, slower growth in Home Loans than our overall book was positive as was strong growth in card and Personal Loans, partially offset by high CIB South African growth. Our deposit margin narrowed by 13 basis points. Pricing was impacted by competition in Everyday and Relationship Banking. Increased reliance on wholesale funding and stronger growth in lower-margin Everyday Banking deposits had an adverse mix impact. We continued to hedge structural balances of about 13% of our South African capital and liabilities. Our structural hedge released ZAR 595 million or 6 basis points to the income statement, which was in line with the previous period. The program's cash flow hedging reserve was ZAR 1.1 billion after tax at year-end. Endowment on equity and liabilities after hedging had a 4 basis points negative contribution, reflecting the mix impact of slower growth in endowment balances relative to the group's overall interest-bearing assets. Our hedge program should provide us some protection with the forward market currently pricing and 2 more 25 basis point rate cuts this year. In ARO, lower interest rates in many of our markets and competitive pricing of foreign currency loans and deposits had a minimal impact on group margins. In Other, the negative impact of implementing IFRS 16 reduced our margin by 3 basis points, although there was an equal reduction in costs. High-quality liquid assets growing less than interest-bearing assets had a positive mix impact. Margins were stable in the second half. Balance sheet growth and a focus on growing our customer base and improving primacy is starting to translate into better noninterest income growth. Our noninterest income growth increased 4% to almost ZAR 34 billion or 42% of total revenue. It grew 6%, excluding the fall in CIB net trading income. Annuity income is a large component as net fee and commission income accounted for 70% of the total after growing 5%, and I'm pleased RBB customer numbers have stabilized. Net trading, excluding hedge accounting, declined 4% and is a relatively small part of our overall noninterest income. Net insurance premium income grew 9% with solid growth in our life business. At the divisional level, RBB South Africa grew its noninterest income 6% with 11% growth in merchant income, 9% higher transactional and deposit noninterest income and its Insurance Cluster up 7%. CIB South Africa's noninterest income fell 18%, with the Investment Bank down 29% due to a poorer trading performance in markets, which I'll cover in more detail later. This was partially offset by corporates' 8% growth. Our regional operations grew 17% or 14% in constant currency. RBB ARO rose 13% due to foreign exchange sales and trade income. CIB ARO increased 22%, with strong growth in global markets off a low base. Our operating expenses grew 6% or 5% in constant currency to ZAR 46 billion. Our underlying cost growth was far better. 2019 included an additional ZAR 600 million of incremental rand costs due to separating from Barclays, plus ZAR 400 million more of staff restructuring costs. Management actions reduced the potential incremental rand costs by almost ZAR 600 million. Other includes a number of one-off items, including increased fraud losses in RBB but also excludes IFRS 16 implementation impact of ZAR 350 million. Excluding these items, our underlying cost growth was 3% or 2% in constant currency. This reflects successful targeted cost reductions of ZAR 3 billion, including over ZAR 1.3 billion in RBB South Africa, ZAR 750 million in operations, ZAR 300 million in CIB South Africa and over ZAR 200 million in both ARO and our real estate portfolio. These are structural and sustainable reductions, and we're planning to reduce a further ZAR 3 billion from our cost base over the next 2 years. Looking at the table. Staff costs grew 7% or 6% in constant currency and remained the biggest component at 55% of the total. Salaries grew 9% or 8% in constant currency with restructuring costs accounting for half its growth. Provisions for bonuses decreased 6%. Our headcount in South Africa declined by 2,500 colleagues year-on-year or 8%. Non-staff costs increased 5%, including 4% lower marketing, 5% higher professional fees and 3% growth in cash transportation costs. IT costs grew 16% due largely to higher post-separation rand costs and annual contract increases. Our total IT spend, including staff and depreciation, grew 18% to ZAR 9.3 billion, which is 20% of group expenses. The 54% higher depreciation and 42% lower property-related costs were due to adopting IFRS 16, which added ZAR 1.1 billion in depreciation for right-of-use assets, with a corresponding decrease in property operating lease expenses. Our total property costs continue to benefit from optimizing our corporate and retail branch portfolios and grew by only 2% year-on-year. Amortization of intangible assets grew 35% due to an increase in software assets to ZAR 5 billion. Communication costs grew 7%, reflecting higher market data costs in CIB after separating from Barclays. Within other costs, travel and entertainment fell 17%, which was offset by higher fraud costs due to implementing a new fraud model and increases in RBB. Given the tough operating environment, you would expect us to continue to manage costs tightly. We see further structural cost-saving opportunities in operations and technology within ARO and RBB while still reducing discretionary costs. The benefits from our restructuring over the past 18 months should become more evident this year as our overall cost run rate continues to improve. Our credit impairments grew 24% to ZAR 7.8 billion off a low base. Given that our charge was probably higher than the market expected, I'll spend more time than usual on our credit impairments today, starting by unpacking the increase. To calculate the underlying growth, we make 3 changes. Firstly, we adjust 2018's base for the large CIB South Africa single-name charge net of a recovery in ARO that occurred in 2018. Second, given day 1 IFRS 9 provisions, new business strain increased our credit impairments, largely in card and Personal Loans in South Africa, where loan growth was strong. Next, our coverage increased, again, primarily in South African card and personal loans and also vehicle finance following IFRS 9 charges for increased macroeconomic and industry risk factors. After factoring in these items, the underlying increase in our credit impairments was closer to 8%, which is similar to our loan growth. Our credit loss ratio increased to 80 basis points from 2018's low 73 basis points. RBB South Africa's credit impairments grew 38%, resulting in 118 basis points credit loss ratio. Although Home Loans charge rose 61%, it remains low at just 8 basis points, a testament to the quality of business we're writing. Over time, we think that the Home Loans' credit loss ratio should range between 25 and 35 basis points. Everyday Banking, the largest component, increased to 5.5%, which I have a separate slide on later. Vehicle and Asset Finance's charge declined slightly as improving earlier arrears and improved collections outweighed a weaker economic outlook. Relationship Banking's credit loss ratio was stable, reflecting normalizing losses in Commercial Asset Finance and pressure on SMEs, offset by recoveries in wealth and Commercial Property Finance. CIB South Africa's credit impairments fell 63%, improving its credit loss ratio to 11 basis points. This was largely due to the non-recurrence of a single-name charge in the comparative base, partially offset by book growth. ARO's credit impairments rose 53% off a low base, particularly in CIB, increasing its loss ratio to 98 basis points from 78. Our group credit loss ratio of 80 basis points remains at the bottom end of the through-the-cycle annual charge we expect under IFRS 9 of 75 to 100 basis points. RBB South Africa has now moved into the bottom end of its 110 to 155 basis points range. CIB's overall charge of 14 basis points is below its through-the-cycle range of 20 to 30 basis points, which had exceeded slightly in 2018 when we had a significant single-name charge. Despite increasing noticeably, ARO's charge remained slightly below the 100 to 140 basis point range we expect for it, which suggests the potential for a further increase this year. Lastly, our group's stage 3 assets improved to 4.7% of total loans from 5.1%, and we consider our 44% cover on this appropriate. Moving on to our capital base. Our common equity Tier 1 ratio remained strong within the context of our healthy loan growth. Group risk-weighted assets grew 6% to ZAR 870 billion, slightly less than our customer loan growth, consuming 90 basis points. We remained very capital-generative as profits added almost 2% to our CET1 ratio year-on-year, while dividends reduced by 1.1%. Our resulting normalized CET1 ratio of 11.8% is at the top end of our Board target range. And of course, our CET1 ratio is stronger on a statutory basis, which includes another 30 basis points for what remains of the separation contribution from Barclays. Our total normalized group capital ratio of 15.5% is also at the top end of our target range, which we believe is appropriate given the tough macro backdrop and heightened uncertainty. We're also taking a more active approach to managing our balance sheet and capital. Disposing of the Edcon store card portfolio was the first step, which releases ZAR 1 billion of capital in the first quarter of 2020. During the year, we also issued over ZAR 3 billion of new style Basel III AT1 capital and ZAR 1.6 billion of Tier 2 capital. And followed that through into this year, we raised ZAR 2.7 billion of Tier 2 capital last month. We were the first African bank to conclude a deal with MIGA, guaranteeing $497 million of capital in 7 ARO subsidiaries, enabling us to grow lending, including to SMEs and projects with environmental benefits. Moving on to our divisional returns. Our South African operations ROE declined. RBB South Africa's return on regulatory capital decreased to 21%, which remains attractive. Meanwhile, given its poor markets trading performance, CIB South Africa's return on regulatory capital declined to 13.3%. Our total CIB return on regulatory capital is stronger at 18% from 21% in 2018. ARO's ROE improved slightly to 19% and remains well above the 13% when we acquired it 6 years ago. Our earnings remained reasonably diversified by products, activity and geography. RBB South Africa, which includes the Insurance Cluster, declined 2% but still contributed 58% of our earnings. Excluding the noncore Edcon store card portfolio, which has been sold, its earnings were flat. CIB South Africa's earnings decreased 6% due to its negative Jaws on the back of lower markets trading revenues. On a total view, however, CIB's earnings grew 3% or 1% in constant currency and accounted for over 1/3 of group earnings. After a strong second half, ARO's earnings increased 16% or 12% in constant currency to account for almost a quarter of group earnings from 13% in 2013. It was pleasing to grow the group's pre-provision profits by 5%, well ahead of last year's 1% increase. RBB South Africa's positive Jaws produced 7% higher pre-provision profits, given its improved top line growth and strong cost containment. CIB South Africa's pre-provision profits fell 15%, again, due to its lower markets trading revenue. ARO's pre-provision profits grew strongly, driven by its 14% revenue growth. Now let's have a look at RBB, our largest business. We are broadly in line with the commitments made at the RBB Investor Day in December 2018. And while RBB's restructuring is complete, it's still in a fixing stage until the end of this year. We are seeing the benefits of continuity of management and in the successful execution of plans integrating bancassurance, fixing its loans and deposits value propositions and improving its sales and collections capabilities. Home Loans accounts for 27% of our gross loans, excluding reverse repos, and 15% of RBB South Africa's earnings. Its earnings grew 1% as credit impairments increased materially off a low base to offset positive operating Jaws. Vehicle and Asset Finance grew earnings 41% due to positive Jaws on 7% net interest income growth and 1% cost growth. There's further scope to improve VAF's cost-to-income ratio and returns. Within the Insurance Cluster, life insurance earnings grew 11% to almost ZAR 1 billion as it benefited from integration with RBB, which increased branch sales by 17% and saw new business volume exceed 114,000 a month in the second half. Net premium income growth of 11% offset increased retrenchment and disability claims. Short-term insurance earnings rose 6%, given 7% net premium growth and a 6% underwriting margin in part due to the absence of significant catastrophe events. Relationship Banking includes business banking, card acquiring, commercial asset finance, private banking, wealth and financial advisory. Its earnings grew 7% to ZAR 3.7 billion, as pre-provision profits increased 6%, largely due to cost containment. It also achieved double-digit loan and deposit growth. Its customer base grew for the first time in many years. Relationship Banking is our largest divisional business unit, accounting for 22% of group earnings. Everyday Banking incorporates transactional and deposits, Personal Loans and card issuing. Its earnings fell 13% to ZAR 3.5 billion as 50% higher credit impairments outweighed 9% pre-provision profit growth. Given its size, it's important to understand the components of Everyday Banking's earnings. For starters, transactional and deposits earnings increased 9%, given positive operating leverage and slightly lower credit impairments. I'm pleased to report that we've stemmed customer attrition for the first time in years with growth in target segments. Including our bancassurance customers, RBB South Africa's customers grew 1% to 9.7 million, while primary customers are now stable at 3.1 million. Also, we are starting to leverage our full product suite to improve our 2.3 products per customer. Card and personal loans were the reason Everyday Banking earnings fell, although they produced 5% and 19% higher pre-provision profit growth, respectively. Personal Loans, in particular, had strong 16% revenue growth. However, both had significantly higher credit impairments, which are also worth delving into. Combining card and Personal Loans credit impairments, the usual trend of seasonal improvement did not materialize in the second half. This was caused by management actions to build balance sheet coverage due to the weak macro backdrop and the new business strain under IFRS 9 as we grew production and increased card limits. You would have seen similar trends amongst our peer group who reported recently. New business strain was responsible for most of the increase in credit impairments. We started growing our card receivables in late 2018, largely through limit increases to existing low-risk clients. Under IFRS 9, moving into a growth environment, the newer vintages increased provisions in the first 2 years before they seasoned. In Personal Loans, where we started growing earlier, the seasoning of those vintages is now mostly behind us with credit losses at their expected peak levels. And together, these contributed ZAR 800 million to the charge in 2019. Balance sheet coverage was further increased by ZAR 300 million, given the softer macro environment in the second half of the year. On an underlying basis, our impairments for these products grew 17%, which is aligned with the book growth. Overall, we have provided appropriately for these books, which are both performing in line with our risk and return expectations. Credit bureau data shows that we are writing high-quality new business in both card and Personal Loans, as we have the highest proportion of low-risk new business amongst the banks. So we're not sacrificing quality to grow these books. As I explained, the increased credit impairments reflects new business strain under IFRS 9 and building increased coverage given the macro backdrop. Maintaining momentum in our loan production is an important part of our strategy to regain leadership in Retail and Business Banking South Africa. Our loan production strategies generated above-market growth in retail lending in a tough economy and compared to a higher base because we started improving our loan production in some segments such as mortgages in the second half of 2017. Home Loans' registrations grew 24%, well above the market's 5% growth in registrations, improving our flow market share to 22% from 19%, as we focused on granting higher LTV loans to low-risk customers. New business through mortgage originators increased 39%. In vehicle finance, production improved in the second half, rising 11% for the year, well above the 3% lower new vehicle sales for the year. We strengthened our dealer relationships and improved our share in the used segment by 2%, in line with our strategy to be the bank of the dealer. Personal loan production grew 23%, largely through improved operational processes and lending to existing customers without changing our risk appetite. In fact, in response to the macro environment, we constrained our approval rates towards the end of the year. There's further scope to increase our low market share here of just 11% on a product basis. Credit card turnover grew 8%, largely due to increasing limits for existing customers, and our total card limits grew 17%. Contrary to many opinions, our pricing has improved in key areas despite gaining share of new business in the subdued markets. As you can see on the right, our new business pricing improved by 8 basis points in Home Loans, 74 in Personal Loans, while credit cards were flat. Pricing remains tight in Vehicle and Asset Finance with increased competition in a weak market. Although our strategy in recent years is to grant higher LTV mortgages to low-risk customers, our LTVs remained relatively conservative versus peers. Our average LTV on new mortgages increased to 86% last year from 84%. And as you can see, our market share of 100%-plus mortgages is the lowest of the big 4 banks. In fact, peer 1 has 2/3 of industry LTVs over 100% if you include their home loan subsidiary. The graph on the right shows how our mortgage pricing has improved noticeably in recent years, having lagged peers during the period when our new business LTVs were well below the market, which reduced our pricing power. Last year, our pricing was above most of our peers, although our share of low-risk new business was the highest in the market. Moving on to CIB. We show all of its components in line with how we run it on a pan-African basis. CIB's earnings grew 3% or 1% in constant currency to ZAR 5.9 billion, including ARO improved CIB's return on regulatory capital to 18%, although this is down from 21% last year. CIB's earnings in South Africa declined 6% to ZAR 3.2 billion as 4% lower revenue produced negative Jaws that outweighed 63% lower credit impairments off a high base. Within this, South African corporate earnings rose 2% to ZAR 1.2 billion, largely due to 6% higher pre-provision profits, given its 8% growth in noninterest revenue. Investment banking earnings fell 10% in South Africa to ZAR 2 billion as revenue fell 12%, outweighing a material decline in credit impairments off a high base. We still see growth potential in target areas and aim to win primary relationships to increase our transactional revenue and deposits, and doing so should improve CIB's low returns in South Africa. CIB's earnings in our Absa regional operations grew 15% or 10% in constant currency to ZAR 2.7 billion or 46% of CIB's total. Pre-provision profits grew 12%, outweighing significantly higher credit impairments off a low base. Strong 22% noninterest revenue growth exceeded relatively high cost growth as incremental rand costs increased materially. CIB ARO's second half earnings were strong, growing 26% year-on-year. ARO's corporate earnings rose 8%, as pre-provision profit growth offset normalizing credit impairments. It's a large business now and is considerably larger than our South African business, having grown materially over the last 5 years. ARO's investment banking earnings rebounded from a tough 2018, rising 37%, given strong 25% revenue growth as we continue to build out our client franchise and roll out more advanced infrastructure and remains a significant opportunity for us going forward. CIB's earnings were evenly split last year. In total, corporate increased 5% to ZAR 3.2 billion or 53% of CIB's earnings, while the Investment Bank was flat at ZAR 2.8 billion. ARO's 15% growth increased it to almost half of CIB's earnings, although we expect South Africa's contribution to rise this year given the undemanding base. Given our underperformance here, I'd like to explain the 10% drop in our overall markets revenue. The graph on the left provides the view of our South African trading operations that I showed you in August. You can see that our client franchise remained resilient as we maintained our share of a declining institutional markets and largely retained our corporate revenue flow. Markets client facilitation risk was the swing factor, given a decline of ZAR 900 million year-on-year. Our South African markets revenue declined 28% with fixed income and credit down 23% due to the non-recurrence of notable renewable trades in the base and adverse risk management and market illiquidity in 2019, while FX and commodities fell 7%. Equities and prime services dropped 65% due to lower client and market volumes globally and challenges in exiting client facilitation risk positions. We've now removed most of this risk from the portfolio and are more confident in our outlook for 2020 where we expect to do a better job of reducing the negative client facilitation risk. So far, markets has had a strong start to the year in South Africa. On the far right, we show ARO's markets revenue, which grew 25% off a relatively low base, as we gained market share in FX due to improved cross-selling, new client acquisitions and products and rolling out electronic platforms across our branch network. The key takeaway here is that CIB's core client franchise in South Africa remains healthy and that ARO's diversification benefit remains intact. It's very evident from the graph on the left that Africa regions has enhanced our earnings growth, particularly given South Africa's low growth for the past 3 years. After a strong second half, Africa region's earnings grew 17% to almost ZAR 3.6 billion, up 13% in constant currency. It accounted for 22% of our earnings and 24% of our group revenues. Its pre-provision profits grew 18%, which was partly offset by normalizing credit impairments off a low base. I covered CIB earlier, which accounts for 77% of its earnings. RBB's earnings grew 22% as positive operating leverage offset higher credit impairments. ARO's ROE has improved materially since we bought it in 2013 to around 19%. We are cautious about ARO's earnings growth this year, as its credit impairments remained below through-the-cycle levels and its incremental rand costs post separating from Barclays increased further. Medium-term, though, we see scope to grow our CIB franchise where returns are attractive and reduce RBB's high 70% cost-to-income ratio once we've concluded the separation. I'm very pleased that our separation from Barclays is almost complete, with less than 3 months to go and only 3 key projects left and remains on track. We've delivered another 49 projects and terminated 24 services contracted with Barclays since my August update. At December, we've spent ZAR 11 billion on separation execution and ZAR 2 billion on transitional services agreement costs. Our remaining budget of ZAR 4 billion includes sufficient contingency to mitigate potential risks on the outstanding projects. We've rebranded our ARO subsidiaries this year, which has progressed really well, reinvigorating those businesses. The largest remaining projects are CIB's cash management and FX trading platforms, which are on track. I will now finish with updating our 2020 guidance. In South Africa, we expect 0.9% real GDP growth this year. However, the macro outlook is very uncertain, given local issues, including our sovereign credit rating and power supply, plus global developments such as the impact of coronavirus and, most recently, the contagion effects of price wars in the oil markets. In our ARO markets, we see real GDP growth improving to 5.6% during 2020, given continued infrastructure investment and improved mining output and agriculture, although there are some downside risks to this. Based on our current assumptions and excluding any major unforeseen political, macroeconomic or regulatory developments, our guidance is as follows. For 2020, we continue to forecast reasonably similar balance sheet growth. Loan growth could exceed deposit growth, particularly in CIB. We expect better loan growth from ARO in constant currency than from South Africa. Although ARO had a very strong second half, I should caution that the incremental rand costs and normalizing credit impairments are likely to dampen ARO's 2020 growth, but it still provides us with medium-term growth potential. Our net interest margin is expected to be similar to 2019's 4.5%, given positive mix impacts from higher growth in retail unsecured lending in ARO, partially offset by growth in low-margin deposits and slightly lower policy rates. Costs will remain well controlled, and we are targeting positive operating Jaws, in part due to nonrecurring items in the base. Our credit loss ratio is expected to increase slightly but remain in the bottom half of our through-the-cycle target range. And there's increased risk of further strain in our South African portfolios. Our ROE is likely to be similar to 2019, and our CET1 ratio should remain at the top end of our Board target range. And we are comfortable with dividend cover at current levels. Looking further forward, over the medium-term and within the context of a much tougher environment than we expected when we last published medium-term guidance this time last year, we continue to expect to execute well against the strategic priorities that Daniel set out earlier. We're on track to deliver the separation from Barclays in the next few months in a safe and capital- and cash flow-neutral manner. Our revenue momentum should continue within an appropriate and prudent approach to lending and a strong focus on customer primacy and transactional revenues across our business. Our cost management and efficiency opportunities are being well executed, with further structural savings planned. We, thus, expect to steadily improve our cost-to-income ratio over the next few years. We still believe that an ROE target of 18% to 20% is appropriate for our group, although we do not envisage achieving it until 2022 at the earliest, which is heavily dependent on the state of South Africa's economy. Once again, given the tough global backdrop at the moment and ongoing macro uncertainty, we are very focused on strong capital and liquidity management and appropriate balance sheet coverage. Thanks very much for your attention, and I'll hand you back to Daniel now.

Thank you, Jason. Let me make a few closing remarks before we take your questions on Slido. These are challenging times, indeed. COVID-19 is clearly having a huge impact on the global macro outlook, and we know that the global environment is key to our region's economic prospects. The risks we collectively face are substantial. We will continue to drive the execution of our strategic objective with speed and agility and seek to lead our peers in managing risk more effectively and take advantage of emerging opportunities as quickly as possible. But we are very aware that leading with balance sheet in a tough environment has to be done at the right price and returns and with adequate risk and collections capabilities. As a major banking group, we will be constructive in our engagements with clients and shareholders, diligent in our risk appetite and supportive of business initiatives that can help improve the general outlook. I am determined that we embed a culture and operating model that supports our ambition. We will continue to be a force for good, playing a shaping role in the communities and countries we serve. We are a founding signatory of the United Nations Principles for Responsible Banking and will soon be publishing our group sustainability policy and a standard for financing coal projects. It is a privilege for me to lead this organization at this pivotal point in its evolution and to harness the energy, the determination and potential of our 38,000 colleagues to accelerate our business performance. Thank you very much, and we will now take your questions.

Thanks very much, Daniel. We do have a couple of questions on Slido, which we'll deal with now. The first one is from Harry Botha from Avior Capital Markets, and the question is, "Can you comment on why the -- why you're comfortable to grow strongly in lower-margin RBB South Africa Everyday Banking deposits?" Thanks for that, Harry. And of course, that's one of the features in our margin slide where we call that pressure out. It certainly stabilized in the second half, as you could see. Everyday Banking low-margin deposits is a very competitive environment at the moment, including many market funds as a competitive force. In terms of our strategy of -- we're working on improving customer primacy over time, which would have ancillary in our NIR benefits down the line. And I'm also comfortable to report that although these deposits are at relatively low margin, they're at cost of funding that's better than wholesale funding. The second question is from James Starke from SBG Securities. "Please, can you comment on the outlook for your markets business and to what extent loss-making positions have been exited?" Well, thanks very much for that, James. You'll also see a slide there that deals with the fact that our corporate and institutional client flows were intact throughout last year as well as the diversification benefit that our ARO markets provided where we had a much stronger revenue growth than the prior year. We did exit some of those problematic positions at the end of last year that contributed to that negative client facilitation risk impact. We've had a good start to our trading performance in the markets business in South Africa this year. Of course, it's difficult to say more than that at the moment, given the uncertainties that are going on in global markets, but pleased to see a strong start this year. Well, thanks, everyone, for joining us this morning. Those are the 2 questions we got on Slido. Daniel and myself are looking forward to meeting you all in person over the coming days and weeks. Thanks again.

Thank you.