FirstRand Limited (FSR) Earnings Call Transcript & Summary

All right. Good morning, ladies and gentlemen, and welcome to the presentation of FirstRand's results for the year ended 30 June 2020. These are unusual times. I've got a lot of ground to cover because there's some additional insights that we're going to be giving in the presentation. And so it's going to be a little longer than usual, but we're going to keep the pace up. Right. So this slide shows the impact that COVID-19 and the resultant lockdowns have had on the performance for the last 6 months. You can see driving normalized earnings down for the year to probably 2014 levels and showing a decline of 38% year-on-year. And of course, you can see the dramatic impact that has had on return on equity coming in at 12.9%. The Board also decided not to declare a final dividend in line with guidance from the Prudential Authority. Slide 3 reveals our track record in the generation of economic profits. And then just to remind everybody, economic profits essentially are IFRS accounting earnings and then we charge those earnings with a cost of equity. And from an economic profit generation perspective, you can see here, this is the first time since the global financial crisis that we have produced a return on equity below our cost of equity, and this results in an economic loss. It is, however, important just to remember that FirstRand still delivered normalized accounting earnings for the year of ZAR 17.3 billion, and also importantly, grew shareholder net asset value, or NAV, demonstrating, I think, the resiliency of the business under stress. In response to the pandemic, the South African government declared a national state of disaster with associated stages of lockdown. And this was done in order to protect lives. The Central Bank and National Treasury simultaneously acted to ensure financial stability. This next slide that I'm going to cover just detailed some of the steps taken by government and Central Bank. The measures undertaken follow a very similar response to what we've seen in many other countries. However, they do need to be seen in the context of the very limited fiscal space the South African government finds themselves in. We have seen a significant response to date from the Central Bank around mandatory and financial stability. And then importantly, for the banks, the PA, Prudential Authority, here in South Africa responded very quickly with relief measures on liquidity, risk capacity and capital for the banking sector. The last 6 months has seen the FirstRand group and its various businesses provide significant help to 3 key stakeholder groups: Firstly, starting on the left-hand side for customers, we provided various forms of cash flow relief. These are ongoing and they took many different forms. And in the U.K., there was extensive forbearance of it as well. Measures for employees, in the middle of the slide there, focused on health and safety, and of course, this remote working world, which rushed at us and we've been able to activate really well. And then finally, on the right-hand side, to help broader society, FirstRand launched the SPIRE initiative in the early stages of lockdown, so early in March. This was funded by the group and by our foundations. And SPIRE supported government and some of our partners in assisting health care -- the health care front line. And there was lots of accelerated interventions. They're detailed there on the slide. Clearly, we were able to utilize some of our platform systems, client relationships and then, of course, broader networks to bring all this to fruition. I think through the rapid mobilization of all of these group resources, we were able to create solutions to a dramatic problem impacting society, and we could do it quickly and at scale. The next series of slides unpack the macroeconomic environment in South Africa. So firstly, the unprecedented blow that South African households, businesses and government has suffered because of the COVID-19 crisis is well illustrated on this graph on Slide 7. And it shows that South Africa's nominal GDP growth is set to register its first annual contraction on record. However, what should not be lost in the wake of this crisis is that the trend in nominal GDP growth has been declining for more than a decade, reflecting South Africa's falling potential GDP growth. This fall has been well communicated by various institutions, including the government, and it is unlikely to turn around unless decisive reforms are implemented. Of course, why does this matter for banks? Not only has South Africa suffered a deep recession, but businesses and households have been operating in an environment with very weak pricing and purchasing power. And of course, that means government, household and business income has been under severe strain. And that also implies credit extension to the private sector has been extremely weak. All right. Moving on to Slide 8. Following years of declining macroeconomic conditions, the additional strain brought about by the pandemic has pushed government's fiscal position further into the red, increasing the need to urgently implement measures to stabilize government's debt position and its debt service costs. So this graph show that without active management, debt will balloon and debt service costs will crowd out more and more of the government's resources that can be spent far better on social upliftment, poverty alleviation, health and educational services. Furthermore, what is worrying, top right-hand side, is that the divergence between government spending and government revenue has been a feature of the fiscal environment since the global financial crisis. The pandemic, of course, has materially accelerated this divergence. Again, why this matters for banks? Apart from the negative impact of the deteriorating fiscal has on South Africa's sovereign rating and then by implication, corporate rating in South Africa, this is also fueling significant uncertainty amongst businesses and households about the future. This inhibits investment spending. Of course, that has a dramatic impact on our corporate and investment banking business and, of course, then high-end spending on items like durables. And this has implications for our retail business. Before I leave this slide, I'd just like to point out the worrying trend we're seeing in the yield curves at bottom right-hand side. You can see that long end. It is certainly not an indication of looming inflation. It's really discounting significant worries about the fiscal position. So that's the premium and that is a curve that I think we need to watch very closely. As reflected by the sharp fall in government revenue, households and businesses income growth has borne the brunt of this COVID-19 fallout. So here on Slide 9, you can see the upward trend in unemployment rate has accelerated. And indeed, we expect this acceleration at a faster pace in the coming months. Higher unemployment and falling profit growth have resulted in a further downward drift in household disposable income growth, which has weighed on the private sector's willingness to take up further debt. The fact that the SARB has cut interest rates aggressively towards levels not seen over the last 50 years reflects the extent of weakness in this economy. Again, why does this matter for banks? So not only does the acceleration in the unemployment rate and falling income have a massive impact on impairments, but it also inhibits the demand and supply for credit from the banking sector. While the sharp fall in the policy rate is, of course, welcomed and provide some cash flow relief to constrained households and businesses, it also for banks, I'm afraid, represents a yield fall in the unhedged portion of the banking sector's endowment books. So this is really a little bit of a summary slide. Financial institutions are, of course, significantly geared to the macros. And consequently, these dislocations will impact and have impacted our income statement and balance sheet and mostly, I'm afraid, in a negative way. Between Harry and myself, we will unpack these impacts throughout the rest of the presentation. So here we have some of the group highlight performance metrics. Let me start with pre-provision operating profit, down 2% for the year. That gives a sense of the operational performance before considering the provisioning requirements of IFRS 9. Just below that, sort of middle line up, I can point out the return on assets, a dramatic fall there of 79 basis points coming at just a touch under 1%. And of course, that has a dramatic impact on return on equity and it's the driver for the fall that you see there of almost 10%. Cost-to-income ratio a little weaker, worsening by 1.2%. And then core equity ratio for the group coming in at 11.5%, a fall of 60 basis points. I will cover that in a little more detail. So if there was ever a year where there were 2 different halves, it is this year. So on a rolling 6-month basis, you can see their earnings declined 78%, driven by credit impairments. Jumping from a 6-monthly charge of around ZAR 5.9 billion in the first half to more than ZAR 18.4 billion in the second half. And this is reflected in the 6-month annualized credit loss ratio jumping up to 2.87%. Harry is going to cover credit in a lot more detail, but Slide 13 really shows some of the drivers of our income statement impairment charge. It shows that our revised forward-looking macroeconomic view has translated into a significant front-loading of impairments. So you can see that the dramatic jump from just in the previous year, around ZAR 400 million up to almost ZAR 5.3 billion for the macroeconomic effects. And then you can see a dramatic jump, of course, in nonperforming loans as well. And then on the right-hand side, you can just see the decomposition of the impairment charge, and you can see that -- the jump in that purple bar at the bottom. That introduction of the green bar, Harry will cover in some further detail later. Here on Slide 14, we unpack these downward revisions in our macro forecast. And given our weak outlook on particularly GDP growth and potential job losses, provisions needed to be calibrated accordingly. You can see there at the bottom of the slide, we have modified the scenario weightings as well to give much greater recognition to the downside. We believe these model adjustments result in our outlook being conservative and then a conservative provisioning result at year-end. Slide 15 shows group advances by stages, as required by IFRS 9. So just to remind everybody, Stage 1 and Stage 2 are classified as performing advances. However, importantly, the required provision escalates materially, moving from Stage 1 to Stage 2. And you can see on the right-hand column on the slide, the dramatic percentage increase in Stage 2 migration. Of course, Stage 3 represents our nonperforming loans. I'll cover that next. Pre-COVID, and perhaps this is an important point just to appreciate how we moved into this pandemic from a portfolio perspective, many of our books were trending well within expectations indeed. Some of our books, in fact, such as vehicle finance and our unsecured lending portfolio were responding very positively to some of the risk cuts that we had taken in the second and third quarters of the financial year. Just having a look here at some of the cash flow relief is now reflected on Slide 16. You can see from a group perspective, we provided relief to about 306,000 customers across almost 800,000 different agreements. That referenced about ZAR 230 billion of advances or 18% of the group total. I guess a little callout here: In South Africa, we followed a slightly different approach to what we saw being offered in the market for our South African retail debt relief, and that included both FNB and WesBank. We opened a separate funding account for these customers. And through that funding account, essentially, we paid the installments on the various products and facilities that the customer had at a holistic level over the relief period. No fees were charged on that facility. The facility was charged at prime. We were able to then offer a very flexible repayment period for a single holistic facility. And then application and fulfillment, importantly, was all done via the FNB banking app. We do believe this approach provided for a better customer outcome. And there are a lot more slides in the appendix to the booklet which cover this debt relief in a lot more detail. Just here on NPLs, as I said I was going to cover these. You can see they increased materially across the portfolio. Retail NPLs escalated primarily as a result of falling incomes. Commercial was hardest hit by the lockdown as many SMEs are concentrated in the vulnerable sectors which continue to remain vulnerable, like hotels, leisure, tourism, restaurants. So in addition, commercial also had to deal with the tail effects of the South African drought on the agricultural portfolio. Corporate NPLs, as you can see here on the slide, remained relatively low, reflecting the group's disciplined origination in this sector. And notwithstanding that, we continue to boost portfolio provisions in corporate. And then portfolio normalization and the lockdown in the U.K. drove NPLs within Aldermore and MotoNovo. We quickly realized, as we moved into this pandemic and the lockdown, that this was no ordinary stress event and that we needed essentially a hymn sheet for our businesses. We had, to date, been pretty much focused on our return profile, ensuring that we could deliver into the earnings guidance that we've spoken about, but we realized we needed a different approach. So we came up essentially with a number of points. We have captured some of them here on the slide. So of course, make sure we price correctly for all financial resources. The risk of dislocation in markets like this is obviously very high, so we needed to make sure we've got that right. Of course, provide appropriately against lending portfolios. Focus carefully on costs. Make sure the balance sheet is properly tilted towards the macroeconomic environment. It has to get strengthened. We want to accrete capital and NAV. So essentially an instruction to business: Take your eye off return on equity. Take your eye off earnings growth. This is about strengthening our business and looking after shareholder NAV. The purpose, I guess, is set out there at the bottom of the slide. The objective is clearly, when we get through this COVID-19 pandemic, it's vitally important that we emerge strong. We've got the resources to fund the growth, and we don't want to enter that period with vulnerabilities or portfolios that continue to look wobbly. So that's really the message and this is kind of what we have been focusing on over the last 5 or 6 months. Just turning then to capital on Slide 19. We set out a 6-month walk on core equity Tier 1 capital. So you can see there, just on the left-hand side, that the capital position strengthened in the first half of the financial year, following a pretty weak growth in risk-weighted assets. And we entered this period, I think, in a strong CET1 position there at 12.4%. Pleasingly, over the last 6 months, the group generated some positive earnings in the second half. And NAV accretion was again supported there by an increase in the foreign currency translation reserve, which references rand depreciation against the dollar and pound from the group's offshore operations and activities. The increase in risk-weighted assets there absorbing capital was driven by volume growth, risk migration, the sovereign downgrade and importantly, currency depreciation. Approximately 50% of the increase in risk-weighted assets was attributable to currency volatility. The financial resource management optimization initiatives, you can see there, pleasingly, then accreted 10 basis points of capital. So group core equity Tier 1 ending the year at 11.5%. Just a further little slide on capital. If I just first take you to the regulatory minimum there, 7.75%, including the capital conservation buffer. We set out here on the slide the internal target we have for CET1 between 11% and 12%. So you can see at 11.5%, we come in essentially at the midpoint of our internal range. Just moving then to the right-hand side, you can see the surplus of capital above the regulatory minimum that gives us ZAR 41 billion of capital available. The surplus above our target, essentially to take us the difference between 11% and 11.5%, is the ZAR 5 billion of capital that we set out there. A couple of points: It demonstrates that we had the capital to absorb a dividend payout had we chosen to declare a dividend. And I think there's also a sufficient surplus there to absorb some of the regulatory issues that are coming at us plus some small organic expansion if we went -- if we chose to undertake that. You can just see some long-term Board targets there, no changes. Again, the message: ensure we have sufficient capital to absorb prolonged periods of stress and then again a focus on stand-alone credit rating and, of course, a lot of focus on the bank rating, particularly. Right. Then moving here to Slide 21. We consider ourselves to be good custodians of shareholder capital, and this slide unpacks some of the allocation of capital across the group. So you can see there from a financial resource management perspective, the group allocates capital to cater for an appropriate balance between risk and growth. Management teams, of course, are correctly challenged to demonstrate that capital deployed for strategic acquisitions at shareholder value. Whilst we have only owned Aldermore, since the 1st of April 2018, we felt we should provide some insight into the deployment of this capital. In previous reporting period, we have demonstrated that Aldermore has been both earnings and return enhancing to FirstRand's group results. In the appendix to the slides, so on Slide 92, we show some analysis on the return on investment made and compare the results to a scenario where no acquisition had been made and the capital was retained in the South African group, so ignoring the significant strategic benefits emanating from the Aldermore acquisition. And just to remind everybody that was around relieving the hard currency funding pressure on the South African banks, something we are very pleased we did given this pandemic, ensuring a more competitive and sustainable funding solution for MotoNovo, the vehicle finance business in the U.K. and, of course, the asset diversification that was introduced by Aldermore taking us away from this essentially a monoline play on vehicles, the acquisition of Aldermore, as set out in the slides, yielded an annualized return of just over 6% in pound terms to date. We remain excited by the growth prospects offered in the specialist U.K. banking market. And we continue to believe our U.K. strategy and search of attractive risk-adjusted earnings and diversification is a sound one. Just to call out on this slide. You will recall in the previous slide, I spoke about the ZAR 5.1 billion of surplus CET1. And you can see here the unallocated excess capital above 11%, we show ZAR 8.3 billion. Just -- I mean the 4 reasons for that difference: Firstly, goodwill and intangibles. The second issue there, differences relating to the IFRS 9 transitional arrangements, and I think we still have 2 years to go on that. The third element would be the adjustment required for minorities. And then the fourth element making up that difference is the difference between point in time, which is the CET1 number versus average NAV. This next slide really just shows the group's focus on strengthening the balance sheet. And you can see it's played out across a number of balance sheet metrics. The only callout here I'm going to give you is the CET1 ratio. You can see bank at 12.3%. And then from a stand-alone bank credit rating, we continue to have the highest rating out of the large banks. Moving then on to the operating reviews. This slide really shows normalized earnings for the group, unpacked across our customer-facing operations. So you can see here, FNB over the year, down 31%; RMB down 17%. WesBank, again, less diversification in that business, down 53%; and the U.K. operations, down 62%. Again, a divergence between what you'll see for Aldermore Bank and then for the MotoNovo operations. I'll cover those in a bit more detail. The group's pre-provision operating profit, as I called out in the highlights slide. You can see there minus 2%. Just to make 2 other points on this slide: The principal investments portfolio sitting inside the RMB, we had to raise a ZAR 1 billion impairment against that portfolio in the last 6 months. And then WesBank also has 2 notable joint ventures. They effectively record that on the associate line, with 2 joint ventures with original equipment manufacturers, Toyota and VW finance. And those joint ventures had to raise large impairment increases as well. And then Slide 82 in the appendix to this presentation gives you some analysis of the movement in the center. Moving on to FNB, their key performance metrics. Pre-provision operating profit flat year-on-year in the last 3 months of lockdown. The growth in NIR and NII that they had recorded really evaporated. Negative endowment from the rate cuts and the reduced loan payouts lowered NII, while transactional activity reduced volume-based NIR. Variable costs declined, which obviously helped to offset some of the decrease in revenue. You can see a very good performance there from deposits continue to outperform given FNB's competitive product set with impressive growth coming at 17%. And then the credit loss ratio increased significantly driven by the forward-looking factors given the impact of COVID. So looking at some of the operational insights on Slide 27. FNB's premium customer base, I'm really talking about top left-hand side, some of the data that we have there. FNB's premium customer base benefited from, once again, continued migration of customers up from the consumer segment. And more than half of that increase in premium is due to those migrations. And then another callout there, the commercial segment saw a healthy increase in customer numbers. Just touching then on eWallets, which is captured just below that. The eWallet customer numbers are in addition to the 8.23 million FNB SA customer base that we showed, and it really demonstrates the size of our wallet offering. It is the largest wallet offering in the country. The total value of withdrawals from eWallet is just over ZAR 33 billion for the 12 months to June 2020. This represents almost 30% of all cash withdrawals at FNB ATMs. It's about 16% by value. And cash out just for interest sake is -- on average is about ZAR 650 per transaction. The reason this wallet story is important for us, we think it plays very strongly into the 0 to ZAR 36,000 income segment in the country. We believe the size of that market is about 16 million people. It is a market that finds itself coming into employment and out of employment, and they find the propositions around eWallets very, very attractive. And of course, we have a strong -- a very strong market share in that space. So it's a great solution. Another callout here on the slide, the unique products per customer. We like to refer to it as this VSI. You can see that, that increased to 2.92% over the period. There's also some insights I can call out here. Customers that are digitally active show a much higher VSI than nondigitally active customers. And they also tend to exhibit less attrition. This is particularly evident when we look at our premium segment. The growth in digital interface, just on the right-hand side, you can see there, it's particularly evident in the banking app. That obviously has a multiplier effect to that VSI that I've just spoken about. And of course, it comes with lower costs of origination. The insurance continues to grow within the FNB customer base. And FNB Life is now the third-largest insurer by debit order value from check accounts, and that is a very impressive progress. I think when we started this integrated financial services strategy with our own insurance licenses, we started focusing on our customer base. I think we were in 6th position. So we have dislodged and displaced a number of other service providers. And now we only have 2 large insurers that are still ahead of us, but we are very focused on making progress into their market share. FNB wealth and investment management, you saw very pleasing growth over the period in the customer account base. And of course, that's important because that ultimately will be the driver of AUM into the future. And then a callout there just for eBucks. It's a highly impressive program. Every year, I talk about it. It's a big part of our customer value proposition. And you can see their generosity over the year. We didn't dial that back. It's up at a healthy 9% and then essentially award value in the period, ZAR 2.2 billion. Just looking at some of the volumes on Slide 28, you can see significantly reduced during the lockdown period. And they haven't returned yet fully to pre-lockdown seasonal levels, but the trends are positive. Just to give you a sense of what happened on volumes in the last quarter relative to the last quarter of the previous financial year. The banking app was up 14%, which was great. Financial transactions in this last quarter, down 26%. Card acquiring, that would be point-of-sale acquiring devices, down 36%. And then card swipes by FNB cardholders, down 41%. Looking at some of the, and no surprise here, payout volumes, you can see also significantly reduced since April. And we also don't expect these payout volumes to fully return to pre-lockdown levels as risk appetite in the interim has been adjusted in line with our macroeconomic view. On Slide 30, we unpack some further insights on our platform build-out happening within FNB. This journey continues, enabling deep customer insights and lower processing costs. That's ultimately the objective here. On an inflation-adjusted basis, if we look bottom right-hand side, you can see that branch costs continue to decline, while we have investment in the platform and that continues to grow. And essentially, there's a self-funding mechanism that's taking place there. So there's that spend switch between what we're investing in branch versus what we are in digital. Branch, of course, remains the largest sales channel for us still. And I think what this demonstrates is it's all about having the right mix of branch and digital to deliver these holistic customer propositions. So branch is always going to remain extremely important for us. It's just how we optimize and mix those 2 different channels. Just on the digital, FNB has about 10,000 data points on a typical retail customer, and that essentially supports this contextual solution story that we keep referring to. At the moment, just to give you a sense of the kind of production that we're seeing, we're getting about 1.7 billion customer interactions stream real-time into our data and analytics engine on platform. And that's allowing FNB to generate and pass about 300 million opportunities per month across all of our product pillars to our customer base. And we're seeing about 600,000 take-ups per month as a result of that activity. The vast majority now of unsecured credit sales are being done on a fully automated basis on platform. And 30% of our mortgage payout is now coming from what we refer to as Navigate Home or nav>>Home on the platform and through the interface of the banking app. Our NAV Car vehicle parking lot has now got close to 0.5 million cars registered, so really great progress here. Just here, you can just see top right-hand side, the monthly logins. This is over a 4-year period. You can just see that significant migration from monthly logins on banking app moving so essentially from 14 million to almost 60 million per month. So a dramatic shift and it's something clearly we are excited about and also encouraging strongly. Just looking at FNB's portfolio and the rest of Africa, a 12% (sic) [ 6% ] increase in pre-provision operating profit. I think that talks to the resilience of this portfolio. Namibia, Botswana, Eswatini and Ghana, all of those subsidiaries saw customer acquisition resulting in a solid growth in NIR of 5%. NII growth of 6% was supported by a 19% increase in deposits. So that same story that we're seeing in South Africa, significant growth in liability balances, is playing out in the region as well. And the lockdowns contributed to fast-tracking some of the subsidiaries' digital strategies. This is something that has been lagging to date, but we've seen a significant shift as a result of the pandemic onto digital channels. FNB during the period reviewed their business case and investment case for their subsidiary in Tanzania. And they have concluded that the business is unlikely to be able to scale, given the structure of the market. And they've taken a decision, it's [ set formally ] now, to exit Tanzania. And then lastly, the acquisition of Ghana Home Loans, which we mentioned to the market previously. It's a leading mortgage provider in Ghana. That was finalized in May of this year, and the integration with FNB Ghana is well underway. Just turning then to the highlights for RMB, the corporate and investment banking business. Pre-provision operating profit, up 14%. Strong growth in NII, reflecting resilient core advances. I think they've had the benefit of a strong growth in the balance sheet at the start of the financial year that continued to play through and then again, very, very strong deposit growth. Advances and deposits both benefit, I think, from the desire for increased liquidity from corporate clients in the second quarter. So all sort of facilities were rapidly utilized, and the cash was put back on deposit with the bank so that corporate had access to that liquidity. We've seen some of that weighing a little bit, although the deposits have held up well. Material increases in expected credit losses, performing coverage ratios, increasing 82% to 175 basis points, reflecting this proactive provisioning and, of course, the significant deterioration in forward-looking macros. NIR growth 8%, underpinned by robust growth of 16% in fair value income, benefiting from the increased market volatility and client volumes during the period. The geographical tilt in contribution continues to play out, with the rest of Africa for RMB growing 9% on the back of a very strong growth, more than 60% in the rest of Africa markets business. Total OpEx down 4%, reflecting, I think, in the main, lower variable staff costs, fixed cost growth of 10%, impacted by the ongoing platform investment and new initiatives, which we prefer to expense rather than put on the balance sheet. You can see there just some callouts. Primary bank relationships, pleasingly over the period, up 4%. It's difficult to grow these. Corporates take time before they switch these relationships. So it's great to see that progress continuing. If I just call out some of the individual businesses within RMB, you can see investment banking. This is the bottom left-hand box. Investment banking and advisory, 11% down over the year. Corporate transactional banking, down 8%. Both of those businesses clearly impacted by credit impairments. Markets and structuring, up strongly over the period, 21%. And again, one of the callouts there is clearly less impacted by impairment provisions. And then investing, obviously down. I spoke about those impairments against the portfolio that we had to raise. Harry will talk a little bit more about that. Just to look at some of the activity levels around volumes, you can see deposit growth in corporate and investment banking. That's clearly evident. And then at the bottom of the slide, you can see the impact that lockdown has had on merchant services, acquiring volumes and value. RMB in the rest of Africa on Slide 34. You can see markets and structuring, up 66%, an excellent performance. That's mostly on the back of flow activity from the Nigerian business. Also call out the corporate transactional banking there, up 19%, very pleasing to see that as well. Just returning to that market's performance, we don't expect that kind of growth in the Nigerian markets business will be sustained for 2 reasons: One, we are looking to lighten limits. And secondly, we are derisking given that we expect macroeconomic pressures in that market on the back of volatile oil prices. Moving then to WesBank on Slide 35. WesBank continued their focus on disciplined credit origination and implemented risk cuts to preserve returns. They have seen this come at the expense of some loss of market share. It's still small single digits. It wasn't unexpected. Of course, WesBank has got a gloomy outlook for new vehicle sales this year in South Africa. They expect the market to be down 25% year-on-year. More worryingly, I think, for WesBank and the South African market is they expect this market to remain smaller for longer. And so WesBank have really shifted their focus to the cost line. And that focus, I think, for drive for efficiencies is going to remain a feature for the business. And just a little callout there, just how successful they have been. Their costs have been flat in real terms now for 3 years in a row. There's been good progress on WesBank's increased focus on switching the FNB bank base from other providers of vehicle finance. And so now 1 in 2 new deals has been for an FNB -- for a group bank customer, primarily FNB. And this focus on the non-bank base also provides a big opportunity for switching. And again, WesBank has been very focused on that. And of course, that's to switch transactional business to the group's providers, both FNB and RMB. Just look at some of the volumes. You can see pre-COVID, there were some positive signs that -- in WesBank production levels off the back of some of the focused credit and some of the tactical deployments. You can see there during early lockdown, a dramatic falloff in new business production. I mean it really is [ stock ] on the graph. However, the bounce-back is also very evident. We did note some levels of initial pent-up demand. It may well be clearly the pent-up demand but also a sense that new vehicle prices may be increased on the back of some of the currency depreciation that we've seen. So there could have been some proactive activity ahead of those price increases. But we do now believe that demand is starting to stabilize to a new normal albeit lower. And then the scorecard adjustments, I think, have continued to tilt the origination for that business towards low risk, and I think that's evident on the slide at the bottom right. Looking then at the U.K. business on Slide 37. Some callouts here. Aldermore profit before tax was down 40% to GBP 82 million. Lending was up 4% with margins in that business broadly maintained. OpEx was very tightly managed. Overall performance of the bank was affected, in addition, by the fair value hedge loss sitting in their treasury operation, and that was really due to COVID-19 and Brexit market volatility. MotoNovo stand-alone performance, so that essentially includes the front book origination of MotoNovo plus that back book piece, which was not sold into the Aldermore group. It's maintained in group treasury. But if we add those 2 together, essentially, we create a MotoNovo stand-alone performance. That reflected a pretax loss for the period of GBP 8 million. And origination obviously was materially impacted as dealerships closed for 2 months. I think the MotoNovo earnings volatility under stress reinforces the benefit that asset diversification introduced by Aldermore has added to the U.K. mix. Just looking at some of the activity levels, U.K. post lockdown disbursements remain below trend. Apart from MotoNovo, interestingly, again, similar to what we've probably seen in South Africa with WesBank, production volumes have rebounded really strongly in MotoNovo. And at that point, I'll hand over to Harry. Thank you very much.

I can take my mask off. Thanks, Alan. Good morning, ladies and gentlemen. Alan has covered the results at a high level. I'll give you, hopefully, some additional detail as we go through. So it's been a tough year, and I'm not talking about my gray beard, in all fairness. What you can see is the group's performance matrices all declining except, and pleasingly, for net asset value creation, up 6%. As Alan has covered, we accreted capital for this period. Normalized earnings, down 38%. And with all the final dividend, as Alan has covered, just the interim dividend to be down overall by 50% for the year. And then given the impact of earnings down 38%, ROE declined to 12.9%. And as Alan has covered, we have been negative NIACC for the first time in probably a decade, down as well. And then most of the other stuff, I will cover as we go through the presentation. The first one, and this is on Slide 41 if I'm not mistaken, is the income statement on the left. So you see the total income statement, and Alan has covered pre-provisioning income for the period. Top right, we have NIR impacted because of lockdown but NII being largely resilient and resulting in overall marginal growth in top line for these 12 months. Bottom-right graph is the uptick in credit impairment that you've seen earlier on. And I promise you, I will spend loads of slides on credit as we go but later. Okay. So let's pick up on just the walk of the income statement. And what you see here is the big red bar. I mean impairments effectively account for more than 90% reduction in our earnings for the period. But let's start off with the first one being net interest income, NII, up 4%. So interest income has certainly been resilient given, in fact, the benefit of the deposit growth that Alan showed you earlier on as well as advances growth, even though it was slightly lower than what you have seen in prior periods. Lending income growth of 6%. That's with -- in line with 6% overall advances growth. And it's not too dissimilar to transactional account balance sheet growth, also up 6%. And that is despite effectively margins impacting across the entire portfolio piece. Treasury impact is largely as a consequence of excess liquidity, both in ZAL local currency as well as in foreign currency holding as well as a drag of keeping higher liquid asset balances. So on margins, overall group margins were down 30 basis points from 4.75 to 4.45. Excluding Aldermore, which is a more secured book, we're down 20 basis points. So there has been -- and I concentrate you on the first few on the left, is there has been some benefit of repricing on advances. But that's totally offset by one slight shift in mix away from the growth in unsecured lending and more so the inter suspension on the growth of NPLs. And the second piece is deposits. Despite the healthy deposit growth, especially what you've seen during the lockdown, there's been a mid 1 basis point reduction in deposit margin. And that's effectively a mix change towards more lower margin or rather higher rate deposit product fits. Endowment, as you would expect, is down 8 basis points overall for this period. And then the treasury activities in terms of holding excess liquidity was an impact of 11 basis points for the entire group. Okay. So before -- in fact, I did skip one graph in this piece, apologies. Okay. So that graph may be not coming up on screen is effectively -- in fact, I didn't -- sorry, I'm jumping ahead of my page. What you see here is before I started looking at advances and deposits, just to give you some insights. And what you see is dislocation across some of the pieces, what you see across in the market and the trends in our balance sheet. So to orientate you on the top left is what you see corporate advances and deposits. Alan covered in terms of as markets closed for lockdown, big drawdown on irrevocable facilities. Also going back as deposits, deposit growth has largely been maintained. This behavior is expected given corporates effectively maintaining and managing the cash flow requirements, especially in an environment of stress and uncertainty. Similarly, you see that dislocation sitting in retail and commercial deposits. So this graph on the top right shows you 3 years trending from January indexed to 100. And you can see over the last 2 years prior to March this year, trend rates have actually been very similar until the dislocation happened in March and you have substantial buildup in deposits. Bottom left is effectively card advances, and you still see the dislocation. In fact, the trend rates are very similar in the prior 2 years. That is even despite the pullback in the appetite. And you can see the slight decrease in the overall line in the last year in terms of appetite in credit card advances. But again, lack of spending activity in the market breaks the trend line, and you see it similar in the bottom right for overdrafts and overdrafts declining in terms of trend, what you see breaking away. Now please bear this in mind as we go along between NIR and some of the interest income that you see. And on this graph, we effectively see the buildup of deposits, and some of this is finger trouble. Okay. So the group's longer-term strategy that we've spoken of for a while is gathering deposits. And given its strong transactional franchise, that has certainly seen the benefit obviously around in the lockdown. Most of that has actually leveraged with digital capacity in channels that we spoke about earlier on and in some of the stats that Alan has shown. FNB and RMB both saw good deposit growth and overall deposit franchise in the South African space, up 15%. And that resulted in FNB actually having the largest market share for household deposits. Looking at this slide here, what you see is the buildup of excess liquidity. And that excess liquidity, when you look at our LCR coverage ratio, December was therefore largely rebalancing of the LCR limits, as we go through the first quarter of this financial year, will actually bode well for the business as we entered COVID in March. And that allowed effectively group treasury to manage the changes we've seen in the markets and institutional funding markets. And that resulted in an overall decline of 12% in institutional funding requirement. That resulted in effectively our mix change to institutional funding, and this is the graph on the left, decreasing to 32%, probably the lowest in the last 10 years as well. And at the same time, what you see is the increasing term to 37 months. And what you see on the green coloring of the bars, that's effectively negotiable certificates of deposits. That's your 12-month entities, and that's where you see the reduction happening in the bigger schemes of things. Now with that, I just want to stop a little bit. This is where we start off with credit, and this is probably the longest piece of the slides. And you'll see we revamped totally in terms of how advances would trade. Now this is -- my mistake, on Slide 49, just to orientate you because the few slides that come after this effectively give you the same data sets around this. But firstly, if you look at the wheel on the left, what you see is that we've still maintained a fairly diversified advances portfolio across the group. But as you would see, as epidemic such as COVID hits, in fact, diversification doesn't come to our benefit because the impact of forward-looking information is right across every part of the advances portfolio piece. Top right, we will start off with just looking at the advances split across the stages, as you've seen a little bit earlier in Alan. So the large bottom bar is effectively the Stage 1 performing advances. The top piece is what you see and Alan cover is a 42% increase in Stage 2 rare advances. That is, customers either missed 1 or 2 installments or where we put people given vulnerable sectors or vulnerable distress or any trigger point sitting into Stage 2. And then we have a step-up in provisions. And then the top piece is effectively the buildup of 39% increase in NPLs. What you see at the bar below that, so that's effectively the bottom right chart, it shows you absolute balance sheet provisions. So the first thing is the bar shows you the provisions held against each Stage 1, Stage 2 and as well as NPLs in Stage 3. The percentage within that gives you a feel of total coverage. So what you see is a substantial increase in coverage from 70 basis points in Stage 1 to effectively 100 basis points Stage 1 and you see the step-up in absolute provision. Similarly, on Stage 2, you see it go from 9% to nearly 11% for the year-on-year increase, and you can see the buildup of balance sheet provisions. NPLs, the increase is largely driven after 39% increase in NPLs given that coverage effectively largely maintained. What you see is this is the buildup as a consequence of IFRS 9 forward-looking information. Alan covered the impact of the macros. But at the back of your slide deck, in terms of appendix, you will see all scenarios, but this year being much worse than what we have in scenarios for prior year. So you first take a walk on that. And the second piece is effectively the probability waiting to downside. You've seen that in the earlier slide going from 18% to 32%. That takes you the second requirement for build-up in terms of provisions. Clearly, the upside didn't diminish as much significantly. This overall results in what you see at the bottom end is the credit impairment charge increasing from 88 basis points last year to 191 basis points this year. And the total balance sheet provision buildup in the stock is -- amounts to ZAR 15.2 billion. That number, you'll see when I cover some of the impairment charges a little later as well. Okay. So moving on to some of the product sets. And as I said, I spent time on the earlier slide just to orientate you how the bars work. So starting with residential mortgages. You can see effectively largely muted advances growth up 3% for this period. The middle chart shows you the provision buildup. And you can see visually again the buildup in absolute balance sheet as well as coverage between Stage 1 and Stage 2. And that resulted in effectively loss ratio increasing from 11 basis points last year to 64 basis points in this current period. Now this -- and you'll see this across all the portfolios. When we do give relief to customers, what the business term scale is, i.e., irrespective where the customer is sitting, there's a trigger point coming in the back of a request for relief. And as a consequence of that, we've actually built up more provisions sitting in effectively Stage 1 or 2 provisions in terms of that. And that, you'll see in the commentary here around scales. That's across the portfolios. WesBank. Now WesBank, you would have seen stress buildup on a pre-COVID level basis. In fact, there's a slide at the back and it shows you the NPL buildup for both residential mortgages and WesBank, and you'll see more towards July, you'll see coming back to more trend lines. But given WesBank sitting with a stress buildup in prior periods, they actually built up provisions, especially on Stage 1 and 2, in line with expectation of the cohorts moving. That actually bode well for them in this period. As a consequence, FLI impact was actually muted given the overlay buildup. But the buildup in NPLs, as I said, there's a slide at the back. That buildup in NPL acquired a higher coverage ratio largely because effectively, we were closed for the markets for a good part of the lockdown in the beginning and vehicles could not be disposed of, so longer time in NPLs. Looking at the trend on FNB card. Clearly, that moderated given, as I made a comment, last year's change in credit EBITDA and the pullback. But clearly, the impact of lockdown compounded. That is what you see the break in the trend line. So overall card advances were up 7%, and you can see the buildup in coverage appropriately as well as NPL buildup. Personal loans on this slide is a combination of both FNB loans and DirectAxis, and you'll see more of that combination going forward as we report. I mean advances were effectively flat year-on-year. Now this excludes the ZAR 2.3 billion loans on relief that Alan spoke about early on. That's disclosed part of personal loans that you see in the book. But we've -- if you looked at this more operationally, at March, you would have spoken about at this podium about some of the collection inefficiencies we've experienced in the early part of our financial year. That was addressed by the time we landed up in December. But that definitely provided the business operational readiness for the volumes that hit them as a consequence of COVID. And that is clearly evident also in that volume increase is a buildup in terms of stage 1 and stage 2 NPL coverage across the period. And then NPL coverage, largely reducing given a -- what we had seen as a buildup in prior periods. Therefore, we had overlays, and that unwinds as we see the buildup on NPLs. Okay. So then moving on to Corporate and CIB advances book. So the business -- effectively, this has been flat period-on-period, but what you see is the business effectively classified a significant portion of its advances to stage 2. And that is what you heard us saying and Alan said earlier on in terms of vulnerable sectors, vulnerable counterparties within those vulnerable sectors pushed into stage 2. And then you see the substantial buildup in both stage 1 and stage 2 asset provision. So you can see that as well as the coverage increases. NPLs, especially on the investment banking side, so there was a buildup in corporate banking, but investment banking side, there was a net decline, and that was largely because of some workouts. And those are more higher provided workouts. As a consequence, you see slight decrease in NPL coverage. Similarly on commercial, and I'll orientate you first in terms of the wheel, fairly diversified business. But again, diversification, when you get to COVID impact, FLI doesn't necessarily help because it impacts right across that. And you see a similar kind of trend buildup in stage 1, stage 2, asset and balance sheet as well as coverage. And then NPL coverage largely maintained, and you can see that overall provision's up more than 50% as well. Aldermore, so this is Slide 53. The trend is the same in the Aldermore book across the portfolio: retail, commercial as well as MotoNovo VAF. And you see increases still in total provisions, absolute as well as coverage. What you see is absolute balance sheet provisions nearly doubling year-on-year and similar trend in terms of NPL coverage largely being maintained. So that's our U.K. businesses. Going back to the slide, what we thought was giving you, apart from stage 1 and 2, just a little bit of more insight in terms of performing. A fair amount of questions will come about in terms of where do you see this going forward. What the slides cover next in the last few slides will effectively just cover the circle piece, which is performing book and the concept of relief taken up or not. So to orientate you on this slide, it's total group. The wheel on the side gives you performing book split between those customers that are effectively not impacted as a consequence of COVID. About 75% of the performing book is not impacted directly on COVID. The 25% of them is impacted. The dark purple effectively represents about 70% of the impacted customers in our performing book has taken relief of one sort, either cash or covenant relief, et cetera. The other 30% actually in the gray piece are those customers that did not get relief. Either they were sitting from a risk-based perspective, bank unwilling to give relief, so that's more of a risk selection. Or customer chose not to take up relief. So the remaining segment splits, I'll cover that in the next 4 slides. We'll start off with retail on Slide 56, not too dissimilar picture. So you see a similar kind of thing, 64% of the customers impacted took relief. And as you would expect, given the larger book, the absolute weighting of relief was toward that as well as residential mortgages being the secured product sets. When you look at commercial, shows about 60% of the customers are impacted as a consequence of COVID, has taken relief, 40% at ZAR 20 billion, not the case. Either because of they're sitting within vulnerable sectors and did not qualify or they did not take up. What you see here now is a split around some of the sectors to give you a feel. So vulnerable SMEs, you would expect a -- that from a risk perspective, we won't massively qualify them for relief, and you can see the split as you go into some of the sector pieces. You'll see a similar view around corporate. So 80% of corporates not impacted as a consequence of COVID, of which you can see the split is similar in terms of what is taken up and not taken up. [ Leisure ] stopped a little bit. Hotels and leisure, the biggest part of the relief in terms of that sector was effectively covenant waivers, not necessarily new cash. In the book, there's a lot of detail so this total impact is about ZAR 58 billion of exposure that took relief, but net new money was about ZAR 11 billion for COVID. As I said, most of those in sitting in hotel and leisure, effectively covenant reliefs. Aldermore, as Alan covered, majority of this was payment holiday forbearance. So about 80% of those have taken up. The remaining portion of customers that did not qualify being at 20%. And clearly, the U.K. government had far more capacity. So fiscal capacity and what they had was furloughed scheme in terms of revenue to employees, and that supported: A, the SME sector in particular as well, as well as the fact that they created CBILS, which was effectively corona business intervention loans or interruption loans and Aldermore participated within that scheme as well to offer those loans, which is government-guaranteed to its customer base in the SME space. Okay. So NPL formation. You've seen this being covered by Alan. I just want to pick up on a couple of product sets, probably about 4, in particular, residential mortgages. What you would have seen pre-COVID was an experiencing normalization of NPLs of a lower base. Clearly, as a consequence of lockdown, that was exacerbated. So you had a substantial increase of 35% in overall NPLs. Slide 87 is the one I referred to earlier on in terms of the appendix. It shows you the buildup in 3 months and normalizing trends in July and let's hope that continues. VAF, not too dissimilar. What we did notice though is a behavioral change, unlike in prior stressed environments. Customers actually were working from home, i.e., remote working. We've actually seen behavior trend where they're actually happy to default in the car loans. Previously, clearly, they need their vehicles to get to work. Corporate commercial buildup, in line with expectation. We talked about drought. We talked about SMEs. Corporate, as I said, net declined, but here with the corporate banking piece, you have a net -- about 8% increase in total NPLs. Aldermore, Alan's right in terms of, A, you've got a maturing of book, especially on the Aldermore side and then COVID exacerbates the growth in NPLs. Okay. I'm nearing the end of credit. So we're looking at Slide 61. What you see here is absolute impairment charge, 2.3x that of last year. That's ZAR 10.5 billion, increasing to ZAR 24.3 billion. And the increases across all the portfolios, hence, I'm not spending time in terms of the credit loss ratios on the 2 -- in the box on the right. And we have now disclosed absolute value of impairment charge because that's probably giving you more information set. Overall NPLs are covered. What you see on the right, the red line on top is absolute coverage of specific impairments and has the uptick as a consequence of IFRS 9, and that ratio has largely been maintained. Clearly, you have a mix change between secured and unsecured piece, but coverage has largely been maintained, as you see on the left. Okay. So I know a little bit busy, this graph here. So this is Slide 62. This is the breakdown of that ZAR 15.2 million you heard me say early on in terms of the uptick in balance sheet provisions. And more detail for the enthusiasts is in the booklet, on the analysis booklet on Page 62. So before I get into the weeds of these graphs, I just want to step back a little bit and you'll hear me talk about rate and you'll hear me talk about volume. What we started at first is looking at growth in balance sheet advances across the stages, and that will be effectively volume, assuming the same coverage as last year. Then we looked at it and says, with the revised volume, what is the change in coverage? And that effectively is a consequence of provision buildup for rate. Now when you start off on the top left, you can see as a consequence of volume on stage 1. Mix change would have resulted in a decrease in provisions of ZAR 270 million. That's assuming same coverages last year, but with the coverage going up from 70 to 100 basis points, raising impact of ZAR 3.7 billion increase in provisions and that's uptick in terms of credit charge. So that's stage 1. Similar story for stage 2. Stage 2, we do see volume increase. So that is effectively your ZAR 3.5 billion as a consequence of volume. And that's, as I talked about earlier on, the stressed vulnerable sectors as well as customers in areas going into stage 2. And with the volume -- with the rate increasing across the group from 9% to just short of 11%, that's another ZAR 2.2 billion as a consequence of higher coverage. That's your FLI as well as cadence for relief customers. Stage 3 is largely volume-driven. That's a 39% increase in NPLs. The sum of those 3 is what you see in the purple bars at the bottom. That adds up to ZAR 15.2 billion across all of the stages, and that then reflects across on impairment charge. So the far left is the impairment charge going from ZAR 10.5 billion to ZAR 24.3 billion. The bottom 2, we covered, and you can see in the bubbles, the increase in coverage. The top piece, effectively, I would probably say, business as usual, write-offs, et cetera. That step-up from just short of ZAR 8 billion to ZAR 11.5 billion, that's a 45% increase. And when you see the detail, that's the biggest part of the ZAR 3 billion, ZAR 3.5 billion increase is personal loans, and that is expected given origination stream with the growth in the book in prior periods as well as some adjustments that I'd like to point to, to an earlier point. So overall, this results in ZAR 24.4 billion impairment charge and 191 basis points, including the total group. Okay. So that's the end of credit. We move on to NIR. And NIR has actually largely been fairly resilient when you take out the impact of some of the credit-related issues that we've had. ZAR 1 billion in impairment sitting in NIR on nonprivate equity or principal investment business sitting within RMB. And when you exclude the impact of the associates that Alan covered on that's also impacted by FLI impairments, operational NIR is actually up 1%. What you see on this graph is the top 2 insurance and fee and commission. I'll cover specifically in the slides a bit later. Bottom left is effectively the markets business and that Alan covered actually had a good second half in the markets business. And clearly, with an overall 6%, they actually offset some of the NIR pressures we're seeing also in the business. Bottom right is investment income. The rate pieces at the bottom is effectively the ZAR 1 billion on impairment we talked about. Last year, it was about ZAR 150 million. But clearly, excluding that, they definitely had a better second half in terms of income growth. Then looking at fee and commission income, so the fee and commission income, you walk effectively flat. Clearly, the impact of lack of activity. Then, the lockdown impact would be seen right across that. Alan has shown you many stats in terms of where the volumes are declining over lockdown. What I want to concentrate is effectively on the concession piece, which is the bar second to the far right. That was effectively ZAR 560 million in total concessions, pre-COVID, i.e., last year, July, ZAR 400 million was effectively give back to customers. Concessions around some of the transactional pieces, we effectively decreased, if not increased or did not increase so largely. Some of them were decreases. Then as a consequence of COVID, a fair amount of detail, this is effectively [ staff ] wage, effectively rentals on speedpoints, et cetera, that was another ZAR 151 million across the group. That then takes overall fee and commission income down 2% for the year. And then on insurance income, what you've seen is a reduction in revenue for customers. You will have seen effectively retrenchment claims, so that impacts both the businesses. The top part, the lighter shaded is effectively our own license businesses. The bottom piece are more of the cell captives, but both of those impacts you've seen in terms of retrenchments, current claims as well as expected future claims and provisions being raised for those. Private equity slide, you would have seen this previously. What is -- given the cycle that we're in, clearly, you would have seen realizations and annuity income down. We have disclosed for the first time impairments at the bottom. So that's also another ZAR 1 billion in impairment. You can see it's not -- it's far larger than what we've seen previously. These are against effectively loans to these counterparties or certain counterparties. In essence, the risk profile of these loans are more akin to equity loans. And therefore, for the first time, we've actually disclosed it separately across the piece. And what is pleasing is unrealized value across the portfolio, still being largely intact, marginally down to about ZAR 3.5 billion for this period. Okay. Last 2 slides for me -- or 3 actually. So we're starting off with cost. Our unpacked cost, overall cost up 3% for this period. You've got salary costs still being the largest piece of the total group's cost, 60% odd. The box on the right will give you a breakdown. So first is when, again, rates and volumes are effectively salary increases in the prior August was unionized, about 7.2%, 6% for managerial, and we had a 1% increase in overall headcount. That's [ down ] on home loan. That's across the technology platform pieces. That's across short-term insurance that we effectively still building out and investing in businesses. So overall, with that, you had a 10% increase in absolute direct cost for staff. With performance in the current year, with earnings down 38%, yes, you would expect effectively short-term bonus pool reductions of variable pay was reduced. And given the missing of vesting criteria for our longer-term scheme, so that's a 2017 LTIP scheme that did not vest, that unwound. So as a consequence of that, a reduction in variable rem. You have total staff costs up 1% for the period. Now we'd normally get the question as to where do we see this going forward. So we've finished union negotiation in May. Unionized staff was about 4.5% increase effective for August. Middle managers are probably around 3% increases and senior managers with 0 increases for this period. So we still see some rate benefit going into the new financial year. We definitely not pulled back on any of our IT spend, those continued. Some investments as well as investments in platforms and processes, so that was up 11% for the period. So all of those then results with a 3% cost increase. But despite that, I'd make the comment to say, we've always made the view that some of our costs is structurally sticky across the group. We've made progress in terms of efficiencies. We managed to extract that. Hence, they're overall 3% up, clearly a benefit of the variable rem. With the pressure on top line, we've had cost-to-income ratio deteriorating to 52.9%, and we still continue to invest in long-term growth initiatives. On that note, ladies and gentlemen, thank you for your time. I'll pass you back to Alan.

Thank you. Thank you, everybody. Thanks, Harry. Before I move on from here, I mean, I think everything that you've heard today has all been around impairments. I mean, clearly, that's been the massive driver of the last 6 months. I think this is just an important point just to pause and reflect on the difference between IAS 39, which was the previous accounting standard. And certainly, it's the one that we had during the global financial crisis and IFRS 9, which is the current standard. So under IAS 39, banks were required to raise provisions on a bad debt incurral basis. And so clearly, if a bank raised enormous provisions under IAS 39, you knew they had a problem. Under IFRS 9, it's all about these forward-looking macros that drive the accumulation of provisions. And it's done on an expectations basis of what we think may transpire. So that's an important big distinction. The second thing is, how much of those provisions are we actually going to utilize? Of course, we're very focused on collections, and we're going to be managing this process carefully. We would want to write back as most -- as many of those provisions as possible to earnings, but that is going to take some time. So there's a big focus now, of course, on managing the portfolios and collections. Another point is that it is data and assumptions around data that drove our models, which resulted in the accumulation of provisions. It's going to be data and actual experience that is going to drive the models, which is going to tell us how much of these provisions we can release. And then the last point is that this pandemic, which has impacted so many economies around the world, I have yet to see an economy where the pandemic is truly V-shaped. So I mean it kind of moves between U-shaped and L-shaped. And the reality is the damage has been real, and it is going to take some time for recovery. We've chosen -- because of the difficulty of forecasting earnings in this environment, we've been quite specific here on this slide around the shape of where we believe the next 12 months earnings are going to lie for FirstRand. So if I just orientate you on these slides, we're looking at normalized earnings for the 6-month period. And we can see there June '19, December '19 and then, of course, the most recent 6-month earnings that we have here. We've also made the point that for us, COVID is a 2020 calendar event. We're halfway through the year. We've clearly got the run-up up to December, which I think is still going to be a challenging month for us. So we make a couple of points here. Firstly, on a rolling 6-month basis, we have seen the bottom. So the earnings to June 2020 for the 6 months, the ZAR 3.2 billion of normalized earnings there, that is a low point on a 6-month basis. So what we are guiding is that the 6 months to December '20 will show an increase of that level. However, what we are saying is there's going to -- it is going to fall short of what we had in the comparative period. So between now and the end of the year, of course, you should expect a trading update because we are going to be comparing the 6 months earnings to, of course, what you can see there for the 6 months to December 2019 of ZAR 14 billion. It is going to be short of that. That's the first point. The second point that we are saying here is that the 2 6 months earnings that lie ahead of us to June '20 -- to December '20 and then the 6 months to June '21, when we add those 2 6 months earnings together to get annualized -- annual earnings to June '21, those are unlikely where we stand today to match the annualized earnings we have just posted for the June '20 year-end, i.e., we expect it to fall short of the ZAR 17.3 billion of normalized earnings. Just to give you some trends post year-end because it actually -- everything you've seen today has really been about history. I guess the focus is what is happening in the business right now. So we have got some trends for you. These are still high level. They are early indications. I'm going to just put out a caution there. Let's not just extrapolate these forward for the next 12 months. So -- but they are, on the whole, at least positive. So volumes in South Africa, they have improved. But we still see them lower than what we've seen in the prior year. And I guess that's just evident of the strained financial transactions. You can see recovered to about 90% to sort of pre-lockdown levels, merchant services acquiring and getting close to sort of pre-COVID level. So that is good. House prices in South Africa, we've seen a rebound a little bit to 1.4%. We hope that's going to hold up. There might be some pent-up demand there, but so far, so good. Retail collections in our books, they're certainly trending better in July and August. And of course, what we saw at the end of the sort of the last quarter of the last financial year. Early debt relief, and again, here, probably trending in line with expectations. I'm just going to caution here, there are a number of cohorts around debt relief. It's not as if everybody went into this debt relief period in April, May and June. So we've got a cohort that started in April, May, June, but there's another cohort that went in, in May and June. And so coming out of debt relief is still unfolding. We've had the first cohort out and repayments are picking up nicely. And so that gives us a lot of comfort, but we've obviously got further cohorts. So I do think the months sort of October, November are still going to be very important for us to kind of get some data reads on what's happening in the relief. And then payrolls, as you can see there at the bottom of the slide, when we went into lockdown, payrolls from March to April, you can see a 20% drop. We've seen a steady recovery in payrolls over the month. But in South Africa, they still remain at an average probably 5% below pre-lockdown levels. Obviously, impacting income of our customers. Then just to look then briefly at the U.K. Aldermore, 80% of the -- more than 80% of the customers coming out of payment deferral have really picked up pretty much where they left off. So either meeting full contractual payments or there's been a degree of capitalization. Of course, in the U.K., you've seen that temporary relief around stamp duty that's helping. House prices is very important for us. We have a large mortgage book. The origination there in mortgages looks like it's picking up nicely, so we expect that production going to come through. Asset finance is taking a little longer to rebound. Harry mentioned the use of CBILS. We're still doing that. We're not participating in BBILS, because they are unsecured. MotoNovo, I mentioned the strong bounce back that we've seen there, some early shifts in the market. This issue moving away from public transport, also people deciding to move further away from some built up sort of urban areas. And I think both of those are driving up vehicle use. And we're seeing used car prices in the U.K. increasing by about 15% in value. We've also seen an increased use of digital. MotoNovo has got some really good capabilities that they've been building out over the last couple of years. So that's great for them. They've also introduced risk-based pricing on the dealership floor there. So you see strong adoption by dealers, almost 1,400, and that is a very competitive offering compared to unsecured bank finance. So hopefully, that is going to help that business. And then you can see, just in terms of volumes, about GBP 400 million of origination in the 2 months post year-end. So it's a very, very strong performance there from MotoNovo. Just looking at the 2 economies here and the bounce back. So on the graph here, we have South Africa real GDP there in green and the U.K. in red. Just to give a sense of the differences in these 2 markets. So just starting with South Africa. We believe that economies that entered this crisis in a weakened state are going to take longer to recover. And unfortunately, then for South Africa, the recovery is going to be very slow. Unless rapid, these structural reforms are urgently addressed. But our sense is it is going to take longer. The U.K. then, by comparison, we do expect the U.K. having suffered a very, very sharp and material contraction to recover gradually over the next 3 years. Households and firms should regain confidence in increased levels of consumption and investment. And although Brexit, we think, is contributing to some short-term uncertainty, we think the new trading relationship with the EU is expected to be formalized systematically, and the U.K. economy then should get back to a condition where it grows at its potential long-term growth rate of between 1% and 1.5%. Just coming back then to South Africa. There are some very good suggestions for structural reform on the table. Many speakers from corporate South Africa have spoken about it. To call out 2 good examples, the national development plan, there's some very good ideas in that. And then, of course, the recent paper tabled by National Treasury is even a more focused paper, dealing with what is required. The COVID-19 crisis, as you can see, it's accelerated the need to get going on some of these reforms. Of course, some reforms are difficult to implement and execution risks are high, but there are also some that should be very easy to implement. They're relatively inexpensive and they will go a long way individually to boost business and consumer confidence. So I mean, if we're going to call out some low-hanging fruit at FirstRand, we would say providing licenses to businesses to generate their own electricity, massively important, and we are really struggling with why that hasn't taken on much more urgency; allocating the 5G licenses for spectrum; and then, of course, easing visa regulations for highly skilled job seekers. Again, we make the call out there. It's the same offer that we've made previously. The private sector, not just FirstRand, but the private sector really has been talking about the capacity they have, the skills they've got, the savings they've got and how these can be added to the capabilities that government has so that we can get going on some of these specific initiatives to help with the pandemic. Just looking briefly here beyond the fallout. And looking through the pandemic, we continue to believe that FirstRand's unique investment proposition and it is crisply articulated on the slide. I'm not going to read it, but we do believe it is intact, and it will reemerge in the next few years. What is really going to drive it? Well, we think it's some of the unique characteristics of the FirstRand portfolio. And maybe I can just talk through some of those quickly. So the relative size of our transactional franchise, why is that important? It's a capital-light activity. This digital platform strategy that I've spoken about with the number of interactions, you've seen those sort of volume increases, the kinds of shaped offering that we are giving to customers. What is all that about? It's about very cost-efficient growth. And of course, ultimately, it's going to drive efficiencies. That's why we are pushing so hard on it, and you can see the massive progress we're making there. The deposit franchise is also a derivative of a very strong transactional position. That is why we are able to capture these investment balances. Of course, all of the data insights, you can see how we are using it, how we are productionalizing it and it's offering all of these different insights. And then, of course, it's an activity that's highly geared to the macroeconomic recovery. And so when that happens, of course, this is a business that should rebound strongly for us. Balance sheet mix. We do think we have a higher share of risk-adjusted assets on our portfolio. FRM, I've spoken a lot about. Of course, it's going to anchor how we price for credit. And then the recovery in ROA is what is going to drive the recovery in our return profile. I'll just call out the unique diversification. The U.K. -- our business in the U.K. as that economy recovers, we do think we're going to get an ROA uplift. It's going to be on a risk-adjusted basis. And we think the optionality that, that market offers for us for further growth is enormous and compelling. And then integrated insurance and investment, I've spoken about how that continues to scale and the progress we have made. So ladies and gentlemen, then just in closing, I do want to thank all of our loyal customers that have journeyed with us this past year, and we appreciate your custom, and I hope we are able to help you then in the years ahead. I also want to thank our many regulators, our authorities in many of the markets. They've given us lots of guidance and assistance over the past year, particularly over the past 6 months. We greatly appreciate that. And then my final call out then is to all of our employees. Their efforts over the last period have been tremendous. They are ongoing to maintain our operations. We never closed shop during this pandemic, and that's all due to our employees. Of course, as you've seen today, the pandemic has brought carnage to many economies, to many businesses and, of course, to livelihoods, pretty much across the world. However, for us, it also impacted the health of our communities. And as a group, we have not been spared. So to date, tragically, we have seen some colleagues pass away from COVID-related illness, and our thoughts are clearly with them, their families and their loved ones. So I will leave it there. Thank you very much for your attention, and now we will take questions.

The first question comes from James Starke from SBG Securities.

Just 2 questions from my side. You made a comment around the balance sheet being appropriately tilted to the macro outlook or further strengthened. If you could give us some color on what that actually entails? And then the second question is around your outlook for credit growth. Where you see it trending from here, particularly for FirstRand? If you could touch on how that plays out in both the household space as well as the corporate context.

Thanks, James. Harry, do you want to have a go at those?

Thank you. James -- sorry, I'll step away from the mic a little bit. The first one is tilting origination. So in essence is when you're expecting a tough macro environment, your origination isn't going to be where you're putting foot down in the battle to effectively drive advances growth. So what you'll see is similar level of muted advances growth across the portfolio. Yes, in terms of some products. Alan showed that some of them bounced back. So the bounce back may give you some impetus for a little while. But in essence, it is to make sure that we don't head straight into writing a lot of credit into a tough macro that we expect over the next 18 months still. The second bit is core growth. I think I answered that in the piece, which is across most of the portfolios, you'll see muted growth. Clearly, you have an underpin of inflation, and that's also low. So you're not going to see too big growth in many of the portfolios.

Yes, James, just to -- I mean, just to add there, I guess, as an assumption, I would talk about sort of low single-digit balance sheet growth over the next, probably year.

The next question comes from Charles Russell from Citi.

Alan and Harry and the team, thanks very much for the very detailed presentation. It's really appreciated. Also 2 questions from my side. The first one is if you wouldn't mind just elaborating on your differentiated thinking when it comes to these relief facilities that you've been granting and why that is certainly better than a payment holiday as banks across the world have generally followed that approach. And the second question relates to Slide 82. It's got to do with the costs in the sector. A lot of those seem to be one-off in nature. I was wondering if you could perhaps just elaborate on which of those might be sticky into the first half of FY '21 or perhaps even second half of FY '21. Which of those are one-off and which of those are repeatable?

Okay. Thanks, Charles. I'll handle your first question and then Harry, you can start preparing your answer for Charles on the second question. So Charles, with respect to the cash flow relief, so what -- so I mean just to give you a little bit more detail on what we did. We essentially opened a new facility for a particular customer. And a customer may have a credit card product, a mortgage product, a vehicle loan, an unsecured loan. And instead of the customer having to go through the pain of talking about particular product relief on each product, essentially, we open a separate -- a new facility. And through that facility, we actually funded the repayments required by those various products and facilities. Now there's a couple of advantages to that. Firstly, for the customer, it's much easier to have a single facility that they can track and they can say, okay, that is essentially my use, if you like, of COVID payment relief. The second thing is that because the facility was priced at the prime interest rate, that interest rate is almost certainly lower than the interest rates on the various products that, that customer has. So instead of letting those products run up with a much higher interest rate because they're not receiving a payment, we effectively enable the customer to pay off the more expensive credit and make use of a more efficient -- efficiently priced facility. We spoke about the fact that there were no fees attached to it. The other big advantage for us is that allows us to be able to differentiate between what is the COVID relief extension and be able to track that as opposed to having this extension as part of your individual product portfolios. So we've got a separate balance. It doesn't then impact with mortgages or credit cards or anything else. We keep that essentially a pre-COVID exposure, and we can then track this other facility. It also allows us, because we had a single facility, we can talk about a very flexible repayment period. And it allows much, much better customer ability to kind of do easier repayments and negotiate extended payments or further payment relief on that particular relief loan. So we do think that there's much better TCF outcome in our view. It's also -- there's also an ease of operations, and it's also better internally for us to track the relief. And then Harry, I'm not sure if you're ready?

Yes. Thanks, Alan. Charles, so some of them are one-off, some of them are sitting in the base. But the one thing I want to start-up before going through any other ones-offs is we must not forget the endowment impact that's still to come. So we have about 80 basis points endowment effectively changed. We still have, if I'm not mistaken my count, 240 to come. On the South African balance sheet, that's ZAR 275 billion endowment impact, that half of that is hedged. So we do have [ pencil box ] help. You can see it's more than ZAR 3 billion still to come endowment. A fair amount of that will be sitting on deposits within the franchises, both RMB and FNB, but there's a chunk that will sit in Group Treasury sitting with that. So yes, if you look at some of the biggest one is ZAR 800 million in terms of funding and funding impact and excess liquidity, not all of that will roll into a new financial year. But I think any benefit of that is far more than outweighed by the endowment impact. Tanzania, we're hoping that the impairment we've taken now is enough for what we expect to be on the exit. We have effectively restructured Ashburton. That's definitely ones-off. And some of the cost on platforms, et cetera, some of it is in the base, and that continues. We're not expecting another step-up necessarily on cost sitting within that base. So hopefully, that gives you a high level but I'm stressing again, I think these numbers, the biggest impact into the next year is endowment.

The next question comes from Chris Steward from Ninety One.

So first, a quick one from my side. Given the preemptive nature of IFRS 9 provisioning, given the early signs of a reasonable outcome on the customer relief portfolio and given the bounce back in activity, albeit not to pre-COVID levels, but a reasonably decent recovery thus far, and notwithstanding Harry's comments with regard to incremental and downward pressure in the next financial year, perhaps you can just defend your fairly categoric assertion that you would be unable to match the earnings base set in 2020? Or put differently, under what circumstances do you think that you might, in fact, be able to match the earnings run rate set for the 2020 financial year?

Yes. Okay. Thanks, Chris. Just to give -- I mean, just some sense to that. While we're going to speak about the year ahead, maybe in 2 halves, I mean we would expect clearly recovery, I think, in the next 6 months from the 6-month base we spoke about here. And I think that recovery then will maybe continue a little more strongly then into the second half. I guess for us, and again, it's based on assumptions. I mean, yes, we've raised significant provisions, but we are also expecting a stage roll. So we are expecting some migration from stage 2 into nonperforming loans. We're going to need to see how that happens. I think we still got probably 3 or 4 months before we get a really good read on exiting of payment holidays or cash flow relief. We've got the tourist facility, which is still winding down. Clearly, there's still some benefit of that in some of our data. So that's got to work its way out of the system. In the U.K., the U.K. is also winding down the furlough scheme. So that's also got to come out of the system. There's a sense around what is then going to be the reaction from businesses? Are we going to see the potential job losses that we may well see? And then, I mean, and Harry has pointed out, okay, clearly, the endowment effect, which if rates stay lower for longer, clearly, that is not going to be a benefit for us. I guess any of those things, Chris, could turn positive for us. I mean, we may get a much, much better outcome on collections. Customers may well resume simply where they left off. We do think probably sort of front book origination is going to take some time to come back. But clearly, I mean, I guess we -- and maybe we've been known to surprise on the upside. I mean, we've really kind of give -- gone into this guidance with the mindset that we would rather put out a sort of brutally realistic picture to the market. So that there isn't a sense that we are trying to sort of front-run the recovery. Clearly, I think we'll have much better insight into how the year is unfolding when we get to March. And we can release our interims. I think between now and March, there's a lot of data points that I think will come at us. We'll certainly have more insight on the performance of our portfolios. But I think it's -- it is really difficult for us. And so we've tried to be as -- yes, as I say, kind of as insightful as we can. And this is really where management sees the outlook. Clearly, when we get to June '21, if it does transpire that our earnings come in short of the year-end that we've just posted, of course, then in the years ahead, you can expect much stronger growth because the base effect is going to be there. And then okay, then we can start talking and I think articulating with some evidence that we're on to a very strong growth pickup. But we really are trying to just be cautious over the next 12 months.

And if I could just add 2 cents to that. So Chris, if you look at the back of the appendix on Slide 94, what -- your question is, what will give you impetus for a positive outcome? That's the scenario of macros we expect baseline, downside, upside. And even when you look at the upside, it's actually a fairly muted impact to the economic growth. So clearly, if we get our assumptions and the upside actually is a substantial, much more upside, we'll welcome that. On credit, we will move from expected credit losses that we have until June '20 into actual credit losses. So I think if you unpick on all of the pieces, and we're not necessarily going to get anything from the economy to grow advances growth. I think deposits will still continue, but deposits also has a low-margin business. So and -- so there's lots of moving parts. I think Alan's covered bulk of it, but the fundamental is we're not expecting anything coming from, especially the South African economy, to give any impetus to growth for the business.

Yes. Thanks, Harry. And then maybe sort of one last point I would call out is obviously, the base effect here we have on the tax line. Clearly, the question is, you've seen what's happened to the fiscus and so what new taxes come at us. And so I mean, clearly, there, you would have to say that there's also some 12-month risk on that line.

The next question comes from Chris Logan from Opportune.

The link between your results and the macro situation is cast on stone. And across the board, we hear about the need for reforms and all of this, but nothing happens. And structurally, we think lower. Do you think anything will ever happen as the formal agenda or lack of it does not seem to be driven by business, and it's always difficult and sensitive for business to be a change agent with government?

Yes. Thanks, Chris. I'm going to make the point. Listen, this is not for lack of trying. So it's been an exhausting process, as you know, and there have been many, many initiatives. And I mean thousands of hours that have been put into this topic by, listen, the smartest business brains, that's not me. But lots of really insightful people have put tremendous effort in, I mean, the most recent was that B4SA document. I think unfortunately, we seem to be stuck in this desire for more and more plans. And the problem now is we have so many plans. We need to now have another meeting to decide which plan to pick or which aspects of which plan might make sense. And so we seem to be stuck with a lot of inertia. Chris, I'm going to say to you, I'm hopeful that we see some progress. Again, where does that hope come from? I mean, I think some of the most recent statements by the President, I think, give us some hope. I mean, some time lines have been spoken about. Some of the topics that we mentioned today, I think you've also seen in the press over the last week. I would also then just caution though that my hope should not be confused with confidence. So my confidence would have to come from track record. And unfortunately, that, as you point out, hasn't been good. So I mean I remain hopeful. We continue to try. We are engaged in lots of those conversations. We're going to do our best. But your point is well made.