FirstRand Limited (FSR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to FirstRand's Half Year Results for the 6 months ended 31 December 2021. The group metrics on Slide 2 continue to reflect what we refer to as rebound performance against the base driven by much lower credit loss ratio. Normalized earnings, up 43% to ZAR 15.7 billion. Pre-provision operating profit, pleasingly up 6% to ZAR 26.4 billion. Point-in-time return on equity, sharply up to 20.1% and NAV in the group increasing by 12%. Operating leverage, showing a slight improvement. Core equity Tier 1 accreting further to 13.6%. A dividend of ZAR 1.57, in line with the growth in earnings. Moving on to Slide 3. We see the performance and distribution at a per share level on a rolling 6-month basis. It is apparent when one looks at this slide that the normalization journey for earnings is materially complete. On this next slide, on the left, we reflect our generation of economic profit. So that is our accounting profit charged for a cost of the capital that we have consumed in generating those profits, and it is a cost that has increased slightly over the year. We are pleased to see the restoration of material economic profit in this period. A noticeable recovery in ROE, a NAV that is comfortably within our range of 18% to 22%. On the right-hand side, we depict the growth in NAV per share, as I said, increasing 12% on a constant currency basis, up 10%. On Slide 5, we decompose our return on equity. Increased levels of capital, as you can see, have lowered the gearing in the group. And return on assets at 31 December is now very similar to pre-pandemic levels with both NII and NIR recovery. Sticking with our return profile for a moment, we articulate some key messages on this slide as to the sustainability of these returns. By far, it's the transactional franchise that underpins the return on assets that drives the returns. Although, our deposit performance advances mix, disciplines on how we price credit and our financial resources generally all contribute. Mindful that digital transformation, competition and regulation may, in the fullness of time, erode the contribution of our transactional franchise. Several years ago, we began to diversify our revenue streams, primarily into the activities of insurance and investment management. And I will cover those 2 on the next 2 slides. But outside of those 2 activities, we are further optimistic about opportunities for scaling our commissionable revenues and other navigate life interactions, further diversifying NIR. Having a quick look at the diversification strategies of insurance, the growth in these businesses really exceeding our expectations running way ahead of the original business cases. FNB Life is already a meaningful contributor to group noninterest revenue. It's the third largest insurer in the retail customer base, and we see ample opportunities for further growth in premium and in the commercial segments. FNB Life insures 6.8 million lives, and it has paid claims of over ZAR 7 billion since inception, ZAR 4 billion of which was just for the pandemic-related death and retrenchment claims. The group now offers the full suite of retail insurance products as well as group risk cover for large corporates. The short-term insurance build-out is now complete, with the successful launch of comprehensive motor insurance a couple of months ago. Unlike insurance, when it comes to asset management and wealth and investment management, these have taken longer. In 2019, the investment management activities of the group were repositioned to create stronger alignment with the main banked customer strategy. Ashburton Investments has seen good net inflows particularly into fixed income funds, and building strong capabilities in equities management to capture inflows into multi-asset funds remains a key focus for us. The turnaround in the investment performance of the Ashburton balance fund, global multi-asset funds and the target return fund are all very encouraging. FNB Wealth and Investments focused on the retail customer base, and this is paying off with customer accounts growing by 12%. New competitive and convenient products and solutions have been launched, so I can refer here to FNB shares zero FNB retirement annuity and the FNB core balance fund, and these are all conveniently available on our digital platforms. Scaling further into asset management and increased distribution into the FNB customer base remain the key objectives as we look forward. All right. Moving on to some of the macroeconomic environment that we faced in generating these returns. So upfront, I think I need to acknowledge the very fluid Ukraine-Russia situation and the uncertainty it creates. We continue to monitor channels of contagion around commodity prices, inflation, how central banks may respond and then any consequential impact on household affordability. Moving on from making this point, we expect economic activity here to reach pre-pandemic levels later this year, especially if the terms of trade continue to be supportive as they are. Despite the economic rebound, the recovery remains incomplete in several important aspects. For example, unemployment remains at an all-time high. Investment spending remains at post pandemic lows relative to economic activity. And private sector credit demand and supply remains very low compared to savings. Whilst these features have structural underpins to them, there are cyclical components that we see are starting to shift. It is good to make sense of the pandemic period that we have navigated. And I think through that period, we saw a mark -- marked shift in savings and debt dynamics. It's easy now with the benefit of hindsight, but I suppose this is not a surprise. The private sector, as you can see, pulled back activity due to falling levels of confidence and pandemic restrictions. At the same time, government had to step in with fiscal support and stimulus. So this outcome is reflected in the graph on the right, which is showing government debt to GDP increasing significantly. It was already climbing for a number of years, pre the pandemic, but it scaled significantly into the pandemic and that of corporates and households falling. The bank's activities, as gatherers and allocators of savings in an economy would, of course, reflected these dynamics. So what do we expect as we come out of the pandemic? We think we're going to see a reversal of the cycle, albeit not some of the structural trends. What does this mean? Households and corporate confidence should begin to lift, increasing levels of activity. Private sector savings growth should soften, and the private sector demand for credit should increase, funding the purchase of more durable and semi-durable goods. The need for government to provide the same levels of pandemic support should fade as the private sector begins to lean into the economy, enabling some consolidation of the fiscus as, of course, was mentioned in the recent budget. These trends, again, should be reflected in the gathering and savings -- as an allocation of savings in the banking sector. On Slide 12, we capture some important macro insights impacting our U.K. businesses. So the U.K. economy has experienced a strong rebound. However, at the moment, there is a real cost of living squeeze related to higher inflation and the start, of course, of a rate-tightening cycle. Despite the high inflation and the rate cycle, the labor market at the moment is very strong. Wage growth is robust, and the economy is holding up well. This should all be supportive of house prices and the demand for credit. Slide 13 takes us back to the current performance, and the left-hand side shows first half earnings for the past 5 years, this period, of course, setting the record. The top right-hand side reveals that the materially lower credit charge has been the driver of the earnings. Indeed, at ZAR 4 billion, the charge for the period relating to credit is lower than the average charge in the years prior to the pandemic. The credit loss ratio, as you can see now, is comfortably below our through-the-cycle range of 100 to 110 basis points. Just looking at the balance sheet, credit consequences, Slide 14, considers the staging of our advances. And the decline in both Stage 2 and nonperforming loans is evident, a function of better collections, write-offs, account curing and a noticeable slowdown in the formation of operational nonperforming loans. Total credit-related provisions as well as stage coverage remain healthy, as you can see on the slide. What happened to our balance sheet during this period? Advances grew over the past year, although, the growth really only manifested over the past 6 months with growth now evident across most portfolios. And we have isolated out the currency impacts on the right-hand side. So this is real growth across all those different portfolios. Previously, discerning origination did not keep pace with repayments and overall advances declined. Originations now outpaced repayments and we expect this trend to continue as the emergent credit cycle unfolds in South Africa. New business risk distribution for both FNB and WesBank revealed a tilt to lower-risk business. This is because this is where we believe the cohort exists with credit capacity and hence, the very sharp focus on this category of borrowers. Whilst retail secured and unsecured book saw little, if any, real growth over the past 18 months. In the recent 6 months, net growth has returned, particularly to mortgages and to personal loans. Looking at commercial and wholesale advances. Encouragingly, FNB commercial advances grew 9%, led by agriculture and asset-based finance. Wholesale advances in RMB, up 6%, with some sectors lagging others by some margin. RMB does appear well placed to benefit from the expected infrastructure expenditure program in South Africa. Looking then at deposits. The group deposit gatherers, most notably, FNB, have performed very strongly, with FNB being the largest custodian of household deposits in South Africa. These customer deposits enable group treasury to reduce borrowing from more expensive institutional funders, lowering their overall cost of funds for the group, boosting liquidity and of course, non -- net interest income. Having a look at capital on Slide 19, this is the walk of the group core equity Tier 1 ratio for the year, December '20 to December '21. And you can see that the ratio has lifted slightly since our last financial year-end in June, with net NAV accretion being absorbed by balance sheet growth. Risk-weighted asset density ended a touch higher over the past 6 months. Right. Let's unpack some of the operating businesses in a little bit more detail. On this next slide, you can see group -- the group's normalized earnings of ZAR 15.7 billion by operating business with a rebound across the board. I'm going to unpack the customer franchises in some detail. The center period-on-period movement reflects the performance of group treasury. Greater levels of unallocated capital as well as higher levels of government security. We refer to these as HQLA, or high-quality liquid assets, has boosted NII. This links back to the pandemic market dynamics, I referred to earlier. As private sector credit extension gathers pace and government issuance slows, we expect a gradual NII shift in the group back to customer franchises. Looking at this next slide, pre-provision operating profits is our profits before considering credit charges have gradually improved and now exceed levels established before the pandemic. Starting with FNB's performance for the past 6 months, earnings up strongly, a story of a much-improved credit loss ratio, boosting return on assets and elevating return on equity. Non-interest revenue grew, particularly over the most recent quarter, offset to some extent by continued claims in the insurance activities. Net interest income growth more muted, a reflection of the recovering advances growth. A slight deterioration in operating leverage all results in a pre-provision operating profit being flat. Looking at some of the operational data from FNB, new customer acquisition was seen across FNB and the strategy to upgrade eWallet users into FNB Easy Accounts, which is the entry-level transactional accounts gained traction. Customers continue to engage with us digitally with 69% of all retail customers, it's 85% for our private bank customers and 79% for commercial customers we consider to be digitally active. Overall, transactional volumes for FNB increased 12% with digital volumes up 13%. And you can see their monthly logins are now 143 million a month. Our plans to onboard more customers and conduct more business with our customers are on track. In the period, our vertical sales index, which is a measure of average business per customer lifted to 2.94. Loyalty earned by eBucks; you can see it's now at a run rate annualized of ZAR 2 billion with generosity remaining a very powerful component of FNB's customer proposition. Account and transactional fee givebacks over the past 6 months by FNB amounted to ZAR 500 million, boosting FNB's value propositions for customers, and this is well evidenced when one looks at the solidarity market survey on bank fees. Just having a look at the insurance, FNB Life continued with COVID-19 claims into the first quarter of the current reporting period. Claims experience improved thereafter on the back of higher levels of vaccination and community immunity. FNB Life had a strong period of new business driven by funeral products and credit life as customer lending gained traction. Value of new business grew 66% supported by an improved claims outlook driving embedded value up 50% to ZAR 6.1 billion. Short-term insurance just launched with 243,000 policies grew in-force APE by 37%. And the launch of homeowners and motor insurance products drove new business APE, up 54%. Pleasingly, customers are adopting digital interfaces on platform for application and servicing needs, and this brings significant operational leverage to this insurance business. FNB insurance customers reward, ZAR 334 million from eBucks since inception. So it's great to see how the generosity is playing into the insurance activities for our customers. Right. Moving on to RMB, earnings up 15%, again, a function of a much lower credit loss ratio. Encouragingly, growth in RMB's core lending portfolio returned, and we are hopeful that this accelerates with the anticipated infrastructure program taking shape in the country. RMB's profit before tax was boosted by the jump in the contribution from their banking activities. And this comprises investment banking and corporate transactional banking, up 17% on the back of lower impairments. The markets business, up 6%, a solid contribution from the currency and commodities activities with domestic fixed income playing catch-up, strong rebound from private equity, mainly because of lower portfolio impairments. Looking at WesBank briefly for the performance for the past 6 months. Despite, I think, a strong recovery in new vehicle sales in calendar 2021, the industry still has some way to go to recover lost ground. Whilst the WesBank's earnings rose 17% in the 6 months under review, operating profit, you can see pre-credit charges was 12% lower. And this is really a function of lower origination, pricing pressure and a deterioration in operating costs. Recent loan production is looking much better, following more competitive scorecards, higher appetite for loan to values, balloon profiles and terming out some of the funding propositions. Right. Looking at our portfolio of businesses in broader Africa. These have bounced back strongly with earnings jumping 54% and pre-provision profits climbing 18%. Portfolio return on equity above 16%; this is very pleasing given the drag coming from our growth subsidiaries. Digital customer engagements are gaining traction and the cash plus distribution model continues to scale. Profit before tax for the FNB subsidiaries up 64%. The help coming from lower credit charges, especially from the growth subsidiaries. Deposit growth is very healthy, and of course, this is a very key focus area for the portfolio. Costs, as you can see, are headed in the right direction. RMB's results in the region, which include in-country activities as well as their cross-border lending book declined 10% due to credit provision releases in the base year. Excluding the effects of this release, the period-on-period performance was similar. RMB's regional focus areas -- RMB's regional focus on -- in the particular areas, they focus on -- and a lot of those around mining and commodities should benefit from the ongoing commodity tailwinds. Moving to consider our businesses in the U.K. Slide 32 sets out some of the key performance metrics. The Aldermore Group, just to remind everybody focuses on the provision of finance to U.K. SMEs, homeowners, landlords and vehicle owners as well as providing a range of competitive savings products. The decline in the cost of credit on the back of better-than-expected U.K. macros improved collections and in-life portfolio management pushed earnings up strongly in the period. As the results show, Aldermore is a good business. It has navigated the pandemic really well, albeit that it has lost a little bit of momentum in loan growth, and this is noticeable in the mortgages area. A highly regarded and experienced CEO was appointed in May last year, and he has nearly completed a refresh of the business strategy. More on this when we present our annual results in September, but we should expect the strategy to be more focused on the existing attractive opportunities rather than any significant pivot. We are starting to see some good market share growth in both auto and SME Finance. Aldermore continues to be well capitalized with strong liquidity levels. And as you can see, it is generating decent returns. Thank you. And I'll hand over to Harry to take us through some of the detailed numbers.

Good morning, everybody. Thanks. Okay. Let's have a look at the total group 6 months results to December. It is definitely pleasing to present our highest H1 results at ZAR 15.7 billion. That's 43% up period-on-period. And yes, it is off a depressed base last year given that it was impacted by COVID lockdowns and characterized by higher impairments and definitely lower volumes in the December '20 base. What is particularly pleasing, and you see in the green box is a 12% growth against a pre-COVID earnings base of December '19. Now that took a lot of discipline and a lot of effort across many people across all the businesses to get us here. And what you'll see a bit later, that, that is even the case at an operational level. So Alan has covered, we've been pleased to pay a dividend to interim dividend at the bottom end of our cover range. That's a 56% payout ratio. NIACC has substantially improved since December '20. It is not at peak levels, and that's largely due to higher capital levels. ROE continues to rebound to 20.1%, and its midpoint of our range. Strong capital generation, so CET1 at 13.6%. And NAV per share, so there's net asset value per share, up 12%. So moving on to the income statement. You can see credit is the single largest contributor to the increase in earnings. Having said that, interest income and non-interest income both up 5%, cost up 4%. Overall, pleasing, and I will cover most of these components separately as we go through the presentation. Tax and other charge, clearly, given the improvement in earnings is up for the period, but the tax rate is also up and that is largely driven by the change in mix to effectively more taxable revenue streams. Okay. So pre-operating -- so pre-provision operating profits. So moving on to that. So that's overall for the group, up 6%. That actually demonstrates the resilience of the underlying franchise businesses. What you see here is that it's actually up 4% against December '19, and that's the pre-COVID level benchmark. So if you look at the graph on the top right, that's overall revenue up 5%, good growth on NII, and that's due to good deposit growth and actually good strategies deployed by treasury. NIR was mainly driven by the rebound in volumes and good growth in customers across the FNB base and strong trading revenue coming in from RMB. Impairment charge, we'll cover in lots of detail as we go along through the slides. Okay. So this slide is looking at the composition of the group's pre-provision operating profit, and it reflects specific investment strategies implemented by Group Treasury, including its ALM strategies, so its asset and liability management strategies and credit origination strategies executed by the operating businesses. Starting off with FNB, flat largely due to its subdued NII growth coming in from the credit strategy. And as you will see and Alan showed, is actually retail in particular, focusing on far better quality, lower risk customer base. Now that comes in at a margin impact. So it's actually lower pricing. In addition, the talk towards secured residential mortgages placed further pressure on overall NII. Good growth in deposits clearly benefited in some of those NIR growth. WesBank pre-provision down 12%, impacted by effectively the muted advances growth and the tilt towards better quality, lower margin business also impacted. And clearly, the shift towards more variable rate businesses also impacted in terms of pre-provision and NII in particular. RMB, 2% reduction. Similar story in terms of NII drag. So you've seen subdued credit origination. So given -- so you would have seen actually a 6% overall growth in advances. But the average advances for the period was actually down. So you've seen the growth in advances coming in towards the latter part of the period so the latter quarter. That bodes well for the next 6 months, but that impacted overall pre-provision operating profit. Turning to the U.K. operations. Aldermore certainly benefited from the stronger rebound in the U.K. economy, Aldermore in particularly grew business advance -- business finance advances, residential mortgages and buy-to-let advances actually contracted given A, competitive pressures, but also operational strain within the business itself. MotoNovo saw good advances growth across the business, however, pre-provision impacted by some provisions taken relating to certain operating events. Bottom left graph shows effectively the interest income from group treasury. And what you'll see is a very similar trend, what you saw in June, so the prior 6 months to June. Now this reflects the FRM strategies implemented during the COVID-pandemic period. Strong deposit franchise certainly help support treasury in terms of lowering its -- or continuing lowering its institutional funding. In addition, there were some one-off benefits sitting in the 6 months to December. And the balance sheet was further strengthened with higher levels of liquidity and capital, as Alan has detailed. On this Slide 39, we move on to the total summary of net interest income. As I said, although, the balance sheet is up 6% overall for the group, excluding repos, which, as you're aware, is transient in nature as well as currency movements. So the currency actually ran depreciated period-on-period, but the average actually appreciated. Excluding those 2 impacts, advances were actually operationally up 2%. That, together with the mix change towards secured lending that effectively have landed upward lending NII, so lending interest income down 3% for the period. Transactional NII, that includes effectively credit card growth as well as deposits, and in particular, in endowment deposits benefiting from customer growth, was up 4%. Deposits and this is your effectively yield pricing deposits with customers moving towards that growth, effectively saw the shift under the deposit pricing. So that was down 3%. Good deposit growth across Africa. So that's all with customer acquisition, so good growth across that piece. NII coming in, in the U.K. operations, 5%. Lower funding costs, the biggest single driver as clearly as well as advances grow. And as discussed, we've covered the movement in treasury, that's higher capital base as well as ALM strategies on NII. Okay. So moving on to a very busy slide, so I'll go through it in component pieces. Overall margin is up 10 basis points from December '20 to December '21. Having said that, actually, it's more in line to the trend that you would have seen to June. So for -- against June is 2 basis points up to the June 2021 margin. And as in prior periods, we actually show separately the U.K. margin operation all the margin impact from the U.K. operations. So the first red bar that shows effectively 9 basis points reduction in margins. All we're doing there is rebasing by the increasing balance sheet. So we take losses income and rebase the growth in balance sheet and then we start off with the component movements of income for the period. Lending margin, 7 basis points, down for the period. Clearly, it's impacted by the shift and tilt towards lower margin, better quality advances growth, as well as the mix change as we talked about in terms of more secured advances, offset clearly by the growth in advances that you've seen as well as lower NPLs that I'll cover later. Overall margin from deposits, up 4 basis points and that's the strong growth coming in from the deposit franchise as well as lower institutional funding benefiting the cost of funding. Capital endowment up 6 basis points off a higher capital base. And the treasury benefits that we covered incorporates though -- once the benefit incorporates the ALM strategies as well as exchange movements and certain of the mismatches that come into play. So that overall results in margin uplift for the period. Okay. So deposit franchise, overall deposit growth up from the franchise up 11%. You can see strong growth from both retail and commercial, up 9%, clearly supported by good customer acquisition as well as competitive product pricing within the business. RMB up 7% in this deposit, targeting main bank customers at market rates. Africa, up 4% coming in of customer growth in the business. Aldermore in pound terms up 14%, clearly putting in competitive priced products into the market. And then that effectively gives you the additional benefit from the deposit franchise plays into lower issuances in the institutional market. So that, together with what Alan was saying is deployment into higher HQLA assets. The majority of the reduction in institutional funding, actually the 318 is a very similar number to what you would have seen at June '21. So that actually played out in the period to June. Okay. So then moving on to this busy slide, again, on advances. So this is Slide 22 that's following in the book. Advances, as I said, excluding the impact of repos and currency moves up 2%, but reported up 6%. And the growth is largely driven from residential mortgages, corporate commercial as well as the vehicle and business finance in the U.K. market. So looking at the composition, that's the donut on the left, you still see it's a fairly well diversified advances book across the group. Retail actually decreased to 48%. And as I said, that is the impact of this outsized increase in the repo book to December. Yes, the repo book is transient. So excluding just the uplift from the repo book, effectively, the retail advances still approximate to about 50%. Top right. We start off with the advances split across the various stages, and what you will notice is the improved distribution of the staging of the advances book. NPL is down 10%, benefiting from the lower inflows, conservative origination, we talked about, definitely stronger collections from the business overall and curing some of the paying NPLs, which I'll share a bit later. So that cures into Stage 2. And despite the curing effectively Stage 2 is down 1%, again, implying good collection as well as lower roles from the conservative origination playing out. Moving on to the middle section, and that's effectively the absolute stock of provisions that we have on the balance sheet. And you'll see it's largely been maintained across the June reporting period. In fact, it's marginally down just over ZAR 400 million since June. Against December, it has substantially decreased just over ZAR 3 billion. And that was the improving macro environment, that's improving in your forward-looking view. And then the table at the bottom is what you see on Alan's slide is the coverage provisions. If you look at the coverage on Stage 1, that's the bottom one, that's 97 basis points, largely maintained. So it's about 2 basis points higher than June, and that does include certain post-model provisions being held. And that's because at December, level of uncertainty was still high. And yes, we did not predict where you see the uncertainties around Ukraine. So that's definitely not built-in, but what we did have is uncertainties around higher level of inflation, higher level of interest rates, both looking at globally as well as in the domestic market and clearly unknown where we land up with the fraught scenario on Omicron. So effectively, that was building within the modeling, and we did maintain the fraught scenario, although, at a lower level of probability as well as lower severity relative to June. So that plays out in terms of overall coverage in terms of Stage 1. Stage 2 coverage, marginally lower. Clearly where curing coming into place from the NPLs play into that because that's paying customers have a lower coverage. And clearly, that impacts of the curing ratio into NPLs, and as such, NPL coverage then does increase. So unpacking overall NPLs is always worthwhile looking at the picture on a rolling 6-month basis. Group overall NPL since June has reduced 10%. When you unpick this, we'll just start off in terms of looking at it excluding Aldermore. So the bar on the top left, NPLs decreased 13%, and this is against all against June. Then when you look at NPL, that's on a paying basis, so that's securing NPLs, so paying NPLs decreased 12%. And despite that curing effectively operational NPLs down 9%, and that's what we're talking about lower rolls coming into, i.e., quality of origination as well as lots of effort by the business in terms of good collection stats. Similarly, you see U.K. operations in terms of comp collections in NPLs as well as no longer barring in terms of professional security. So that paid down NPLs 5% since June. Okay. So this is an absolute decrease in terms of impairment charge, a 57% decrease to ZAR 4 billion impact across all the various product lines. Now this definitely impact -- reflects the improving macro picture that you see off the COVID base last year. So you can see against ZAR 9 billion, a substantial decrease across that. But as I mentioned, this does include some of the uncertainties and product overlays that we've talked about. And you see it very starkly in terms of FNB center, where some of that post-model adjustments you see it being raised, in particular, in the ZAR 420 million, although, it is lower than what is raised in prior December. NPL ratio on the bar chart on the left at 4%. As you would expect, it is still at a sticky level, and you would see that going across. But at 61 basis points, it is the lowest that you have seen in many years. I think that is the consequence of IFRS 9, if the Life fund loading and then you actually see a payout in the peak. Okay. So then I'm thinking that -- or rather unpacking that ZAR 4 billion impairment charge. So let's start off with Stage 1. Overall advances up 8% in Stage 1, coverage marginally up at 2 basis points. That results in a ZAR 1.1 billion increase in absolute provisioning from June. Stage 2, balance sheet down 1%, marginal coverage change that results in a ZAR 500 million reduction in balance sheet stock. NPLs down 10%, that results in a ZAR 1 billion reduction in absolute provisions. That sums up to what you see in the middle of the next slide, a net reduction of net release of ZAR 415 million. And then on the top of that slide in the middle, you effectively see fairly healthy maintaining of post write-off recoveries of about ZAR 1.4 billion and then gross write-offs being at a very similar level at ZAR 5.8 billion. So effectively, that's how you see the unpack of the total ZAR 4 billion charge for the 6 months of impairments. Okay. So moving on to non-interest revenue. Overall, up 5%. The big driver is volumes and a good performance from fee and commission income, trading and investment income across the piece. So this is Slide 28 following on the booklet. So the bar graph on the top left shows you fee and commission income has grown 3%. And that is despite absorbing low fee increases in July. The fee giveaways that Alan spoke about, the increased eBucks generosity, as mentioned earlier. And this growth is largely driven from higher transactional volumes. And the customer base we talked about last year at 3%, and then the 4% that we've got period-on-period in this -- it is reporting to December. Insurance income will pick up on the slide later, that's down 7%. RMB trading activity has delivered another strong performance off a higher base. That was 14% up for the period. And then investment income benefiting from resilient annuity income, private equity, principal investment portfolios and what you see is minimal impairments required this period. Insurance income, overall, against December, down 7%, And that's given the higher claims and translated provisions. This is expected given the higher mortality experience with COVID. What is definitely very pleasing is the 11% growth in premium income against December last year and actually 6% is what you will see the premium income growth since June. What you also see pleasingly is the normalization of claims cost. So that is actually down 29% since June. Private equity performance was actually quite pleasing. So annuity income is actually up 5% growth. So that is against both old and new vintages benefiting from effectively the rebound and the recovery in the assay macro conditions. The business is successfully deploying about ZAR 0.5 billion on new investments, that's after about ZAR 300 million in the 6 months to June. So you can see activity coming back into the market. The quality and diversity of the portfolio is captured in the unrealized value increasing to ZAR 4.8 billion. That was effectively 3.9% last year December and ZAR 4.4 billion unrealized value sitting at June. All right. Operating cost, up 4%. I mean that effectively reflects continued focus on cost management in the business. What we do expect is some reemergence of costs coming into place as the workforce comes back onto premises. This cost does still include investments in our growth initiatives. In the second half of June '21, we did have some accelerated write-offs of certain assets. And what you see, it does play off into the benefit of depreciation in the 6 months to December. And the benefit of that depreciation, you actually see it quite starkly in the bottom right in terms of the impact on IT cost. You can see it's actually growing only up 3%, and that's actually probably the lowest you've seen in many periods on reporting. As I said, the focus on cost savings were realized that effectively allows us to invest -- continue to invest in growth initiatives. Overall staff costs -- I mean, overall staff cost was up 5%, resulting in cost growth for the group, up 4%. This slide you've seen before. What we show you here is effectively a 5-year track and the CAGR of cross, so that's effectively a compound growth of cost. So the group, what you see here is it's still the cost buildup in line with the group's strategy of building into platform. At the bottom, you see IT costs are up on a compound basis at 8.9% despite the effectively the group overall compound growth of 4.7%. So effectively showing you the cost savings, excluding IT cost of 3.7%. And you can see the staff cost up at 4.5% compound over the period -- sorry, 5.4%. So that's turned around 5.4%. That includes both salary increases as well as headcount growth. So this just shows you the continued investment in platform through IT spend. This is my last slide. I'm not going to cover all of the items. I've covered that across in the pieces, very good set of key drivers across the results piece. And what I'll leave you with is definitely strong set of liquidity, strong set of capital, strong position on balance sheet, as well as capacity within the business to effectively capitalize on what the economy recovery that actually we see coming to us going forward. Thank you very much, and now I hand you back to Alan.

Thank you. All right. We are almost done. So looking forward, it is useful just to touch base back with the sort of the economic environment that I think we are going to face. So despite the geopolitical uncertainty I mentioned earlier, South African corporates and employed consumers can increase their demand for credit and investment for durable spend purposes, notwithstanding a higher level of interest rate uncertainty. And we show that on the top right, we referred to this so-called sort of debt capacity highway, if you like. And you can see that there is plenty of room on that highway even if some of the interest rate hikes do manifest for further capacity. So we think we are kind of well poised to really lean into that. Crucially, the promising signs of a pickup in investment spending by South African corporates need to gain pace if we are going to build on the long-term recovery for this country. We are encouraged by recent signs that the enabling environment is starting to get better. And this is hopefully going to make this investment spend possible. We expect the credit cycle to lift, and we are already seeing signs of this in selected pockets of secured credit and in particular, in asset finance. All right. Wrapping up, we believe we are very well positioned to play strongly into the improving domestic economic backdrop. We have ample financial resources. We have the customer propositions, and our strategies are well founded and remain on track. We are feeling good about our prospects in South Africa, in broader Africa and in the U.K. Growth in earnings, of course, for the full year to June 2022 will exceed our long-term target of a real growth in earnings as the last tailwinds of the pandemic recovery are felt. Right, just to end off, some thank yous. Thank you to our various regulators in all of our markets for their guidance and relief to our sector and to our group. They certainly make us a better organization. Thank you to our many customers. We never forget that we have no business without you. And finally, thank you to all our employees, the way you have pitched up and given of your best is impressive. Thank you very much all for your attendance, and we're happy now to take any questions you may have. Thank you.

Alan, the -- I think it was the IMF recently expressed concern about the amount of short-term short-dated government debt that the bank sold, that's collectively all the big banks. Do you -- I'd just like you to comment on that and if you feel there's a reason for concern?

Thanks, Mr. [ Devin ]. The IMF report did indicate that there's been a pickup by the banking sector of government issuance. It comes -- it links back to the slides that I showed where government really had to lean in and support the economy, that needed funding. Of course, the savings were captured by the banking sector. Less of those savings went into advances for customers. And so the savings needed to get invested and banks would typically invest those in HQLA and treasury pools. So that has picked up significantly. What they did point out in that report is, of course, the nexus that we all understand between the sovereign and banks. And of course, if the sovereign's creditworthiness deteriorates significantly or in the worst-case scenario, I guess, gets into trouble. Of course, that transmits directly into the banking sector. And so these things in many respects, are joined at the hip. What they did say in that report, though, is that if they look at the levels of investment by the banking sector into government securities. It is not out of line with other international markets. So it's not as if -- but what they were signaling is, listen, the direction of travel is up. Now what we are expecting is we think that, that growth that we've seen in HQLA is going to start to start dissipating and we expect that shift into our customer franchises. So that's certainly where we are now in the last couple of months is showing that that's happening.

Two questions from my side. Just regarding NIM, particularly from the group component there, the 20 basis point uplift. If you could perhaps give us some color on how we can expect that to trend from here? I mean, can it be sustained? Does it unwind? Does it continue to be supportive? And then on credit losses, obviously, 61 basis points are pretty strong print. How should we think about that going into the second half against your longer-term range?

Okay. Good questions. Harry?

Sorry, again, the 20 basis points, I missed the beginning part. 20 basis points regarding, NIM?

Yes. NIM, from the group, there was 5 and 15, so the uplift...

Okay, for NIM. So [ James ], that's why I actually referenced June in particular. So June NIMs is effectively 2 basis points for the total group. I think what you would see is clearly a rate cycle, but you would know that we effectively mitigated some of the endowment negatives, which means the uplift is also not fully taken apart. We do expect continuation of NIM enhancement, clearly a rate cycle of the 50% mitigation planning into account, but you won't see substantial enhancements. So you're seeing a couple of basis points uplift as you see, especially in the shorter term. Then credit, the reality is going to be that effectively, what you're seeing is not a big change in provision stock, so part of them are one side. You will have seen increase in credit coming in. So you see origination coming in. The origination comes in with originations stream. So you see Stage 1 provisions will build up. And as a consequence of that charge comes back, but I think we've got to a healthy level of provision stock. So I think it will probably be marginally up but not significantly up in the bigger scheme of things. And mainly it depends on how macros play out. So there's a fair amount of uncertainty. So it depends on how you call macros. If macros significantly deteriorate between now or rather way, we see in December to where you land up at June, let's say, for instance, the Ukraine environment escalates significantly. Global macros change dramatically by June, difficult to call it, but the direction of that FLI, I can tell you one way is going to be up, in which case, it may hurt you. If macros land up to be similar, you don't have a play on releases. I don't think it's going to be substantially more favorable macros. I do think, excluding Ukraine, the trend line was going to be uplift in an environment far more supportive of the economy, which means the economy effectively the uplift on the economy gives you a little bit of tailwind on that. That hypothesis tells you that there is a little bit of tailwind on releases on provisions, not substantial. So I think the core is going to be effectively -- unfortunately, the escalations come out of Europe around where offering -- Russia decides to play.

Right, any more questions from the room? Let's now look at the -- can we check the other venues? Sam, we've got questions there.

I've got one quite long question from [ Diwei Anetti ] from [ N24 ]. So I'm going to try and ask it in. So you mentioned that the group has adopted a discerning credit origination approach for retail. So the first question is how exactly did FNB and WesBank change their credit risk appetite? Two, does that mean that FNB will reduce its exposure to new unsecured origination even more? Are there any particular sectors that you're staying away from? Is it [ first entity ] that this is not the right time to be growing the advanced book aggressively?

Okay. I'm going to get -- I'll make an opening reply to [ Diwei Anetti ] and then I'll get Jacques to make some comments. And also, Chris. I think Chris, you can also talk a little bit about WesBank and what's happening. With respect to credit, I think we've been very mindful sort of as we transition out of this pandemic how customer incomes are recovering, where we think the pockets of acceptable credit risk lie and where that capacity that I spoke about sits. So we look at bureau data. We look at our own PRISM score data. We look at what's happening on new business that we're writing. We look at early vintages. We are tracking all of that stuff. And it's -- it is not in our view, simply business as usual, that you open up the credit taps. So we kind of -- we've spoken about this discerning approach that we've had. We are tilting it towards lower-risk customers, better-rated customers. And again, I emphasize the point. The reason we're doing that, that, in our view, is where the capacity for borrowing sits, we think, is where we return capacity in certainly some of the higher PRISM scores. And we are obviously nervous, I think, to dive into that space. So Jacques, maybe you could just add some comments and then you just followed up, Chris.

Thank you, Alan. I think we -- I guess, I can just speak for -- the storyline for us certainly has been an increasing growth agenda in credit from where we were in 2020, I guess, is a conservative outlook towards getting our clients through the pandemic, and certainly, those very lockdown phases. Last year, we get started getting momentum. And it's pleasing to see that in the early indicators, certainly in the retail mortgage as well as in the FNB personal loan businesses into our existing clients, that's got nice traction. There's a direct access business that we're still struggling a little bit with some of the outcomes, the impacts of the new legislation related to information protection and all that, that will play out, and I think our innovation in our space is also gaining momentum. And I think the storyline for this season, certainly, as we get not only momentum into our existing clients, but certainly our franchise customer broader client growth also will give us more opportunities. We're exceptionally excited about some of the innovations related to, especially as how we attract new clients, the switching experiences, getting customers across with trying to get really on the front foot with those credit needs as they've navigated through COVID, we all think that there's -- it's such an incredible story for people to have come through. The balance sheets are stronger, our customers are in good condition, and we think that this is going to be a year where you'll see further growth. And I'll turn to Chris quickly for WesBank.

Thank you very much, Jacques. So from a WesBank perspective, our acquisition models, our strong presence on the dealer floor as well as our joint ventures continue to present us with opportunities to write low risk, good quality business, and we've stuck to those principles right throughout the COVID period. And I think you can see that the impact on our results has been a talk towards a low-risk book, but it has also come with the associated lower margins. We are really well positioned now to become more aggressive in terms of writing credit into the market as customers' capacity to borrow increases. And as I said, our acquisition structure inside of the market allows us to have a really good look at those transactions as our appetite improves. So I think going forward, you can expect to see some changes to our appetite, which will hopefully result in our books starting to grow certainly faster than what we have been able to do up until now.

Sorry, if I could just add. So one thing you got to remember what we talked about is the origination to get to the results to date. The question then flips is to forward-looking view. Clearly, one of the things you would have seen is a recovery of the economy, which means the recovery of individuals' earning capacity. Income levels have also rebound, which then gives you capacity back to backward risk. And that's what you see the 2 gentlemen telling you about. As the forward-looking view comes in, is that your risk will tilt back to more normalized levels, and there's a gradual lift towards that. So clearly, if you're saying is the second question was, are we seeing a lift even more away from risk? The answer is, no. In essence, capacity has come back into the economy, which means you lift back to be able to support customers that actually have the capability to take on credit.