Personal monthly income trends

STRATEGIC AND ACTIONABLE INSIGHTS FROM DATAOCTOBER 2015This presentation is incomplete without the accompanying oral commentaryCopyright 2012 Eighty20

There has been a significant increase in access to credit in South Africa. According to the NCR, the number of credit active consumers increased from 17.1 million in the fourth quarter of 2007 to 23.1 million in 201522007 Q42015 Q117.1 MILLION23.1 MILLION CREDIT STANDING OF CREDIT ACTIVE CONSUMERSSource: NCR, Stats SA LFS 2007, 2015Total population 18+: 29.7 million 57% credit activeTotal population 18+: 33 million 70% credit activeWhat is interesting here is our analysis Credit data shows that 40% of credit granted in March 2014 was given go people who had missed 2 payments>> check with Illana30% of all credit active consumers are 90 days or more in arrears on at least one account2

Lending activity has shifted significantly3VALUE OF LOANS GRANTED(R BILLIONS)MORTGAGESECURED LOANCREDIT FACILITIESUNSECURED LOANSource: NCR Consumer credit reportNote: Short term credit- 2008: R3.75 bn (1%), 2009: R3.9 bn (2%), 2010: R5.5 bn (2%), 2011: R6.66 bn (2%), 2012: R6.19 bn (1%), 2013: R5.81bn (1%)

R312.6R219.3R287.8R372.3R429.3R447.8R440.6TOTAL47%32%10%10%34%37%12%15%34%34%12%18%29%32%14%22%25%32%16%24%28%34%16%19%31%34%15%17%

Lending activity has shifted significantly4VALUE OF LOANS GRANTED(R BILLIONS)MORTGAGESECURED LOANCREDIT FACILITIESUNSECURED LOANSource: NCR Consumer credit reportNote: Short term credit- 2008: R3.75 bn (1%), 2009: R3.9 bn (2%), 2010: R5.5 bn (2%), 2011: R6.66 bn (2%), 2012: R6.19 bn (1%), 2013: R5.81bn (1%)

R312.6R219.3R287.8R372.3R429.3R447.8R440.6TOTAL47%32%10%10%34%37%12%15%34%34%12%18%29%32%14%22%25%32%16%24%28%34%16%19%31%34%15%17%GROSS DEBTORS BOOK: 2015 Q1R BILLIONS

From a stability perspective we seem to be in a reasonably healthy position overall (with some notable exceptions)5CREDIT FACILITIESMORTGAGESUNSECUREDCREDITSECUREDCREDITSHORT-TERMCREDIT8493542071672

ACCOUNTS (000S)7 0871 8244 40426 189923Source: NCR Consumer credit report. Developmental credit is provided by lenders registered as developmental credit providers and includes educational loans; small business loans; loans for the acquisition, rehabilitation, building or expansion of low income housing32DEVEOPMENTALCREDIT1 189

% 90 days or more in arrears3%14%12%24%3%16%4%17%3%9%6%18%90 DAYS +OTHER5ABIL makes an offer to acquire the entire issued ordinary share capital of Ellerines ABIL acquires Ellerines for R9.2 billion Moodys downgrades African Banks global and local credit ratings Ellerine Furnishers Proprietary Limited commences voluntary business rescueTrading update released: Ellerines NPLs were 37.7% of gross advances at 31 December 2008 ABIL enters into negotiations regarding the possible disposal of Ellerine Holdings LimitedMoodys downgrades African Banks global and local credit ratings ABIL placed under curatorshipABIL SHARE PRICEABIL announces it has entered into negotiations regarding the possible disposal of EllerineSouth Africas banking crisis was relatively mild with only one banking casualty and a handful of retailers suffering losses as a result of exuberant lending activity in unsecured creditTHE STORY OF AN AFRICAN BANKWins banker of the year award 2012The JD Groups consumer finance division went from generating more than half of the Groups operating profit in FY2012 to generating a loss of R2 billion in FY2014Source: JD Group Annual Financial Statements for the year ended 30 June 2012 & 2013. JD Group Audited Financial Results 2014.Note: *Retail includes furniture retail, HiFi Corporation, Incredible Connection and SteinbuildJD Group: Credit from your uncle in the furniture businessOperating profit by division, FY2012 FY2014The gross loan book increased by only R910 million (FY13: R2,5 billion) to R10,6 billion (FY13: 9,7 billion), highlighting the effect of stricter lending criteria together with the decision to cease the granting of personal loans- JD Group Results FY20142012RETAILCONSUMER FINANCEOTHER20132014201220132014201220132014The increase in the gross loan book of R2.5 billion in FY2013 was matched by a R2.5 billion increase in provisions in FY2014Issue 1: Borrower level performanceAccording to the NCR less than half of those who are credit active are current on all their accounts82008 Q12015 Q117.1 MILLION23.1 MILLIONCREDIT STANDING OF CREDIT ACTIVE CONSUMERSSource: NCR: Adverse - Accounts with adverse classifications such as handed over and/or written-off.8.1 M47%2.6 M15%2.3 M13%2.2 M13%1.9 M11%9.7 M43%2.9 M13%5.4 M24%2.4 M10%2.5 M11%CURRENT1 -2 MONTHS ARREARS3+ MONTHS ARREARSADVERSE LISTINGSJUDGEMENTS AND ADMIN ORDERS

What is interesting here is our analysis Credit data shows that 40% of credit granted in March 2014 was given go people who had missed 2 payments>> check with Illana30% of all credit active consumers are 90 days or more in arrears on at least one account8

Employed in the formal sector11.2 million9POTENTIALLY CREDIT ACTIVE MARKET: 17.8 MIILLIONSource: QLFS Q1 2015, LFS Q3 2007, Stats SA Monthly Earnings of South Africans 2010Note: Pensioners: If not economically active, and 60 years old or more, and answered pension to the question how do you support yourself?***An analysis of LFS 2007 Q3 indicated that 44.4% of homemakers had a formally employed partner. This proportion of homemakers was carried through to 2015 to estimate the number of homemakers with a formally employed partner There is a gap between the number of credit active consumers and the 11.2 million formally employed workers. However it is not only those who are formally active who have access to creditDomestic workers (1.46 m) earning R1,200 or more0.7 million Informal sector workers (2.4 m) earning R1200 or more1.8 millionPreviously employed (in the past year 2.4m): Assumed 75% were credit active1.8 millionHomemaker with a formally employed spouse0.9 mPensioners: 50% are credit active1.4 million

According to XDS data there are around 18.1 million consumers who have open credit accounts. These consumers have at least one open account which has seen some kind of activity in the past two years10Source: XDS data* Other includes Retail General, Student loans or Financial Other Excludes security, telecoms and insuranceNote: An open account is one that has not been closed or has been written off, handed over, lapsed, revoked, repossessed, surrendered, disputed in the last two years.

Ave number of accounts per borrower:1.71.61.51.31.21.31.1

1.2CREDIT CONSUMERS: OPEN ACCOUNTS(February 2015, Millions)Unsurprisingly, borrower level performance differs noticeably by product type. Those with mortgages and vehicle finance perform way better than other borrowers11Source: XDS data% in arrears(90+ days)

42%21%23%42%31%35%18%5%6%CREDIT CONSUMERS: OPEN ACCOUNTS(February 2015, Millions)

The pattern of credit usage differs for those who have mortgages and asset finance compared to those with retail credit and microloans12RETAIL APPARELASSET FINANCEMICROLOANSMORTGAGEPERSONAL LOANCREDIT CARDRETAIL FURNITURERETAIL APPARELASSET FINANCEMICROLOANSMORTGAGEPERSONAL LOANCREDIT CARDRETAIL FURNITURECROSS PRODUCT HOLDINGSNO OTHER10.3 M6.1 M5.7 M2.7 M2.4 M2.1 M1.5 M12A third of those with one product only are 90 days or more in arrears on that product. For those with two or more products, there is clearly a prioritisation process in terms of who to pay131 CREDIT PRODUCT ONLY6.5 M (36%)2+ CREDIT PRODUCTS11.5 M ( 64%)SEGMENTS(Million borrowers)12%35%16%6%7%24%12+Credit productCredit productsDo we have a culture of non-payment, or a culture of non-collections?R4: Banks they dont play. If they want their money they want their money. If youre not paying and youre working then a garnishee. If youre not working then they repossess whatever that you have, whether youve got a fridge or whatever the sheriff will take itFacilitator: How is the bank different from retail stores?R4: The retailers are easyFacilitator: I hear you say banks are like mashonisa, so who would retail stores be like then?R7: It is like my mum.R4: My aunt, I know I have to pay my aunt, Ill pay her when Ive got moneyJohannesburg, Clothing account with linked insuranceJohannesburg, Clothing account with linked insurance: R4 - Female, 25, Single, One child, Works at Mr Price; R7 - Female, Single, Two children, Self employed CREDIT FROM YOUR AUNT IN THE CLOTHING BUSINESS

Launch nationwide promotional roadshows (Jul Sep)

Pilot the iMali Matters free financial advice centres in Cape Town, Durban and Germiston

Launch Payment Break promotion

Maximum loan size increased from R50 000 to R100 000

Acquire Ellerines Financial services business for approx. R7,3 billion (Sep)

Pilot African Bank kiosks in Ellerines stores

Combined African Bank and Ellerines credit sales for Oct to Dec 2010 up 60% over same period in previous yearDo we have a culture of non-payment, or a culture of non-collections?152010Total bonds issued: R1 billion (JSE) & USD 300 million on London Stock Exchange

Moodys maintains African Banks good local credit rating of A1.za (long-term) & P1 (short-term) (May)

New products focused on African Bank / Ellerines relationship: Ezi*Cash (buy on credit and get cash to spend anywhere) and Ezi*Loan (apply for loan in store)

0% Interest Buster, Payment Break & Loan Consolidation promotions

Maximum loan size increased to R180 000 from R100 000

ABILs new client acquisition for the year up 26% from 2010

Total bonds issued: R2,42 billion (SIX Swiss Exchange)

National Credit Regulator announces investigation into possible reckless lending at African Bank (Feb)

Risk reduction strategy: loan approval rates reduced to 69% in June 2012 from 75% in June 2011

Loan Consolidation & Payment Break Freezember promotion

African Bank awarded South African Bank of the year by The Banker Magazine (Nov)

Total bonds issued: R4.6 billion (JSE) & R1.15 billion (SIX Swiss Exchange)

Shareholders advised of expected decline in earnings of between 25% and 28% (Mar)

Moodys downgrades African Banks local (long-term) credit rating to A2.za (Jul)

Write off a total of R10,2 billion in bad debts (2012: R5 billion) (Sep)

ABIL incurs loss of R1,5 billion (Sep)

African Bank pays R20 million in settlement of probe by National Credit Regulator (Oct)

ABIL raises R5.5 billion in equity capital in Rights Offer underwritten by Goldman Sachs Int. (DecTotal bonds issued: R2,17 billion (SIX Swiss Exchange)

Toni Fourie resigns as Ellerines CEO (Jan)

African Bank and Edcon enter into negotiations to form strategic relationship (Apr)

Shareholders advised of an expected loss in profits of over R4 billion rand. African Bank non-performing loans exceed anticipated level by approx. R600 million (May)

Shareholders advised of possible disposal of Ellerines Holdings Limited (EHL) (Jul)

EHL starts business rescue proceedings (Aug)

ABIL suspends trading on JSE. African Bank placed under curatorship (Aug)

African Bank Print Advert (November 2010)African Bank Radio Advert (September 2010)Here is what happens when you take out a long-term loan before 15 December, nothing a whole lot of nothing, because with African Bank payment break if you take out a loan today you will pay sweet nothing until next year. African bank, credit that works for you.

National Credit Regulator announces investigation into possible reckless lending at African Bank (Feb)

Risk reduction strategy: loan approval rates reduced to 69% in June 2012 from 75% in June 2011

Loan Consolidation & Payment Break Freezember promotion

African Bank awarded South African Bank of the year by The Banker Magazine (Nov)

Launch nationwide promotional roadshows (Jul Sep)

Pilot the iMali Matters free financial advice centres in Cape Town, Durban and Germiston

Launch Payment Break promotion and maximum loan size increased from R50 000 to R100 000

Acquire Ellerines Financial services business for approx. R7,3 billion (Sep)

Pilot African Bank kiosks in Ellerines stores

Combined African Bank and Ellerines credit sales for Oct to Dec 2010 up 60% over same period in previous yearDo we have a culture of non-payment, or a culture of non-collections?162012Total bonds issued: R4.6 billion (JSE) & R1.15 billion (SIX Swiss Exchange)

Shareholders advised of expected decline in earnings of between 25% and 28% (Mar)

Moodys downgrades African Banks local (long-term) credit rating to A2.za (Jul)

Write off a total of R10,2 billion in bad debts (2012: R5 billion) (Sep)

ABIL incurs loss of R1,5 billion (Sep)

African Bank pays R20 million in settlement of probe by National Credit Regulator (Oct)

ABIL raises R5.5 billion in equity capital in Rights Offer underwritten by Goldman Sachs Int. (DecTotal bonds issued: R2,17 billion (SIX Swiss Exchange)

Toni Fourie resigns as Ellerines CEO (Jan)

African Bank and Edcon enter into negotiations to form strategic relationship (Apr)

Shareholders advised of an expected loss in profits of over R4 billion rand. African Bank non-performing loans exceed anticipated level by approx. R600 million (May)

Shareholders advised of possible disposal of Ellerines Holdings Limited (EHL) (Jul)

EHL starts business rescue proceedings (Aug)

ABIL suspends trading on JSE. African Bank placed under curatorship (

African Bank TV Advert (March 2012)20112010

New products focused on African Bank / Ellerines relationship: Ezi*Cash (buy on credit and get cash to spend anywhere) and Ezi*Loan (apply for loan in store)

0% Interest Buster, Payment Break & Loan Consolidation promotions

Maximum loan size increased to R180 000 from R100 000

ABILs new client acquisition for the year up 26% from 2010

National Credit Regulator announces investigation into possible reckless lending at African Bank (Feb)

Risk reduction strategy: loan approval rates reduced to 69% in June 2012 from 75% in June 2011

Loan Consolidation & Payment Break Freezember promotion

African Bank awarded South African Bank of the year by The Banker Magazine (Nov)

Launch nationwide promotional roadshows (Jul Sep)

Pilot the iMali Matters free financial advice centres in Cape Town, Durban and Germiston

Launch Payment Break promotion and maximum loan size increased from R50 000 to R100 000

Acquire Ellerines Financial services business for approx. R7,3 billion (Sep)

Pilot African Bank kiosks in Ellerines stores

Combined African Bank and Ellerines credit sales for Oct to Dec 2010 up 60% over same period in previous yearDo we have a culture of non-payment, or a culture of non-collections?172012Total bonds issued: R4.6 billion (JSE) & R1.15 billion (SIX Swiss Exchange)

Shareholders advised of expected decline in earnings of between 25% and 28% (Mar)

Moodys downgrades African Banks local (long-term) credit rating to A2.za (Jul)

Write off a total of R10,2 billion in bad debts (2012: R5 billion) (Sep)

ABIL incurs loss of R1,5 billion (Sep)

African Bank pays R20 million in settlement of probe by National Credit Regulator (Oct)

ABIL raises R5.5 billion in equity capital in Rights Offer underwritten by Goldman Sachs Int. (DecTotal bonds issued: R2,17 billion (SIX Swiss Exchange)

Toni Fourie resigns as Ellerines CEO (Jan)

African Bank and Edcon enter into negotiations to form strategic relationship (Apr)

Shareholders advised of an expected loss in profits of over R4 billion rand. African Bank non-performing loans exceed anticipated level by approx. R600 million (May)

Shareholders advised of possible disposal of Ellerines Holdings Limited (EHL) (Jul)

EHL starts business rescue proceedings (Aug)

ABIL suspends trading on JSE. African Bank placed under curatorship (20112010

African Bank Advert (Dec 2012)New products focused on African Bank / Ellerines relationship: Ezi*Cash (buy on credit and get cash to spend anywhere) and Ezi*Loan (apply for loan in store)

0% Interest Buster, Payment Break & Loan Consolidation promotions

Maximum loan size increased to R180 000 from R100 000

ABILs new client acquisition for the year up 26% from 2010

GROSS DEBTORS BOOK: 2015 Q1R BILLIONS

Issue 2: Where does the money go?Developmental credit accounts for just over 2% of the gross debtors book and just over 1.2% of the value of loans granted in Q1 201518CREDIT FACILITIESMORTGAGESUNSECUREDCREDITSECUREDCREDITSHORT-TERMCREDIT8493542071672

ACCOUNTS (000S)7 0871 8244 40426 189923Source: NCR Consumer credit report. Developmental credit is provided by lenders registered as developmental credit providers and includes educational loans; small business loans; loans for the acquisition, rehabilitation, building or expansion of low income housing32DEVEOPMENTALCREDIT1 189

% 90 days or more in arrears3%14%12%24%3%16%4%17%3%9%6%18%90 DAYS +OTHER18

19Source: IES 2010/11Note: Health includes medical insurance and medical aid contributions; Education includes school uniforms and shoesR25 000+R10 000 R24 999R3 500 R9 999< R3 500DISTRIBUTION OF CONSUMPTION EXPENDITURE FOR ALL HOUSEHOLDS: 2011(By monthly household income)

UTILITIES AND HOME MAINTENANCERENTALSMORTGAGESPURCHASE OF VEHICLESFOOD AND NON-ALCOHOLIC BEVERAGESINSURANCE & OTHER FINANCIAL SERVICESCLOTHING & FOOTWEARCOMMUNICATIONEDUCATIONOTHERHEALTH

TRANSPORT SERVICES & OPERATIONThere is no decent data on where the money goes. But it can only go where there is supplyHH FURNITURE, EQUIPMENT, APPLIANCES & TEXTILESGOODS & SERVICES FOR HH MAINTENANCE19The challenge is less about access to credit than about shifting priorities towards asset building20

CREDIT FACILITIESMORTGAGESUNSECUREDCREDITSECUREDCREDIT

Source: NCR Consumer credit report. Mortgage 11.25%, 240 months, vehicle 13.25%, 60 months, unsecured 25%, 24 months, facility 25%, 12 monthsVALUENUMBERAVERAGE SIZER3.8 bn11 400R330 100R12.7 bn146 700R88 700R14.9 bn895 000R16 800R7.0 bn1 240 000R5 700CREDIT ORIGINATION FOR INDIVIDUALS EARNING BETWEEN R10 000 AND R15 000 MONTHLY(2014)R3 464R2 030R897TOTAL INSTL.R39 bnR298 bnR800 bnR672 bnR542R3 501 R10 000

Banks are required to submit data to the Office of Disclosure on housing loan applications. That data highlights relatively low numbers of applications from the Gap / Affordable market. It also indicates relatively low acceptance rates across the market21R15 000+R0 R3 500230 200177 100TOTALS71 700?76.8%34.2%???75.5%30.1%APPLICATION STATUS:Note: %s are of applications receivedR10 001 R15 000?77.5%24.1%77.6%25.1%STATUS OF HOME LOAN APPLICATIONS RECEIVED IN 2012 R3 501 R10 000Banks are required to submit data to the Office of Disclosure on housing loan applications. That data highlights relatively low numbers of applications from the Gap / Affordable market. It also indicates relatively low acceptance rates across the market22R15 000+R0 R3 500175 000163 500TOTALS65 700?94.4%43.7%???86.9%47.9%APPLICATION STATUS:Note: %s are of applications receivedR10 001 R15 000?91.5%8.5%90.8%18.5%

STATUS OF HOME LOAN APPLICATIONS RECEIVED IN 2012 The Office of Disclosure also publishes data on the reason for decline. Compromised credit histories and affordability appear to be the main reasons for declineUnacceptable credit track record49%48%24%40%Lack of affordability10%18%45%39%Insufficient info/ docs provided5%20%10%Unacceptable security2%4%10%3%Ineligible applicant3%6%15%Unacceptable exposure (town)1%Adverse credit record3%4%5%Other/ blank data28%2%Not target market

REASONS FOR DECLINE: ALL HOME LOANSSource: Office of Disclosure23In focus groups we conducted recently with retail credit customers there was a perception that it is easier to get credit from a retailer than a bankYou can go to a bank the bank tells you that you are in so many debt so much debt we cant give you money, because they check your data basis. You owe this one and you owe that oneFacilitator: You talk about the credit act?Yes. If you go to this furniture they say no problem man.Cape Town, FurnitureFacilitator: Why did you apply for store cards I get the feeling that you want credit cards only?R6: Before you just started working and you apply for a credit card, you dont know. The credit card was something bigR2: Sometimes it is the fact that not everyone qualifies for a credit card but almost everyone qualifies for a store cardJohannesburg, Clothing store account with linked insuranceR8: I think at the bank too they are not willing to take a risk like your account stores will take, you know? Johannesburg, Clothing store accountJohannesburg, Clothing account with linked insurance: R2 - Male, Single, One child, Self employed; R6 - Female, Single, Two children, Self employed Johannesburg Clothing store account : R8 - Male, single, One child, EmployedCape Town furniture: R7 - Male, Married, Two children, Post Office tellerWhat incentives do retailers have? How do their business models impact on credit management? How do they shape credit markets?Retailer offers credit to support high margin merchandise salesRetailer leverages infrastructure to offer insurance and other creditMerchandise margin + credit margin + insurance margin increase yieldHigher yield supports higher risk toleranceRetailers offer access to credit to borrowers who otherwise would not qualifyDeserving customers are discovered by retailers broadening credit marketsHigh rates of indebtedness and high rates of default in borrower baseImpact on borrower risk profile and vulnerability to shocksImpact on borrower credit journey and ability to access secured credit to build assets Impact on credit market stability, social stability and tolerance of delinquencyRETAILERCUSTOMERSOCIETY / CREDIT MARKETSImpact on trust and brand not nice to be hounded when you cant payRelatively high default is expected and priced in (not always)Issue 3: Credit journeys (and upward mobility)A critical issue is the credit journey. Where does it lead the borrower?2635%5%17%NEW BORROWERS 2012

10%Source: XDS data. Note*: Other includes: Mortgage 2%, Asset finance 1%, financial other 1%4%NoneRETAIL APPARELRETAIL FURNITUREMICROLENDERSPERSONAL LOANCREDIT CARDOTHER*22%RETAIL GENERAL7%6%20%20042008200614%20104%YR 1ST CREDIT PRODUCT OPENEDGOT A MORTGAGE WITHIN 5 YEARSOf thin file clients how many are in arrears on one or more accounts?27NUMBER OF BORROWERS(millions)PROPORTION OF BORROWERS STILL ACTIVE* AS AT JULY 2013PROPORTION OF ACTIVE BORROWERS IN ARREARS** AS AT JULY 2013COHORT ANALYSISSource: XDS data. Note: This is run off of a 1 in 50 sample* Borrowers who have an account is one that has not been closed or has been written off, handed over, lapsed, revoked, repossessed, surrendered, disputed in the last two years** Arrears on at least one account20102011201220102011201227Before we start wrapping up, another short commercial break (not from a sponsor)28African Bank Radio Advert (November 2009)Yes is a powerful word! It can set you on a road to a university degree, launch your career and make your dreams come true! At African Bank yes is one of our favourite words, perhaps thats why we say yes more often than others! So if you are considering credit you should ask African Bank. If you say yes to us it is more likely well say yes to you.

African Bank, the bank that said YES more often Credit journeys reflect realities in the labour market. If there is no real growth in incomes, borrowers will find it difficult to migrate out of a high cost product suite into secured credit29PermanentPermanent with paid leave and pensionPermanent with paid leave , pension and medical313 000164 00010.2 mPUBLIC FORMALDOMESTICINFORMALUNEMPLOYEDDISCOURAGEDSource: LFS 2014 Q22.4 m

2.0 m5.2 m2.6 m1.3 m2.5 mPermanent with paid leave

PRIVATE FORMAL8.8 m

5.5 m

2.0 m4.9 m

1.9 m3.7 m1.8m1.9 mSo what should be done?30

ABIL Reviewed annual results Ifor the financial year ended 30 September 2013A couple of issues to think about31Data and definitions these actually matterMonitoring and reporting on access and performance (data access)Labour market and credit market linkagesRetailers: uncles and aunts play a critical roleMoney flows towards most accessible usesFinancial sustainability can co-exist with socially unsustainable credit Watch TV very carefully