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Old Mutual’s bank will launch this year – Williamson

The boss of South Africa’s second-biggest insurer, Old Mutual, says the group is well on track to launch its new bank later this year with a “compelling value proposition” that will set it apart from existing players in the market.

Speaking at the group’s full-year results presentation on Wednesday for the year ended 31 December 2023, Old Mutual group CEO Iain Williamson said the insurer is well aware that it is entering a very competitive space.  However, he stressed that the group is doing so with eyes open.

“The proof is in the pudding, yes, but watch this space,” he declared.

Once operational, Old Mutual will join the ranks of Discovery Bank, TymeBank, and Bank Zero – all of which have entered South Africa’s burgeoning banking sector in recent years. They are all vying to also steal market share from the big traditional banking giants such as Standard Bank, FNB, Nedbank and Absa.

Old Mutual applied for a banking licence in 2022. It had interests in the banking industry some years ago when it owned a majority interest in Nedbank from 1986 until 2018.

“There are still several regulatory matters that need to be finalised before the new bank can start transacting,” noted Williamson.

“We completed the build of the core bank infrastructure at the end of last year within our budget of R1.75 billion.”

The regulatory authorities have confirmed that Old Mutual’s application for an additional banking licence is under consideration. After the next round of approvals, the group will need to integrate the bank into all the payment clearing houses within the Payment Association of South Africa (Pasa), which is expected to be a three-month process, Williamson noted.

“Eventually we will be allowed to utilise a small group of pilot customers and if everything works we can launch to the public,” he said.

Commenting on the results, Barry de Kock, equity analyst at Denker Capital, said the launching of a banking division is part of Old Mutual’s strategy to provide a holistic offering across all financial services. “So, building a bank is going to unlock new growth opportunities, but it also brings risk. We’ve seen many examples globally where companies that tend to go outside their normal operations find it to be more challenging than expected. The South African banking environmnet is already saturated. Ideally, as investors, we’d prefer Old Mutual to stick to insurance, their core competency.”

On Wednesday, Old Mutual’s latest published financial results showed an headline earnings per share jump of 28% for FY2023.

The group declared a final dividend of 49 cents per share, with total dividends for 2023 amounting to 81 cents per share – an increase of 7% from the prior year. Its profit after tax for the year under review was R7.6 billion, compared to R5.7 billion in the previous corresponding period. Results from operations increased by 14%, while the insurer also recorded double-digit growth in sales of 17% across all its business segments.

The value of new business was up 37%, while gross flows and gross premiums grew by 14%. Its return on net asset value improved by 170 basis points from 2022 to 11.1%.

De Kock said it was a good set of results, but there is concern that Old Mutual’s return on asset value at 11.1% remains low compared to industry peers.

In the second half of 2023, Old Mutual concluded a share buyback of R1.5 billion, reflecting its focus on optimising capital allocation to enhance returns to shareholders, the group said in a statement.

Old Mutual’s active digital users across the Life and Savings businesses reached 1.4 million, up 17% from 2022. Direct and digital distribution channels, such as the Pineapple (insurance) partnership, are key to its strategy as Old Mutual seeks to ensure accessibility through channels that are convenient to its customers, it noted.

Over the past year, Old Mutual invested R30.7 billion in renewable energy, up from R26.7 billion in 2022.

The insurer said it funded 39% (2.6 Gigawatts) of South Africa’s total renewable energy capacity in 2022.

Williamson said renewable energy investments, as well as investments in water infrastructure, are being done through Old Mutual’s private markets business – a unit specifically set up for investments in assets that are not listed.

Investments in this sphere include wind farms, solar energy infrastructure, and toll roads.

“Many of our policyholder liabilities have long-dated profiles, so we can afford to invest in fairly illiquid opportunities, as long as the economics makes sense,” he added.

By midday on Wednesday, the group’s share price traded around 3% up, at R11.75 a share. –