Old Mutual prepares to shake up banking sector with new bank

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Old Mutual is gearing up to make waves in the banking sector with the launch of its new bank “by the end of this year”.

South Africa’s second-largest insurer applied for a banking licence in 2022. Last week, when the group presented its 2023 results, chief executive Iain Williamson said Old Mutual completed building the bank’s core functionality at the end of last year, “within budget and on time – it cost us R1.75 billion to stand up the capability”.

Williamson told News24 that the board had approved a further R800 million in funding from now until this end of the year, “to keep the team in place, to do all the work we need to do on the testing side, to develop all the marketing material”.

Old Mutual joined forces with London-based 10x Banking, established by former Barclays chief executive Antony Jenkins in 2016, to drive the operational framework of its upcoming banking system.

An important step is getting an external audit firm to confirm the system’s readiness for banking operations, a requirement for regulatory approval. Williamson told BusinessLive that this process has been completed successfully, with regulators acknowledging Old Mutual’s application for a conditional banking licence.

Old Mutual’s submission for the bank’s construction, known as a section 16 submission, was finalised and sent in early 2024, and is pending approval by the Prudential Authority.

Following further approvals, the group will integrate the bank into South Africa’s Payment Association, a process expected to take about three months.

Williamson told BusinessLive that, once next round of approval is received, Old Mutual is required by regulation to integrate the bank into all the payment clearing houses.

Thereafter, a small pilot group of customers will be invited to test the system using cards, point of sale machines, and ATMs to ensure everything runs smoothly. Once these tests are successful, the public launch is anticipated to occur before the end of the year.

After becoming operational, the bank’s primary focus will be on the mass market segment.

Old Mutual’s Mass and Foundation business division caters to individuals with low-to-lower-middle incomes, typically earning between R1 000 and R30 000 a month.

Williamson Old Mutual is banking on the brand loyalty of its 3.1 million customers in the Mass and Foundation cluster to draw in new clients for the bank’s services.

Financial performance in 2023

According to Old Mutual’s 2023 annual results, the group’s profit after tax was R7.6bn, compared to R5.7bn in the previous corresponding period.

The results show double-digit sales growth of 17% across life segments to R14.6bn. Value of new business grew by 37% to R1.9bn, with gross flows and gross written premiums increasing by 14% to R25.5bn, driven by new sales and good client retention.

Results from operations increased by 14% driven by strong sales growth in operational performance in the Old Mutual Africa Regions, the Mass and Foundation Cluster, and Old Mutual Corporate.

Old Mutual paid out more than R14bn in claims for the financial year to the end of December 2023.

In the South African entry-level market, underwritten life sales, available through Old Mutual Protect, supported growth in the Mass and Foundation Cluster. Underwritten sales were up 14%, and risk sales rose 26%.

In the Personal Finance and Wealth Management segment, life sales increased by 15%, driven largely by guaranteed annuities, which were up 57%. The recently launched Private Clients by Old Mutual Wealth saw a 30% increase in assets under management (AUM).

Old Mutual Investments’ AUM grew by 8% to R839bn, while gross flows increased by 3% to R32.8bn.

In Old Mutual Corporate, life sales jumped 68%, driven by single- and recuring-premium savings products.

Old Mutual delivered an uplift in return on net asset value, which improved by 170 basis points from 2022 to 11.1%.

Barry de Kock, an equity analyst at Denker Capital, told Moneyweb that although it was a good set of results, there was a concern that Old Mutual’s return on asset value at 11.1% remains low compared to its industry peers.

Old Mutual declared a final dividend of 49 cents per share, amounting to dividend cover of 1.5 times, with total dividends declared in 2023 at 81 cents per share, up 7% from the prior year.

In the second half of 2023, Old Mutual concluded a R1.5bn share buy-back, which the group said reflected “its focus on optimising capital allocation to enhance returns to shareholders”.