Shareholders

OUTLOOK, TARGETS AND PROSPECTS

The domestic economy is expected to continue slowing in 2009, with gross domestic product (GDP) growth currently forecast by the group at 0,4%. The global financial crisis and resultant recessionary conditions will place more pressure on an already slowing domestic economy. Weaker international trade, lower commodity prices and continued volatility on major financial markets are expected to restrict corporate activity. Consumer finances are likely to remain strained as a result of continued pressure on disposable income, falling asset prices, increasing unemployment and the weaker rand. Lower economic activity is also placing increasing strain on corporates.

Further interest rate cuts are anticipated during the course of 2009. The benefits of these would be expected to impact positively on the South African banking environment only in 12 to 18 months’ time. In the short term the decrease in interest rates will have a negative endowment effect on banking interest margins, while impairments are likely to continue to deteriorate. The reversal of the higher impairment trend typically takes longer to be reflected in earnings.

Taking into account the current economic environment and the group’s interest rate expectations, the group has revised its medium- to long-term financial targets and set shortterm objectives for the 2009 financial year. The economic environment remains uncertain and this, together with heightened market volatility, ongoing global uncertainty and the potential for an extended global recession, increases forecast risk. This short-term outlook for 2009 is management’s current best estimates for the year ahead and assumes a reduction of 227 basis points in the average prime rate.

						2009
	Metric	2008		Old	Revised	Outlook
	ROE (excl goodwill)	20,1%		10% above monthly	5% above monthly	> 15%
				weighted COE	weighted COE
	Efficiency ratio	51,1%		< 55%	< 50%	< 53%
	Diluted HEPS growth	(1,7%)		≥ CPIX + GDP growth + 5%		±10% down
	Credit loss ratio	1,17%		0,55% – 0,85%		< 1,30%
	Core Tier 1 CAR	8,2%			7,5% – 9,0%	Towards top end of ranges
	Tier 1 CAR	9,6%		8,0% – 9,0%	8,5% – 10,0%
	Total CAR	12,4%		11,0% – 12,0%	11,5% – 13,0%
	Economic capital			99,9% confidence – A- debt rating (including 10% buffer)
	Dividend cover	2,29		2,25 to 2,75 times