Presentation to The Gordon Institute of Business Science Creating and Developing The New Organisation Simon Stockley 11 March 2005

South African Mortgage Market Overview Sophisticated mature – R300billion Dichotomous Dominated by Big 4 Banks Sound legal structure – title & foreclosure Wide margins – no real competition No non bank lending Banks “cash rich” – no shortage of capital Credit data good

The SA Mortgage Market The rate of growth of the SA Home Loans book has been exponential On a monthly basis SA Home Loans now originates up to R1billion in new mortgages This represents approximately 15% of monthly originations

What is SA Home Loans? The first South African company to discount home loans on a national basis The first South African company to fund its loan book through the internationally recognised practice of “securitisation The first South African company to operate with a transparent pricing policy with regards to home loans

What is SA Home Loans? It is a management organisation that links institutional investors with borrowers The company is owned by Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank) and Management

SA Home Loans Activities since launch: February 1999 : R20billion : R1.1billion (December 2002) Number of clients: Monthly increase in clients: Value of loans approved Securitised Portfolio Thekwini Fund I: R1.25billion (December 2001) Thekwini Fund 2 Thekwini Fund 5: RR3billion (February 2005) Thekwini Fund 3 : R2billion (December 2003) Thekwini Fund 4 : R2.5billion (July 2004)) Single Seller Conduit Programme: R15billion (launch July 2005)

Why No Securitisation prior to December 2001? Big is best Rating agencies Exposure to international markets Legal framework not securitisation friendly Little incentive for banks to securitise No ability to reinsure first loss position

S A Home Loans The product Its positioning Funding

20 year, variable rate, reducing term mortgage No prepayment or redemption penalties Discounted legal and administrative switch fees No ongoing administrative charges Re-advance facility/access bond Fixed margin above cost of money Switch re-finance proposition The Product

Thekwini 4 Summary Size of Issue : R2,500,000,000 Originator and Servicer : SA Home Loans (Pty) Ltd Standby Servicer : Standard Bank of SA (Home Loan Division) Arranger & Bookrunner : Standard Bank of SA (Corporate & Investment Banking) Substitution Period : 2.5 years Final Legal Maturity : 21 Nov 2029 Call Date : 21 Nov 2009 Listing : BESA Class A1 R 1,585 m JIBAR % Class B – R 115 m JIBAR % Additional Capital [0.5]% Class A2 - R 643 m JIBAR % Class A3 – R 107 m 10.34% % Class C – R 50 m JIBAR % Tranching Capital [0.6]% BBB Rating AAA A Not rated WAL 5 yrs 4.18 to 5 yrs In brief

Growth in SA Securitisation Market Public Issuance Deal List SA Home Loans launched the securitisation market in 2001 Since then issuance volumes have grow to R 14 billion in 2003 Source: Standard Bank

Investor support to date…

Securitisation – Cost of Funds History

What We Got Right! Got to profitability! Timing Copied unashamedly! Had a documented business plan … and stuck to it Kept it simple Successful launch … the power of PR! Advertised … built a brand and a culture consistent with that proposition Established and owned the “category” continued …

What We Got Right! (continued …) Adopted and maintained a consistent “position” … anti bank … consumers’ champion Focus … single product offering until profitability Invested in systems and technology Paid well … incentivised greatly … not just financially! Chose our location well (accidentally?) Planned the Exit/Succession! Finally … had fun!

What We Got Wrong! Undersold ourselves … entrepreneurs are a scarce resource! Did not retain sufficient equity for a subsequent dilution Did not focus on team dynamics Under-estimated the distraction of intra- shareholder relations Should have divisionalised Built a second tier representative management team … sooner Timing!

Thank You Simon Stockley