Nedbank boosts profit in ‘tough year’

Nedbank Group has posted 12.6% increase in diluted headline earnings per share (831c), substantially lower than the 23% growth achieved in 2012.

Graham Dempster, Nedbank’s Chief Operating Officer, described the result as a solid performance in a tough year. A highlight for the group was the 15.4% growth in non-interest revenue to R9,5bn.

Client numbers are above 6.4m and Nedbank believes it can continue to grow at the current momentum.

“The entire strategy of the bank is driven by this, with one of our four key strategic areas to grow non-interest revenue (NIR), of which a proxy is the number of primary bank clients,” he said. Dempster said the strategy remains to continue to invest in the franchise. Since 2009, he says, the bank has increased its outlets by 46% and ATMs by 81%.

Hoping to draw even more clients, across all of the market segments, Dempster said that Nedbank will improve distribution (planning a further R1.6bn investment in this over the next few years), look at relevant value propositions for its clients and increase the number of employees.

He credited the bank’s latest, innovative product offerings, including its Pocket POS and the Nedbank App Suite, as factors in helping client growth. In the retail segment, client numbers grew 10%, in business banking 37% (although this is a smaller number that was added – 914 new clients).

Dempster admits that the performance is somewhat muted by the uptick in the credit-loss ratio from 1.11% to 1.31%.

“In this six month period we have adopted more conservative provisioning policies, particularly in personal loans. So if you compare this half to the first half of last year, you are looking at different methodologies,” he said.

According to Raisibe Morathi, Chief Financial Officer, there is clear evidence of consumer stress already showing from 2012. “This is precisely what got us to tighten our provision methodology. In the unsecured portfolios defaults are showing signs of stress. We are, however, very pleased that defaults in the home loans portfolio is showing signs of improvement,” she said.

The capital, business and retail cluster credit-loss ratios are above the range set by the group, also pushing the group’s credit loss ratio to 1.31%, above the band of 0.60% and 1% posed as the ideal range. Morathi believed the ratio would improve, but the group expected it to remain above 1% for the rest of the year.

Nedbank has clinched a “strategic business cooperation agreement” with the Bank of China to grow business flows between the People’s Republic of China and Africa.

In terms of the credit-loss ratio, Nedbank had to absorb a specific provision of R182m to cover exposure to liquidated First Strut in its business division.

Reuters reports the group expects to exercise its right to take a 20% stake in Nigeria’s Ecobank as early as November, which will give it access to dozens of other African countries.

Dempster said that Nedbank was taking the R182m provision as the initial indication that there won’t be a lot of value to be derived from the R240m asset-backed loan it provided to First Strut, the engineering firm under liquidation proceedings. “Therefore the credit loss ratio for the business division will be above the range, but we believe that it will revert back to within the range, all other things being equal,” he said.

Nedbank’s share price rose to R10.27 before settling at R10.24, just one cent above its opening price on the day.




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