Salient features
- Headline earnings increased by 148% to R5,3bn.
- Strongly capitalised, with ratios above internal targets and significantly above regulatory requirements, CET1 ratio of 12,2% (Dec 2020: 10,9%) and a tier 1 ratio of 13,6% (Dec 2020: 12,1%).
- Interim dividend declared of 433 cents per share.
JOHANNESBURG, 11 August 2021 – Nedbank Group delivered a strong financial performance for the six months to 30 June 2021 as headline earnings increased by 148% to R5,3bn off the low base in 2020, but remain 24% below H1 2019 levels. Significantly lower impairments, higher net interest margin and disciplined expense management boosted headline earnings. Underlying non-interest revenue growth was strong thanks to higher levels of client activity and improved insurance income, however this growth was negatively impacted by a high H1 2020 trading revenue base and an unwind of prior-year fair-value gains.
Nedbank CE Mike Brown said the group’s performance in the first half of 2021 reflects a strong financial recovery off a low base. “Operating conditions in the first half of 2021 were better than we had expected at the start of the year helped by improved commodity prices. This was evident in upward revisions to SA GDP growth, vaccine rollouts gathering pace and positive developments on key reforms. A 53-year low in interest rates supported robust demand for retail credit while transactional activity increased off a low base and benefited from ongoing strong digital growth. Against this progress, demand for corporate loans remained muted and excess cash was used to repay debt, particularly in the commodity sector.”
During the period under review, the group’s key balance sheet resilience metrics all strengthened to above pre-crisis levels. Capital and liquidity ratios increased as reflected in the group’s tier 1 capital ratio of 13,6% (Dec 2020: 12,1%), CET1 ratio of 12,2% (Dec 2020: 10,9%), and average second-quarter LCR of 131% (Dec 2020: 126%).
On the back of the performance in the first half and strong capital and liquidity positions, Nedbank declared an interim dividend of 433 cents per share.
“We remain well prepared to manage risks associated with the impact of the third wave of Covid-19 infections, which appears to have passed its peak, and helping our clients deal with any further waves as well as the impact of recent civil unrest and looting in parts of SA,” Brown said.
During the first week of unrest, 226 branches (52% of total branches) and 60 Boxer outlets (55% of outlets) were closed, and in total 55 (10% of total branches and outlets) of these were vandalised. In addition, 325 ATMs (8% of total ATMs) were vandalised. At the end of July, 29 branches and 23 Boxer stores were damaged and remain closed. All damages to Nedbank premises and equipment, currently estimated at R250m to R300m, are fully recoverable under Sasria (government’s unrest insurance cover) with zero excess. “Our primary focus during the unrest and looting was to ensure the safety and security of our employees and clients. We are grateful that there were no related injuries or casualties. These developments are a stark reminder of the importance of accelerating structural economic reforms to deliver higher levels of sustainable economic growth to address the challenges of poverty, unemployment and inequality. Law and order and the protection of citizens’ assets are the foundation for investment and economic growth, and it will be vital for government to provide suitable explanations as to what happened, why it happened and assurances that this will not be allowed to happen again,” Brown said, “and those responsible must be speedily held to account.”
Strategic progress
Nedbank’s “Reimagine” strategy, finalised as part of business planning in 2020, gives us a clear view on where we want to focus as a purpose-led organisation and what we need to do to meet our end 2023 targets. Our strategy is delivered through five value unlocks that include: delivering innovative market leading client solutions, ongoing disruptive market activities (underpinned by digital leadership), focusing on areas that create value, driving efficient execution (including Target Operating Model 2.0) and creating positive impacts. Key highlights in the six months to 30 June 2021 include:
- Our “Managed Evolution” technology transformation programme has reached 81% completion with most foundational IT programmes either complete or nearing completion. The rationalisation, standardisation and simplification of our core banking systems is enabling reduced infrastructure, support and maintenance costs, less complexity and increased agility in adopting new innovations.
- Our simplified digital client onboarding platform for individual and juristic (business) clients continues to mature and expand, enabling clients to open FICA-compliant accounts remotely through our employee-assisted and self-service channels. The processing of product sales to individuals now includes our top six retail products after the implementation of home loans (minimal viable product). Other products already on the platform include transactional products, personal loans, card issuing, investments and overdrafts. We have also delivered key Wealth products such as unit trusts and retirement annuities.
- We launched Apple Pay, which allows clients to make cashless, contactless payments using an Apple device. We also launched Money Message, an innovative solution that allows clients to make or receive payments through WhatsApp. Our digital initiatives helped us to increase the number of retail digitally active clients in SA by 27% year on year to 2,35m (H1 2020: 1,85m). This now represents 61% of main-banked clients (H1 2020: 55%).
- Over the past 12 months we increased market share in key advances categories, including personal loans (11,6% market share), household overdrafts (8,6% market share) and card issuing (12,5% market share). We also increased our share in vehicle finance (36,6% market share) where we are leveraging our market-leading position and unique business model that is skewed to financing used and lower-value vehicles.
- Main-banked clients in retail grew by 2% to around 3 million and cross sell on new sales was 1,9 (compared to 1,4 in 2020). CIB gained 18 new primary clients in the period. In NAR total clients increased by 14% to 369 000 of which 190 000 are main-banked clients.
Outlook
SA’s economic recovery remains threatened by new waves and variants of Covid-19 infections, and more recently and unexpectedly, by the violent unrest and looting in parts of the country in July 2021.
“Accelerated structural reforms remain the key to unlocking faster economic growth and job creation over the medium to longer term. There have been some encouraging developments on this front, including the concession made to allow 100 MW of embedded generation and evidence of greater resolve to eradicate corruption.”
“The surge in unemployment and poverty caused by a long period of weak economic growth and amplified by the pandemic lockdowns and factional political battles all contributed to the protests in July. Sadly, the destruction of infrastructure and businesses will discourage investment and trigger more job losses, aggravating poverty and social tensions even further and the cost of the damages to property will largely be borne by taxpayers through Sasria, the state monopoly for riot insurance. Within this context, downside risks to the economic outlook remain,” Brown said.
Forecasting remains difficult in a volatile environment, but we currently expect the country’s GDP to increase by 4,2% in 2021 having reduced from our previous expectation of 5%, taking into account the estimated 0,4% negative impact of recent civil unrest and looting in addition to the negative 0,4% impact from the move to adjusted level 4 lockdown.
Given progress on our strategy and the strong growth in HEPS and EPS in H1 2021, our current guidance on financial performance for the full-year 2021 is to grow HEPS and EPS by more than 20%. For a detailed breakdown of business unit performance, please refer to SENS announcement and analyst booklet.
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