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Nedbank Group - Third Quarter 2012 Trading Update
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
('Nedbank Group' or 'the group')
NEDBANK GROUP – THIRD QUARTER 2012 TRADING UPDATE
“Against the background of a slowdown in global economic growth and an
increasingly challenging economic environment in South Africa, Nedbank has
continued to focus on delivering on its key strategic focus areas.
Our balance sheet remains well capitalised and liquid, and we are delivering
sustainable value to all our stakeholders comprising staff, clients, shareholders,
regulators and communities. In this regard we fully support initiatives to ensure
responsible lending by all service providers in the unsecured lending market.
Importantly, the group is still on track to achieve its earnings growth target in 2012,
notwithstanding the more challenging economic environment”.
Mike Brown
Chief Executive
OPERATING ENVIRONMENT
The global economic slowdown continued into the third quarter of 2012 with the
Eurozone facing significant economic challenges. Furthermore, most emerging
markets, including South Africa (SA), experienced slower growth as exports came
under pressure.
Domestically, the unexpected 50 basis point reduction in interest rates in July 2012
provided some relief to consumers, although private sector credit demand remained
low. Fixed investment continues to be delayed in light of worsening economic
prospects and uncertainty, further exacerbated by the strikes taking place across a 1
number of vital sectors of the SA economy. The downgrade of SA’s sovereign debt
ratings and the foreign currency deposit ratings of the five largest SA banks by credit
rating agencies, Moody’s Investor Services and Standard & Poor’s, highlighted the
growing concerns around the deteriorating macro environment in SA.
OPERATIONAL PERFORMANCE
Net interest income for the nine months ended 30 September 2012 (“the period”)
grew by 9,2% to R14 523m (Q3 2011: R13 299m). The net interest margin of 3,50%
(Q3 2011: 3,45%) improved as a result of continued benefits from mix change
towards higher yielding assets and improved risk-adjusted pricing. This was partly
offset by the cost of enhancing the group’s liquidity profile in line with the impending
requirements of Basel III and the effect of lower endowment income from the
reduction in interest rates in July.
Ongoing improvements in the level of impairments contributed to the lower credit loss
ratio of 1,03% (Q3 2011: 1,13%). The group continues with regular reviews of all
industry sectors, including mining, and remains satisfied with the mix, performance
and levels of impairments on these portfolios.
Non-Interest Revenue increased by 13,9% to R12 403m (Q3 2011: R10 885m). The
increase was largely driven by growth in fee and commission income of 12,7%,
insurance income of 27,1% and trading income of 28,3%. Negative fair value
adjustments of R228m (Q3 2011: R12m profit) were recorded in the hedged
portfolios.
Total advances grew 6,8% (annualised on December 2011) to R521bn. Excluding
trading advances, banking advances growth was 3,4%. Deposits increased 8,6%
(annualised) to R555bn as the group maintained a strong focus on building and
enhancing its deposit base.
On 1 August 2012 the group obtained approval from the South African Reserve Bank
(SARB) to include the MFC vehicle financing book in the use of its existing Advanced
Internal Ratings based credit approach. This along with good earnings growth, partly
offset by the distribution of the interim dividend in September 2012, contributed to an
improved Core Tier 1 ratio of 10,7%.
Q3 2012 Jun 2012 Internal target Regulatory
ratio ratio range minimum
(Basel II.5) (Basel II.5) (Basel II) (Basel II)
Core Tier 1 ratio 10,7% 10,6% 7,5% to 9,0% 5,25%
Tier 1 ratio 12,2% 12,1% 8,5% to 10,0% 7,00%
Total capital ratio 14,3% 14,4% 11,5% to 13,0% 9,50%
Ratios calculated including unappropriated profits
The SARB issued a guidance note on the prescribed Basel III minimum required
capital levels for SA banks on 15 October 2012. The group remains in a strong
position to meet the new capital requirements and will communicate its revised
internal target capital ratios incorporating the new Basel III capital levels to the
market at the release of the 2012 annual results.
PROSPECTS
The SA economy is slowing as reflected in the group’s revised gross domestic
product (GDP) growth forecast for 2012 of 2,5%. Interest rates are currently
anticipated to remain unchanged for the remainder of 2012, but further economic
weakness either globally or domestically could increase the probability of further rate
cuts.
Given the prevailing economic slowdown and uncertainty combined with the effects
of wage related strike actions, the group remains cautious on its outlook. However,
the strength of the Nedbank franchise together with the momentum built in the first
nine months of the year allows the group to re-affirm its previous financial guidance
to achieve its medium-to-long-term diluted headline earning per share growth target
(being, greater than or equal to GDP plus consumer price index plus 5%) in 2012.
Shareholders are advised that these forecasts and the figures stated in this trading
update have not been reviewed or reported on by the group’s auditors.
FORWARD-LOOKING STATEMENT
This announcement contains certain forward-looking statements with respect to the
financial condition and results of operations of Nedbank Group and its group
companies, which by their nature involve risk and uncertainty because they relate to
events and depend on circumstances that may occur in the future. Factors that could
cause actual results to differ materially from those in the forward-looking statements
include, but are not limited to, global, national and regional economic conditions,
levels of securities markets, interest rates, credit or other risks of lending and
investment activities, together with competitive and regulatory factors.
Sandton
29 October 2012
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
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