NEDBANK GROUP LIMITED - Nedbank Group First Quarter 2014 Trading Update

Nedbank Group – First Quarter 2014 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 – FIRST QUARTER 2014 TRADING UPDATE
                                                           
“Globally the first quarter of the year was marked by macro-economic concerns in
many emerging markets. In South Africa, the economy was impacted by protracted
and ongoing strikes in the platinum mining sector. The weaker rand and increasing
inflationary pressures resulted in a 50 basis point increase in interest rates in
January.

Against these headwinds, we continue to make good progress in our strategic focus
areas. Net interest income growth at 8,7% was solid, and although total non-interest
revenue growth was only 2,7%, commission and fees were up 6,1%. We have seen a
pleasing improvement in the credit loss ratio following the risk management actions
undertaken in prior years.

Our financial guidance for 2014, including for organic growth in diluted headline
earnings per share to be greater than the growth in nominal GDP, remains
unchanged”.

Mike Brown
Chief Executive

OPERATIONAL PERFORMANCE
Net interest income for the three months ended 31 March 2014 (“the period”)
increased 8,7% to R5 566m (Q1 2013: R5 121m) with average interest-earning
banking assets growth of 10,4% (Q1 2013: growth: 5,9%). The net interest margin
remained at the same level as the 2013 full year at 3,57% (Q1 2013: 3,62%).


The credit loss ratio of 0,89% improved more than expected from 1,22% for the
comparative 2013 period and from 1,06% at December 2013. These improvements
reflect the quality of the advances portfolio and the more conservative credit lending
policies implemented in the second half of 2012. There were no large wholesale
defaults and retail impairments improved during the period.


Non-Interest Revenue (NIR) increased 2,7% to R4 505m (Q1 2013: R4 385m) with:
 -Commission and fees income increasing 6,1% through net client acquisitions and
  cross sell. Overall, growth rates were impacted by reduced personal loans
  volumes, the decision taken to not increase transactional banking fees in 2014 to
  facilitate increased long term client growth and lower levels of general
  transactional activity in the consumer and small business sector;
  
 -Strong trading income growth of 17,8% driven largely by client flows;
 
 -Insurance income decreasing 0,3% following higher levels of short-term claims
  ratios, slower growth in personal loans volumes and the impact of the lower priced
  credit life product introduced in July 2013;
  
 -Private equity income decreasing by R27m from R23m in the comparative period
  to a loss of R4m due to lower market revaluations of investments held in Nedbank
  Corporate Property Finance; and
  
 -Negative fair value adjustments of R76m from a gain of R24m in the comparative
  period to a loss of R52m following lower fair value movements in our hedged
  portfolios.

Total advances grew 14,9% (annualised) to R601bn. Excluding volatile foreign client
lending, advances growth was 11,2% (annualised). Deposits increased 9,8%
(annualised) to R618bn with strong growth in call, term and cash management
deposits. Assets under management increased 17,5% (annualised) to R198,6bn.

Our common equity tier 1 ratio was maintained at 12,5%, the same level as the 2013
full year. Our tier 1 and total capital ratios decreased slightly to 13,5% and 14,9%,
respectively (2013: Tier 1 ratio of 13,6% and Total ratio of 15,7%) following increased
Basel III transitional requirements in respect of the grandfathering of tier 1 and tier 2
instruments increasing from 10% to 20% and the redemption of R1,7bn of old style
Basel II compliant tier 2 debt instruments in February 2014. In April 2014, we issued
R2,1bn of Basel III compliant tier 2 debt instruments which is anticipated to
favourably impact the group’s total capital ratios.


The capital ratios are as follows:
 Nedbank                  Q1 2014         December     Internal target       Regulatory
 Group                                        2013          range              minimum*
 (Basel III)
 Common-equity              12,5%            12,5%      10,5% – 12,5%             5,5%
 tier 1 ratio
 Tier 1 ratio               13,5%            13,6%      11,5% – 13,0%             7,0%
 Total capital              14,9%            15,7%      14,0% – 15,0%            10,0%
 ratio
(Ratios include unappropriated profits.)
* The Basel III regulatory minima are being phased in between 2013 and 2019, and
  exclude Pillar 2B add-ons.


PROGRESS ON BANCO UNICO TRANSACTION
We continue to make steady progress on the acquisition of our initial shareholding of
36,4% of Banco Unico. To date, regulatory approvals have been received from the
Mozambican and South African Banking regulators as well as from the Mozambican
Investment Ministry and the South African Exchange Control division of the South
African Reserve Bank. The administrative process is being finalised and financial
closure of the transaction is expected to take place in June 2014.

PROSPECTS
The economic outlook for the balance of the year remains challenging. The group
currently anticipates interest rates to increase by a further 50 basis points and that
gross domestic product (GDP) will grow by 2,5% in 2014.

Our financial guidance for 2014, as communicated at the 2013 Annual Results
presentation, including for organic growth in diluted headline earnings per share to be
greater than the growth in nominal GDP, remains unchanged.

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
13 May 2014

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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