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Nedbank Group Limited Interim Results 2014
OLD MUTUAL PLC
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
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Ref 158/14
5 August 2014
NEDBANK GROUP LIMITED INTERIM RESULTS 2014
Nedbank Group Limited ("Nedbank Group"), the majority-owned South African banking subsidiary of Old Mutual plc,
released its interim results for the six months ended 30 June 2014 today, 5 August 2014.
The following is the full text of Nedbank Group's announcement:
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014
- Headline earnings increased 17,5% to R4 599m(1)
- Diluted headline earnings per share up 16,1% to 965 cents(1)
- Growth in tangible net asset value per share of 8,0%(1) (annualised)
- Return on equity (excluding goodwill) increased to 16,5%
- Common-equity tier 1 ratio at 12,1%
- Interim dividend per share up 17,9% to 460 cents
'In a deteriorating economic environment the outcomes arising from our
strategic choices enabled Nedbank to produce strong growth in diluted
headline earnings per share for the six months to June.
This performance was underpinned by net interest income growth of 9,3% and
our focus on selective asset origination and excellent risk management
enabled the credit loss ratio to improve from a high base in the prior period to
83 basis points. In line with our commitment to sustainable banking practices,
we maintained our transactional banking fees at 2013 levels, proactively
reduced our personal-loans book size and associated credit life pricing with
improved benefits. These actions together with lower transactional activity in
an environment of low GDP growth, and a high 2013 base, gave rise to lower
levels of non-interest revenue.
Following this strong growth in diluted headline earnings per share in the first
half of 2014, in a volatile and slowing economic environment our full-year
guidance for growth in organic diluted headline earnings per share of greater
than the growth in nominal GDP remains unchanged.'
Mike Brown
Chief Executive
Banking and economic environment
Globally economic conditions in many developed countries improved in the
second quarter of the year, with monetary policy remaining generally
accommodative. In contrast, conditions in most emerging markets
deteriorated as concerns about fiscal and current account deficits increased.
Local economic conditions worsened as the strike in the platinum mining
industry, the longest in SA history, impacted confidence and undermined
production and spending. As a result, in the first quarter GDP contracted 0,6%,
contributing to Standard & Poor's downgrade of the country's investment
grade sovereign risk rating by one-notch to 'BBB-' and Fitch Ratings revising
the outlook from stable to negative.
The slowdown in household credit demand continued in the first half of 2014,
with industry levels of growth in personal loans, motor finance and
transactional banking activity all declining, although the demand for residential
mortgage finance continued to recover slowly.
In the wholesale sector the level of growth in loans to companies
strengthened as export opportunities started to improve, merger activity
increased and the rollout of renewable-energy infrastructure continued. The
increase could be adversely impacted in the second half of the year by the
new wave of strikes that have spread to other sectors.
Review of results
Headline earnings grew 17,5% to R4 599m (June 2013: R3 914m) for the six
months ended 30 June 2014 ('the period'), driven by good net interest income
(NII) growth and a substantial improvement in impairments.(1)
Diluted headline earnings per share (HEPS) increased 16,1% to 965 cents
(June 2013: 831 cents) and diluted earnings per share 16,3% to 965 cents
(June 2013: 830 cents).(1)
The group generated economic profit (EP) of R833m, up 11,2% (June 2013:
R749m), notwithstanding an increased cost of equity of 13,5% (June 2013:
13,0%). The return on average ordinary shareholders' equity (ROE), excluding
goodwill, increased to 16,5% (June 2013: 16,1%) and the ROE to 15,1%
(June 2013: 14,6%), driven by higher return on assets (ROA) to 1,22% (June
2013: 1,15%).
Nedbank Group remains well capitalised, with the Basel III common-equity tier
1 (CET1) ratio at 12,1% (December 2013: 12,5%). Funding and liquidity levels
remained sound, with statutory liquid assets and cash reserves, including the
surplus liquid-asset buffer of R26,4bn (December 2013: R28,0bn), increasing
to R70,1bn in June 2014 (December 2013: R69,7bn) in preparation for the
Basel III liquidity coverage ratio (LCR) transition period, which will come into
effect on 1 January 2015.
The net asset value per share continued to increase, growing 7,0%
(annualised) to 13 596 cents from 13 143 cents in December 2013.(1)
Delivering sustainably to all our stakeholders
Nedbank Group is committed to operating on a sustainable basis and
delivering to all our stakeholders as embodied in our vision to be Africa's most
admired bank by staff, clients, shareholders, regulators and communities:
For staff - creating 259 new employment opportunities in the frontline
businesses; investing R190m in training, with more than 2 400 staff
participating in learning academy programmes and 785 staff participating in
our Leading for Deep Green programme; supporting 125 external bursars
across 19 universities; improving staff transformation and continuing the
positive shift in corporate culture.
For clients - investing in client-centred innovation such as our new money
send product, Send-iMali™, rolling out 144 Intelligent Depositor devices as
well as a further 52 branches in the 'branch of the future' format, have resulted
in group client numbers increasing 8% to 6,9m since June 2013. Our progress
in innovation was acknowledged with Nedbank's receiving the 2014 African
Banker Award for Innovation. We advanced R86,1bn (June 2013: R83,0bn) of
new loans to clients and assets under management grew by 25,3% to
R209,5bn (June 2013: R167,2bn), and for the fifth consecutive year Nedgroup
Investments was placed third overall in the Domestic Management Company
category at the annual Raging Bull Awards.
For shareholders - increasing the interim dividend 17,9% ahead of 16,4%
growth in HEPS, and delivering EP of R833m, up 11,2%. We have generated
a total shareholder return (TSR) of 11,5% since December 2013. We remain
focused on our vision to be Africa's most admired bank through acquiring an
initial 36,4% stake (with a pathway to control) of Banco Unico in Mozambique,
and we have until 25 November to make a decision on our rights to acquire up
to 20% in Ecobank Transnational Incorporated (ETI).
For regulators - full compliance with Basel III phase-in requirements,
including maintaining strong capital levels with a CET1 ratio of 12,1% and an
average long-term funding ratio of 24,9%; making cash taxation payments of
R4,1bn relating to direct, indirect, PAYE and other taxation; maintaining
strong, transparent relationships with all regulators and continuing to support
responsible banking practices.
For communities - expanding our footprint and making banking more
accessible to all. Since 2010 we contributed R382m to socioeconomic
development, including R41m in the first half of 2014 in addition to supporting
the National Education Collaboration Trust, as well as sourcing 84% or
R3,9bn of our procurement locally. With the support of our BEE partners we
have maintained our level 2 broad-based black economic empowerment
contributor status for the fifth consecutive year. Clients invested more than
R6bn in our Retail Green Savings Bond, while we have seen good uptake of
our Carbon Footprinting Guide, with more than 54 000 downloads. In addition,
Nedbank has maintained carbon neutrality for five years and was awarded the
Socially Responsible Bank of the Year award at the 2014 African Banker
Awards.
Cluster financial performance
Our competitive client-facing franchises provide a well-diversified earnings
base and delivered an increased ROE of 19,6% (June 2013: 17,6%) and
headline earnings growth of 22,0%.
% Headline ROE
change earnings (%)
(Rm)
June June June June
2014 2013 2014 2013
Nedbank Capital 31,5 1 053 801 31,6 28,4
Nedbank Corporate 8,4 1 159 1 069 22,8 25,9
Nedbank Business Banking 46,7 512 349 19,5 15,2
Nedbank Retail 25,1 1 319 1 054 12,5 10,0
Nedbank Wealth 10,2 464 421 33,9 35,9
Business clusters 22,0 4 507 3 694 19,6 17,6
Centre, including Rest of Africa (58,2) 92 220
Total 17,5 4 599 3 914 15,1 14,6
Nedbank Capital's growth in earnings and ROE was driven by strong NII
growth and improvements in impairments mainly through recoveries on
accounts that have been fully provided for. Preprovisioning operating profit
growth was 6,6%.
The solid earnings growth in Nedbank Corporate was underpinned by
continued growth in commercial mortgage and corporate advances, and in
core transactional income. Impairments improved further as a result of good
risk management across the portfolio while expenses continue to be well
managed. Fair-value adjustments had a negative impact as, excluding fair-
value adjustments, headline earnings grew 25,2% to R1 173m (June 2013:
R937m).
Nedbank Business Banking reported a strong increase in headline earnings
and ROE following the normalisation of impairments from a large single-client
default in the comparative period. Preprovisioning operating profit was up
6,5%. Sustained momentum in new-client acquisition and retention, aided by
keeping transactional fees at 2013 levels and frontline effectiveness,
contributed to quality-advances payouts and good growth in liabilities and
current account creditors. This is notwithstanding the protracted challenges
facing the small- and medium-enterprise sector in SA.
Headline earnings in Nedbank Retail reflect the benefits of charting a new
strategic growth path in 2010 to reposition the franchise sustainably while
ensuring excellent risk management. Selective advances origination
strategies at higher margins, particularly in home loans and personal loans,
together with proactive risk mitigation in prior periods, led to the credit loss
ratio (CLR) improving to the lower end of the cluster's target range but also
muted NIR growth. The strengthening of our transactional banking franchise
continues as we consistently invest in our 'branch of the future' concept,
maintaining our transactional banking fees at 2013 levels, bringing to market a
lower-priced credit life product with improved benefits, and increasing our
levels of marketing spend. Operating income has grown by 12% with
preprovisioning operating profit decreasing by 6,6%.
Growth in Nedbank Wealth's headline earnings was driven by strong earnings
growth in Wealth Management and Asset Management, offset by a slowdown
in retail volumes, lower credit life pricing and higher weather-related short-
term insurance claims.
Headline earnings at the centre include, among others, fair-value movements
in the hedged portfolios that were negative and portfolio impairment provisions
for ongoing uncertainty of R225m (June 2013: R140m). The prior period
included R88m of reversals in insurance provisions that were not repeated.
Detailed segmental information is available in the results booklet and on the
group's website at nedbankgroup.co.za under the 'Financial information'
section.
Financial performance
Net interest income
NII grew 9,3% to R11 263m (June 2013: R10 309m), supported by growth in
average interest-earning banking assets of 10,2%.(1)
The net interest margin (NIM) narrowed to 3,55% (June 2013: 3,58%) as the
benefit of increased endowment income from the interest rate increase in
January was offset by asset and liability margin compression. The asset
margin compression was due to advances mix changes mainly relating to
lower-margin wholesale assets growing faster than retail assets, in particular
higher-margin personal loans, and pricing pressure experienced in the motor
finance and corporate property finance businesses. Liability margin
compression arose from higher levels of competition for Basel III-friendly
deposits.
Impairments charge on loans and advances
Impairments decreased 29,8% to R2 333m (June 2013: R3 325m) and the
CLR improved to 0,83% (June 2013: 1,31%), comprising a specific charge of
0,78% and a portfolio charge of 0,05% (June 2013: specific: 1,24% and
portfolio: 0,07%).
CLR (%) Jun Jun Dec
2014 2013 2013
Specific impairments 0,78 1,24 0,97
Portfolio impairments 0,05 0,07 0,09
Total CLR 0,83 1,31 1,06
CLRs across all the clusters were either close to, or better than, the lower end
of their respective through-the-cycle target ranges. A strong risk management
and collections focus resulted in improved impairments across the group. Our
collections processes generated postwriteoff recoveries of R422m (June 2013:
R412m), including personal-loan recoveries of R153m (June 2013: R130m).
The CLR also benefited from the mix change in assets, as personal loans,
which attract a higher level of impairments, now account for a smaller
proportion of the overall advances categories. This was further supported by
the lower CLR in Nedbank Capital, Corporate, Business Banking and Wealth.
CLR (%) % Jun Jun Dec Through-
banking 2014 2013 2013 the-cycle
advances target
ranges
Nedbank Capital 12,6 (0,04) 0,77 0,51 0,10 - 0,55
Nedbank Corporate 32,9 0,22 0,30 0,23 0,20 - 0,35
Nedbank Business Banking 11,5 0,44 1,02 0,65 0,55 - 0,75
Nedbank Retail 36,3 1,90 2,56 2,16 1,90 - 2,60
Nedbank Wealth 4,1 0,21 0,24 0,28 0,20 - 0,40
Group 0,83 1,31 1,06 0,80 - 1,20
Total group defaulted advances decreased by 13,7% to R17 409m (June
2013: R20 176m), with ongoing improvements in the residential mortgage and
personal-loans books, partly offset by an increase in MFC (vehicle finance).
The coverage ratio for total and specific impairments increased to 65,9%
(June 2013: 58,8%) and 42,7% (June 2013: 40,9%) respectively. Portfolio
coverage on the performing book was maintained at 0,7% (June 2013: 0,7%).
Non-interest revenue
Non-interest revenue (NIR) decreased to R9 480m (June 2013: R9 535m)(1) as
a result of fair-value movements together with the outcomes of our strategic
choices, the base effect of specific once-off items in the 2013 comparative
period and a general slowdown in client transactional activity in the
challenging consumer environment. Excluding movements in fair value, NIR
increased 0,8%.
In line with our commitment to sustainable banking practices, our strategic
decision to slow down personal-loan growth, reduce the pricing of our credit
life product with improved benefits, and maintain transactional fees at 2013
levels was the main driver of lower growth in commission and fee income of
2,9% to R6 970m (June 2013: R6 771m)(1) and insurance income decreasing
3,5% to R917m (June 2013: R950m). Insurance income was further impacted
by the increase in weather-related short-term insurance claims and a
slowdown in insurance sales in line with low growth in the retail advances
environment.
Growth in trading income was 1,3% to R1 293m (June 2013: R1 276m) off the
high 2013 base. Private-equity income increased to R145m (June 2013:
R59m), following strong performance in Nedbank Capital private equity and
mark-to-market revaluations of unlisted investments. Sundry income was 52,6%
lower at R173m (June 2013: R365m) as the comparative period included the
central insurance provision releases referred to above.
Expenses
Expenses grew 8,9% to R11 712m (June 2013: R10 750m)(1), reflecting
consistent investment in the bank's franchise, including the reformatting of the
retail branches, innovation to deliver efficiencies and optimise systems, and
increased marketing spend.
The underlying drivers include:
- Staff-related costs increasing 9,6%, consisting of -
- 7,1% growth in remuneration and other staff costs;
- the short-term incentive increasing 24,5%, mostly due to timing and a
lower level of accrual in the first half of 2013, and
- the long-term incentive increasing 13,7%;
- Computer processing and marketing costs up 17,0% and 14,5%
respectively.
Taxation(1)
The group's effective tax rate was maintained at 25,4% (June 2013: 25,9%)(1).
Statement of financial position
Capital
Nedbank Group remains well capitalised, with all capital adequacy ratios well
above the Basel III minimum regulatory capital requirements and within the
group's Basel III internal target ranges. The CET1 ratio of 12,1% increased
from 11,8% at June 2013, but decreased from 12,5% at December 2013
despite strong organic earnings growth due to relatively higher risk-weighted
assets. The increase was mostly due to an updated personal-loan loss-given-
default model, higher market risk arising from market volatility over the half-
year-end and other assets, mainly sundry debtors, which will revert to
normalised levels.
(Basel III) June June December Internal Regulatory
2014 2013 2013 target minimum*
range
CET1 ratio 12,1% 11,8% 12,5% 10,5% - 5,5%
12,5%
Tier 1 ratio 13,1% 13,0% 13,6 % 11,5% - 7,0%
13,0%
Total 15,0% 14,8% 15,7% 14,0% - 10,0%
capital 15,0%
ratio
(Ratios calculated include unappropriated profits.)
* The Basel III regulatory requirements are being phased in between 2013 and 2019 and
exclude the Pillar 2b add-on.
Our tier 1 and total capital ratios decreased slightly relative to our ratios at
December 2013 due to the grandfathering of old-style Basel II additional tier 1
and tier 2 instruments increasing from 10% to 20% in line with Basel III
transitional requirements and the redemption of R1,7bn of old-style Basel II
tier 2 instruments in February 2014. To align with the group's capital plan and
Basel III transitional requirements, we issued R2,2bn of Basel III-compliant tier
2 debt instruments in April 2014.
Further detail on risk and capital management will be available in the 'Risk
and Balance Sheet Management review' section of the group's analyst booklet
and the Pillar 3 Report to be published on the website at nedbankgroup.co.za
in September 2014.
Funding and liquidity
Our balance sheet remains well funded with a sound profile. In line with
industry trends and market expectations of higher interest rates, the average
long-term funding ratio for the second quarter moderated to 24,9% (average
fourth quarter 2013: 26,2%). Nedbank successfully issued R4,3bn in senior
unsecured debt in the period, with tenors ranging between 3 and 10 years,
and grew Nedbank Retail Savings Bonds by R1,1bn, with the issued amount
now totalling R10,7bn.
Nedbank Group maintained a strong liquidity position supported by a large
portfolio of sources of quick liquidity and low interbank and foreign currency
funding reliance.
Statutory liquid assets and cash reserves, including the surplus liquid-asset
portfolio of R26,4bn (December 2013: R28bn), increased to R70,1bn in June
2014 (December 2013: R69,7bn). Further increases in high-quality liquid
assets are planned for the second half of 2014 ahead of the Basel III liquidity
coverage ratio (LCR) transition period, which will see the minimum LCR
requirement increase from a starting point of 60% in January 2015 to 100% by
January 2019. Overall the group is well positioned to exceed the minimum
LCR requirements within the transition period.
Loans and advances
Loans and advances grew 10,0% (annualised) to R608,2bn (December 2013:
R579,3bn)(1), underpinned by gross new payouts in banking advances of
R86,1bn (June 2013: R83,0bn).
Loans and advances by cluster are as follows:
% change June December
Rm (annualised) 2014 2013
Nedbank Capital 10,1 115 032 109 549
Banking activities (4,9) 70 304 72 066
Trading activities 39,0 44 728 37 483
Nedbank Corporate 19,5 192 234 175 274
Nedbank Business Banking 3,0 63 732 62 785
Nedbank Retail 1,4 196 830 195 435
Nedbank Wealth 23,0 24 597 22 082
Centre, including Rest of Africa 21,8 15 785 14 247
10,0 608 210 579 372
Nedbank Capital's banking advances, although up 17,4% on June 2013 due
to the successful conversion of assets in the second half of 2013, decreased
in the six months to June 2014 as a result of some large repayments in early
2014. Growth in trading advances, the more volatile component of the
advances book, was driven by foreign-currency placements and deposits
placed under reverse repurchase agreements.
Advances growth in Nedbank Corporate was primarily driven by commercial
mortgages increasing 20,5% (annualised) from drawdowns in deals concluded
in prior periods, and term loans in Corporate Banking growing 12,3%
(annualised).
Nedbank Business Banking's advances growth was supported by sustained
levels of asset payouts and good client acquisitions, offset by slower
drawdowns and early settlements.
Retail banking advances growth was led by the portfolio tilt strategy of
selective origination resulting in personal loans and home loans decreasing
17,8% and 0,9% respectively, and an increase in Card and MFC of 17,1% and
8,2% respectively.
Advances movements at the Centre primarily reflect increased business
activity in the Rest of Africa Division.
Deposits
Deposits grew 9,6% (annualised) to R631,7bn (December 2013: R603,0bn)(1)
and the loan-to-deposit ratio was maintained at 96,3% (June 2013: 96,3%).
Call and term deposits and fixed deposits grew strongly at 15,7% and 15,0%
respectively, with excellent contributions from Nedbank Capital, Corporate
and Business Banking. Current accounts increased 7,8%, with steady growth
from across all the clusters, and savings accounts grew 14,4%, driven by
strong growth in Nedbank Wealth.
Overall the underlying momentum was favourable, with good growth in term
funding categories and a significant decrease of higher-cost funding
categories such as negotiable certificates of deposit that decreased 36,3%.
Group strategic focus
We have made good progress with our five key strategic focus areas of client-
centred innovation, growing our transactional banking franchise, optimise and
invest, strategic portfolio tilt and Pan-African banking network.
- Client-centred innovation: We introduced products such as Send-iMali™,
PocketPOS™ and Nedbank App Suite™ and rolled out 144 Intelligent
Depositor devices and 52 branches in the 'branch of the future' format, and
digitally enabled clients increased by 39%. At the same time Nedbank's
progress in innovative banking solutions was acknowledged by our
winning of the 2014 African Banker Award for Innovation.
- Growing our transactional banking franchise: Our focus on being a bank
for all has been rewarded by total client numbers growing 8% to 6,9m, with
main banked clients and cross-sell continuing to increase. Our brand value
increased 15% to R12,5bn from R10,9bn in 2013 as reported by Brand
Finance SA's Top 50 Most Valuable Brands Survey, while our advertising
share of voice increased to 24% (June 2013: 20%). The strategic decision
taken to build our franchise and client relationships through maintaining
our transactional fees at 2013 levels, although impacting transactional
banking income growth in 2014, should position Nedbank well for
continued growth in years to come.
- Optimise and invest: Our focus on driving efficiencies is particularly
relevant given the environment of slower income growth. Our managed-
evolution approach to technology aims deliberately to enhance systems
over time and deliver business benefits. Through our 'rationalise,
standardise and simplify' information technology strategy we are
decreasing our systems from 220 to 60, of which 63 have been
decommissioned to date. We are progressing well with the SAP ERP
replacement system for finance, procurement and human resources that
will be implemented from 2015. Our integrated-channel strategy enables
clients to transact seamlessly across their channels of choice, while the
'branch of the future' resulted in a reduction of floor space, increase in
sales volumes and reduced account opening times. Lastly, we will,
together with the greater Old Mutual group in SA, seek to identify and
collectively unlock R1bn of synergies, on a pretax basis, across Nedbank,
OMSA and Mutual and Federal.
- Strategic portfolio tilt: We continue to benefit from the early action taken in
reducing our home loan and personal-loan portfolios, while strengthening
our focus on growing EP-generative activities such as transactional
deposits, transactional banking and in the rest of Africa. The benefit
resulting from our actions over the past four years has enabled the group
to maintain a strong balance sheet and reduce impairments, while
delivering dividend growth ahead of HEPS growth.
- Pan-African banking network: During the period the group concluded the
transaction to acquire an initial 36,4% shareholding (with a pathway to
control) of Banco Unico in Mozambique. This has strengthened Nedbank's
franchise and client proposition in the Southern African Development
Community (SADC) and East Africa. In West and Central Africa our
alliance with Ecobank continues to deliver value for the group. We have
until 25 November to make a decision on our subscription rights to take up
a 20% shareholding in ETI. In addition, our alliance with Bank of China has
progressed and since June 2013 we have jointly concluded a number of
deals together in the rest of Africa.
Economic outlook
In contrast to the improving global economic environment, SA's economy is
expected to remain under pressure, although the strengthening international
environment and weak rand should support moderate recovery off a low base
in the second half of the year. The group has revised its 2014 growth forecast
for GDP downwards to 1,8% from 2,6% at the beginning of the year.
Downside risk remains high as economic recovery will be affected by the
extent of continued industrial action.
The operating environment for the banking industry is expected to remain
difficult, characterised by low levels of retail credit demand, relatively subdued
transactional activity and increased risk of bad debts. In addition, interest
rates are currently expected to increase by a further 25 basis points (bps) this
year, resulting in a cumulative increase of 100 bps by the end of 2014. Further
sovereign rating downgrades would lead to additional tightening of the
monetary policy. This is likely to place further pressure on consumers and
overall growth rates.
Prospects
Our updated guidance on financial performance for the full year is as follows:
- Advances to grow at mid-to-upper single digits.
- NIM to be slightly below the 2013 level of 3,57%.
- CLR to improve from the 2013 level, to below the mid-point of the through-
the-cycle target range of 80 to 120 bps.
- NIR (excluding fair-value adjustments) to grow at low-to-mid single digits.
- Expenses to increase by mid-to-upper single digits.
Our financial guidance for organic growth in diluted HEPS in 2014 to be
greater than nominal GDP growth remains unchanged as communicated at
the 2013 annual results presentation. Our medium-to-long-term targets also
remain unchanged and the outlook for these in 2014 is as follows:
June 2014 Medium-to-long-term 2014 full year
Metric performance targets outlook
ROE (excluding 5% above cost of
goodwill) 16,5% ordinary shareholders' Below target
equity
Growth in diluted =- consumer price =- consumer price
HEPS 16,1% index + GDP growth + index + GDP growth
5%
Between 0,8% and Below mid-point of
CLR 0,83% 1,2% of average target range
banking advances
NIR-to-expense
ratio 80,9% > 85% Below target
Efficiency ratio 56,5% 50,0% to 53,0% Above target
CET1 capital
adequacy ratio 12,1% 10,5% to 12,5% At top end of target
(Basel III)
Economic capital Internal Capital Adequacy Assessment Process (ICAAP):
A debt rating (including 10% capital buffer)
Dividend cover 2,16 times 1,75 to 2,25 times 1,75 to 2,25 times
Shareholders are advised that these forecasts are based on organic earnings
and our latest macroeconomic outlook, and have not been reviewed or
reported on by the group's auditors.
Board appointments
During the period David Adomakoh, Dr Mantsika Matooane and Brian Dames
were appointed as independent non-executive directors with effect from
21 February, 15 May and 30 June 2014 respectively.
Group Executive appointments
In anticipation of Graham Dempster's retirement in May 2015 and in line with
the group's succession plans, Mfundo Nkuhlu, currently Managing Executive,
Nedbank Corporate, will be appointed as Chief Operating Officer and become
an executive director (subject to regulatory approvals) from 1 January 2015.
Philip Wessels, currently the Chief Risk Officer (CRO), has been appointed as
Managing Executive, Retail and Business Banking, with effect from 1 August
2014, following Ingrid Johnson's appointment as Group Finance Director of
Old Mutual plc.
Trevor Adams, currently Group Managing Executive, Balance Sheet
Management, will take over as CRO with effect from 1 August 2014.
Accounting policies(1)
Nedbank Group Limited is a company domiciled in SA. The condensed
consolidated interim financial results of the group at and for the six months
ended 30 June 2014 comprise the company and its subsidiaries (the 'group')
and the group's interests in associate companies and joint arrangements.
Nedbank Group's condensed consolidated interim financial results have been
prepared in accordance with the measurement and recognition criteria of
International Financial Reporting Standards (IFRS) and are presented in
accordance with the disclosures prescribed by International Accounting
Standards (IAS) 34: Interim Financial Reporting, the South African Institute of
Chartered Accountants (SAICA) Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Reporting Pronouncements as
issued by Financial Reporting Standards Council and the provisions of the SA
Companies Act, 71 of 2008.
Nedbank Group's principal accounting policies have been prepared in terms
of IFRS of the International Accounting Standards Board (IASB) and have
been applied consistently over the current and prior financial years.
In the preparation of these condensed consolidated interim financial results
the group has applied key assumptions concerning the future and other
inherent uncertainties in recording various assets and liabilities. The
assumptions applied in the financial results for the six months ended 30 June
2014 were consistent with those applied during the 2013 financial year.
These assumptions are subject to ongoing review and possible amendments.
The financial results have been prepared under the supervision of Raisibe
Morathi, the Chief Financial Officer.
Events after the reporting period(1)
There are no material events after the reporting period to report on.
Reviewed results - auditors' conclusion
KPMG Inc and Deloitte & Touche, Nedbank Group's independent auditors,
have reviewed the condensed consolidated interim financial results of
Nedbank Group Limited. The review was conducted in accordance with
International Standards on Review Engagements 2410: Review of Interim
Financial Information performed by the Independent Auditor of the Entity.
They have expressed an unmodified review conclusion on the results. The
condensed consolidated interim financial results comprise the condensed
consolidated statement of financial position at 30 June 2014, condensed
consolidated statement of comprehensive income, condensed consolidated
statement of changes in equity and condensed consolidated statement of
cashflows for the six months then ended and selected explanatory notes. The
related notes are marked with (1). The review report is available for inspection
at Nedbank Group's registered office.
Forward-looking statements
This announcement contains certain forward-looking statements with respect
to the financial condition and results of operations of Nedbank Group and its
group companies that, by their nature, involve risk and uncertainty because
they relate to events and depend on circumstances that may or may not occur
in the future. Factors that could cause actual results to differ materially from
those in the forward-looking statements include global, national and regional
economic conditions; levels of securities markets; interest rates; credit or
other risks of lending and investment activities; as well as competitive and
regulatory factors. By consequence, all forward-looking statements have not
been reviewed or reported on by the group's auditors.
Interim dividend declaration
Notice is hereby given that a gross interim dividend of 460 cents per ordinary
share has been declared, payable to shareholders for the six months ended
30 June 2014. The dividend has been declared out of income reserves.
The dividend will be subject to a dividend withholding tax rate of 15%
(applicable in SA) or 69,0 cents per ordinary share, resulting in a net dividend
of 391,0 cents per ordinary share, unless the shareholder is exempt from
paying dividend tax or is entitled to a reduced rate in terms of an applicable
double-tax agreement.
Nedbank Group Limited's tax reference number is 9375/082/71/7 and the
number of ordinary shares in issue at the date of declaration is 513 972 856.
In accordance with the provisions of Strate, the electronic settlement and
custody system used by JSE Limited, the relevant dates for the dividend are
as follows:
Event Date
Last day to trade (cum dividend) Friday, 5 September 2014
Shares commence trading (ex dividend) Monday, 8 September 2014
Record date (date shareholders recorded in Friday, 12 September 2014
books)
Payment date Monday, 15 September 2014
Share certificates may not be dematerialised or rematerialised between
Monday, 8 September 2014, and Friday, 12 September 2014, both days
inclusive.
On Monday, 15 September 2014, the dividend will be electronically
transferred to the bank accounts of shareholders. Holders of dematerialised
shares will have their accounts credited at their participant or broker on
Monday, 15 September 2014.
The above dates and times are subject to change. Any changes will be
published on the Securities Exchange News Service (SENS) and in the press.
For and on behalf of the board
Dr Reuel J Khoza Michael WT Brown
Chairman Chief Executive
5 August 2014
Registered office
Nedbank Group Limited, Nedbank 135 Rivonia Campus, 135 Rivonia Road,
Sandown, Sandton, 2196.
PO Box 1144, Johannesburg, 2000.
Transfer secretaries in SA
Computershare Investor Services (Pty) Ltd, 70 Marshall Street,
Johannesburg, 2001, SA.
PO Box 61051, Marshalltown, 2107, SA.
Transfer secretaries in Namibia
Transfer Secretaries (Pty) Ltd, Robert Mugabe Avenue No 4,
Windhoek, Namibia.
PO Box 2401, Windhoek, Namibia.
Directors
Dr RJ Khoza (Chairman), MWT Brown* (Chief Executive), DKT Adomakoh
(Ghanaian), TA Boardman, BA Dames, GW Dempster* (Chief Operating
Officer), MA Enus-Brey, ID Gladman (British), PM Makwana, Dr MA
Matooane, NP Mnxasana, RK Morathi* (Chief Financial Officer), JK
Netshitenzhe, JVF Roberts (British), GT Serobe, MI Wyman** (British).
* Executive ** Senior independent non-executive director
Company Secretary: TSB Jali
Reg no: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
Sponsors in SA: Merrill Lynch South Africa (Pty) Ltd
Nedbank Capital
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Pty)
Ltd
This announcement is available on the group's website at
nedbankgroup.co.za, together with the following additional information:
- Detailed financial information in HTML and PDF formats.
- Financial results presentation to analysts.
- Link to a webcast of the presentation to analysts.
For further information kindly contact Nedbank Group Investor Relations at
nedbankgroupir@nedbank.co.za.
NEDBANK GROUP LIMITED
CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS
for the period ended 30 June 2014
Financial highlights
at 30 June 30 June 31 December
2014 2013 2013
(Reviewed) (Reviewed) (Audited)
Statistics
Number of shares listed m 514.0 510.2 510.3
Number of shares in issue, excluding shares held by group entities m 465.2 460.8 461.2
Weighted average number of shares m 463.4 459.2 460.2
Diluted weighted average number of shares m 476.5 471.2 474.1
Preprovisioning operating profit Rm 8 559 8 652 17 268
Economic profit Rm 833 749 2 114
Headline earnings per share cents 992 852 1 884
Diluted headline earnings per share cents 965 831 1 829
Ordinary dividends declared per share cents 460 390 895
– Interim cents 460 390 390
– Final cents 505
Ordinary dividends paid per share cents 505 412 802
Dividend cover times 2.16 2.18 2.11
Net asset value per share cents 13 596 12 180 13 143
Tangible net asset value per share cents 11 795 10 444 11 346
Closing share price cents 22 917 17 553 21 000
Price/earnings ratio historical 11.5 10.2 11.1
Market capitalisation Rbn 117.8 89.6 107.2
Number of employees 30 061 28 889 29 513
Key ratios (%)
Return on ordinary shareholders' equity (ROE) 15.1 14.6 15.6
ROE, excluding goodwill 16.5 16.1 17.2
Return on total assets (ROA) 1.22 1.15 1.23
Net interest income to average interest-earning banking assets 3.55 3.58 3.57
Credit loss ratio – banking advances 0.83 1.31 1.06
Non-interest revenue to total operating expenses 80.9 88.7 86.4
Non-interest revenue to total income 45.7 48.0 47.7
Efficiency ratio 56.5 54.2 55.2
Effective taxation rate 25.4 25.9 25.2
Group capital adequacy ratios (including unappropriated profits)
Common-equity tier 1 12.1 11.8 12.5
Tier 1 13.1 13.0 13.6
Total 15.0 14.8 15.7
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent 63 247 56 126 60 617
Total equity 67 078 59 817 64 336
Amounts owed to depositors 631 663 578 807 602 952
Loans and advances 608 210 557 349 579 372
– Gross 619 686 569 208 590 828
– Impairment of loans and advances (11 476) (11 859) (11 456)
Total assets administered by the group 993 293 881 493 939 935
– Total assets 783 792 714 330 749 594
– Assets under management 209 501 167 163 190 341
Life assurance embedded value 2 162 2 063 2 137
Life assurance value of new business 124 201 352
Consolidated statement of comprehensive income
for the period ended 30 June 30 June 31 December
2014 2013 2013
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Interest and similar income 25 282 22 400 46 087
Interest expense and similar charges 14 019 12 091 24 867
Net interest income 11 263 10 309 21 220
Impairments charge on loans and advances 2 333 3 325 5 565
Income from lending activities 8 930 6 984 15 655
Non-interest revenue 9 480 9 535 19 361
Operating income 18 410 16 519 35 016
Total operating expenses 11 712 10 750 22 419
– Operating expenses 11 695 10 729 22 362
– BEE transaction expenses 17 21 57
Indirect taxation 300 305 601
Profit from operations before non-trading and capital items 6 398 5 464 11 996
Non-trading and capital items (1) (8) (56)
– Net profit on sale of subsidiaries, investments, and property and equipment 6 5 11
– Net impairment of investments, property and equipment, and capitalised development costs (7) (13) (67)
Fair-value adjustments of investment properties 4 6
Profit from operations 6 397 5 460 11 946
Share of profits of associate companies and joint arrangements 11 27
Profit before direct taxation 6 408 5 460 11 973
Total direct taxation 1 627 1 413 3 016
– Direct taxation 1 627 1 413 3 033
– Taxation on non-trading and capital items (1) (18)
– Taxation on revaluation of investment properties 1 1
Profit for the period 4 781 4 047 8 957
Other comprehensive income net of taxation 115 358 1 675
– Exchange differences on translating foreign operations1 99 371 690
– Fair-value adjustments on available-for-sale assets1 22 (2) 32
– Remeasurements on long-term employee benefit assets 731
– Gains on property revaluations1 (6) (11) 222
Total comprehensive income for the period 4 896 4 405 10 632
Profit attributable to:
Equity holders of the parent 4 598 3 910 8 637
Non-controlling interest – ordinary shareholders 25 5 28
Non-controlling interest – preference shareholders 158 132 292
Profit for the period 4 781 4 047 8 957
Total comprehensive income attributable to:
Equity holders of the parent 4 706 4 254 10 295
Non-controlling interest – ordinary shareholders 32 19 45
Non-controlling interest – preference shareholders 158 132 292
Total comprehensive income for the period 4 896 4 405 10 632
Basic earnings per share cents 992 851 1 877
Diluted earnings per share cents 965 830 1 822
(1) These items may be reclassified subsequently as profit or loss.
Headline earnings reconciliation
for the period ended
30 June 30 June 30 June 30 June 31 December 31 December
2014 2014 2013 2013 2013 2013
(Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm
Gross Net of taxation Gross Net of taxation Gross Net of taxation
Profit attributable to equity holders of the parent 4 598 3 910 8 637
Less: Non-headline earnings items (1) (1) (4) (4) (50) (33)
– Net profit on sale of subsidiaries, investments, and property and equipment 6 6 5 6 11 11
– Net impairment of investments, property and equipment, and capitalised development costs (7) (7) (13) (13) (67) (49)
– Fair-value adjustments of investment properties 4 3 6 5
Headline earnings 4 599 3 914 8 670
Consolidated statement of financial position
at 30 June 30 June 31 December
2014 2013 2013
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Assets
Cash and cash equivalents 13 687 16 784 20 842
Other short-term securities 50 487 44 906 42 451
Derivative financial instruments 13 393 13 004 13 390
Government and other securities 30 551 25 022 32 091
Loans and advances 608 210 557 349 579 372
Other assets 11 331 9 585 8 673
Current taxation assets 241 455 565
Investment securities(1) 20 532 17 830 19 348
Non-current assets held for sale 12 13 12
Investments in private-equity associates, associate companies and joint arrangements(1) 1 427 842 1 101
Deferred taxation assets 224 324 216
Investment property 120 210 214
Property and equipment 7 042 6 407 6 818
Long-term employee benefit assets 4 219 2 132 2 980
Mandatory reserve deposits with central banks 13 938 11 468 13 231
Intangible assets 8 378 7 999 8 290
Total assets 783 792 714 330 749 594
Equity and liabilities
Ordinary share capital 465 461 461
Ordinary share premium 16 805 16 343 16 343
Reserves 45 977 39 322 43 813
Total equity attributable to equity holders of the parent 63 247 56 126 60 617
Non-controlling interest attributable to:
– Ordinary shareholders 270 220 246
– Preference shareholders 3 561 3 471 3 473
Total equity 67 078 59 817 64 336
Derivative financial instruments 14 829 16 777 16 580
Amounts owed to depositors 631 663 578 807 602 952
Provisions and other liabilities 14 197 16 046 14 682
Current taxation liabilities 106 114 301
Deferred taxation liabilities 813 596 789
Long-term employee benefit liabilities 2 833 2 029 1 842
Investment contract liabilities 12 307 10 519 11 523
Insurance contract liabilities 3 846 3 146 3 321
Long-term debt instruments 36 120 26 479 33 268
Total liabilities 716 714 654 513 685 258
Total equity and liabilities 783 792 714 330 749 594
(1) Investments to the amount of R315m were reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements to align better with industry practice. June 2013 comparatives
have been restated accordingly. No adjustments to the carrying value of the financial instruments arose as a result of the reclassification. Furthermore, no changes were made to the categorisation of the financial instruments and they
remain classified as designated at fair value through profit or loss.
Condensed consolidated statement of changes in equity
Non-controlling Non-controlling
Total equity interest interest
attributable to attributable to attributable to
equity holders ordinary preference
of the parent shareholders shareholders Total equity
Rm Rm Rm Rm
Audited balance at 31 December 2012 53 601 213 3 561 57 375
Dividend to shareholders (1 967) (9) (1 976)
Preference share dividend (132) (132)
Issues of shares net of expenses 458 458
Shares (acquired)/no longer held by group entities and BEE trusts (144) (144)
Total comprehensive income for the period 4 254 19 132 4 405
Share-based payment reserve movement (75) (75)
Preference shares held by group entities (90) (90)
Disposal of subsidiary (3) (3)
Other movements (1) (1)
Reviewed balance at 30 June 2013 56 126 220 3 471 59 817
Dividend to shareholders (1 854) (1 854)
Preference share dividend (160) (160)
Issues of shares net of expenses 17 17
Shares (acquired)/no longer held by group entities and BEE trusts 12 12
Total comprehensive income for the period 6 041 26 160 6 227
Share-based payment reserve movement 281 281
Regulatory risk reserve provision (4) (4)
Preference shares held by group entities 2 2
Other movements (2) (2)
Audited balance at 31 December 2013 60 617 246 3 473 64 336
Dividend to shareholders (2 433) (8) (2 441)
Preference share dividend (158) (158)
Issues of shares net of expenses 771 771
Shares (acquired)/no longer held by group entities and BEE trusts (294) (294)
Total comprehensive income for the period 4 706 32 158 4 896
Share-based payment reserve movement (125) (125)
Regulatory risk reserve provision 5 5
Preference shares held by group entities 88 88
Reviewed balance at 30 June 2014 63 247 270 3 561 67 078
Condensed consolidated statement of cashflows
for the period ended 30 June 30 June 31 December
2014 2013 2013
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Cash generated by operations 10 245 10 259 20 553
Change in funds for operating activities (12 986) 158 (4 507)
Net cash (utilised by)/from operating activities before taxation (2 741) 10 417 16 046
Taxation paid (1 898) (1 896) (3 890)
Cashflows (utilised by)/from operating activities (4 639) 8 521 12 156
Cashflows utilised by investing activities (2 475) (1 742) (4 341)
Cashflows from/(utilised by) financing activities 738 (5 604) (800)
Effects of exchange rate changes on opening cash and cash equivalents (excluding foreign borrowings) (72) (45) (64)
Net (decrease)/increase in cash and cash equivalents (6 448) 1 130 6 951
Cash and cash equivalents at the beginning of the period(1) 34 073 27 122 27 122
Cash and cash equivalents at the end of the period(1) 27 625 28 252 34 073
(1) Including mandatory reserve deposits with central banks.
Condensed segmental reporting
for the period ended 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December
2014 2013 2013 2014 2013 2013 2014 2013 2013 2014 2013 2013
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Total assets Total liabilities Operating income Headline earnings
Nedbank Capital 187 662 159 339 180 708 180 945 153 642 174 845 2 532 2 102 4 380 1 053 801 1 726
Nedbank Corporate 204 291 185 804 188 363 194 024 177 468 179 849 2 699 2 486 5 084 1 159 1 069 2 245
Total Nedbank Retail and Nedbank Business Banking 311 923 292 113 302 371 285 264 266 271 275 688 10 420 9 201 19 929 1 831 1 403 3 468
Nedbank Retail 206 701 200 339 203 155 185 327 179 136 181 252 8 074 7 196 15 502 1 319 1 054 2 539
Nedbank Business Banking 105 222 91 774 99 216 99 937 87 135 94 436 2 346 2 005 4 427 512 349 929
Nedbank Wealth 55 521 47 212 50 911 52 758 44 851 48 424 1 863 1 695 3 553 464 421 900
Shared Services 7 240 6 758 7 346 5 544 5 251 5 818 (55) 76 78 (1) 156 159
Central Management, including Rest of Africa 17 155 23 104 19 895 (1 821) 7 030 634 951 959 1 992 93 64 172
Total 783 792 714 330 749 594 716 714 654 513 685 258 18 410 16 519 35 016 4 599 3 914 8 670
Condensed geographical segmental reporting
for the period ended 30 June 30 June 31 December 30 June 30 June 31 December
2014 2013 2013 2014 2013 2013
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm
Operating income Headline earnings
SA 17 111 15 515 32 721 4 256 3 742 8 054
– Business operations 17 111 15 515 32 721 4 430 3 893 8 409
– BEE transaction expenses (16) (19) (63)
– Profit attributable to non-controlling interest – preference shareholders (158) (132) (292)
Rest of Africa 732 655 1 427 149 124 335
Rest of world – business operations 567 349 868 194 48 281
Total 18 410 16 519 35 016 4 599 3 914 8 670
Fair-value hierarchy
FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
The fair value of a financial instrument is the price that would be received for the sale of an asset or paid for the transfer of a liability in an orderly transaction between market
participants at the measurement date. Underlying the definition of fair value is a presumption that an entity is a going concern without any intention or need to liquidate,
to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value is not, therefore,
the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distressed sale.
The existence of published price quotations in an active market is the most reliable evidence of fair value and, where they exist, they are used to measure
the financial asset or financial liability. A market is considered to be active if transactions occur with sufficient volume and frequency to provide
pricing information on an ongoing basis. These quoted prices would generally be classified as level 1 in terms of the fair-value hierarchy.
Where a quoted price does not represent fair value at the measurement date or where the market for a financial instrument is not active, the group establishes fair value by
using a valuation technique. These valuation techniques include reference to the current fair value of another instrument that is substantially the same in nature,
reference to the value of the assets of underlying business, earnings multiples, discounted cashflow analysis and various option pricing models. Valuation techniques applied by
the group would generally be classified as level 2 or level 3 in terms of the fair-value hierarchy. The determination of whether an instrument is classified as
level 2 or level 3 is dependent on the significance of observable inputs versus unobservable inputs in relation to the fair value of the instrument. Inputs typically
used in valuation techniques include discount rates, appropriate swap rates, volatility, servicing costs, equity prices, commodity prices,
counterparty credit risk, and the group's own credit on financial liabilities.
The group has an established control framework for the measurement of fair value, which includes formalised review protocols for the independent review and
validation of fair values separate from the business unit entering into the transaction. The valuation methodologies, techniques and inputs applied to the
fair-value measurement of the financial instruments have been applied in a manner consistent with that of the previous financial year (see
nedbankgroup.co.za).
FAIR-VALUE HIERARCHY
The financial instruments recognised at fair value have been categorised into the three input levels of the International
Financial Reporting Standards (IFRS) fair-value hierarchy as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2: Valuation techniques based on (directly or indirectly) market-observable inputs. Various factors influence the availability of observable inputs.
These factors may vary from product to product and change over time. Factors include the depth of activity in the relevant market, the type of product,
whether the product is new and not widely traded in the market, the maturity of market modelling and the nature of the transaction (bespoke or generic).
Level 3: Valuation techniques based on significant inputs that are not observable. To the extent that a valuation is based on inputs that are not market-observable,
the determination of the fair value can be more subjective, depending on the significance of the unobservable inputs to the overall valuation. Unobservable inputs are
determined on the basis of the best information available and may include reference to similar instruments, similar maturities,
appropriate proxies or other analytical techniques.
All fair values disclosed below are recurring in nature.
FINANCIAL ASSETS
Total financial assets Total financial assets recognised at amortised cost Total financial assets classified as level 1 Total financial assets classified as level 2 Total financial assets classified as level 3
30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December
2014 2013 2013 2014 2013 2013 2014 2013 2013 2014 2013 2013 2014 2013 2013
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Cash and cash equivalents 27 625 28 252 34 073 27 625 28 252 34 073
Other short-term securities 50 487 44 906 42 451 9 539 15 171 13 409 414 740 643 40 534 28 995 28 399
Derivative financial instruments 13 393 13 004 13 390 69 53 67 13 324 12 951 13 323
Government and other securities 30 551 25 022 32 091 12 371 10 091 13 932 10 298 10 171 10 685 7 882 4 760 7 474
Loans and advances 608 210 557 349 579 372 502 103 463 129 480 952 86 62 90 105 988 94 103 98 297 33 55 33
Other assets 11 331 9 585 8 673 8 633 6 637 4 969 2 698 2 948 3 704
Investments in private-equity associates
associate companies and joint arrangements(1) 1 428 800 860 496 932 800 860
Investment securities(1) 20 532 17 830 19 348 676 566 826 18 894 16 038 17 567 962 1 226 955
763 557 696 748 730 258 560 767 523 280 547 335 14 241 14 540 16 015 186 622 156 847 165 060 1 927 2 081 1 848
(1) Investments to the amount of R315m were reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements to align better with industry practice. June 2013 comparatives have been restated accordingly.
No adjustments to the carrying value of the financial instruments arose as a result of the reclassification. Furthermore, no changes were made to the categorisation of the financial instruments and they remain classified as designated at fair value through profit or loss.
FINANCIAL LIABILITIES
Total financial liabilities Total financial liabilities recognised at amortised cost Total financial liabilities classified as level 1 Total financial liabilities classified as level 2 Total financial liabilities classified as level 3
30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December
2014 2013 2013 2014 2013 2013 2014 2013 2013 2014 2013 2013 2014 2013 2013
(Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited) (Reviewed) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Derivative financial instruments 14 829 16 777 16 580 88 19 31 14 741 16 757 16 549 1
Amounts owed to depositors 631 663 578 807 602 952 501 042 447 692 455 126 130 621 131 115 147 826
Provisions and other liabilities 14 197 16 046 14 682 10 574 9 764 10 096 3 468 6 151 4 469 155 131 117
Investment and insurance contract liabilities 16 153 13 665 14 844 16 153 13 665 14 844
Long-term debt instruments 36 120 26 479 33 268 34 094 20 967 29 490 573 5 289 2 317 1 453 223 1 461
712 962 651 774 682 326 545 710 478 423 494 712 4 129 11 459 6 817 163 123 161 891 180 797 - 1 -
LEVEL 3 RECONCILIATION
Gains/(Losses) in
comprehensive
Opening balance at Gains/(Losses) in profit income for the Sales and
1 January for the period period Purchases and issues settlements Transfers in/(out) Closing balance at 30 June
June 2014 (Reviewed) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Loans and advances 33 33
Investment securities 955 44 40 (77) 962
Investments in private-equity associates,
associate companies and joint arrangements 860 60 89 (77) 932
1 848 104 - 129 (154) - 1 927
Gains/(Losses) in
comprehensive
Opening balance at Gains/(Losses) in profit income for the Sales and
1 January for the period eriod Purchases and issues settlements Transfers in/(out) Closing balance at 30 June
30 June 2013 (Reviewed) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 2 3 (5) -
Loans and advances 117 (66) 4 55
Investment securities(1) 1 073 81 14 (8) 66 1 226
Investments in private-equity associates,
associate companies and joint arrangements(1) 1 000 (289) 269 (131) (49) 800
2 192 (271) 18 269 (144) 17 2 081
FINANCIAL LIABILITIES
Derivative financial instruments 1 1
1 - - - - - 1
(1) Investments to the amount of R315m were reclassified from investment securities to investments in private-equity associates, associate companies and joint
arrangements to align better with industry practice. June 2013 comparatives have been restated accordingly. No adjustments to the carrying value of
the financial instruments arose as a result of the reclassification. Furthermore, no changes were made to the categorisation of the financial
instruments and they remain classified as designated at fair-value through profit or loss.
Gains/(Losses) in
comprehensive
Opening balance at Gains/(Losses) in profit income for the Sales and Closing balance at 31
1 January for the period period Purchases and issues settlements Transfers in/(out) December
31 December 2013 (Audited) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 2 (2) -
Loans and advances 117 (84) 33
Investment securities 1 073 21 200 (339) 955
Investments in private-equity associates,
associate companies and joint arrangements 1 000 (22) 59 (177) 860
2192 (1) - 259 (602) - 1 848
FINANCIAL LIABILITIES
Derivative financial instruments 1 (1) -
1 - - - (1) - -
EFFECT OF CHANGES IN SIGNIFICANT UNOBSERVABLE ASSUMPTIONS TO REASONABLE POSSIBLE ALTERNATIVES
The fair value of financial instruments is, under certain circumstances, measured by means of valuation techniques based on assumptions that are not market-observable.
Where these scenarios apply, the group performs stress testing on the fair value of the relevant instruments. In stress testing, appropriate levels are chosen for the
unobservable input parameters so that they are consistent with prevailing market evidence and in line with the group's approach to valuation control.
The sensitivity of the fair-value measurement is dependent on the unobservable inputs. Significant changes to the unobservable inputs in isolation will have either a positive or
a negative impact on the fair value. The following information is intended to illustrate the potential impact of the relative uncertainty in the fair value of financial instruments,
the valuation of which depends on unobservable input parameters. However, it is unlikely in practice that all unobservable parameters would simultaneously be at the extremes of
their ranges of reasonably possible alternatives. Furthermore, the disclosure is neither predictive nor indicative of future movements in fair value.
Favourable change
Value per statement in fair value due to Unfavourable change in
Valuation technique Principal assumption stressed Stress parameters of financial position stress test fair value due to stress test
30 June 2014 (Reviewed) % Rm Rm Rm
FINANCIAL ASSETS
Loans and advances Discounted cashflow model Credit spreads and discount rates Between (14) and 14 33 3 (4)
Investment securities Discounted cashflows, adjusted net asset value, earnings Valuation multiples, correlations,
volatilities and credit spreads Between (25) and 25 962 95 (113)
multiples, third-party valuations, dividend yields
Investments in private-equity associates,
associate companies and joint arrangements Discounted cashflows, earnings multiples Valuation multiples Between (11) and 11 932 79 (90)
Total financial assets classified as level 3 1 927 177 (207)
Favourable change
Value per statement in fair value due to Unfavourable change in
Valuation technique Principal assumption stressed Stress parameters of financial position stress test fair value due to stress test
30 June 2013 (Reviewed) % Rm Rm Rm
FINANCIAL ASSETS
Loans and advances Discounted cashflow model Credit spreads between (14) and 14 55 6 (8)
Investment securities Discounted cashflows, adjusted net asset value, earnings
multiples, third-party valuations, dividend yields Valuation multiples, correlations,
volatilities and credit spreads between (25) and 25
1 226 155 (164)
Investments in associate companies and joint ventures Discounted cashflows, earnings multiples Valuation multiples between (11) and 11 800 57 (57)
Total financial assets classified at level 3 2 081 218 (229)
FINANCIAL LIABILITIES
Derivative financial instruments Correlations, volatilities and
credit spreads between (25) and 25 1 (1) (1)
(1) Represents amounts less than R1m.
(2) Investments to the amount of R315m were reclassified from investment securities to investments in private-equity associates, associate companies and joint arrangements to align better with industry practice.
June 2013 comparatives have been restated accordingly. No adjustments to the carrying value of the financial instruments arose as a result of the reclassification. Furthermore, no changes were made to the
categorisation of the financial instruments and they remain classified as designated at fair value through profit or loss.
Favourable change
Value per statement in fair value due to Unfavourable change in
Valuation technique Principal assumption stressed Stress parameters of financial position stress test fair value due to stress test
31 December 2013 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Loans and advances Discounted cashflow model Credit spreads and discount rates Between (14) and 14 33 3 (4)
Investment securities Discounted cashflows, adjusted net asset value, earnings Valuation multiples, correlations,
multiples, third-party valuations, dividend yields volatilities and credit spreads Between (25) and 25
955 104 (119)
Investments in private-equity associates,
associate companies and joint arrangements Discounted cashflows, earnings multiples Valuation multiples Between (11) and 11
860 83 (93)
Total financial assets classified as level 3 1 848 190 (216)
UNREALISED GAINS AND LOSSES
The unrealised gains or losses arising on instruments classified as level 3 include the following:
30 June 30 June 31 December
2014 2013 2013
(Reviewed) (Reviewed) (Audited)
Rm Rm Rm
Trading income/(losses) (26) 18 11
Private-equity losses 130 (289) (12)
104 (271) (1)
SUMMARY OF PRINCIPAL VALUATION TECHNIQUES — LEVEL 2 INSTRUMENTS
The following table sets out the group's principal valuation techniques used in determining the fair value of financial assets and financial liabilities classified as level 2 in the fair-value hierarchy:
Assets Valuation technique Key inputs
Other short-term securities Discounted cashflow model Discount rates
Derivative financial instruments Discounted cashflow model Discount rates
Black-Scholes model Risk-free rate and volatilities
Multiple valuation techniques Valuation multiples
Government and other securities Discounted cashflow model Discount rates
Loans and advances Discounted cashflow model Interest rate curves
Investment securities Discounted cashflow model Money market rates and interest rates
Adjusted net asset value Underlying price of market-traded instruments
Dividend yield method Dividend growth rates
Liabilities
Derivative financial instruments Discounted cashflow model Discount rates
Black-Scholes model Risk-free rate and volatilities
Multiple valuation techniques Valuation multiples
Amounts owed to depositors Discounted cashflow model Discount rates
Provisions and liabilities Discounted cashflow model Discount rates
Investment and insurance contract liabilities Adjusted net asset value Underlying price of market-traded instruments
Long-term debt instruments Discounted cashflow model Discount rates
Offsetting financial assets and financial liabilities
In accordance with the requirements of IFRS 7 Financial Instruments: Disclosures, the table below sets out the impact of:
— recognised financial instruments that are set off in the statement of financial position in accordance with the requirements of IAS 32 Financial Instruments: Presentation; and
— financial instruments that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions that did not qualify for
presentation on a net basis.
The group reports financial assets and financial liabilities on a net basis in the statement of financial position only if there is a legally enforceable right to set off the recognised amounts and there is
intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Certain master netting arrangements may not meet the criteria for offsetting in the statement of financial position because:
— these agreements create a right of setoff that is enforceable only following an event of default, insolvency or bankruptcy; and
— the group and its counterparties do not intend to settle on a net basis or to realise the assets and settle the liabilities simultaneously.
Master netting arrangements and similar agreements include derivative clearing agreements, global master repurchase agreements and global master securities lending agreements.
Similar financial instruments include derivatives, sales and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending agreements. Financial
instruments such as loans and deposits are not disclosed in the table below unless they are offset in the statement of financial position.
Related amounts not set off in
30 June 2014 (Reviewed) Effects of netting on the statement of financial position the statement of financial
position
Amounts set off
in the
statement of Net amounts Amounts that Net amounts Total amounts
financial included in the may be netted reflecting the Amounts not recognised in
position in statement of off on the effect of master subject to IFRS 7 the statement
accordance with financial occurrence of a Financial netting offsetting of financial
Rm Gross amounts IAS 32 position(1) future event collateral arrangements disclosure(2) position
Derivative financial instruments (2 020) 1 561 (459) 459 (977) (1 436)
— Assets 10 260 3 133 13 393
— Liabilities (10 719) (4 110) (14 829)
Assets excluding derivative financial instruments 6 500 (2 019) 4 481 (247) (241) 3 993 615 060 619 541
— Loans and advances 4 190 (2 019) 2 171 2 171 606 039 608 210
— Other assets 2 310 2 310 (247) (241) 1 822 9 021 11 331
Liabilities excluding derivative financial instruments (97 088) 39 438 (57 650) 2 295 - (55 355) (588 210) (645 860)
— Amounts owed to depositors (94 793) 39 438 (55 355) (55 355) (576 308) (631 663)
— Provisions and other liabilities (2 295) (2 295) 2 295 - (11 902) (14 197)
Related amounts not set off in
30 June 2013 (Reviewed) Effects of netting on the statement of financial position the statement of financial
position
Amounts set off
in the
statement of Net amounts Amounts that Net amounts Total amounts
financial included in the may be netted reflecting the Amounts not recognised in
position in statement of off on the effect of master subject to IFRS 7 the statement
accordance with financial occurrence of a Financial netting offsetting of financial
Rm Gross amounts IAS 32 position(1) future event collateral arrangements disclosure(2) position
Derivative financial instruments (3 866) 688 (3 178) 3 178 (595) (3 773)
— Assets 11 869 1 135 13 004
— Liabilities (15 047) (1 730) (16 777)
Assets excluding derivative financial instruments 6 004 (1 131) 4 873 - (175) 4 698 562 061 566 934
— Loans and advances 3 302 (1 131) 2 171 2 171 555 178 557 349
— Other assets 2 702 2 702 (175) 2 527 6 883 9 585
Liabilities excluding derivative financial instruments (73 329) 14 080 (59 249) - 2 981 (56 268) (535 604) (594 853)
— Amounts owed to depositors (70 348) 14 080 (56 268) (56 268) (522 539) (578 807)
— Provisions and other liabilities (2 981) (2 981) 2 981 - (13 065) (16 046)
(1) Includes the net amount of financial assets and financial liabilities where offsetting has been applied in terms IAS 32 and financial instruments that are subject to master netting agreements
but no offsetting has been applied. Excludes financial instruments that are subject neither to setoff nor to master netting agreements.
(2) Includes financial instruments that are subject neither to setoff nor to master netting agreements.
Sponsor:
Merrill Lynch South Africa (Pty) Ltd
Date: 05/08/2014 08:02:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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