Wrap Text
Third 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 – THIRD QUARTER 2014 TRADING UPDATE
“Nedbank Group’s performance in the nine months to 30 September continues to be reflective of the early actions
taken in anticipation of a challenging macro-economic environment.
We are focused on the drivers of long term value creation for our shareholders as we build our transactional
banking franchise and our pan-African banking network. Through the 20% shareholding in Ecobank Transnational
Incorporated (ETI), we have strengthened our strategic alliance with ETI and therefore our ability to provide
banking service support for our clients across 39 countries in West and Central Africa. Economic growth in the
rest of Africa is faster than South Africa and our investment in ETI offers our shareholders access to earnings in
these higher economic growth markets.
Our balance sheet metrics remain strong and our ability to generate earnings and capital should continue to
support our progressive dividend policy. We remain well positioned to meet our full-year guidance for growth in
organic diluted headline earnings per share of greater than nominal GDP growth.”
Mike Brown
Chief Executive
OPERATIONAL PERFORMANCE
Net interest income for the nine months ended 30 September 2014 (“the period”) grew by 8,4% to R17 043m (Q3
2013: R15 725m) underpinned by average interest-earning banking assets growth of 9,9% (Q3 2013: 6,5%). The
net interest margin narrowed to 3,53% (Q3 2013: 3,58%) with the increase in endowment income offset by asset
mix and pricing changes as lower margin wholesale advances grew faster than higher yielding retail advances.
The credit loss ratio improved to 0,77% (Q3 2013: 1,15%) for the period from 0,83% at June 2014, reflecting the
outcome of the asset mix changes referred to above, together with effective credit risk management policies,
including early actions taken in reducing unsecured lending and the approach of selective origination followed in
the last few years, all leading to an advances book of good quality.
Non-interest revenue (NIR) increased 2,4% to R14 509m (Q3 2013: R14 166m). The increase was driven by
commission and fee income growth of 3,4%; insurance income decreasing 3,5%; trading income growth of 1,1%
and negative fair-value adjustments of R64m (Q3 2013: Positive R110m and June 2014: Negative R35m).
Total advances grew 6,8% (annualised) to R608,7bn, largely due to growth in wholesale banking advances.
Deposits increased 8,0% (annualised) to R638,8bn.
The group remains well capitalised and following the payment of the interim dividend in September 2014, the
group’s capital ratios are as follows:
Nedbank Group Q3 2014 June 2014 Internal target Regulatory
(Basel III) range minimum¹
Common-equity tier 11,9% 12,1% 10,5% – 12,5% 5,5%
1 capital ratio
Tier 1 capital ratio 12,8% 13,1% 11,5% – 13,0% 7,0%
Total capital ratio 14,6% 15,0% 14,0% – 15,0% 10,0%
(Ratios include unappropriated profits)
1. The Basel III regulatory minima are being phased in between 2013 and 2019, and exclude Pillar 2B add-ons.
INVESTMENT IN ECOBANK TRANSNATIONAL INCORPORATED (‘ETI’)
In October 2014 the group announced that it had exercised its rights to subscribe for 20% of ETI for a cash
consideration of USD493,4m (R5,6bn), equivalent to a price of USD10,93 cents per ETI share. This transaction
deepens the strategic alliance between ETI and Nedbank that has been in existence for six years, and this now
includes a commitment to provide reciprocal technical banking expertise and management support. Together, ETI
and Nedbank Group will offer a unique one-bank experience to their clients across the largest banking network in
Africa, comprising more than 2,000 branches and offices in 39 countries.
The table below sets out the unaudited proforma financial effects of the strategic investment in ETI for the six
months ended 30 June 2014 on an equity accounted basis, assuming Nedbank Group had exercised its rights on
1 January 2014. These do not represent the future financial position of Nedbank Group and are provided for
illustrative purposes only.
Proforma financial metrics¹ Change Post Prior to
Six months ended - 30 June 2014 transaction transaction
Headline earnings per share (HEPS) (cents) 4,3% 1035 992
Diluted headline earnings per share (DHEPS) (cents) 4,4% 1007 965
Return on equity (excl. Goodwill) (%)² 0,7 17,2 16,5
Common-equity tier 1 (%) (0,8) 11,3 12,1
Notes:
1. The above metrics are based on:
a) ETI’s published unaudited interim financial results for the period ended 30 June 2014 (20% of the attributable income of USD164m
at an average exchange rate of R/USD 10,6937);
b) Nedbank Group’s investment cost of USD493,4m (R5,6bn); and
c) Associated funding at an average after tax cost of 5,6% (62,9% of average prime interest rate).
2. Annualised.
PROSPECTS
The group’s forecast for gross domestic product (GDP) growth for 2014 is currently at 1,5% with risk to the
downside. Interest rates are currently forecast to increase by another 25 basis points in November 2014, resulting
in a cumulative 100 basis point increase for 2014, adding further pressure to highly indebted consumers. Credit
growth is expected to continue to be driven largely by the wholesale sector including activity in the rest of Africa.
Our financial guidance for organic growth in DHEPS in 2014 to be greater than nominal GDP growth remains
unchanged as communicated at the 2014 interim results presentation.
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.
BOARD APPOINTMENTS
Paul Hanratty, executive director and Chief Operating Officer of Old Mutual plc, was appointed as a non-executive
director of Nedbank Group and Nedbank with effect from 8 August 2014.
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
27 October 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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