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NEDBANK GROUP LIMITED - First Quater 2015 Trading Update

Release Date: 11/05/2015 08:00
Code(s): NED     PDF:  
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First Quater 2015 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 2015 TRADING UPDATE
“Economic conditions in South Africa remained weak in the first quarter as the
benefits of lower oil prices and benign interest rates were largely offset by electricity
supply constraints, negatively impacting business confidence.


In the context of this challenging environment, Nedbank Group has had a strong first
quarter. We continue to make good progress in the delivery of our strategic focus
areas. Non-interest revenue grew 18,1% with good growth in trading revenues and
commissions and fees. The mix and quality of our advances book resulted in the
credit loss ratio improving on the first quarter of last year.


Our expectation of organic growth in diluted headline earnings per share in 2015 to
be above nominal GDP growth remains unchanged”.


Mike Brown
Chief Executive


OPERATIONAL PERFORMANCE

Net interest income for the three months ended 31 March 2015 (“the period”)
increased 4,4% to R5 811m (Q1 2014: R5 566m) with average interest-earning
banking asset growth, including increased prudential liquid asset requirements, of
9,2% (Q1 2014: growth of 10,4%).
 

The net interest margin narrowed to 3,41% (Q1 2014: 3,57%), mainly as a result of
the change in advances mix, holding higher levels of low-yielding high-quality liquid
assets in line with regulatory requirements and the effects from funding our
shareholding of approximately 20% in Ecobank Transnational Incorporated (ETI).
The overall margin impact from funding our investment in ETI was negative 8 basis
points (bps). The income from our share of the profits of ETI is disclosed outside of
the net interest margin as part of associate income, accounted for one quarter in
arrears at the average US dollar to SA rand exchange rate for the period.


The credit loss ratio of 80bps (Q1 2014: 89bps) is at the low end of our through-the-
cycle target range. This is reflective of the mix changes in our advances book, good
collections and continued improvements in retail impairments, and consistent
performance in wholesale impairments.


Non-Interest Revenue (NIR) increased 18,1% to R5 318m (Q1 2014: R4 505m). The
main underlying drivers of growth in NIR were:
- Commission and fee income up 9,4%, led by ongoing client acquisitions, cross
  sell, inflation-related fee increases in retail and income from renewable energy
  transactions;
- Trading income growth of 50,8% was primarily driven by strong performance from
  our global markets business on the back of increased client flows. The growth in
  trading income is expected to moderate over the full year;
- Insurance income decreased 8,2% due to the run-rate effect in our credit life
  business of lower personal loans volumes since deliberately slowing down growth
  of this portfolio since 2013;
- Private equity income increased to R65m (Q1 2014: loss of R4m) following
  realisations in our listed property investments; and
- Fair value gains of R104m (Q1 2014: loss of R52m) comprised of movements in
  basis risk in the banking book and accounting mismatches in the hedged fixed rate
  portfolios.


Total advances growth of 16,0% (annualised) to R637,2bn was mostly attributable to
banking advances increasing 10,8% (annualised). Deposits grew 15,9% (annualised)
to R679bn. Assets under management increased 27,4% (annualised) to R226,3bn.


The group remains well capitalised with our common equity tier 1 ratio at 11,7%
(December 2014: 11,6%). Our Tier 1 and Total capital adequacy ratios reflect the
effects of Basel III regulatory requirements in respect of the grandfathering of old-
style tier 1 and tier 2 instruments and hybrid debt instruments. During the period the
group redeemed R1,8bn of hybrid debt instruments and issued R225m of Basel III
compliant tier 2 debt instruments.


The capital ratios are as follows:
 Nedbank                  Q1 2015         December     Internal target        Regulatory
 Group                                        2014               range          minimum*

 Common-equity              11,7%            11,6%       10,5% – 12,5%             5,5%
 tier 1 ratio
 Tier 1 ratio               12,4%            12,5%       11,5% – 13,0%             7,0%
 Total capital              14,5%            14,6%       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.


EXECUTIVE MANAGEMENT CHANGES
The group’s executive leadership team is key to the delivery of our strategic focus
areas and during the period we progressed towards the full integration of our
Corporate and Investment Bank and finalised the appointment of the cluster
executive team under the leadership of Brian Kennedy.


Following Dave Macready’s appointment as Chief Executive of Old Mutual South
Africa, Iolanda Ruggiero was appointed as Managing Executive of Nedbank Wealth
and as a member of our Group Executive Committee (Exco) with effect from 1 May
2015.


We bid farewell to Graham Dempster and John Bestbier as Group Exco members as
they reach their scheduled retirement dates on 31 May and 30 June 2015,
respectively. We announced at the time of our annual results that Mfundo Nkuhlu had
succeeded Graham Dempster as Chief Operating Officer and was appointed to the
board as an executive director with effect from 1 January 2015, and that Priya
Naidoo had joined the Group Exco and would succeed John Bestbier as Group
Executive for Strategic Planning and Economics upon his retirement.


BOARD CHANGES
The following board directors are scheduled to retire with effect from 11 May 2015:
-   Dr Reuel Khoza, Non-executive Chairman.
-   Mustaq Enus-Brey as Non-executive Director.
-   Gloria Serobe as Non-executive Director.
-   Graham Dempster as Executive Director.


We welcome Vassi Naidoo who was appointed Non-executive Director of Nedbank
Group and Nedbank and Chairman designate with effect from 1 May 2015. The
boards of these companies have resolved to elect Vassi as Chairman of the
companies immediately following the conclusion of the Nedbank Group AGM
scheduled to be held on 11 May 2015.


PROSPECTS
The group currently anticipates that the SA gross domestic product (GDP) will grow
by 2,2% in 2015, with risk remaining on the downside. Interest rates are currently
expected to increase by 25 basis points in the last quarter of the year.


Our financial guidance for 2015, as communicated at the 2014 Annual Results
presentation, 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
11 May 2015

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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