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Update on Nedbank Group’s Performance for the three months to 31 March 2016 and Pillar 3 Basel III Disclosure
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')
UPDATE ON NEDBANK GROUP’S PERFORMANCE FOR THE THREE MONTHS TO 31
MARCH 2016 AND PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND
LIQUIDITY RATIOS AS AT 31 MARCH 2016
UPDATE ON THE GROUP’S PERFORMANCE FOR THE THREE MONTHS TO 31 MARCH
2016
Shareholders of Nedbank Group are referred to the announcement made by Old Mutual plc
(OM) in their 2015 Preliminary Results release on 11 March 2016 that they will cease
quarterly reporting to shareholders. Historically Nedbank has released quarterly trading
updates to enable OM to report quarterly. Following OM’s decision to cease quarterly
reporting, Nedbank Group will no longer report quarterly. In future a high level update on
performance for the first quarter will be provided at our Annual General Meeting and a third
quarter trading update will no longer be released.
At the Nedbank Group AGM on 5 May, CEO, Mike Brown commented as follows on the high
level performance in the first quarter of 2016:
“Nedbank Group’s own operations in South Africa and in the Southern Africa Development
Community produced a solid performance in line with management’s expectations for the
first three months of the year (“the period”).
Net interest income for the period grew at low double digit levels, supported by continued
growth in average interest-earning banking assets. The net interest margin (NIM) for the
period widened slightly from the full year 2015 level of 3,30%. The NIM benefitted from
endowment income following interest rate increases during the period and this more than
offset the negative effects of ongoing asset mix changes and higher funding costs related to
Basel III requirements. The re-pricing of the cost of funding lagged the increases in the prime
interest rate in the period, benefitting the NIM, but this benefit is expected to dissipate by the
end of the 2016 year.
The credit loss ratio (CLR) increased as expected from the full year 2015 level, but remained
within our through-the-cycle target range of 60 – 100 basis points. The increase in the CLR
was driven by normal seasonality effects in Retail and higher specific impairments in CIB
largely due to the impact on clients of the weak commodity cycle. Additional portfolio
impairments were raised in both RBB and CIB. The central portfolio provision was increased
to R500m in the second half of 2015 to take into account risks, particularly in commodities
and in the Rest of Africa that had been incurred in 2015 but were only expected to emerge in
2016. It is expected that a portion of the central portfolio provision will therefore partially
offset any increases in the 2016 CLR.
Non-interest revenue in the period grew at mid-single digit levels, underpinned by solid
growth in commission and fees as total client numbers and main banked client numbers
continued to increase, as well as a good performance from our insurance business. Trading
income benefitted from increased market volatility and improved cross-sell in CIB.
Expenses for the period grew in line with management expectations and continued to be
well-managed.
In Central and West Africa, associate income from our approximately 20% share in Ecobank
Transnational Incorporated (ETI) is equity-accounted one quarter in arrears, using ETI’s
publicly disclosed results. ETI announced its results for the full year 2015 on 13 April 2016,
which reflected a full year attributable profit of USD66m, implying a loss of USD199m for the
fourth-quarter in 2015. This was the first set of ETI annual results following the strategic
review undertaken by the new CEO and the fourth-quarter loss was largely due to increased
impairments on exposures related to the slowdown in economic growth across Africa, as a
result of lower commodity prices. As a result, Nedbank Group's first quarter 2016 results
include a loss in associate income of R676m (Q1 2015: R148m profit) from accounting for
our approximately 20% share of ETI’s fourth-quarter 2015 loss.
On 14 April 2016 ETI reported its first-quarter results for 2016 which reflected an attributable
profit of USD71m. Nedbank Group’s share of this amounts to a profit of R240m (subject to
exchange rate movements) which will be accounted for in our second-quarter 2016 results
(Q2 2015: R278m profit).
Nedbank Group continues to work collaboratively with OM and Old Mutual Emerging Markets
on the programme of ‘Managed Separation’, as announced by OM on 11 March 2016. OM
will provide a more detailed update later in 2016 on the Managed Separation.
Our forecast for the full year 2016 as communicated in the 2015 Annual Results
announcement, that growth in diluted headline earnings per share for 2016 will be lower than
the growth achieved in 2015 of 8,5% and below our medium-to-long-term target of consumer
price index + GDP growth + 5%, currently remains unchanged.”
PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND LIQUIDITY RATIOS AS AT
31 MARCH 2016
BASEL III CAPITAL ADEQUACY
In terms of the requirements under Regulation 43(1)(e)(iii) of the regulations relating to banks
and Directive 4/2014 issued in terms of section 6(6) of the Banks Act (Act No. 94 of 1990),
minimum disclosure on the capital adequacy of the group and its leverage ratio is required on
a quarterly basis. This disclosure is in accordance with Pillar 3 of the Basel III accord. The
group remains well capitalised with a common equity tier 1 ratio of 11,4%, well within our
target range of 10,5% to 12,5%.
As a result of the operation of the threshold deduction formula under Basel III, the group’s
share of ETI’s fourth–quarter losses has no impact on regulatory capital ratios.
The following table sets out the regulatory capital as at 31 March 2016:
Nedbank Group Nedbank Limited
Including unappropriated profits Rm % Rm %
Tier 1 Capital 60 959 12,0% 48 356 11,3%
Common Equity Tier 1 Capital 57 853 11,4% 45 168 10,5%
Share capital and premium 18 473 18 571
Reserves 57 345 37 693
Minority interest:
Ordinary shareholders 334 0
Goodwill (5 232) (1 410)
Excess of expected loss over eligible
(2 233) (2 225)
provisions
Defined benefit pension fund assets (1 688) (1 688)
Capitalised software and
(4 196) (3 992)
development costs
Investments in the common stock of
financial entities (amount above 10% (4 645) 0
threshold)
Other regulatory differences and
(305) (1 781)
non- qualifying reserves
Additional Tier 1 Capital 3 106 0,6% 3 188 0,8%
Preference share capital and
3 561 3 561
premium
Grandfathering and other regulatory
(455) (373)
adjustments
Tier 2 Capital 10 741 2,1% 10 831 2,5%
Long-term liabilities 10 825 10 825
General allowance for credit
111 6
impairment
Grandfathering and other
(195) 0
adjustments
Total Capital 71 700 14,1% 59 187 13,8%
Excluding unappropriated profits
Tier 1 Capital 55 277 10,8% 44 781 10,5%
Common Equity Tier 1 Capital 52 171 10,2% 41 593 9,7%
Total Capital 66 018 13,0% 55 612 13,0%
Nedbank Group Nedbank Limited
Minimum required capital and
reserve funds per risk type Pillar 1 Pillar 2a Total Pillar 1 Pillar 2a Total
Minimum ratios 8,0% 1,75% 9,75% 8,0% 1,75% 9,75%
Credit Risk 31 512 6 893 38 405 27 249 5 961 33 210
Equity Risk 1 082 237 1 319 810 177 987
Market Risk 1 068 234 1 302 919 201 1 120
Operational risk 4 665 1 020 5 685 3 993 873 4 866
Other 2 446 535 2 981 1 307 286 1 593
Total Minimum required capital
and reserve fund 40 773 8 919 49 692 34 278 7 498 41 776
Notes:
1. Minimum required capital and reserve funds have been reported at 9,75%, in terms of Directive 05/2011
issued in terms of section 6(4) of the Banks Act, 1990.
2. Regulation requires details of any risk exposure or other item that is subject to rapid or material change.
These are detailed in the trading update released on 5 May 2016.
LEVERAGE RATIO
The leverage ratio is a supplementary measure to risk-based capital requirements. Nedbank
Group’s and Nedbank Limited’s leverage ratios are well above minimum regulatory
requirements.
Nedbank Nedbank
Leverage ratio Group Limited
Tier 1 Capital (including unappropriated profit) (Rm) 60 959 48 356
Tier 1 Capital (excluding unappropriated profit) (Rm) 55 277 44 781
Total exposures (Rm) 988 224 879 798
Leverage ratio (including unappropriated profit) (%) 6,2% 5,5%
Leverage ratio (excluding unappropriated profit) (%) 5,6% 5,1%
Minimum required leverage ratio 4,0% 4,0%
LIQUIDITY COVERAGE RATIO (LCR)
In accordance with the provisions of section 6(6) of the Banks Act, 1990 (Act No. 94 of
1990), banks are directed, to comply with the relevant LCR disclosure requirements, as set
out in Directive 6/2014 and Directive 11/2014.
The LCR aims to ensure that a bank holds an adequate stock of unencumbered high quality
liquid assets (HQLA) to cover total Net Cash Outflows over a 30-day period under a
prescribed stress scenario. Based on the final revisions announced by the Basel Committee
in January 2013, the LCR is being phased-in starting at 60% on 1 January 2015 and
increasing by 10% each year to 100% on 1 January 2019.
The LCR for Nedbank Group and Nedbank Limited are well above minimum regulatory
requirements. These are set out in the following table:
Nedbank Group(1) Nedbank Limited
High Quality Liquid Assets (Rm)2 124 436 120 383
Net Cash Outflows (Rm)2 147 211 138 930
Liquidity Coverage Ratio (%)2 84,5% 86,6%
Minimum requirement (%)2 70% 70%
Notes:
1. Only banking and/ or deposit-taking entities are included and the group data represents an aggregation of the
relevant individual net cash outflows and the individual HQLA portfolios, where surplus HQLA holdings in
excess of the minimum requirement of 70% have been excluded from the aggregated HQLA number in the
case of all non-SA banking entities.
2. The above figures reflect the simple average of the month-end values at 31 January 2016, 29 February 2016
and 31 March 2016, based on the regulatory submissions to SARB.
Shareholders are advised that the performance update for the period and Pillar 3 reporting
have not been reviewed or reported on by the group’s auditors.
Sandton
5 May 2016
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank CIB
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
6
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