Wrap Text
Nedbank Group – Update On Nedbank Group’s Performance to 31 March 2016 and Pillar 3 Basel III Disclosure
OLD MUTUAL PLC
ISIN CODE: GB00B77J0862
JSE SHARE CODE: OML
NSX SHARE CODE: OLM
ISSUER CODE: OLOML
Old Mutual plc
Ref 305/16
05 May 2016
NEDBANK 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
Nedbank Group Limited (“Nedbank Group”), the majority-owned South African
banking subsidiary of Old Mutual plc, released its first quarter trading
update today, 05 May 2016.
The following is the full text of Nedbank Group's announcement:
“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 provisions (2 233) (2 225)
Defined benefit pension fund
assets (1 688) (1 688)
Capitalised software and
development costs (4 196) (3 992)
Investments in the common
stock of financial entities (4 645) 0
(amount above 10% threshold)
Other regulatory differences
and non- qualifying reserves (305) (1 781)
Additional Tier 1 Capital 3 106 0,6% 3 188 0,8%
Preference share capital and
premium 3 561 3 561
Grandfathering and other
regulatory adjustments (455) (373)
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 Pillar Pillar Pillar Pillar
type 1 2a Total 1 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 funds 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 Group1 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.”
Enquiries
External communications
Patrick Bowes UK +44 20 7002 7440
Investor relations
Dominic Lagan UK +44 20 7002 7190
Sizwe Ndlovu SA +27 11 217 1163
Media
William Baldwin-Charles +44 20 7002 7133
+44 7834 524833
Sponsor
Merrill Lynch South Africa (Pty) Limited
Notes to Editors
Old Mutual provides investment, savings, insurance and banking services to
18.9 million customers in Africa, the Americas, Asia and Europe.
Originating in South Africa in 1845, Old Mutual has been listed on the
London and Johannesburg Stock Exchanges, among others, since 1999.
In the year ended 31 December 2015, the Group reported adjusted operating
profit before tax of £1.7 billion and had £304 billion of funds under
management from core operations (excluding Rogge).
For further information on Old Mutual plc, please visit the corporate
website at www.oldmutual.com
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