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Nedbank’s Performance to 31 March 2017 and Pillar 3 Basel III Capital Adequacy, Leverage and Liquidity Ratios
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 LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1951/000009/06
JSE share code: NBKP
ISIN: ZAE000043667
("Nedbank Limited" or "the bank")
UPDATE ON NEDBANK GROUP’S PERFORMANCE FOR THE THREE MONTHS TO 31 MARCH 2017
AND PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND LIQUIDITY RATIOS AS AT 31 MARCH
2017
UPDATE ON THE GROUP’S PERFORMANCE FOR THE THREE MONTHS TO 31 MARCH 2017
Nedbank Group’s managed operations continued to produce a solid performance for the first three
months of the year (‘the period’). In a difficult socio political and macro-economic environment,
overall client activity and revenue growth was slower than expected, but this was partially offset by
a better than expected credit loss experience.
Net interest income grew at mid-single digit levels on the back of annualised growth in average
interest-earning banking assets (AIEBA) at low single-digit levels. The net interest margin (NIM) for
the period widened ahead of the full year 2016 level of 3,54% and the Q1 2016 level of 3,51% (which
includes the transfer of the CIB liquid asset portfolio from AIEBA to the trading book). Margin
expansion was led by endowment income as a result of higher average interest rates and higher
capital and transactional deposit levels as well as improved liability margins and advances mix
benefits. Together, these more than offset the adverse implications of the narrowing of the prime
interest rate against the Johannesburg Interbank Agreed Rate during the period.
The benefit of our historic selective asset growth strategies with a wholesale bias continues to
evidence itself in our credit loss ratio (CLR) which decreased from the full year 2016 level of 68 basis
points (bps). The lower CLR was supported by a decrease in impairments in CIB and client collections
in RBB remained effective.
Non-interest revenue grew at low-to-mid single digit levels and continued to be underpinned by
mid-single digit increases in commission and fees and trading income whilst performance of other
NIR components have been more volatile given the challenging economic environment.
Disciplined expense management resulted in expenses growing in line with our expectations.
As previously disclosed in the group’s SENS announcement on 18 April 2017, associate earnings from
the group’s share of Ecobank Transnational Incorporated’s (ETI) attributable income are equity-
accounted one quarter in arrear, using ETI’s publicly disclosed results. The group’s share of ETI’s
attributable loss of USD 427m for the fourth-quarter in 2016 was approximately R1,2bn (Q1 2016:
R676m loss). On 27 April 2017, ETI reported its first quarter results for 2017 with attributable
income of USD 51m. The group’s share is estimated at R144m (subject to exchange rate movements)
which will be accounted for in our second quarter results (Q2 2016: R230m).
In April 2017, Standard & Poor’s Global (S&P) and Fitch Ratings (Fitch) downgraded South Africa’s
(SA) sovereign credit rating to sub-investment grade while Moody’s has placed the sovereign ratings
under review for a potential downgrade. SA’s long-term sovereign foreign currency rating was
downgraded to BB+ from BBB- with a negative outlook by S&P and a stable outlook by Fitch. In
addition, SA’s long-term local currency issuer ratings were downgraded to BB+ from BBB- with a
stable outlook by Fitch.
The macroeconomic outlook for SA has deteriorated following the sovereign downgrades which will
impact negatively on confidence, investment and growth. As a result, we have reduced our 2017
GDP growth forecast for SA from 1,1% to 0,7% with risk remaining to the downside and the interest
rate forecast has been revised to either remain flat or increase slightly, in comparison to our
previous expectations of a cumulative decrease of 50 bps later this year.
In view of the volatile socio-political outlook and the weaker than expected macro-economic
environment, we anticipate reduced levels of business and consumer confidence and that it will now
be more challenging to achieve the full 2017 year guidance provided at the time of the release of
our 2016 annual results.
We are monitoring the likely impact of this on credit demand, transactional activity and
impairments, and will update our performance guidance for the full 2017 year in our 2017 Interim
Results announcement on 2 August 2017.
PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND LIQUIDITY RATIOS AS AT 31 MARCH 2017
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.
Both the group and bank remain well capitalised at levels significantly above the minimum
regulatory requirements. The common equity tier 1 ratios of 12,6% and 12,3%, respectively, are
reflective of organic capital generation and the limited movement in risk weighted assets during the
period. The group and bank’s total capital ratio was positively impacted by the issuance of R2,0bn of
new style Tier 2 capital in March 2017, offset to a degree by the redemption of old style Tier 2 notes
of R1,0bn in the same month.
The following table sets out the regulatory capital as at 31 March 2017:
Nedbank Group Nedbank Limited
Rm % Rm %
Including unappropriated profits
Tier 1 capital 67 704 13,3 56 477 13,4
Common-equity tier 1 capital 63 906 12,6 51 821 12,3
Share capital and premium 19 087 19 221
Reserves 57 975 43 045
Minority interest: Ordinary shareholders 702 -
Goodwill (5 134) (1 410)
Excess of expected loss over eligible provisions (1 477) (1 509)
Defined benefit pension fund assets (1 911) (1 911)
Capitalised software and development costs (4 688) (4 669)
Other regulatory differences and non-qualifying reserves (648) (946)
Additional tier 1 capital 3 799 0,7 4 656 1,1
Preference share capital and premium 2 656 2 656
Perpetual subordinated debt instruments 2 000 2 000
Regulatory adjustments (858) -
Tier 2 capital 12 763 2,5 13 794 3,3
Subordinated debt instruments 13 790 13 790
General allowance for credit impairment 144 4
Regulatory adjustments (1 171) -
Total capital 80 467 15,8 70 271 16,7
Excluding unappropriated profits
Tier 1 capital 60 390 11,9 52 146 12,4
Common-equity tier 1 capital 56 592 11,1 47 490 11,3
Total capital 73 153 14,4 65 940 15,7
LEVERAGE RATIO
The leverage ratio is a supplementary measure to risk-based capital requirements. The leverage
ratios of both the group and bank are well above minimum regulatory requirements.
Leverage ratio Nedbank Group Nedbank Limited
Tier 1 capital (including unappropriated profit) (Rm) 67 704 56 477
Tier 1 capital (excluding unappropriated profit) (Rm) 60 390 52 146
Total exposures (Rm) 999 644 907 168
Leverage ratio (including unappropriated profit) (%) 6,8 6,2
Leverage ratio (excluding unappropriated profit) (%) 6,0 5,7
Minimum required leverage ratio (%) 4,0 4,0
OVERVIEW OF RISK-WEIGHTED ASSETS (RWA)
Mar 2017 Dec 2016 Mar 2017
Minimum
capital
RWA RWA requirements(1)
1 Credit risk (excluding CCR) 360 909 360 731 38 798
2 Standardised Approach (TSA) 36 477 37 176 3 921
3 Advanced Internal Ratings-based
Approach (AIRB) 324 432 323 555 34 877
4 Counterparty credit risk (CCR) 16 031 15 745 1 723
5 SA-CCR 16 031 15 745 1 723
6 Internal Model Method (IMM) - - -
7 Equity positions in banking book under
market-based approach (SRWA) 21 929 18 156 2 357
11 Settlement risk - - -
12 Securitisation exposures in banking book 942 1 097 101
13 IRB Ratings-based Approach (RBA) 942 1 097 101
14 IRB Supervisory Formula Approach (SFA) - - -
15 SA/Simplified Supervisory Formula
Approach (SSFA) - - -
16 Market risk 14 842 17 542 1 596
17 Standardised Approach 2 438 2 125 262
18 IMA 12 404 15 417 1334
19 Operational risk 61 345 61 345 6 595
20 Basic Indicator Approach - - -
21 Standardised Approach 5 044 5 044 542
22 AMA 43 741 43 741 4 703
24 Floor adjustment 12 560 12 560 1 350
23 Amounts below the thresholds for
deduction (subject to 250% risk weight) 13 582 15 404 1 460
25 Other assets (100% risk weighting) 19 212 19 201 2 065
26 Total 508 793 509 221 54 695
1. Total minimum required capital is measured at 10,75% in line with transitional requirements and
excludes bank-specific Pillar 2b and D-SIB capital requirements.
Credit RWA
Nedbank and our London branch make up 94% of the total credit extended by the group and are on
the AIRB Approach. The credit portfolios of Nedbank Private Wealth International and some of the
legacy Imperial Bank portfolio in Nedbank RBB remain on TSA.
RWA FLOW STATEMENTS OF CREDIT RISK EXPOSURES UNDER AIRB
Rm RWA
1 RWA as at end of previous reporting period 323 555
2 Asset size (212)
3 Asset quality 1 157
4 Model updates -
5 Methodology and policy -
6 Acquisitions and disposals -
7 Foreign exchange movements (68)
8 Other -
9 RWA as at end of reporting period 324 432
Market RWA
Most of the group’s trading activity is managed in Nedbank CIB and is primarily focused on client
activities and flow trading. This includes market making and the facilitation of client business in the
foreign exchange, interest rate, equity, credit and commodity markets. There were no incremental
and comprehensive risk capital charges.
RISK-WEIGHTED ASSETS FLOW STATEMENT OF MARKET RISK EXPOSURES UNDER IMA
Rm VaR Stressed VaR Total RWA
1 RWA at previous quarter end 7 803 7 614 15 417
2 Movement in risk levels (1 059) 2 992 1 933
6 Foreign exchange movements (2 135) (2 812) (4 947)
8 RWA at the end of reporting period 4 610 7 794 12 404
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 the LCR is being phased-in
from 60% on 1 January 2015, increasing by 10% each year to 100% on 1 January 2019.
According to Directive 11/2014 banks should disclose the LCR based on the simple average of
month-end data up to the first reporting period after 1 January 2017, where after the bank should as
a minimum disclose the LCR based on the relevant simple averages of daily data. Below are the LCR
for the group and bank based on the simple average of three month-end data points together with
the LCR for the group and bank based on the simple average of three months of daily data.
The difference between the average month-end LCR calculations and the average daily LCR
calculations can largely be attributed to a business-as-usual concentration of deposits in the first few
weeks of January each year, following the December holiday season in SA. This concentration of
deposits results in lower LCR levels in the beginning of January and typically normalises by the end of
January therefore resulting in the difference between the two calculations. Irrespective of which
calculation is used it should be noted that based on the tables below the group and bank are well
above minimum regulatory requirements.
Nedbank Group¹ Nedbank Limited
Quarterly Quarterly Quarterly Quarterly
Liquidity Coverage Ratio month-end Daily month-end Daily
average(2) Average(3) average(2) Average(3)
High Quality Liquid Assets (Rm) 145 206 141 704 140 954 137 453
Net Cash Outflows (Rm) 133 057 144 159 125 512 136 614
Liquidity Coverage Ratio (%) 109,1% 98,3% 112,3% 100,6%
Minimum requirement (%) 80% 80% 80% 80%
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 80% 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 2017, 28
February 2017 and 31 March 2017, based on the regulatory submissions to SARB.
3. The above figures reflect the simple average of daily observations over the previous quarter end
31 March 2017 for the bank and the simple average of the month-end values at 31 January 2017,
28 February 2017 and 31 March 2017 for all non-SA banking entities. The figures are 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
18 May 2017
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
Sponsors to Nedbank Limited:
Investec Bank Limited
Nedbank CIB
Date: 18/05/2017 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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