Wrap Text
Preliminary audited results for the year ended 31 December 2017
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')
Preliminary audited results for the year ended 31 December 2017
A solid performance in a volatile and challenging domestic environment
Nedbank continued to create value for all our stakeholders in a challenging political and economic environment. Our
headline earnings of R11,8bn, up 2,8%, reflect a good performance from our managed operations, with headline earnings
growth of 7,8% and a ROE (excluding goodwill) of 18,1%. Slower revenue growth was offset by reduced impairments and good
cost management, while our share of the loss from our associate ETI following its Q4 2016 results decreased in the
second half of the year as the ETI business returned to profitability.
The achievements of the last few years have provided us with a solid base and we continue delivering on our strategies
and building the capabilities that will enable us to meet the 2020 targets we have now set of an ROE (excluding
goodwill) of greater than or equal to 18% and an efficiency ratio of less than or equal to 53%. We released exciting
digital innovations such as the new Nedbank Money app, the Nedbank Private Wealth app and Karri app, chatbots and
UNLOCKED.ME (an exclusive e-commerce marketplace for millennials) and continued to gain share of transactional banking
clients in both our retail and wholesale businesses. We are actively optimising our cost base, as reflected in cost
growth at 5,1%, and maintained a strong balance sheet as evident in a CET1 ratio of 12,6%, above the top end of our
internal target range. Our strategic enablers are making a difference for our operations and for our clients as we
create a more agile, competitive and digital Nedbank.
Looking forward, 2018 started with positive changes to SA's political and socioeconomic landscape and brought renewed
prospects for higher levels of inclusive growth. Nedbank is acutely aware of the increased responsibility that we, and
indeed all businesses, have to work alongside government, labour and civil society to play our part in improving the
lives of all South Africans.
Reflecting on the impact on the group of the greater levels of business and consumer confidence evident in the early
part of 2018, an improving economic outlook, ongoing delivery on our strategy and ETI's returning to sustained levels of
profitability, our guidance for growth in diluted headline earnings per share for 2018 is to be in line with our
medium-to-long-term target of greater than or equal to GDP plus CPI plus 5%.
Mike Brown
Chief Executive
2017 results commentary
Banking and economic environment
Economic growth in developed markets improved, despite ongoing geopolitical tensions, supported by accommodative
monetary policies and stronger manufacturing production, and reinforced by increased global trade. Emerging and
developing economies also improved as a consequence of better-than-expected growth in China and higher global commodity
prices. Emerging-market equity and bond markets benefited from increased capital inflows as global investors search for
higher yields.
SA's slow economic recovery continued into the second half of the year, with 2017 GDP growth estimated at 0,9%, driven
mainly by a recovery in agricultural production following good summer rainfall and some improvement in mining production
in response to stronger global demand and firmer international commodity prices. A revival in consumer spending added
further momentum in the second half of 2017 as households benefited from lower inflation and the marginal reduction in
interest rates in July. Despite this recovery and reflective of weak business and consumer confidence, business volumes
in 2017 were generally lower than in the prior year, as evident in client loan applications across multiple products and
in slower client trading activity.
The pace of economic activity picked up moderately in sub-Saharan Africa, with agricultural and mining output recovering
on the upturn in global demand and international commodity prices, and the prolonged El Niño-induced drought finally
broke in many countries. According to the International Monetary Fund (IMF), sub-Saharan Africa is expected to record
GDP growth of 2,6% in 2017.
Domestic inflation averaged 5,3% in 2017, significantly lower than the 6,4% recorded in 2016, brought about mainly by
sharply lower food inflation given the strong summer harvest. Relatively moderate and selective consumer demand coupled
with a resilient rand also helped contain price pressures during the course of the year. After a year of volatile trade
the rand ended 2017 2,5% stronger against the trade-weighted basket of currencies. The largest gains occurred near
year-end as sentiment surged following the election of Mr Cyril Ramaphosa as the new leader of the ruling ANC in
mid-December on expectations of a change in the country's leadership, improved governance and structural reforms that
are likely to support investment and higher levels of inclusive growth.
After cutting the repo rate by 25 bps to 6,75% in July, SARB's Monetary Policy Committee left interest rates unchanged
at both the September and November 2017 policy meetings. The central bank's more cautious approach was driven by
concerns over the upside risk that the rand posed to the inflation outlook at that time. Fears mounted that SA's
rand-denominated sovereign debt ratings could be downgraded to subinvestment grade by all three major rating agencies,
given the escalation in political uncertainty and the sharp deterioration in the country's fiscal position, as set out
in the Medium Term Budget Policy Statement.
In November 2017 Fitch affirmed the country's BB+ rating with a stable outlook (one notch below investment grade).
Moody's placed SA's Baa3 foreign and local currency ratings on review for downgrade, with the decision to follow the
2018 National Budget in February. However, S&P Global downgraded SA's local currency rating to BB+ (one notch below
investment grade) and our foreign currency rating to BB (two notches below investment grade), while changing the rating
outlook to stable. All three rating agencies highlighted similar concerns, including weaker-than-expected public
finances, weak economic growth, ineffective government spending and policies as well as the paralysing impact of
political infighting and poor governance.
Review of results
Nedbank produced a solid performance in a domestic macro and political environment that has proved volatile and
challenging. Headline earnings, including losses in associate income from ETI of R744m, increased 2,8% to R11 787m. This
translated into an increase in DHEPS of 2,4% to 2 406 cents and an increase in HEPS of 2,2% to 2 452 cents. As in prior
periods, we highlight our results both including and excluding ETI (referred to as managed operations) to provide a
better understanding of the operational performance of the business given the volatility in ETI's results in 2016 and
2017. However, we will revert to group-level reporting in 2019. Our managed operations produced headline earnings growth
of 7,8% to R12 762m, with slower-than-expected revenue growth more than offset by reduced impairments and good cost
management.
ROE (excluding goodwill) and ROE remained flat at 16,4% and 15,3% respectively. ROE (excluding goodwill) in managed
operations also remained stable at 18,1%. ROA decreased 0,01% to 1,22% and, excluding ETI, ROA in managed operations
improved from 1,29% to 1,33%. Return on RWA increased from 2,23% to 2,30%.
Our CET1 and tier 1 capital ratios of 12,6% and 13,4% respectively, average LCR for the fourth quarter of 116,2% and an
NSFR of above 100%, are all Basel III-compliant and are a reflection of a strong balance sheet. On the back of solid
earnings growth in managed operations and a strong capital position, a final dividend of 675 cents was declared, an
increase of 7,1%. The total dividend per share increased 7,1% to 1 285 cents.
Delivering sustainably to all our stakeholders
Nedbank continues to play an important role in society and in the economy, and we remain committed to delivering on our
purpose of using our financial expertise to do good and contributing to the societies in which we operate by delivering
value to our staff, clients, shareholders, regulators and society.
For staff
We had 31 887 staffmembers in our employ, invested R355m in training and paid salaries and benefits of R16,5bn. As part
of our People 2020 groupwide programme aimed at transforming and aligning our leadership culture and talent to our
strategic objectives, we refreshed our executive management programmes to be more digitally focused. We brought together
500 of our leaders across the group at the Leadership Accelerator to ensure the adoption of new insights that will drive
accelerated levels of change. We are implementing New Ways of Work practices to transform Nedbank into a more agile
organisation, holistically rethinking the way we work, communicate and manage talent on our journey to creating a
high-performing culture. Transformation remains a key imperative and we have continued to focus on this fundamental
change across all levels at Nedbank, from our board of directors to all our staffmembers. Currently black representation
at board level is 61%, at executive level 50% and 78% for our total staff. A total of 62% of our staff is female.
For clients
Our clients' access to banking improved through our network of 1 003 Intelligent Depositor devices and we increased the
total number of digitally focused new-image branches to 336 or 55% of all outlets. Digitally active and enabled clients
grew as we launched new market-leading digital innovations, with the new Nedbank Money app having been downloaded more
than 300 000 times since its launch in November 2017. We supported our clients by advancing R153bn of new loans in 2017.
Our Net Promoter Score is second-highest among full-service banks in SA. Nedgroup Investments has grown to be the
fifth-largest unit trust manager and fourth-largest offshore unit trust manager in SA, with overall assets under
management growing by 14% to R312bn. Nedgroup Investments has for the third consecutive year maintained its first
position in the 2017 Annual Raging Bull Awards offshore category.
For shareholders
Nedbank's net asset value per share increased 7,3% to 16 990 cents, with our share price up 7,5% over the year. Our
total dividend increased 7,1%, ahead of growth in HEPS. We engaged constructively with shareholders in over 400 meetings
in the past 12 months, and at our 50th annual general meeting all resolutions were passed, with more than 90% of votes
in favour. We ensure transparent, relevant and timeous reporting and disclosure to shareholders, as acknowledged by the
Nedbank Group Integrated Report having been ranked in the top tier of JSE-listed companies. Nedbank's valuation metrics
remain attractive with price/earnings and price-to-book ratios of 10,4 times and 1,5 times respectively and a dividend
yield of 4,8% at 31 December 2017.
For regulators
We maintained Basel III requirements ahead of full compliance timelines. We improved the group's capital position,
achieving a CET1 ratio of 12,6%, strengthened the average LCR ratio to 116,2% in the fourth quarter of 2017 and
maintained an NSFR of above 100%, positioning us well for the compliance date of 1 January 2018. We have invested over
R100bn in government and public sector bonds as part of our HQLA requirements and, in doing so, remain committed to
making a meaningful contribution to the countries in which we operate, thereby appropriately supporting the funding
needs of governments. Cash taxation contributions of R9,8bn were made relating to direct, indirect, pay-as-you-earn and
other taxation, increasing from R8,9bn in 2016. We continued to work closely with all our regulators to ensure efficient
delivery of the various regulatory programmes, and implemented IFRS 9 and IFRS 15 on 1 January 2018, with an estimated
impact of less than 20 bps on our CET1 ratio at 1 January 2018.
For society
We understand that our long-term success is contingent on the degree to which we deliver value to society. We have
defined our purpose as ‘using our financial expertise to do good for individuals, families, businesses and society'. It
follows then that it is through the considered development and delivery of products and services that satisfy societal
needs that we can enable a thriving society, create long-term value, maintain trust and ensure the success of our brand.
This is particularly important in the current context of SA.
In addition to the R66bn made available to retail clients in new loans and advances in 2017, evidence of how we have
delivered on our purpose includes:
- A focus on sustainable-development finance that was evident in more than R1,1bn of new lending to support student
accommodation, R1,3bn lent to construct green buildings, R18,4bn dispersed for renewable-energy deals and R863m to
affordable-housing developments.
- Having maintained our level 2 broad-based black economic empowerment (BBBEE) contributor status for nine years, as
well as in 2017 when the Amended Financial Sector Code (FSC), gazetted in terms of section 9(1) of the BBBEE Act,
53 of 2003, came into effect on 1 December 2017. We invested R168m in socioeconomic development, with more than
50% allocated to education and 75% of our procurement spend used to support local SA business. While Nedbank has
achieved industry leadership based on the old FSC, we recognise that the Amended FSC, which comprises stricter
weighting, higher targets and higher thresholds, will lead to an industry rebasing and as a result possibly lower
BBBEE levels in future.
- Water efforts focused on support for drought-impacted clients and national relief efforts as well as our own
internal reduction initiatives.
- Continuing to participate in the CEO Initiative, working with government, business and labour towards a more
inclusive SA society. We committed R20m to the R1,5bn SME Fund and will become one of the first participants in
the Youth Employment Scheme, in which we, as corporate SA, aim to provide internship opportunities for more than
one million South Africans.
It was pleasing to have some of our efforts to build a thriving society recognised by external bodies. These included
being recognised as the winner at the 2017 Independent Top Empowered Companies Awards (in conjunction with Business
Report, Empowerdex and Intellidex), being included as a member of the Carbon Disclosure Project Climate A-list
(recognition for efforts to address climate change) and being the only African company among the top 20 in the global
2017 Thomson Reuters Diversity and Inclusion Index, which is informed by environmental, social and governance outcomes.
Cluster financial performance
Nedbank's managed operations generated headline earnings growth of 7,8% to R12 762m and delivered an ROE (excluding
goodwill) of 18,1%. CIB and Wealth were impacted the most by the challenging operating environment, RBB made a strong
earnings contribution and RoA subsidiaries delivered an improved performance off a low base.
Change Headline earnings ROE (excluding goodwill)
(%) (Rm) (%)
2017 2016 2017 2016
CIB 5,0 6 315 6 014 20,7 21,1
RBB 6,9 5 302 4 960 19,1 18,9
Wealth (10,4) 1 068 1 192 27,5 35,2
RoA subsidiaries 89,7 165 87 3,3 2,1
Centre 78,7 (88) (414)
Nedbank managed operations 7,8 12 762 11 839 18,1 18,0
ETI (> 100) (975) (374)
Group 2,8 11 787 11 465 16,4 16,5
CIB maintained an attractive ROE of above 20% and produced solid results, driven by lower credit losses and good expense
management. Revenue lines were affected by slowing economic activity as clients postponed projects and borrowed and
transacted less. Early repayments and managed settlements, together with slower drawdowns resulted in weaker advances
growth, although the pipelines remained stable. Credit quality remained strong through proactive risk management as we
continued to monitor stressed sectors of the economy, such as certain areas in retail and certain state-owned
enterprises, closely.
RBB delivered an improved ROE and good headline earnings growth, underpinned by solid transactional NIR growth, lower
impairments and expense growth, and achieved PPOP growth of 4,0%. NII was underpinned by solid growth in advances and
strong growth in deposits, offset by a lower NIM due in part to the impact of prime–JIBAR squeeze. Lower expense growth
reflects the initial impact of optimising processes and operations, including headcount reductions.
Nedbank Wealth maintained an attractive ROE, although headline earnings were impacted by subdued markets and negative
investor sentiment, further compounded by entropic weather conditions and the strengthening rand, as well the once-off
profit from the sale of our Visa share in the 2016 base.
RoA headline earnings were negatively impacted by the fourth-quarter 2016 ETI associate loss accounted for quarterly in
arrear. The loss was reported on in our interim results and was followed by subsequent quarterly profits from ETI up to
30 September 2017. Our subsidiaries grew headline earnings off a low base, supported by the consolidation of Banco Único
(included for three months in 2016), notwithstanding continued investment in infrastructure, systems and skills.
The improvement in the Centre was largely due to the R350m release from the central provision, of which R150m was in the
first half of the year, and fair-value gains on certain hedging portfolios.
Financial performance
Net interest income
NII increased 4,5% to R27 624m, ahead of average interest-earning banking asset growth of 2,2% (adjusted for the removal
of the liquid-asset portfolio).
NIM expansion of 8 bps to 3,62% (2016: 3,54% rebased) was largely driven by an endowment benefit of 5 bps and improved
asset mix changes of 8 bps. Asset pricing pressure, in part due to the NCA interest rate caps, the narrowing of the
prime–JIBAR spread and the increased cost associated with enhancing the funding profile each reduced NIM by 2 bps.
Impairments charge on loans and advances
Impairments decreased by 27,5% to R3 304m. The CLR declined by 0,19% to 0,49%, driven by lower specific impairments
mostly from resolutions and settlements in CIB. The decrease in impairments reflects the quality of the portfolio across
all our businesses and we have specific coverage ratios levels of 36,2%.
Impairments in CIB declined by 82,4% to R193m, driven by lower specific impairments relating largely to resolutions of
historic client matters. Impairments are individually determined in CIB and 84% of impairments are concentrated in
approximately 10 counters. RBB impairments declined by 1,2% to R3,2bn as a result of ongoing lower risk origination
strategies and an improvement in collections. The decrease in unsecured lending and home loan CLRs reflects the benefits
of historic selective origination improving the quality of the book over time and the release of additional impairment
overlays previously raised for risks and events that did not materialise. Continued proactive collection and resolution
strategies within CIB and RBB contributed to group writeoffs decreasing 6,0% to R4 675m and postwriteoff recoveries
increasing 5,8% to R1 224m.
The group's central provision decreased to R150m (from R500m at 31 December 2016 and R350m in June 2017) as a result of
risks that had previously been identified but had not materialised. The balance is retained for prudency in a volatile
macroeconomic environment. Excluding the central provision release, the group CLR would have been 0,54%.
CLR (%) Banking advances (%) 2017 2016 TTC target ranges
CIB 47,3 0,06 0,34 0,15–0,45
RBB 45,5 1,06 1,12 1,30–1,80
Wealth 4,3 0,09 0,08 0,20–0,40
RoA 2,9 1,02 0,98 0,65–1,00
Group 100,0 0,49 0,68 0,60–1,00
All business units successfully applied selective origination strategies that enabled an overall derisking of the
advances portfolio, leading to defaulted advances remaining flat at R19,6bn. Lower defaulted advances in CIB resulting
from positive client resolutions were offset by increased defaulted advances in RBB.
The decrease in specific coverage from 37,4% to 36,2% was primarily due to lower specific coverage in RBB as well as
increased resolutions of various client issues in CIB resulting in lower specific impairments. The lower coverage
reflects increased performing defaults in RBB and the recovery success in CIB. Nedbank considers the coverage ratios
appropriate given the higher proportion of wholesale lending, compared with the mix of its peers, high recovery rates
and the collateralised nature of the commercial-mortgages portfolio, with low loan-to-value ratios.
Portfolio coverage increased marginally from 0,69% to 0,70%, reflecting the offsetting effects of higher portfolio
impairments due to stronger advances growth in RBB and the reduction of the central provision and RBB overlays.
Non-interest revenue
NIR growth of 2,4% to R24 063m reflects the impact of weak business and consumer confidence levels.
- Commission and fee income grew 4,0% to R17 355m. RBB reported good transactional NIR growth of 6,0%,
notwithstanding an increasing number of clients who are transacting within fixed-rate bundles and spending less.
CIB experienced lower corporate activity off a high base the previous year.
- Insurance income decreased 9,3% to R1 566m as a result of an abnormal number of significant weather-related
claims, lower homeowner's cover and credit life volumes, and an increase in lapses.
- Trading income increased 3,7% to R3 900m, given muted activity levels among wholesale clients, particularly in the
second half of the year, and avoidance of the potential negative impacts in markets around event risks such as
political changes and credit rating downgrades.
- Private-equity income, including positive realisations in the Commercial Property Finance portfolio, decreased
23,7% to R708m, given the high base in the comparative period.
Expenses
Expense growth of 5,1% to R29 812m was below inflation and in line with the guidance we provided for the full 2017 year
(being growth of mid-single digits), demonstrating disciplined and careful management of discretionary expenses in an
environment of slower revenue growth. The underlying movements included:
- Staff-related costs increasing at a slower rate of 6,5%, following:
- an average annual salary increase of 6,5% and a 859 reduction in staff numbers since December 2016; and
- a 0,1% decrease in short-term incentives.
- Computer-processing costs increasing 3,8% to R4 201m off a higher base the previous year.
- Fees and insurance costs being 7,8% higher at R3 277m, due mostly to additional regulatory-related costs.
The group's growth in expenses exceeded total revenue growth (including associate loss) of 2,1% (3,2% in managed
operations), resulting in a negative JAWS ratio of 3,0% and an efficiency ratio of 58,6%, compared with 56,9% in 2016.
Excluding associate income, our efficiency ratio was 57,8%. Expense growth, excluding RoA where we continued to invest
in distribution, technology and new-product rollouts, was 4,3%.
Earnings from associates
The loss of R838m in earnings from associates was attributed largely to ETI's loss of R1 203m in the fourth quarter of
2016 (announced on 18 April 2017), partly offset by the profit of R459m reported by ETI for the nine months to 30
September 2017, in line with our policy of accounting for ETI earnings a quarter in arrear. The total effect of ETI on
the group's headline earnings was a loss of R975m, including the R321m impact of funding costs.
Accounting for this associate loss, together with Nedbank's share of ETI's other comprehensive income and movements in
Nedbank's foreign currency translation reserves, resulted in the carrying value of the group's strategic investment in
ETI declining from R4,0bn at 31 December 2016 to R3,3bn at 31 December 2017. Since the introduction of the new foreign
exchange regime by the Central Bank of Nigeria on 21 April 2017, confidence has improved and the Nigerian banking index
has increased by 73%. In line with this ETI's quoted share price – albeit illiquid – increased by 65% during 2017 which
resulted in the market value of the group's investment in ETI increasing during the year to R3,6bn at 31 December 2017
and R4,1bn at 28 February 2018. While risks remain, the actions taken to improve ETI's financial position and
governance, along with an improving macroeconomic environment, is expected to drive an improved financial performance
from ETI in 2018.
As required by IFRS, the R1bn impairment provision recognised at 31 December 2016 was reviewed at 31 December 2017 and
it was determined that currently no change to the provision was required.
A R96m associate loss was incurred due to operational losses in an associate, which is the cash-processing supplier to
the four large banks.
Statement of financial position
Capital
The group continued to strengthen its capital position, with our CET1 ratio of 12,6% now above the top end of our
internal target range of 10,5–12,5%, following organic capital generation through earnings growth, lower asset growth
and some RWA optimisation.
In the current environment of slower advances growth, capital generation has been stronger following lower credit RWA
growth and continued refinement of Basel models. This was partially offset by the impact of the rand strengthening at
the back end of 2017, which adversely impacted foreign currency translation reserves and led to higher credit valuation
adjustment RWA. Higher levels of equity exposure resulted in increased equity RWA. As a result overall RWA increased
3,7% to R528,2bn.
The group's tier 1 ratio improved to 13,4% and includes the issuance of R600m of new-style additional tier 1 capital
instruments during the year, offsetting the progressive grandfathering of old-style perpetual preference shares as we
transition towards end-state Basel III requirements. The group's total capital ratio has improved to 15,5% and includes
the issuance of R2,5bn of new-style tier 2 capital instruments during the year, partially offsetting the redemption of
R3,0bn in old-style tier 2 capital instruments.
Basel III (%) 2017 2016 Internal target range Regulatory minimum(1)
CET1 ratio 12,6 12,1 10,5–12,5 7,25
Tier 1 ratio 13,4 13,0 > 12,0 8,75
Total capital ratio 15,5 15,3 > 14,0 10,75
(Ratios calculated include unappropriated profits.)
(1) The Basel III regulatory requirements are being phased in between 2013 and 2019, and exclude any idiosyncratic or
systemically important bank minimum requirements.
Funding and liquidity
Optimising our funding profile and maintaining a strong liquidity position remain a priority for the group, especially
in the current environment.
The group's three-month average long-term funding ratio was 27,0% for the fourth quarter of 2017, supported by growth in
Nedbank Retail Savings Bonds of R5,7bn to R24,9bn and the successful capital market issuances of R3,5bn senior unsecured
debt, R2,5bn new-style tier 2 debt and R1,0bn in securitisation notes.
The group's quarterly average LCR of 116,2% exceeded the minimum regulatory requirement of 80% in 2017 and 90% effective
from 1 January 2018. The group maintains appropriate operational buffers designed to absorb seasonal and cyclical
volatility in the LCR.
Nedbank Group LCR 2017 2016
HQLA (Rm) 138 180 137 350
Net cash outflows (Rm) 118 956 125 692
Liquidity coverage ratio (%)(3) 116,2 109,3
Regulatory minimum (%) 80,0 70,0
(3) Average for the quarter.
Further details on the LCR are available in the table section of the Securities Exchange News Service (SENS)
announcement.
Nedbank's portfolio of LCR-compliant HQLA increased by 0,6% to a quarterly average of R138,2bn. Notwithstanding the low
growth in HQLA, the LCR still increased yoy as a result of a decrease in LCR net cash outflows attributable to a
positive tilt in our deposit mix towards proportionally more Basel III-friendly deposits in the form of RBB and Wealth
deposits together with market share gains in commercial deposits. The HQLA portfolio, taken together with our portfolio
of other sources of quick-liquidity, resulted in total available sources of quick liquidity of R195,4bn, representing
19,9% of total assets.
Nedbank has maintained the NSFR at above 100% on a pro forma basis and is compliant with the minimum regulatory
requirements that are effective from 1 January 2018.
Loans and advances
Loans and advances increased by 0,5% to R710,3bn, driven by solid growth in RBB offset by a decline in term and other
loans in CIB.
Loans and advances by cluster are as follows:
Rm Change (%) 2017 2016
CIB (3,8) 356 029 370 199
Banking activities (3,1) 324 673 335 113
Trading activities (10,6) 31 356 35 086
RBB 5,3 305 198 289 882
Wealth 2,9 29 413 28 577
RoA 4,9 20 541 19 582
Centre(4) 26,7 (852) (1 163)
Group 0,5 710 329 707 077
(4) Intercompany eliminations.
RBB loans and advances grew 5,3% to R305,2bn, with MFC (vehicle finance) increasing by 8,6% as new-business volumes
improved despite the contracting vehicle sales market. RBB's growth was achieved across all asset classes by increasing
the contribution from lower-risk clients in line with risk appetite and prudent origination strategies. We take comfort
in the quality and overall performance of the unsecured-lending portfolio based on the conservative rules we apply to
consolidation, restructuring and term strategies. Home loans grew at below-inflation levels, but market share was
maintained.
CIB loans and advances decreased 3,8% to R356,0bn due to a combination of unexpected early repayments and managed
selldowns, which allowed for the diversification of risk. Demand for new loans was weak as a result of muted client
capital expenditure in a competitive market in the subdued economic climate. Commercial-mortgage loans and advances grew
by 6,5% to R161,6bn, maintaining our leading share of the SA market. The portfolio contains good-quality collateralised
assets with low LTVs, underpinned by a large secure asset pool and a strong client base, and is managed by a highly
experienced property finance team.
Deposits
Deposits grew 1,3% to R771,6bn, with total funding-related liabilities increasing 1,2% to R823,2bn, while the
loan-to-deposit ratio improved to 92,1%.
Through the active management of the RBB franchise, deposits grew 8,5% to R295,3bn, resulting in household deposits
market share gains increasing yoy to 18,9% from 18,7%, supported by Nedbank's strong market share in household current
account deposits of 19,1%. Through the growth in current accounts, savings and fixed deposits and other structured
deposits Nedbank has successfully reduced the proportion of funding from negotiable certificates of deposit as well as
more expensive foreign currency funding used in the general rand funding pool.
This positive tilt towards more Basel III-friendly deposits achieved across RBB, Nedbank Wealth and RoA and through
market share gains in commercial deposits has resulted in lower HQLA and long-term funding requirements as well as a
stronger LCR in terms of ensuring cost-effective regulatory compliance and a strong balance sheet position.
Group strategic focus
During 2017 we continued to focus on delivering on our five strategic focus areas designed to make Nedbank a more agile,
competitive and digital bank, and underpin sustainable earnings growth and improving returns.
- Delivering innovative market-leading client experiences. We launched various market-leading innovations such as
the new Nedbank Private Wealth mobile app. This was one of the first products delivered through our Digital Fast
Lane capability. It ranked joint sixth in the global Mobile Apps for Wealth Management 2017 survey and was placed
third among 600 apps in the Best Enterprise Solution category at the MTN Business App of the Year Awards. The new
Nedbank Money app, which makes banking more convenient for our retail clients, was downloaded more than 300 000
times since November 2017. We launched UNLOCKED.ME, an exclusive e-commerce marketplace for millennials. Karri,
our mobile payment app that enables users to make cash-free payments for school activities quickly, securely and
hassle-free, has been rolled out to more than 100 schools across the country. In Nedbank Wealth we piloted geyser
telemetry, an innovative smart home solution that reduces electricity consumption. As far as our integrated
channels are concerned, we have converted 55% of our outlets to new-image branches to date, and our investment in
distribution channels over the next three years (until 2020) will result in 73% of our retail clients being
exposed to the new-image branch format and self-service offerings. The introduction of chatbots and robo-advisors
will continue to enhance client experiences through our contact centre and web-servicing capabilities. We launched
NZone, our digital self-service branch at the Sandton Gautrain station, as well as Africa's first solar-powered
branch to enable banking in deep-rural communities. The foundations put in place through Managed Evolution (our
core systems and technology platform transformation), digital enhancements and New Ways of Work will lead to
ongoing incremental digital benefits and enhanced client service. In 2018 Nedbank will bring further exciting
digital innovations to market to enhance client experiences and drive efficiencies. Some of these include a
refreshed internet banking experience in line with our mobile banking apps, the ability to sell an unsecured loan
bundled with a transactional account, simplified client onboarding with convenient, FICA-compliant account opening
from your couch, a new and exciting loyalty and rewards solution, and further rollout of chatbots, robo-advisors
and software robots (robotic process automation).
- Growing our transactional banking franchise faster than the market. Nedbank's RBB franchise grew its total client
base 1,6% to 7,5 million, with 6,0 million clients having a transactional account and 2,8 million main-banked
clients supporting retail transactional NIR growth of 6,0%. Our main-banked client numbers remained flat as slower
transactional activity caused some of our existing clients to fall outside our main-banked definition,
particularly in the youth segment, while the middle-market, professional and small business client segments
continued to increase. The newly launched Consulta survey estimates Nedbank's share of main-banked clients at
12,7%, up from the 10,1% recorded through the 2015 AMPS survey (using a similar methodology) as we aim to reach a
share of more than 15% by 2020. Our integrated model in CIB enabled deeper client penetration and increased
cross-sell, resulting in 26 primary-bank client wins in 2017.
- Being operationally excellent in all we do. Cost discipline is an imperative in an environment of slower revenue
growth. We have ongoing initiatives to ensure this, such as having reduced our core systems from 251 to 129 since
inception of the Managed Evolution programme, with us being well on our way to reaching a target end state of less
than 60 core systems by 2020; and the reduction of floor space in RBB by more than 30 000 m² by 2020; of which 24
485 m² has been achieved to date. We worked with our sister companies in the Old Mutual Group to deliver synergies
of just in excess of R1bn, R393m of which accrued to Nedbank. Good progress was also made with our target
operating model (TOM) initiatives, which aim at generating R1,0bn pretax benefits for Nedbank by 2019 (and R1,2bn
by 2020) and are linked to our long-term incentive scheme. Most cost initiatives have been identified in RBB and
we delivered savings of R621m in 2017, which includes TOM savings. During the year we reduced headcount by 859
(mostly through natural attrition), optimised our staffed points of presence by closing 32 inretailer and 53
personal-loan outlets (while maintaining our coverage of the bankable population at 84%). We achieved efficiencies
through the recycling of cash through our increased footprint of Intelligent Depositor devices. Four
client-servicing functions, previously only accessible through branches, as well as the new Nedbank Money app were
launched during the fourth quarter of 2017, while another 33 are planned for deployment across our digital
channels by March 2018. We implemented 50 software robots (robotic process automation) to enhance efficiencies and
reduce processing errors in administrative-intense processes, with more than 200 planned for rollout in 2018.
- Managing scarce resources to optimise economic outcomes. We maintained our focus on growing activities that
generate higher levels of EP, such as growing transactional deposits and increasing transactional banking
revenues, with commission and fees in RBB up 5,3%, and achieved earnings growth of 6,9% in RBB and 5,0% in CIB.
Our selective origination of personal loans, home loans and commercial-property finance has proactively limited
downside risk in this challenging operating climate, enabling a CLR of 0,49%, below the bottom end of our TTC
target range. At the same time our balance sheet metrics remain strong and we continue to deliver dividend growth
above the rate of HEPS growth.
- Providing our clients with access to the best financial services network in Africa.
- In Central and West Africa ETI remains an important strategic investment for Nedbank, providing our clients with
access to a pan-African transactional banking network across 39 countries and Nedbank with access to dealflow in
Central and West Africa. We have made good progress in working with ETI's board and other institutional
shareholders to strengthen its board and management. We have increased our board representation and our
involvement in the group as Brian Kennedy joined Mfundo Nkuhlu on ETI's board. Mfundo was appointed Chair of the
ETI Risk Committee and Brian was appointed to the Remuneration and Audit Committees. Risk management practices are
being enhanced and the audit of ETI's 2017 interim results provides comfort that the risk of another
fourth-quarter loss as in 2015 and 2016 has decreased. We are pleased that ETI reported a profit for the nine
months to 30 September 2017. We remain supportive of ETI's endeavours to deliver an ROE in excess of its COE over
time. While risk remains, economic conditions in Nigeria and other economies in West Africa are improving and ETI
should provide a strong underpin to Nedbank Group's earnings growth in 2018.
- In SADC we continue to build scale and optimise costs. Our core banking system, Flexcube, which was successfully
rolled out in Namibia in 2016, was also implemented in Lesotho, Malawi and Swaziland in 2017 and we plan to roll
it out in Zimbabwe during 2018. We also launched a number of new digital products and we continue to grow our
distribution footprint. As a result, clients increased 14% and online digital activations were up 22%. The
acquisition of a majority stake in Banco Único in 2016 continued to deliver value and positioned Nedbank well to
leverage off higher levels of economic growth in Mozambique. In 2018 we will rebrand MBCA in Zimbabwe to Nedbank
while completing the last of our core banking system implementations in our subsidiaries.
Old Mutual plc managed separation
On 1 November 2017 Old Mutual plc announced that the strategic minority shareholding to be retained in Nedbank Group by
Old Mutual Limited (OML) to underpin the ongoing commercial relationship between the companies has been agreed at 19,9%
of the total Nedbank Group ordinary shares in issue, as held by shareholder funds. This followed the 11 March 2016
announcement by Old Mutual plc about the Old Mutual managed separation, and the subsequent communication on 25 May 2017
in which Old Mutual plc stated that the new SA holding company, to be named OML, would retain a strategic minority
shareholding in Nedbank Group after the implementation of the managed separation. The 19,9% shareholding will be held by
OML, which will have a primary listing on JSE Limited and a secondary listing on the London Stock Exchange. OML will be
listed at the earliest opportunity in 2018, following the publication of Old Mutual plc's 2017 full-year results.
The decrease in OML's shareholding in Nedbank Group will be achieved through the unbundling of Nedbank Group ordinary
shares to OML's shareholders. This will result in OML, immediately after the implementation of unbundling, holding a
19,9% strategic minority shareholding in Nedbank Group. The unbundling will occur at an appropriate time and in an
orderly manner, after the listing of OML and allowing suitable time for the transition of the OML shareholder register
to an investor base with an SA and emerging-market focus and mandate. After the unbundling, Nedbank Group is likely to
see an increase in the number of its shares held by emerging-market-mandated index funds, which will adjust according to
the improved free float (from about 45% before unbundling to about 80% after unbundling) and a normalisation of SA
institutional shareholding (some of which are currently underweight on a straight-market-capitalisation basis given some
Nedbank Group holding through the Old Mutual plc shareholding). As part of this process Nedbank Group will continue to
market itself as an attractive investment for local and international investors.
Nedbank Group will continue business as usual and the managed separation will have no impact on our strategy, our
day-to-day management or operations, our staff and our clients. Our engagements have been at arm's length and overseen
by independent board structures. Old Mutual operates predominantly in the investment, savings and insurance industry,
which has little overlap with banking, even though we compete in the areas of wealth and asset management and personal
loans. Our technology systems, brands and businesses have not been integrated.
As noted before, our collaboration with Old Mutual to unlock synergies by the end of 2017 was successful. Future
synergies will continue to be underpinned by OML's strategic shareholding in Nedbank Group. We are fully committed to
working with OML to deliver ongoing synergistic benefits at arm's length.
Economic and regulatory outlook
While structural challenges remain, 2018 has started with renewed optimism that these will be addressed and that
improving business and consumer confidence should lead to a cyclical upturn off a low base. The SA economy is forecast
to grow about 1,6% in 2018 as a resilient world economy and relatively firm international commodity prices are expected
to provide further support to domestic production and exports. Business and consumer confidence should also improve from
very weak levels in 2017, boosted by newly elected SA President Ramaphosa's promises to restore good governance, take
immediate action against corruption and state capture, and make changes to many cabinet portfolios. Moderate growth in
consumer spending and credit are forecast for 2018, while fixed investment, as well as government consumption and
capital expenditure, is forecast to remain subdued.
The recovery in sub-Saharan Africa is expected to gather pace in 2018, underpinned by the ongoing global commodity price
upswing as well as improved government finances and structural reforms in some African countries. The International
Monetary Fund expects sub-Saharan Africa to grow faster at 3,4% this year.
Domestic inflation is forecast to recede moderately in the early part of 2018, before edging higher towards the end of
the year, averaging about 5,1% over the year as a whole. Early in the year a stronger rand, coupled with easing food and
fuel prices, should help contain inflation off the higher base that prevailed at the start of 2017. The rand remains the
key risk to the inflation outlook. High expectations of political, policy and fiscal reforms have been built into the
rand's recent rally. If the new ANC leadership fails to deliver, especially on the fiscal concerns, SA still runs the
risk of being downgraded to universal subinvestment grade status, which could place the rand under pressure and alter
the inflation outlook for the year. Given these uncertainties, the anticipated rise in US interest rates, the gradual
tapering of quantitative easing programmes by other major central banks and the expected upturn in the domestic
inflation cycle towards year-end, the SARB's Monetary Policy Committee is forecast to keep interest rates unchanged at
current levels throughout 2018 and into 2019.
Fitch indicated that a failure to implement credible fiscal consolidation and any further economic deterioration could
trigger another rating downgrade. S&P will act if both the economy and standards of public governance weaken further,
while Moody's will downgrade the country if the measures to address the fiscal funding gap lack credibility or the
chosen structural reforms fail to encourage investment and growth.
Overall economic conditions should improve off a low base and, despite the many challenges faced by the SA economy, the
SA banking system remains sound, liquid and well capitalised.
Prospects
Our guidance on financial performance for the full year 2018 is currently as follows:
- Average interest-earning banking assets to grow in line with nominal GDP.
- NIM to be slightly above the 2017 level of 3,62%.
- CLR to increase into the bottom half of our target range of 60 to 100 bps (under IFRS 9).
- NIR to grow above mid-single digits.
- Associate income to be positive (ETI associate income reported quarterly in arrear).
- Expenses to increase by mid-single digits.
Given the loss in associate income from ETI in the 2017 base and continued delivery on the Nedbank strategy, our
financial guidance is for growth in DHEPS for the full 2018 year to be in line with our medium-to-long-term target of
greater than or equal to GDP + the consumer price index + 5%.
The outlook for our medium-to-long-term targets in 2018 is as follows, and we have now set ourselves specific 2020
targets of ROE (excluding goodwill) of greater than or equal to 18% and cost to income of lower than or equal to 53% as
a pathway to ongoing and sustainable improvements in the key metrics that support shareholder value creation.
Metric 2017 performance Full-year 2018 outlook Medium-to-long-term target
ROE (excluding goodwill) 16,4% Improves, but remains below target 5% above COE(5) (> 18% by 2020)
Growth in DHEPS 2,4% >= consumer price index + GDP growth + >= consumer price index +
5%, supported by ETI recovery GDP growth + 5%
CLR 0,49% Increases into the bottom half of our Between 0,6% and 1,0% of average banking advances
target range (under IFRS 9)
NIR-to-expenses ratio 80,7% Improves, but remains below target > 85%
Efficiency ratio (including 58,6% Improves, but remains above target 50–53% (<= 53% by 2020)
associate income)
CET1 capital adequacy ratio 12,6% Within or above target 10,5–12,5%
(Basel III)
Economic capital Internal Capital Adequacy Assessment Process (ICAAP):
A debt rating, including 10% capital buffer
Dividend cover 1,91 times Within target range 1,75–2,25 times
(5) The COE is forecast at 13,2% in 2018.
Shareholders are advised that these forecasts are based on organic earnings and our latest macroeconomic outlook, and
have not been reviewed or reported on by the group's auditors.
Board and leadership changes during the period
Tom Boardman and David Adomakoh resigned from the board as independent non-executive directors with effect from the end
of Nedbank Group's Annual General Meeting on Thursday, 18 May 2017.
Neo Dongwana and Linda Manzini were appointed as independent non-executive directors of the group with effect from 1
June 2017 and Hubert Brody with effect from 1 July 2017.
Thulani Sibeko, Group Executive of Group Marketing, Communications and Corporate Affairs, resigned with effect from 27
June 2017. In October 2017 Abe Thebyane, Group Executive of Human Resources, announced his early retirement, to be
effective on the appointment of a suitable successor to ensure a seamless handover of responsibilities. These positions
are expected to be filled in the first half of 2018.
Basis of preparation*
Nedbank Group Limited is a company domiciled in SA. The summary consolidated financial statements of the group at and
for the year ended 31 December 2017 comprise the company and its subsidiaries (‘group') and the group's interests in
associates and joint arrangements.
The summary consolidated financial statements comprise the summary consolidated statement of financial position at 31
December 2017, summary consolidated statement of comprehensive income, summary consolidated statement of changes in
equity and summary consolidated statement of cashflows for the year ended 31 December 2017 and selected explanatory
notes, which are indicated by the symbol*. The summary consolidated financial statements and the full set of
consolidated financial statements have been prepared under the supervision of Raisibe Morathi CA(SA), the Chief
Financial Officer.
The summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited
Listings Requirements for preliminary reports, and the requirements of the Companies Act applicable to summary financial
statements. In terms of the Listings Requirements preliminary reports have to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of IFRS and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards
Council and also, as a minimum, to contain the information required by IAS 34 Interim Financial Reporting. The
accounting policies applied in the preparation of the consolidated financial statements, from which the summary
consolidated financial statements were derived, are in terms of IFRS and are consistent with the accounting policies
applied in the preparation of the previous consolidated annual financial statements.
IFRS 9 Financial instruments*
IFRS 9 is effective and will be implemented by the group from 1 January 2018. IFRS 9 replaces IAS 39 and sets out the
updated requirements for the recognition and measurement of financial instruments. These requirements specifically deal
with the classification and measurement of financial instruments, measurement of impairment losses based on an expected
credit loss model, and closer alignment between hedge accounting and risk management practices.
As permitted by the transitional provisions of IFRS 9, the group has elected not to restate comparative figures. Any
adjustments to the carrying amount of financial assets and financial liabilities at the date of transition will be
recognised in the opening retained earnings and other reserves at 1 January 2018. The group has elected to continue to
apply the hedge accounting requirements of IAS 39 on adoption of IFRS 9.
The estimates below are based on accounting policies, assumptions, judgements and estimation techniques, which will be
regularly reviewed and assessed during the year in preparation for the financial statements for the year ending 31
December 2018.
Classification and measurement*
The group has implemented the following on adoption of IFRS 9:
- Revocation of the fair value through profit or loss designation for certain loans and advances, amounts owed to
depositors and long-term debt instruments to facilitate the implementation of macro fair-value hedge accounting of
interest rate risk and hedge accounting of inflation risk. It is anticipated that the aforementioned changes will
reduce accounting volatility experienced with respect to fair value through profit or loss accounting.
- Reclassification of certain loans from amortised cost to fair value through other comprehensive income and fair
value through profit or loss to align with the business-model-driven classifications of IFRS 9.
- Review of the effective interest rate calculation for certain loans based on the additional guidance provided in
IFRS 9.
The implementation of the above IFRS 9 classification and measurement requirements decreased reserves at 1 January 2018
by approximately R200m.
Impairment*
The IFRS 9 impairment implementation progressed during 2017. The following were the main areas of focus for 2017:
- Finalisation of the IFRS 9 impairment model methodology.
- Implementation of an IT framework facilitating efficient model execution and management.
- Development, build and testing of IFRS 9 impairment models with respect to a substantial portion of the group's
portfolios, leveraging off the aforementioned IT framework.
- Documentation and implementation of the relevant control environment and related governance processes.
The following areas will continue to receive the required attention as the implementation of IFRS 9 progresses during
the 2018 financial reporting period:
- Further refinement of certain models.
- Finalisation of the interim and year-end reporting and disclosure frameworks.
- Observing local and international industry trends with respect to IFRS 9 adoption.
The implementation of the IFRS 9 expected credit loss model requires increases in balance sheet impairments at 1 January
2018 of approximately R3,2bn, with reserves decreasing by approximately R2,3bn on an after-tax basis.
IFRS 15 Revenue from contracts with customers*
IFRS 15 replaces all existing revenue requirements in IFRS and applies to all revenue arising from contracts with
clients, unless the contracts are in the scope of the standards on leases, insurance contracts and financial
instruments. The standard is effective and will be implemented by the group from 1 January 2018.
The group has concluded that the loyalty points awarded to clients are accounted for as consideration payable to clients
in terms of new IFRS 15 guidance. The standard requires revenue to be decreased by the amount of consideration expected
to be paid to clients, with this amount recognised as a liability until payment is effected. The liability for the
amount expected to be paid to clients under the loyalty programme increased by approximately R300m on 1 January 2018 due
to the application of IFRS 15 requirements. Reserves at 1 January 2018 decreased by approximately R216m on an after-tax
basis.
Events after the reporting period*
There are no material events after the reporting period to report on.
Audited summary consolidated financial statements – independent auditors' opinion
The summary consolidated financial statements for the year ended 31 December 2017 have been audited by KPMG Inc and
Deloitte & Touche, who expressed an unmodified opinion thereon. The auditors also expressed an unmodified opinion on the
annual consolidated financial statements from which these summary consolidated financial statements were derived.
The copies of the auditors' report on the summary consolidated financial statements and of the auditors' report on the
annual consolidated financial statements are available for inspection at the company's registered office, together with
the financial statements identified in the respective auditors' reports.
The auditors' report does not necessarily report on all of the information contained in this results announcement.
Shareholders are therefore advised that, to obtain a full understanding of the nature of the auditors' engagement, they
should obtain a copy of the auditors' report, together with the accompanying consolidated financial statements, from
Nedbank Group's registered office.
Forward-looking statements
This announcement contains certain forward-looking statements with respect to the financial condition and results of
operations of Nedbank Group and its group companies that, by their nature, involve risk and uncertainty because they
relate to events and depend on circumstances that may or may not occur in the future. Factors that could cause actual
results to differ materially from those in the forward-looking statements include global, national and regional
political and economic conditions; levels of securities markets; interest rates; credit or other risks of lending and
investment activities; as well as competitive, regulatory and legal factors. By consequence, all forward-looking
statements have not been reviewed or reported on by the group's auditors.
Final dividend declaration
Notice is hereby given that a final dividend of 675 cents per ordinary share has been declared, payable to shareholders
for the six months ended 31 December 2017. The dividend has been declared out of income reserves.
The dividend will be subject to a dividend withholding tax rate of 20% (applicable in SA) or 135 cents per ordinary
share, resulting in a net dividend of 540 cents per ordinary share, unless the shareholder is exempt from paying
dividend tax or is entitled to a reduced rate in terms of an applicable double-tax agreement.
Nedbank Group's tax reference number is 9375/082/71/7 and the number of ordinary shares in issue at the date of
declaration is 498 108 914.
In accordance with the provisions of Strate, the electronic settlement and custody system used by the JSE, the relevant
dates for the dividend are as follows:
Event Date
Last day to trade (cum dividend) Tuesday, 3 April 2018
Shares commence trading (ex dividend) Wednesday, 4 April 2018
Record date (date shareholders recorded in books) Friday, 6 April 2018
Payment date Monday, 9 April 2018
Share certificates may not be dematerialised or rematerialised between Wednesday, 4 April 2018, and Friday, 6 April
2018, both days inclusive.
On Monday, 9 April 2018, the dividend will be electronically transferred to the bank accounts of shareholders. Holders
of dematerialised shares will have their accounts credited at their participant or broker on Monday, 9 April 2018.
The above dates are subject to change. Any changes will be published on SENS and in the press.
For and on behalf of the board
Vassi Naidoo Mike Brown
Chairman Chief Executive
2 March 2018
Registered office
Nedbank Group Limited, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, 2196.
PO Box 1144, Johannesburg, 2000.
Transfer secretaries in SA
Computershare Investor Services Proprietary Limited 15 Biermann Avenue, Rosebank, Johannesburg, 2196, SA.
PO Box 61051, Marshalltown, 2107, SA.
Transfer secretaries in Namibia
Transfer Secretaries (Proprietary) Limited, Robert Mugabe Avenue No 4, Windhoek, Namibia.
PO Box 2401, Windhoek, Namibia.
Directors
V Naidoo (Chairman), MWT Brown** (Chief Executive), HR Brody, BA Dames, NP Dongwana, ID Gladman (British), JB Hemphill,
EM Kruger, RAG Leith, PM Makwana, L Manzini, Dr MA Matooane, NP Mnxasana, RK Morathi** (Chief Financial Officer), JK
Netshitenzhe, MC Nkuhlu** (Chief Operating Officer), S Subramoney, MI Wyman*** (British).
** Executive *** Lead independent director
Company Secretary: TSB Jali
Reg number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
Sponsors in SA: Merrill Lynch SA Proprietary Limited
Nedbank CIB
Sponsor in Namibia: Old Mutual Investment Services (Namibia) (Proprietary) Limited
This announcement is available on the group's website at nedbankgroup.co.za, together with the following additional
information:
- Detailed financial information.
- Financial results presentation.
- Link to a webcast of the presentation.
For further information please contact Nedbank Group Investor Relations at nedgroupir@nedbank.co.za.
Financial highlights
at
31 December 31 December
Change 2017 2016
(%) (Audited) (Audited)
Statistics
Number of shares listed m 498,1 495,9
Number of shares in issue, excluding shares held by group entities m 481,6 478,4
Weighted-average number of shares m 480,8 477,8
Diluted weighted-average number of shares m 490,0 487,9
Preprovisioning operating profit (3,2) Rm 19 358 20 004
Economic profit(1) 8,3 Rm 1 695 1 565
Headline earnings per share 2,2 cents 2 452 2 400
Diluted headline earnings per share 2,4 cents 2 406 2 350
Ordinary dividends declared per share 7,1 cents 1 285 1 200
Interim 7,0 cents 610 570
Final 7,1 cents 675 630
Ordinary dividends paid per share 8,8 cents 1 240 1 140
Dividend cover times 1,91 2,00
Net asset value per share 7,3 cents 16 990 15 830
Tangible net asset value per share 6,6 cents 14 626 13 723
Closing share price 7,5 cents 25 610 23 813
Price/earnings ratio historical 10,4 9,9
Price to book ratio historical 1,5 1,5
Market capitalisation 8,0 Rbn 127,6 118,1
Number of employees (permanent staff)(1) (2,7) 31 531 32 401
Number of employees (permanent and temporary staff)(1) (2,6) 31 887 32 746
Key ratios (%)
Return on ordinary shareholders' equity (ROE)(1) 15,3 15,3
ROE, excluding goodwill(1) 16,4 16,5
Return on tangible equity(1) 17,8 17,6
Return on total assets (ROA)(1) 1,22 1,23
Return on average risk-weighted assets(1) 2,28 2,23
Net interest income to average interest-earning banking assets(1) 3,62 3,41
Credit loss ratio - banking advances(1) 0,49 0,68
Gross operating income growth rate less expense growth rate (jaws ratio) (3,0) (1,5)
Non-interest revenue to total operating expenses 80,7 82,9
Non-interest revenue to total income 46,6 47,1
Efficiency ratio 58,6 56,9
Effective taxation rate 25,5 24,9
Group capital adequacy ratios (including unappropriated profits):(1)
- Common-equity tier 1 12,6 12,1
- Tier 1 13,4 13,0
- Total 15,5 15,3
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent 8,0 81 823 75 733
Total equity 8,4 88 539 81 711
Amounts owed to depositors 1,3 771 584 761 542
Loans and advances 0,5 710 329 707 077
Gross 0,4 722 330 719 226
Impairment of loans and advances 1,2 (12 001) (12 149)
Total assets administered by the group 4,5 1 295 627 1 239 349
Total assets 1,8 983 314 966 022
Assets under management 14,3 312 313 273 327
Life insurance embedded value(1) 0,2 2 745 2 740
Life insurance value of new business(1) (12,5) 349 399
(1) These metrics have not been audited by the group's auditors.
AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
Prepared under the supervision of the Nedbank Group CFO, Raisibe Morathi CA(SA).
Nedbank Group Limited Reg No 1966/010630/06.
Summary consolidated
statement of comprehensive income
for the year ended
31 December 31 December
2017 2016
Change (Audited) (Audited)
(%) Rm Rm
Interest and similar income 2,6 75 299 73 395
Interest expense and similar charges 1,5 47 675 46 969
Net interest income 4,5 27 624 26 426
Impairments charge on loans and advances (27,4) 3 304 4 554
Income from lending activities 11,2 24 320 21 872
Non-interest revenue 2,4 24 063 23 503
Operating income 6,6 48 383 45 375
Total operating expenses 5,1 29 812 28 366
Indirect taxation 8,0 1 001 927
Profit from operations before non-trading and capital items 9,3 17 570 16 082
Non-trading and capital items 83,6 (224) (1 363)
Profit from operations 17,8 17 346 14 719
Share of losses of associate companies and joint arrangements <(100) (838) (105)
Profit before direct taxation 13,0 16 508 14 614
Total direct taxation 6,4 4 209 3 955
Direct taxation 4 267 3 985
Taxation on non-trading and capital items (58) (30)
Profit for the year 15,4 12 299 10 659
Other comprehensive income/(losses) net of taxation >100 31 (3 941)
Items that may subsequently be reclassified to profit or loss
Exchange differences on translating foreign operations (1 046) (1 902)
Share of other comprehensive losses of investments accounted for using the equity 169 (1 688)
method
Fair-value adjustments on available-for-sale assets 22 (73)
Items that may not subsequently be reclassified to profit or loss
Gains on property revaluations 190 32
Remeasurements on long-term employee benefit assets 387 (297)
Share of other comprehensive income/(losses) of investments accounted for using the 309 (13)
equity method
Total comprehensive income for the year 83,5 12 330 6 718
Profit attributable to:
- Ordinary shareholders 14,7 11 621 10 132
- Holders of preference shares (6,4) 338 361
- Non-controlling interest - holders of additional tier 1 capital instruments >100 252 78
- Non-controlling interest - ordinary 88 88
shareholders
Profit for the year 15,4 12 299 10 659
Total comprehensive income attributable to:
- Ordinary shareholders 88,0 11 625 6 183
- Holders of preference shares (6,4) 338 361
- Non-controlling interest - holders of additional tier 1 capital instruments >100 252 78
- Non-controlling interest - ordinary 19,8 115 96
shareholders
Total comprehensive income for the year 83,5 12 330 6 718
Basic earnings per share (cents) 14,0 2 417 2 121
Diluted earnings per share (cents) 14,2 2 372 2 077
Summary consolidated
statement of financial position
at
31 December 31 December
2017 2016
Change (Audited) (Audited)
(%) Rm Rm
Assets
Cash and cash equivalents (35,9) 16 900 26 384
Other short-term securities 9,6 92 775 84 679
Derivative financial instruments 69,6 29 904 17 633
Government and other securities (3,5) 49 241 51 048
Loans and advances 0,5 710 329 707 077
Other assets 3,6 14 589 14 077
Current taxation assets (63,2) 211 574
Investment securities 16,9 16 634 14 225
Non-current assets held for sale 35,2 388 287
Investments in private-equity associates, associate companies and joint 2,4 6 722 6 567
arrangements
Deferred taxation assets (61,7) 189 494
Investment property (100,0) 22
Property and equipment (0,7) 8 902 8 969
Long-term employee benefit assets 13,9 5 924 5 203
Mandatory reserve deposits with central banks 2,8 19 222 18 700
Intangible assets 12,9 11 384 10 083
Total assets 1,8 983 314 966 022
Equity and liabilities
Ordinary share capital 0,8 482 478
Ordinary share premium 3,6 18 688 18 043
Reserves 9,5 62 653 57 212
Total equity attributable to equity holders of the parent 8,0 81 823 75 733
Holders of preference shares 3 222 3 222
Non-controlling interest attributable to holders of additional tier 1 31,8 2 635 2 000
capital instruments
Non-controlling interest attributable to ordinary 13,6 859 756
shareholders
Total equity 8,4 88 539 81 711
Derivative financial instruments 75,7 23 367 13 296
Amounts owed to depositors 1,3 771 584 761 542
Provisions and other liabilities (32,8) 23 292 34 667
Current taxation liabilities 21,0 259 214
Deferred taxation liabilities (5,3) 761 804
Long-term employee benefit liabilities 2,2 3 525 3 448
Investment contract liabilities 18,2 18 134 15 342
Insurance contract liabilities (22,1) 2 277 2 922
Long-term debt instruments (1,0) 51 576 52 076
Total liabilities 1,2 894 775 884 311
Total equity and liabilities 1,8 983 314 966 022
Summary consolidated
statement of changes in equity
Non-controlling Non-
interest controlling
Total equity Equity attributable to interest
attributable attributable additional attributable
to equity to tier 1 capital to
holders preference instrument ordinary
of the parent shareholders holders shareholders Total equity
Rm Rm Rm Rm Rm
Audited balance at 31 December 2015 74 754 3 561 436 78 751
Additional tier 1 capital 2 000 2 000
instruments issued
Dividend to shareholders (5 587) (11) (5 598)
Additional tier 1 capital (78) (78)
instruments interest paid
Preference share dividend (361) (361)
Issues of shares net of expenses 276 276
Shares (acquired)/no longer held by 199 199
group entities and BEE trusts
Total comprehensive income for the 6 183 361 78 96 6 718
year
Share-based payment reserve movement 136 136
Preference shares held by group (339) (339)
entities
Acquisition of shareholding in 239 239
subsidiary
Transactions with non-controlling (223) (223)
shareholders
Buyout of non-controlling interests (6) (6)
Regulatory risk reserve provision (8) 2 (6)
Other movements 3 3
Audited balance at 31 December 2016 75 733 3 222 2 000 756 81 711
Additional tier 1 capital 600 600
instruments issued
Dividend to shareholders (6 080) (12) (6 092)
Additional tier 1 capital (217) (217)
instruments interest paid
Preference share dividend (338) (338)
Issues of shares net of 687 687
expenses
Shares (acquired)/no longer held by (71) (71)
group entities and BEE trusts
Total comprehensive income for the 11 625 338 252 115 12 330
year
Share-based payment reserve movement (65) (65)
Other movements (6) (6)
Audited balance at 31 December 2017 81 823 3 222 2 635 859 88 539
Summary consolidated
statement of cashflows
for the year ended
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Cash generated by operations 25 351 24 827
Change in funds for operating activities (17 407) (15 473)
Net cash from operating activities before taxation 7 944 9 354
Taxation paid (4 730) (5 065)
Cashflows from operating activities 3 214 4 289
Cashflows utilised by investing activities (6 119) (3 004)
Cashflows (utilised by)/from financing activities (5 946) 3 536
Effects of exchange rate changes on opening cash and cash equivalents (111) 1 191
Net (decrease)/increase in cash and cash equivalents (8 962) 6 012
Cash and cash equivalents at the beginning of the period(1) 45 084 39 072
Cash and cash equivalents at the end of the period(1) 36 122 45 084
(1) Including mandatory reserve deposits with central banks.
NOTES TO THE AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017*
Summary consolidated segmental reporting
for the year ended
31 31 31 31 31 31 31 31
December December December December December December December December
2017 2016 2017 2016 2017 2016 2017 2016
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm
Total assets Total liabilities Revenue(1) Headline earnings/(losses)
Nedbank Corporate and Investment Banking 487 632 491 480 457 195 463 018 14 380 14 744 6 315 6 014
Nedbank Retail and Business Banking 326 225 304 842 298 413 278 588 30 102 29 071 5 302 4 960
Nedbank Wealth 66 832 62 042 62 947 58 655 4 393 4 384 1 068 1 192
Rest of Africa 37 487 36 189 31 042 28 247 2 471 1 890 (810) (287)
Centre 65 138 71 469 45 178 55 803 341 (160) (88) (414)
Total 983 314 966 022 894 775 884 311 51 687 49 929 11 787 11 465
(1 Revenue is calculated as net interest income plus non-interest revenue.
Due to the group's strategic investment in ETI being in an associate company that the group does not control, the
group's managed operations exclude ETI-related assets, funding, equity-accounted earnings and associated after-tax
funding costs. The chief operating decisionmaker therefore separately reviews the performance of the group's managed
operations and, on this basis, the total assets are R979 994m (2016: R962 044m), total liabilities are R892 919m (2016:
R884 199m), revenue is R52 008m (2016: R50 275m) and headline earnings is R12 762m (2016: R11 839m). ETI forms part of
the Rest of Africa segment, whose segmental information on a managed operations basis include total assets of R34 167m
(2016: R32 211m), total liabilities of R29 186m (2016: R28 135m), revenue of R2 792m (2016: R2 236m) and headline
earnings of R165m (2016: R87m).
Headline earnings reconciliation
for the year ended
31 December 31 December 31 December 31 December
2017 2017 2016 2016
(Audited) (Audited) (Audited) (Audited)
Change Rm Rm Rm Rm
(%) Gross Net of taxation Gross Net of taxation
Profit attributable to equity holders of the parent 14,7 11 621 10 132
Non-trading and capital items (87,5) 224 166 1 363 1 333
IFRS 3: Fair-value loss on remeasurement of previously held interest 15 15
IAS 16: Loss on disposal of property and equipment 47 35 44 44
IAS 21: Recycled foreign currency translation loss - Banco Único, SA 203 203
IAS 28: Loss on dilution of shareholding in ETI 17 17
IAS 28: Impairment provision for ETI 1 000 1 000
IAS 38/IAS 39: Impairment of intangible and available-for-sale assets 163 117 141 99
IAS 39: Loss/(Profit) on disposal of available-for-sale financial assets 14 14 (63) (51)
IAS 40: Loss on disposal of investment properties 6 6
Headline earnings 2,8 11 787 11 465
Contingent liabilities and commitments
CONTINGENT LIABILITIES AND UNDRAWN FACILITIES
at
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Guarantees on behalf of clients 28 402 16 316
Letters of credit and discounting transactions 3 225 3 432
Irrevocable unutilised facilities and other 103 562 103 163
135 189 122 911
The group, in the ordinary course of business, enters into transactions that expose it to tax, legal and business risks.
Provisions are made for known liabilities that are expected to materialise. Possible obligations and known liabilities
where no reliable estimate can be made or it is considered improbable that an outflow would result are reported as
contingent liabilities. This is in accordance with IAS 37: Provisions, Contingent Liabilities and Contingent Assets.
There are a number of legal or potential claims against Nedbank Group Limited and its subsidiary companies, the outcome
of which cannot at present be foreseen.
COMMITMENTS
Capital expenditure approved by directors
at
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Contracted 463 522
Not yet contracted 2 433 2 092
2 896 2 614
Funds to meet capital expenditure commitments will be provided from group resources. In addition, capital expenditure is
incurred in the normal course of business throughout the year.
Investments in private-equity associates, associate companies and joint arrangements
at
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Listed associates(1) 3 320 3 978
Unlisted associates 3 122 2 467
Unlisted joint arrangements 280 122
6 722 6 567
(1) The group's investment in Ecobank Transnational Incorporated (ETI) is recorded under listed associates.
Listed associates: ETI
Carrying value 3 320 3 978
Fair value of investment 3 597 2 438
Cashflow information
for the year ended
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Acquisition of property and equipment, computer software and development costs
and investment property (3 299) (3 846)
Issue of additional tier 1 capital instruments 600 2 000
Issue of long-term debt instruments 7 540 13 596
Redemption of long-term debt instruments (8 067) (6 510)
Dividends to ordinary shareholders (6 080) (5 587)
Preference share dividends paid (338) (361)
Additional tier 1 capital instruments interest paid (217) (78)
Fair-value hierarchy
FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE
The fair value of a financial instrument is the price that would be received for the sale of an asset or paid for the
transfer of a liability in an orderly transaction between market participants at the measurement date. Underlying the
definition of fair value is an assumption that an entity is a going concern without any intention or need to liquidate,
to curtail materially the scale of its operations or to undertake a transaction on adverse terms. Fair value is not,
therefore, the amount that an entity would receive or pay in a forced transaction, involuntary liquidation or distressed
sale.
The existence of published price quotations in an active market is the most reliable evidence of fair value and, where
they exist, they are used to measure the financial asset or financial liability. A market is considered to be active if
transactions occur with sufficient volumes and frequencies to provide pricing information on an ongoing basis. These
quoted prices would generally be classified as level 1 in terms of the fair-value hierarchy.
Where a quoted price does not represent fair value at the measurement date or where the market for a financial
instrument is not active, the group establishes fair value by using valuation techniques. These valuation techniques
include reference to the current fair value of another instrument that is substantially the same in nature, reference to
the value of the assets of underlying business, earnings multiples, discounted-cashflow analysis and various option
pricing models. Valuation techniques applied by the group would generally be classified as level 2 or level 3 in terms
of the fair-value hierarchy. The determination of whether an instrument is classified as level 2 or level 3 is dependent
on the significance of observable inputs versus unobservable inputs in relation to the fair value of the instrument.
Inputs typically used in valuation techniques include discount rates, appropriate swap rates, volatility, servicing
costs, equity prices, commodity prices, counterparty credit risk and the group's own credit on financial liabilities.
The group has an established control framework for the measurement of fair value, which includes formalised review
protocols for the independent review and validation of fair values separate from the business unit entering into the
transaction. The valuation methodologies, techniques and inputs applied to the fair-value measurement of the financial
instruments have been applied in a manner consistent with that of the previous financial year.
FAIR-VALUE HIERARCHY
The financial instruments recognised at fair value have been categorised into the three input levels of the IFRS
fair-value hierarchy as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible at the
measurement date.
Level 2: Valuation techniques based (directly or indirectly) on market-observable inputs. Various factors influence the
availability of observable inputs. These factors may vary from product to product and change over time. Factors include
the depth of activity in the relevant market, the type of product, whether the product is new and not widely traded in
the market, the maturity of market modelling and the nature of the transaction (bespoke or generic).
Level 3: Valuation techniques based on significant inputs that are not observable. To the extent that a valuation is
based on inputs that are not market-observable the determination of the fair value can be more subjective, depending on
the significance of the unobservable inputs to the overall valuation. Unobservable inputs are determined on the basis of
the best information available and may include reference to similar instruments, similar maturities, appropriate proxies
or other analytical techniques.
All fair values disclosed below are recurring in nature.
FINANCIAL ASSETS
Total financial Total financial assets Total financial assets Total financial assets Total financial assets
assets recognised at amortised classified as level 1 classified as level 2 classified as level 3
cost
31 31 31 31 31 31 31 31 31 31
December December December December December December December December December December
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Cash and cash equivalents 36 122 45 084 36 122 45 084
Other short-term securities 92 775 84 679 25 193 33 184 488 67 582 51 007
Derivative financial 29 904 17 633 49 29 903 17 547 1 37
instruments
Government and other 49 241 51 048 28 862 22 393 5 173 15 881 15 206 12 774
securities
Loans and advances(1,2) 710 329 707 077 632 156 627 778 78 2 437 78 062 76 785 33 77
Other assets 14 589 14 077 9 619 9 533 4 970 4 544
Investments in private-equity 3 169 2 357 3 169 2 357
associates, associate
companies and joint
arrangements
Investment securities 16 634 14 225 37 35 15 184 13 098 1 413 1 092
952 763 936 180 731 952 737 972 10 258 23 434 205 937 171 211 4 616 3 563
(1) Loans and advances of R13 581m were included in the previous year as held-for-trading assets, whereas these instruments were classified and measured as financial
assets at amortised cost. Accordingly, the held-for-trading and financial assets at amortised cost categories have been restated to reflect the correct
classification.
(2) Loans and advances of R3 339m were included in the previous year as designated at fair value through profit or loss, whereas these instruments were classified
and measured as financial assets at amortised cost. Accordingly, the designated at fair value through profit or loss and financial assets at amortised cost
categories have been restated to reflect the correct classification.
FINANCIAL LIABILITIES
Total financial Total financial liabilities Total financial liabilities Total financial liabilities Total financial liabilities
liabilities recognised at amortised cost classified as level 1 classified as level 2 classified as level 3
31 31 31 31 31 31 31 31 31 31
December December December December December December December December December December
2017 2016 2017 2016 2017 2016 2017 2016 2017 2016
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Derivative 23 367 13 296 81 23 367 13 215
financial
instruments
Amounts owed to 771 584 761 542 693 621 694 840 77 963 66 702
depositors(3)
Provisions and 21 712 33 267 14 259 11 738 6 983 20 810 35 389 435 330
other liabilities
Investment 18 134 15 342 18 134 15 342
contract
liabilities
Long-term debt 51 576 52 076 51 124 51 775 452 301
instruments
886 373 875 523 759 004 758 353 6 983 20 891 119 951 95 949 435 330
(3) Amounts owed to depositors of R9 332m were included in the previous year as designated at fair value through profit or loss, whereas these instruments were
classified and measured as financial liabilities at amortised cost. Accordingly, the designated at fair value through profit or loss and financial liabilities
at amortised cost categories have been restated to reflect the correct classification.
LEVEL 3 RECONCILIATION
31 December 2017 (Audited) Opening Gains in non-interest revenue in Purchases and Sales and Closing
balance at profit for the year issues settlements balance at
1 Jan Rm Rm Rm 31 Dec
Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 37 18 (54) 1
Loans and advances 77 45 (89) 33
Investment securities 1 092 79 269 (27) 1 413
Investments in private-equity associates, associate 2 357 2 1 478 (668) 3 169
companies and joint arrangements
3 563 144 1 747 (838) 4 616
FINANCIAL LIABILITIES
Provisions and other liabilities 330 105 435
330 105 - - 435
31 December 2016 (Audited) Opening Gains/(Losses) in non-interest Purchases and Sales and Transfers Closing
balance at revenue in profit for the year issues settlements in/(out) balance at
1 Jan Rm Rm Rm Rm 31 Dec
Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 18 19 37
Loans and advances 33 4 40 77
Investment securities 691 (28) 53 (34) 410 1 092
Investments in private-equity associates, 1 162 273 1 130 (208) 2 357
associate companies and joint arrangements
1 904 268 1 183 (242) 450 3 563
FINANCIAL LIABILITIES
Derivative financial instruments 86 (8) (78) -
Provisions and other liabilities 32 298 330
86 24 298 (78) - 330
EFFECT OF CHANGES IN SIGNIFICANT UNOBSERVABLE ASSUMPTIONS TO REASONABLE POSSIBLE ALTERNATIVES
The fair-value measurement of financial instruments are, in certain circumstances, measured using valuation techniques
that include assumptions that are not market- observable. Where these scenarios apply, the group performs stress testing
on the fair value of the relevant instruments. In performing the stress testing, appropriate levels for the
unobservable-input parameters are chosen so that they are consistent with prevailing market evidence and in line with
the group's approach to valuation control. The following information is intended to illustrate the potential impact of
the relative uncertainty in the fair value of financial instruments for which valuation is dependent on
unobservable-input parameters and which are classified as level 3 in the fair-value hierarchy. However, the disclosure
is neither predictive nor indicative of future movements in fair value.
Valuation technique Significant unobservable Variance in Value per Favourable Unfavourable
input fair value statement of change in change in fair
financial fair value value
position
31 December 2017 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Derivative financial Discounted cashflows Discount rates, earnings Between 1 ^ ^
instruments before interest, tax and (12,0) and 9,0
depreciation and
amortisation
Loans and advances Discounted cashflows Credit spreads and discount Between 33 3 (4)
rates (12,0) and 9,0
Investment securities Discounted cashflows, adjusted Valuation multiples, Between 1 413 132 (166)
net asset value, earnings correlations, volatilities (12,0) and 9,0
multiples, third-party and credit spreads
valuations, dividend yields
Investments in Discounted cashflows, earnings Valuation multiples Between 3 169 296 (372)
private-equity associates, multiples (12,0) and 9,0
associate companies and
joint arrangements
Total financial assets 4 616 432 (541)
classified as level 3
FINANCIAL LIABILITIES
Provisions and other Discounted cashflows, earnings Discount rates, forecasts Between (435) 36 (43)
liabilities multiples (10,0) and 10,0
(^) Represents amounts less than R1m.
Valuation technique Significant unobservable Variance in Value per Favourable Unfavourable
input fair value statement of change in change in fair
financial fair value value
position
31 December 2016 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Derivative financial Discounted cashflows Discount rates, earnings Between 37 3 (4)
instruments before interest, tax, (12,0) and 9,0
depreciation and
amortisation
Loans and advances Discounted cashflows Credit spreads and discount Between 77 7 (9)
rates (12,0) and 9,0
Investment securities Discounted cashflows, adjusted Valuation multiples, Between 1 092 103 (129)
net asset value, earnings correlations, volatilities (12,0) and 9,0
multiples, third-party and credit spreads
valuations, dividend yields
Investments in Discounted cashflows, earnings Valuation multiples Between 2 357 222 (279)
private-equity associates, multiples (12,0) and 9,0
associate companies and
joint arrangements
Total financial assets 3 563 335 (421)
classified as level 3
FINANCIAL LIABILITIES
Provisions and other Discounted cash flow, earnings Discount rates, forecasts Between (330) (33) 33
liabilities multiples (10,0) and 10,0
UNREALISED GAINS
The unrealised gains arising on instruments classified as level 3 include the following:
31 December 31 December
2017 2016
(Audited) (Audited)
Rm Rm
Private-equity gains 144 268
SUMMARY OF PRINCIPAL VALUATION TECHNIQUES — LEVEL 2 INSTRUMENTS (AUDITED)
The following table sets out the group's principal valuation techniques used in determining the fair value of financial
assets and financial liabilities classified as level 2 in the fair-value hierarchy:
Assets Valuation technique Key inputs
Other short-term securities Discounted-cashflow model Discount rates
Derivative financial instruments Discounted-cashflow model Discount rates
Black-Scholes model Risk-free rates and volatilities
Multiple valuation techniques Valuation multiples
Government and other securities Discounted-cashflow model Discount rates
Loans and advances Discounted-cashflow model Interest rate curves
Investment securities Discounted-cashflow model Money market rates and interest rates
Adjusted net asset value Underlying price of market-traded instruments
Dividend yield method Dividend growth rates
Liabilities
Derivative financial instruments Discounted-cashflow model Discount rates
Black-Scholes model Risk-free rates and volatilities
Multiple valuation techniques Valuation multiples
Amounts owed to depositors Discounted-cashflow model Discount rates
Provisions and other liabilities Discounted-cashflow model Discount rates
Investment contract liabilities Adjusted net asset value Underlying price of market-traded instruments
Long-term debt instruments Discounted-cashflow model Discount rates
TRANSFERS BETWEEN LEVELS OF THE FAIR-VALUE HIERARCHY (AUDITED)
In terms of the group's policy, transfers of financial instruments between levels of the fair-value hierarchy are deemed
to have occurred at the end of the reporting period.
Assets and liabilities not measured at fair value for which fair value is disclosed
Certain financial instruments of the group are not carried at fair value, including those categorised as held to
maturity, loans and receivables and financial liabilities at amortised cost. The calculation of the fair value of these
financial instruments incorporates the group's best estimate of the value at which these financial assets could be
exchanged, or financial liabilities transferred, between market participants at the measurement date. The group's
estimate of what fair value is does not necessarily represent what it would be able to sell the asset for or transfer
the respective financial liability for in an involuntary liquidation or distressed sale.
The fair values of these respective financial instruments at the reporting date detailed below are estimated only for
the purpose of IFRS disclosure, as follows:
Rm Carrying value Fair value Level 1 Level 2 Level 3
31 December 2017 (Audited)
Financial assets 686 211 681 307 23 993 29 962 627 352
Other short-term securities 25 193 25 130 25 130
Government and other securities 28 862 28 825 23 993 4 832
Loans and advances 632 156 627 352 627 352
Financial liabilities 51 124 52 018 23 975 28 043 -
Long-term debt instruments 51 124 52 018 23 975 28 043
Rm Carrying value Fair value Level 1 Level 2 Level 3
31 December 2016 (Audited)
Financial assets 683 355 673 820 21 828 33 128 618 864
Other short-term securities 33 184 33 128 33 128
Government and other securities 22 393 21 828 21 828
Loans and advances(1) 627 778 618 864 618 864
Financial liabilities 51 775 48 894 20 432 28 462 -
Long-term debt instruments 51 775 48 894 20 432 28 462
(1) Loans and advances of R13 581m were included in the previous year as held-for-trading assets, whereas these instruments were classified and measured as financial
assets at amortised cost. Loans and advances of R3 339m were included in the previous year as designated at fair value through profit or loss, whereas these
instruments were classified and measured as financial assets at amortised cost. Accordingly, the held-for-trading, designated at fair value through profit or
loss and financial assets at amortised cost categories have been restated to reflect the correct classification.
There have been no significant changes in the methodology used to estimate the fair value of the above instruments
during the year.
Loans and advances
Loans and advances that are not recognised at fair value principally comprise variable-rate financial assets. The
interest rates on these variable-rate financial assets are adjusted when the applicable benchmark interest rate changes.
Loans and advances are not actively traded in most markets and it is therefore not possible to determine the fair value
of these loans and advances using observable market prices and market inputs. Due to the unique characteristics of the
loans and advances portfolio and the fact that there have been no recent transactions involving the disposal of such
loans and advances, there is no basis to determine a price that could be negotiated between market participants in an
orderly transaction. The group is not currently in the position of a forced sale of such underlying loans and advances
and it would therefore be inappropriate to value the loans and advances on a forced-sale basis.
For specifically impaired loans and advances the carrying value, as determined after consideration of the group's IAS 39
credit impairments, is considered the best estimate of fair value.
The group has developed a methodology and model to determine the fair value of the gross exposures for the performing
loans and advances measured at amortised cost. This model incorporates the use of average interest rates and projected
monthly cashflows per product type. Future cashflows are discounted using interest rates at which similar loans would be
granted to borrowers with similar credit ratings and maturities. Methodologies and models are updated on a continuous
basis for changes in assumptions, forecasts and modelling techniques. Future forecasts of the group's probability of
default (PDs) and loss given defaults (LGDs) for periods 2018 to 2020 (2016: for periods 2017 to 2019) are based on the
latest available internal data and is applied to the first three years' projected cashflows. Thereafter, PDs and LGDs
are gradually reverted to their long-run averages and are applied to the remaining projected cashflows. Inputs into the
model include various assumptions utilised in the pricing of loans and advances. The determination of such inputs is
highly subjective and therefore any change to one or more of the assumptions may result in a significant change in the
determination of the fair value of loans and advances.
Government and other securities
The fair value of government and other securities is determined based on available market prices (level 1) or discounted
cashflow analysis (level 2), where an instrument is not quoted or the market is considered to be inactive.
Other short-term securities
The fair value of other short-term securities is determined using a discounted-cashflow analysis (level 2).
Long-term debt instruments
The fair value of long-term debt instruments is determined based on available market prices (level 1) or
discounted-cashflow analysis (level 2) where an instrument is not quoted or the market is considered to be inactive.
Amounts owed to depositors
The amounts owed to depositors principally comprise of variable-rate liabilities. The carrying value of the amounts
owed to depositors approximates fair value because the instruments reprice to current market rates at frequent
intervals. In addition, a significant portion of the balance is callable or is short term in nature.
Cash and cash equivalents, other assets, mandatory deposits with central banks and provisions and other liabilities
The carrying values of cash and cash equivalents, other assets, mandatory deposits with central banks and provisions and
other liabilities are considered a reasonable approximation of their respective fair values, as they are either short
term in nature or are repriced to current market rates at frequent intervals.
ADDITIONAL INFORMATION
Liquidity coverage ratio
Total unweighted Total weighted
value(1) value(2)
Rm (average) (average)
Total high-quality liquid 138 180
assets
Cash outflows
Retail deposits and deposits from small-business clients 174 627 17 291
Stable deposits 3 424 171
Less stable deposits 171 203 17 120
Unsecured wholesale funding 237 769 114 117
Operational deposits (all counterparties) and deposits in institutional networks of 122 379 31 140
cooperative banks
Non-operational deposits (all counterparties) 115 017 82 604
Unsecured debt 373 373
Secured wholesale funding 21 836 21
Additional requirements 101 394 15 245
Outflows related to derivative exposures and other collateral requirements 967 967
Outflows related to loss of funding on debt products 127 127
Credit and liquidity facilities 100 300 14 151
Other contractual funding obligations 4 4
Other contingent funding obligations 171 717 8 714
Total cash outflows 707 347 155 392
Cash inflows
Secured lending (eg reverse repurchase agreements) 9 137 22
Inflows from fully performing exposures 52 203 35 421
Other cash inflows 4 749 4 627
Total cash inflows 66 089 40 070
Total
adjusted
value
Total HQLA 138 180
Total net cash outflows(3) 118 956
Liquidity coverage ratio (%) 116,2
(1) Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).
(2) Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
(3) Note that total cash outflows less total cash inflows may not be equal to total net cash outflows to the extent that regulatory caps have been applied to cash
inflows as specified by the regulations.
The figures above reflect a simple average of daily observations over the quarter ending December 2017 for Nedbank
Limited and the simple average of the month-end values at 31 October 2017, 30 November 2017 and 31 December 2017 for all
non-SA banking entities, based on regulatory submissions to SARB. This section on the liquidity coverage ratio has not
been audited or reviewed by the group's auditors.
Definitions
Assets under administration (AUA) (Rm) Market value of assets held in custody on behalf of clients.
Assets under management (AUM) (Rm) Market value of assets managed on behalf of clients.
Common equity tier 1 (CET1) capital adequacy ratio (%) CET1 regulatory capital, including unappropriated profit, as a
percentage of total risk-weighted assets.
Credit loss ratio (CLR) - banking advances (%) Impairments charge on loans and advances in the consolidated statement of
comprehensive income as a percentage of daily average gross loans and advances.
Default Default occurs in respect of a particular client in the following instances:
- When the bank considers that the client is unlikely to pay its credit obligations to the bank in full without the
bank having recourse to actions such as realising security (if held).
- When the client is past due for more than 90 days on any material credit obligation to the bank. Overdrafts will
be considered as being past due if the client has breached an advised limit or has been advised of a limit smaller
than the current outstanding amount.
- In terms of Nedbank's Group Credit Policy, when the client is placed under business rescue in terms of the
Companies Act, 71 of 2008, and when the client requests a restructure of his facilities as a result of financial
distress.
Defaulted loans and advances (non-performing defaulted advances) Any advance or group of loans and advances that has
triggered the Basel III definition of default criteria and is in line with the revised SA banking regulations. For
retail portfolios this is product-centred and a default would therefore be specific to a client or borrower account (a
specific advance). For all other portfolios, except specialised lending, it is client- or borrower-centred, meaning that
should any transaction within a borrowing group default, all transactions within the borrowing group would be treated as
having defaulted.
At a minimum a default is deemed to have occurred where a material obligation is past due for more than 90 days or a
client has exceeded an advised limit for more than 90 days. A specific impairment is raised against such a credit
exposure due to a significant perceived decline in the credit quality.
Diluted headline earnings per share (DHEPS) (cents) Headline earnings divided by the weighted-average number of ordinary
shares, adjusted for potential dilutive ordinary shares.
Dividend cover (times) Headline earnings per share divided by dividend per share.
Economic profit (EP) (Rm) Headline earnings less the cost of equity (total equity attributable to equity holders of the
parent, less goodwill, multiplied by the group's cost-of-equity percentage).
Effective taxation rate (%) Direct taxation as a percentage of profit before direct taxation, excluding non-trading and
capital items.
Efficiency ratio (%) Total operating expenses as a percentage of total income, being net interest income, non-interest
revenue and share of profits or losses from associates and joint arrangements.
Earnings per share (EPS) (cents) Earnings attributable to ordinary shareholders, divided by the weighted average number
of ordinary shares in issue.
Gross operating income growth rate less expenses growth rate (JAWS ratio) (%) Measure of the extent to which the total
income growth rate exceeds the total operating expenses growth rate.
Headline earnings (Rm) The profit attributable to equity holders of the parent, excluding specific separately
identifiable remeasurements, net of related tax and non-controlling interests.
Headline earnings per share (HEPS) (cents) Headline earnings divided by the weighted-average number of ordinary shares
in issue.
Life insurance embedded value (Rm) The embedded value (EV) of the covered business is the discounted value of the
projected future after-tax shareholder earnings arising from covered business in force at the valuation date, plus the
adjusted net worth.
Life insurance value of new business (Rm) A measure of the value added to a company as a result of writing new business.
Value of new business (VNB) is calculated as the discounted value, at the valuation date, of projected after-tax
shareholder profit from covered new business that commenced during the reporting period, net of frictional costs and the
cost of non-hedgeable risk associated with writing new business, using economic assumptions at the start of the
reporting period.
Net asset value (NAV) (Rm) Total equity attributable to equity holders of the parent.
Net asset value (NAV) per share (cents) NAV divided by the number of shares in issue, excluding shares held by group
entities at the end of the period.
Net interest income (NII) to average interest-earning banking assets (AIEBA) (%) NII as a percentage of daily average
total assets, excluding trading assets. Also called net interest margin (NIM).
Non-interest revenue (NIR) to total income (%) NIR as a percentage of operating income, excluding the impairments charge
on loans and advances.
Number of shares listed (number) Number of ordinary shares in issue, as listed on the JSE.
Ordinary dividends declared per share (cents) Total dividends to ordinary shareholders declared in respect of the
current period.
Performing defaulted loans and advances (Rm) Loans that would otherwise not be in default, but are classified as
defaulted due to regulatory requirements, ie directive 7 and the new curing definition.
Portfolio coverage (%) Portfolio impairments in the statement of financial position as a percentage of gross loans and
advances, excluding defaulted advances.
Portfolio impairments (Rm) Impairment for latent losses inherent in groups of loans and advances that have not yet been
specifically impaired.
The standard portfolio represents all the loans and advances that have not been impaired. These loans and advances have
not yet individually evidenced a loss event, but there are loans and advances in the standard portfolio that may have an
impairment without the bank being aware of it yet.
A period of time will elapse between the occurrence of an impairment event and objective evidence of the impairment
becoming evident. This period is generally known as the emergence period. For each standard portfolio an emergence
period is estimated as well as the probability of the loss trigger and the loss given events occurring. These estimates
are applied to the total exposures of the standard portfolio to calculate the portfolio impairment.
Preprovisioning operating profit (PPOP) (Rm) Headline earnings plus direct taxation plus an impairments charge on loans
and advances.
Profit attributable to equity holders of the parent (Rm) Profit for the period less non-controlling interests pertaining
to ordinary shareholders, preference shareholders and additional tier 1 capital instrument noteholders.
Profit for the period (Rm) Income statement profit attributable to ordinary shareholders of the parent, before
non-controlling interests.
Return on equity (ROE) (%) Headline earnings as a percentage of daily average ordinary shareholders' equity.
Return on equity (ROE) (excluding goodwill) (%) Headline earnings as a percentage of daily average ordinary
shareholders' equity less goodwill.
Return on tangible equity (%) Headline earnings as a percentage of daily average ordinary shareholders' equity less
intangible assets.
Risk-weighted assets (RWA) (Rm) On-balance-sheet and off-balance-sheet exposures after applying prescribed risk
weightings according to the relative risk of the counterparty.
Specific impairments (Rm) Impairment for loans and advances that have been classified as total defaults and specifically
impaired, net of the present value of estimated recoveries.
Specific coverage (%) Specific impairments in the statement of financial position as a percentage of total defaulted
advances.
Tangible net asset value (Rm) Equity attributable to equity holders of the parent, excluding intangible assets.
Tangible net asset value per share (cents) Tangible net asset value (NAV) divided by the number of shares in issue,
excluding shares held by group entities at the end of the period.
Tier 1 capital adequacy ratio (CAR) (%) Tier 1 regulatory capital, including unappropriated profit, as a percentage of
total risk-weighted assets.
Total capital adequacy ratio (CAR) (%) Total regulatory capital, including unappropriated profit, as a percentage of
total risk-weighted assets.
Value in use (VIU) (Rm) The present value of the future cashflows expected to be derived from an asset or
cash-generating unit.
Weighted-average number of shares (number) The weighted-average number of ordinary shares in issue during the period
listed on the JSE.
Abbreviations and acronyms
AFR available financial resources
AIEBA average interest-earning banking assets
AIRB Advanced Internal Ratings-based
AUA assets under administration
AUM assets under management
BBBEE broad-based black economic empowerment
BEE black economic empowerment
bn billion
bps basis point(s)
CAGR compound annual growth rate
CAR capital adequacy ratio
CET1 common equity tier 1
CIB Corporate and Investment Banking
CLR credit loss ratio
COE cost of equity
CPI consumer price index
CPF commercial-property finance
CVP client value proposition
DHEPS diluted headline earnings per share
D-SIB domestic systematically important bank
ECL expected credit loss
EP economic profit
EPS earnings per share
EV embedded value
ETI Ecobank Transnational Incorporated
GDP gross domestic product
GOI gross operating income
group Nedbank Group Limited
HE headline earnings
HEPS headline earnings per share
HQLA high-quality liquid asset(s)
IAS International Accounting Standard(s)
ICAAP Internal Capital Adequacy Assessment Process
IFRS International Financial Reporting Standard(s)
ILAAP Internal Liquidity Adequacy Assessment Process
JIBAR Johannesburg Interbank Agreed Rate
JSE JSE Limited
LAP liquid-asset portfolio
LCR liquidity coverage ratio
LIBOR London Interbank Offered Rate
m million
MFC Motor Finance Corporation (vehicle finance lending division of Nedbank)
MRC minimum required capital
NCA National Credit Act, 34 of 2005
NCOF net cash outflows
NGN Nigerian naira
NII net interest income
NIM net interest margin
NIR non-interest revenue
NPL non-performing loan(s)
NSFR net stable funding ratio
OM Old Mutual
plc public listed company
PPOP preprovisioning operating profit
R rand
RBB Retail and Business Banking
Rbn South African rands expressed in billions
Rm South African rands expressed in millions
RoA Rest of Africa (cluster name)
ROA return on total assets
ROE return on equity
RORWA return on risk-weighted assets
RRB Retail Relationship Banking
RWA risk-weighted assets
SA South Africa
SADC Southern African Development Community
SAICA South African Institute of Chartered Accountants
SARB South African Reserve Bank
SDGs Sustainability Development Goals
TTC through the cycle
UK United Kingdom
US United States
VAF vehicle and asset finance
VaR value at risk
VIU value in use
VNB value of new business
yoy year on year
ytd year to date
ZAR South African rand (currency code)
Date: 02/03/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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