Wrap Text
Unaudited Condensed Consolidated Interim Financial Results for the six months ended 30 June 2018
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Reg number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
JSE alpha code: NEDI
('Nedbank Group' or 'the group'
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018
Strong performance in a difficult environment
Nedbank Group delivered a strong performance in the first half of 2018, assisted
by our share of associate income from ETI as it returned to profitability, while our
managed operations delivered positive, but slower, earnings growth in line with
our expectations. Headline earnings of R6,7bn increased 27,0% and ROE (excluding
goodwill) improved to 18,4%. Slow revenue growth and a gradual increase in
impairments were offset by good cost management. We maintained a strong
balance sheet, as evident in our IFRS 9 fully phased-in CET1 ratio of 12,4% and the
interim dividend per share increasing by 13,9%. Total assets exceeded R1 trillion for
the first time.
Nedbank continues to make good progress in delivering market-leading client value
propositions and digital innovations. This focus has enabled us to increase our
total client base to over eight million for the first time, grow revenues and unlock
operating efficiencies. In the second half of 2018 we look forward to the launch
of more exciting innovations for clients. Our strategic enablers, including ongoing
technology investments, our people, our culture and our brand, are creating a more
client-focused, agile, competitive and digital Nedbank.
Given the strong growth in diluted headline earnings per share in the first half
of 2018, together with expectations of a slowly improving economic outlook
and ongoing delivery on our strategy, our guidance for growth in diluted
headline earnings per share for 2018 remains unchanged, being in line with our
medium-to-long-term target of greater than or equal to GDP plus CPI plus 5%.
Mike Brown
Chief Executive
2018 interim results commentary
BANKING AND ECONOMIC ENVIRONMENT
Global economic conditions remained relatively robust in the
first half of 2018, despite persistent geopolitical tensions
and escalating trade disputes. Much of the momentum
came from strong growth in the US, boosted by rising
business and consumer confidence on the back of rapid job
creation and substantial tax relief. Activity elsewhere in the
developed world also expanded, albeit at a slightly softer
pace. The recovery in emerging and developing economies
also continued, with growth in India accelerating and China
proving resilient. This, coupled with firmer commodity prices,
supported the recovery in most commodity-producing
countries, including sub-Saharan Africa. However, the
escalating trade war between the world's largest economies
and the faster-than-expected normalisation of US monetary
policy started to hurt capital flows to emerging markets
during the second quarter, impacting the hardest on those
countries with political and structural vulnerabilities.
The SA economy started 2018 on a weaker note, despite the
generally constructive business sentiment around changes
in the country's political leadership. These changes include,
inter alia, actions taken to restore government's finances to
a more sustainable path, commitments to address policy
uncertainty, initiatives to investigate and root out corruption,
and reform of financially troubled and operationally crippled
state-owned enterprises (SOEs). Real GDP declined by
2,2% qoq in the first quarter, but the decline was partly
exaggerated by the high base established towards the end
of 2017, which included the upward revision of 2017 GDP
from 0,9% (expected) to 1,3% (actual). The weakness was
widespread, with sharpest declines recorded in agriculture,
mining, manufacturing and domestic trade. GDP growth on
Q1 2017 was up 0,8%. Consumer spending expanded further,
but at a much slower pace off the high base in 2017. Although
disposable income growth slowed, consumer confidence
improved in the first quarter, interest rates eased further in
March and the gradual recovery in household credit demand
continued. Household debt levels edged up slightly to 71,7% of
disposable income, but remain around levels last recorded early
in 2006.
Inflation increased from low levels as the hikes in VAT, excise
duties and fuel tax rates came into effect in April, but
remained contained and well within the SARB inflation target
range. The rand rallied in early 2018 on the back of optimistic
political, fiscal and ratings expectations. Moody's left both
SA's foreign and local currency debt ratings unchanged at one
notch above subinvestment grade, but changed the country's
ratings outlook from negative to stable. The other major
global rating agencies also left the country's sovereign-debt
ratings unchanged at just below investment grade. Given these
developments, SARB's Monetary Policy Committee cut the repo
rate by 25 basis points in March. However, underlying economic
conditions deteriorated over the second quarter. Fading global
risk appetite for emerging markets resulted in renewed rand
weakness and volatility, while slow progress in returning key
SOEs to operational efficiency and growing political pressure to
address inequality in land ownership, mining rights and access
to healthcare have fuelled increasing policy uncertainty among
investors and companies. Consequently, corporate demand for
credit weakened further in the first half of the year as the slump
in fixed-investment activity persisted.
REVIEW OF RESULTS
Nedbank produced a strong performance in a domestic
macroeconomic environment that remained challenging and
volatile. HE increased 27,0% to R6 696m, boosted by associate
income from ETI's returning to profitability, while our managed
operations delivered positive, but slower, earnings growth from
a high base. This translated into an increase in DHEPS and
HEPS of 26,3% to 1 361 cents and 1 387 cents respectively, in line
with the 23% to 28% range set out in the trading statement
released on 26 July 2018. As in previous 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 historic
volatility in ETI's results and the impact of a challenging SA
operating environment. We will revert to only group-level
reporting in 2019. Our managed operations produced
HE growth of 2,0% to R6 562m, with slow revenue growth and
slightly higher impairments offset by good cost management.
ROE (excluding goodwill) and ROE improved to 18,4% and 17,2%
respectively. ROE (excluding goodwill) in managed operations
was 18,3% and ROE was 17,1%. These ratios benefited from
the reduction in equity following the day one transitional
adjustments in respect of IFRS 9 and IFRS 15 of R3,2bn. On a
like for like basis excluding IFRS adjustments, ROE (excluding
goodwill) was 17,8% and in managed operations was 17,7%.
Total assets for the group exceeded the R1 trillion mark for the
first time. ROA increased 27 bps to 1,37% and return on RWA
increased from 2,07% to 2,48%.
Our IFRS 9 fully phased-in CET1 and tier 1 capital ratios of 12,4%
and 13,2% respectively, average LCR for the second quarter
of 106,9% and an NSFR of 116,4% are all Basel III-compliant
and are a reflection of a strong balance sheet. On the back of
strong earnings growth and a strong capital position an interim
dividend of 695 cents was declared, an increase of 13,9%.
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 31 592 staffmembers in our employ, invested R270m in training
and paid salaries and benefits of R8,1bn. Our bargaining unit staff received
annual salary increases of 7,0%, ahead of inflation, and the blended average
staff salaries increased by 5,8%. As part of our People 2020 groupwide
programme aimed at transforming and aligning our culture and talent
with our strategic objectives, we refreshed our executive management
programmes to be more digitally focused, with more than 70 senior leaders
having participated in immersive learning experiences (the Executive
Business Transformation programme), with exposure to Silicon Cape,
Silicon Savannah (Kenya) and Silicon Valley. We implemented New Ways
of Work (NWoW) 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. More
than 500 staffmembers are working according to this new approach and
we aim to increase this number to over 4 000 by June 2019. Transformation
remains a key imperative to ensure Nedbank remains relevant in a
transforming society and we have continued to focus on this across all
levels at Nedbank, from our board of directors to all our staffmembers.
Currently black representation at board is 59%, at executive is 46% and for
our total staff at more than 78%. Altogether 62% of our staff are female.
In recognition of our progress, Nedbank was recently announced as the
overall winner at the SA Board for People Practices Employment Equity,
Diversity and Transformation Awards.
For clients
We increased our total retail client numbers across the group to
8,0 million, with RBB main-banked clients growing 2,5% to 2,8 million,
supported by a 9,3% increase in main-banked clients in the middle market.
May 2018 BA900 market share data showed Nedbank either maintaining
or increasing its share of lending in home loans, vehicle finance, personal
loans, credit cards and core corporate loans. Similar trends were evident in
household deposits. Our clients' access to banking improved through our
network of 1 034 Intelligent Depositor devices and we increased the total
number of digitally focused branches to 346 or 57% 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
one million times since its launch in November 2017. We supported our
clients by advancing R82bn (June 17: R76bn) of new loans in the first half
of 2018 to enable them to finance their homes, vehicles, education and to
grow their businesses. We safeguarded R801bn of deposits at competitive
rates. Our Net Promoter Score is second-highest among full-service
banks in SA. Nedbank's brand value increased 16% yoy and is now ranked
the ninth most valuable brand in SA (from 10th in 2017) as measured by
Brand Finance. In recognition of the market-leading innovations and CVPs
launched, Nedbank recently won the International Banker award for Best
Innovation in Retail Banking SA 2018 as well as the Banker Africas award
for Best Corporate Bank in SA. Nedgroup Investments maintained its
top-three ranking in offshore management companies in SA in the recent
PlexCrown Unit Trust Survey. The business is ranked the fourth-largest
unit trust manager and third-largest offshore unit trust manager in SA.
Nedbank Private Wealth won first place for philanthropic advice in SA in the
annual Euromoney Private Banking and Wealth Management Survey for
the fourth consecutive year. Internationally, Nedbank Private Wealth won
the award for Best UK Private Bank. In July 2018 Nedbank was selected by
SARB and the curator to provide banking services to VBS Mutual Bank's
individual-client depositors who held guaranteed deposits of less than
R100 000, following VBS Mutual Bank being placed under curatorship.
The guaranteed VBS deposit book transferred to Nedbank comprised more
than 17 000 clients and more than R250m in deposits, and we look forward
to serving them as Nedbank clients. Nedbank made use of robotic process
automation (RPA) to open these accounts in a short timeframe and added
additional resources (extended banking hours and mobile units) to cater for
the demand on the ground, specifically in Thohoyandou and Makhado.
For shareholders
Nedbank's net asset value per share increased 4,7%
to 16 957cents (up 8,8% excluding the impact of
IFRS day-one adjustments), our share price performed
7% above the FINI15 index since the start of 2018 and
the interim dividend was up 13,9%. We expanded our
investor activities ahead of the Old Mutual managed
separation and engaged constructively with the
investment community in over 180 meetings in the
past six months. At our 51st annual general meeting all
resolutions were passed, with more than 90% of votes
in favour. Following constructive engagements with
shareholders and enhancements to our remuneration
practices, we were pleased that our remuneration policy
and disclosures received more than 99% votes in favour.
We continued to ensure transparent, relevant and
timeous reporting and disclosure to shareholders, and
were acknowledged by the Investment Analyst Society
as the leader in corporate reporting in the banking sector
and the Nedbank Group Integrated Report continued
to be ranked in the top tier of JSE-listed companies.
Nedbank's valuation metrics remain attractive, with
price/earnings and price-to-book ratios of 8,9 times and
1,5 times respectively, and a dividend yield of 5,0% at
30 June 2018.
For regulators
We maintained Basel III requirements ahead of full
compliance timelines, including a strong capital position,
achieving a CET1 ratio of 12,4% (after the fully phased-in
day-one impact of IFRS 9 and the impact of IFRS 15), an
average LCR of 106,9% in the second quarter of 2018 and
an NSFR of 116,4% at June 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 R5,7bn were made relating
to direct, indirect, pay-as-you-earn and other taxation.
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 a fully phased-in impact of 25 bps
on our CET1 ratio at 1 January 2018, inclusive of the
15 bps arising from our share of ETI's own transitional
IFRS 9 impact.
For society
We understand that our long-term sustainability and
success are 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 play our
part to 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 as
well as the broader African continent.
In addition to the R82bn in new loans advanced to clients in
the first half of 2018, evidence of how we have delivered on our
purpose over time includes:
- A focus on sustainable-development finance that was
evident in more than R460m of new lending to support
student accommodation, R3,2bn lent to construct green
buildings, R19,8bn dispersed for renewable-energy deals and
R348m to affordable-housing developments. In addition,
in line with SDG 6 – provision of clean water and sanitation
– the first half of 2018 has seen increased investment
alongside our clients, including bond support and debt
capital management for selected water authorities as well
as water-focused private-equity acquisitions. In the rest of
Africa we integrated the market-leading Ecobank money
transfer product into the Nedbank Money app™, enabling
the cheapest, most efficient money transfers to more than
33 countries across Africa.
- Drought interventions – the 2018 Nedbank Cup final was
held in Cape Town. As part of the legacy of the tournament
we pledged a further R2m to remove water-sapping alien
invasive trees around the water catchment areas that feed
the six big dams supplying the city. This latest financial
commitment is aimed at enabling the release of one billion
litres (one million kilolitres) of water annually. This investment
bolsters the R47m already invested in 23 national water
and conservation projects through the WWF Nedbank
Green Trust over the past five years. Through education and
reduced consumption in our own buildings, by implementing
initiatives such as recycling air-conditioning water and
piloting air-flush toilets, we contributed to the City of Cape
Town's avoiding the day-zero water crisis.
- Having maintained our level 2 BBBEE contributor status
for nine years, now measured under the Amended Financial
Sector Code (FSC), gazetted in terms of section 9(1) of
the BBBEE Act, 53 of 2003, effective on 1 December 2017.
We invested more than R55m in socioeconomic development,
with more than 50% allocated to education, while 75%
of our procurement spend was used to support local
SA business. Although Nedbank has achieved industry
leadership according to the old FSC, we recognise that the
Amended FSC, which comprises stricter weighting and
targets, will lead to an industry rebasing, possibly impacting
relative competitor positioning in this regard. Leading
transformation remains a strategic priority for Nedbank,
as this will enable us to remain relevant and support the
national agenda by playing a key role in contributing to the
country's economic growth, and in so doing being conscious
that the manner in which such contributions are made must
promote access to economic opportunities and financial
inclusion to improve the overall standard of living and uplift
the moral quotient of the country.
- Continuing to participate in the CEO Initiative, working with
government, business and labour towards a more inclusive
SA society. We have been part of the leadership team in the
credit ratings workstream, have committed R20m to the
R1,5bn SME Fund and will become a participant in the Youth
Employment Service, in which we, as corporate SA, aim to
provide internship opportunities for more than one million
South Africans. For Nedbank this is estimated to translate
into a cost of over R150m per annum (on a run rate basis
from 2019), supporting more than 3 000 youth.
CLUSTER FINANCIAL PERFORMANCE
Nedbank's managed operations generated HE growth of 2,0%
to R6 562m and delivered an ROE (excluding goodwill) of 18,3%.
ROE (excluding
Change HE goodwill)
(%) (Rm) (%)
Jun Jun Jun Jun
2018 2017 2018 2017
CIB 2,6 3 296 3 211 20,1 20,8
RBB 1,5 2 581 2 544 18,6 18,7
Wealth 0,0 519 519 25,4 27,8
RoA
subsidiaries 58,6 111 70 4,0 3,0
Centre (38,2) 55 89
Nedbank
managed
operations 2,0 6 562 6 433 18,3 18,9
ETI > 100 134 (1 162)
Group 27,0 6 696 5 271 18,4 15,1
CIB maintained an attractive ROE of above 20% and produced
a solid result, supported by a high-quality advances book and
a low CLR. This was achieved notwithstanding a challenging
environment for growing revenues. Advances growth was
impacted as clients remained cautious in initiating new projects,
and early repayments were high, while trading activity was
strong but slowed in the second quarter of 2018. Credit quality
remained excellent through proactive risk management as we
continued to monitor and manage exposures to stressed sectors
of the economy, such as construction and cement, as well as
certain SOEs.
RBB delivered a solid ROE and an increase in HE ahead of our
expectations, notwithstanding the impact of impairment
overlay releases in the previous year and IFRS changes in the
current year. NII growth was underpinned by solid growth in
advances and strong growth in deposits, offset by a lower
NIM due mainly to the impact of margin compression on
term deposits. Credit losses remained muted, reflecting a
high-quality portfolio. Excluding the impact of IFRS 9 and
15, transactional NIR growth was strong. Lower expense
growth reflects the initial impact of optimising processes and
operations, including headcount reductions as well as some
impacts from IFRS changes.
Nedbank Wealth maintained a strong ROE above 25%
and HE remained steady, despite prevailing economic and
market conditions as well as subdued investor sentiment.
The results were attributable to reasonable performances
in Asset Management, Insurance and Wealth Management
International, offset by a decline in earnings in Wealth
Management locally.
RoA's HE increased strongly off a low base as our share of
associate income from our investment in ETI returned to
profitability. Our SADC subsidiaries also grew HE off a low base
as benefits emerge from the recent investments we have made
in the franchises as a platform to create scale.
In the Centre there were no central provision releases and
fair-value gains were lower than in 2017 as, on the back of
IFRS 9 changes, we had implemented a central macro fair-value
hedge accounting solution that will result in lower accounting
volatility on our hedged portfolios in future. This was offset by a
postretirement medical aid (PRMA) credit amounting to R180m
after tax.
FINANCIAL PERFORMANCE
Growth in key lines of the statement of comprehensive
income was impacted by the implementation of IFRS 9 and
IFRS 15 accounting changes effective 1 January 2018 as the
previous year comparatives were not restated. The table
below has been presented to enable a like-for-like comparison
and provides for the following accounting changes. Under
IFRS 9 (a) suspended interest on the non-recoverable portion
of the specific defaulted book is no longer recognised as NII,
with full impairments previously being raised; (b) higher levels
of portfolio provisions are raised on new loans compared
with IAS 39; and (c) initiation fees previously recognised as NIR
are now amortised to NII through the effective-interest-rate
method. Under IFRS 15 costs of our rewards program were
previously recognised as an expense and are now recognised as
a reduction in NIR.
Estimated impact of IFRS accounting changes
Reported IFRS Jun 2018 Like-for-
Jun 2017 Jun 2018 change changes adjusted like change
(Rm) (Rm) (%) (Rm) (Rm) (%)
NII 13 548 14 006 3,4 51 14 057 3,8
Impairments 1 594 1 815 13,9 91 1 906 19,6
NIR 11 730 12 236 4,3 271 12 507 6,6
Expenses 14 369 14 756 2,7 124 14 880 3,6
HE 5 271 6 696 27,0 77 6 773 28,5
Net interest income
NII increased 3,4% to R14 006m, ahead of AIEBA growth of
0,8%. AIEBA growth adjusted for IFRS opening balance changes
was 1,2%.
NIM expansion of 9 bps to 3,67% was driven largely by an
improved asset mix of 5 bps and asset pricing of 4 bps.
The 25 bps interest rate decreases in July 2017 and March
2018 more than offset the volume-related increases in
capital and transactional deposits and resulted in a negative
endowment of 2 bps. IFRS changes had a net nil impact on
NIM, as a negative 4 bps impact of IFRS 9: Suspended interest
was offset by a positive impact of IFRS 9: Initiation fee. HQLA
optimisation added 2 bps to NIM.
Impairments charge on loans and advances
Impairments increased 13,9% to R1 815m. The CLR increased
6 bps to 0,53%, driven by increases in defaults in the CIB
portfolio and the implementation of IFRS 9, which increases
the coverage on new business, mostly in retail portfolios, and
includes impairments on off-balance-sheet exposures. This
was partially offset by the change in treatment of suspended
interest under IFRS 9, which structurally lowers the CLR of both
home loans and personal loans, and lowers the corresponding
interest margin. The low CLR continues to reflect selective
advances growth and the high quality of the portfolio across all
our businesses.
Impairments in CIB increased from the previous year, but
remained below the TTC target. This was the result of
successful resolutions and settlements that enabled the
reversal of historic impairment provisions, offset by growth in
defaulted advances, given increased stress in some industries.
Impairments are individually determined in CIB and 88%
of specific impairments are concentrated in approximately
10 counters. RBB impairments decreased by 1,7% to R1,7bn as a
result of an improvement in collections, as well as the structural
change in the treatment of suspended interest under IFRS 9,
which reduced both impairments and NII by R181m. Adjusting
for this impact, RBB impairments would have increased
8,9%. In addition, the CLR benefited from the improvement
in macroeconomic assumptions relative to those used in
December 2017.
Continued proactive collection and resolution strategies within
CIB and RBB contributed to group writeoffs increasing 4,9% to
R2 387m and postwriteoff recoveries increasing 8,8% to R629m.
The group's central provision remains unchanged from year end
at R150m.
Banking TTC
advances Jun Jun Dec target
CLR (%) (%) 2018 2017 2017 ranges
CIB 46,7 0,01 (0,03) 0,06 0,15–0,45
RBB 46,1 1,06 1,14 1,06 1,30–1,80
Wealth 4,1 0,15 0,09 0,09 0,20–0,40
RoA 3,1 1,09 0,80 1,02 0,65–1,00
Group 100,0 0,53 0,47 0,49 0,60–1,00
Total defaulted advances increased 12,9% to R22,8bn,
representing 3,1% of advances, as the weakened economic
environment placed additional stress on specific wholesale
counters, including the construction and cement industries,
while performing defaults in RBB increased.
The decrease in specific coverage from 37,2% to 35,2% was due
primarily to the change in the defaulted portfolio mix, with an
increase in CIB defaults. In CIB impairments are considered
on a client-by-client basis based on specific security we hold
and are adequately provided for. RBB's specific coverage
increased to 41,8%, driven by higher coverage on performing
defaulted loans after the IFRS 9 implementation. 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 from 0,70% at December 2017
(IAS 39 basis) to 0,93% after IFRS 9 day one and 0,91% at
June 2018.
Non-interest revenue
NIR growth of 4,3% to R12 236m reflects the negative impact
of IFRS 9 and 15, as well as weaker business and consumer
confidence levels in the second quarter of 2018. Excluding the
impact of the IFRS accounting changes, NIR increased by 6,6%
on a like-for-like basis from the ongoing progress in delivering on
our transactional banking strategy.
- Commission and fee income grew 3,2% to R8 709m.
RBB reported good underlying transactional NIR growth
of 8,1% (excluding the impact of IFRS9), supported by
good main-banked client growth in the middle market,
professional and small-business client segments.
CIB delivered solid growth, despite the closure of almost all
of the round 4 renewable-energy deals being delayed to the
second half of 2018.
- Insurance income increased 7,0% to R830m, supported by
a lower-claims experience in homeowner's cover after the
catastrophic weather events experienced the previous year,
as well as the benefit of lower business strain relating to the
funeral book. This growth was slightly offset by higher lapses
and lower reserve releases.
- Trading income increased 4,5% to R2 096m, with strong
growth in equities and slower growth in debt trading, as
activity levels among wholesale clients remained muted,
particularly in the second quarter of the year.
- Private-equity income, including investment realisations
in the Commercial Property Finance portfolio and higher
dividends received, increased 38,3% off a low base to R282m.
Expenses
Expense growth of 2,7% to R14 756m was well below the
inflation rate and below the guidance we provided for the full
2018 year (being growth of mid-single digits), demonstrating
disciplined and careful management of discretionary expenses in
an environment of slow revenue growth as well as benefits from
IFRS. Excluding the pretax PRMA benefit of R250m, expenses
increased by 4,4% and excluding IFRS changes expenses grew by
3,6%. The underlying movements included:
- Staff-related costs increasing at 3,5%, following:
- an average annual salary increase of 5,8% and a
1 053 reduction in staff numbers since June 2017;
- a 10,0% increase in short-term incentives in line with the
group's financial performance; and
- a settlement with our staff with regard to PRMA
obligations and benefits, resulting in a provisional R250m
credit in respect of actuarially estimated liabilities
previously raised.
- Computer-processing costs increasing 4,5% to R2 218m,
driven by increases in software amortisation and incremental
software licence costs, offset by reduced network-related
costs as a result of efficiency savings.
- Other cost lines being well managed, with increases below
inflation, and reflecting the benefits from implementing our
new target operating model, as well as efficiencies from the
adoption of automation and robotics as well as procurement
savings.
The group's growth in expenses of 2,7% was below total revenue
growth (including associate income) of 9,2%, resulting in a
positive jaws ratio of 6,5% and an efficiency ratio of 55,8%,
compared with 59,3% in the first half of 2017. The jaws ratio in
managed operations was positive at 1,0%.
Earnings from associates
The R207m associate income was largely attributable to
R247m from ETI's profit in the fourth quarter of 2017 and the
first quarter of 2018, in line with our policy of accounting for
ETI earnings a quarter in arrear. The total effect of ETI on the
group's HE was a profit of R134m, including the R113m impact of
funding costs.
Accounting for associate income, together with Nedbank's
share of ETI's other comprehensive income and movements
in Nedbank's foreign currency translation reserves and our
share of ETI's own IFRS 9 transitional adjustment, resulted
in the carrying value of the group's strategic investment in
ETI decreasing from R3,3bn at 31 December 2017 to R2,9bn
at 30 June 2018. ETI's listed share price increased by 17,6%
during the first half of 2018, which resulted in the market
value of the group's investment in ETI increasing to R4,6bn at
30 June 2017, using the official Central Bank of Nigeria rate
(305 Naira:US $) and R4,0bn based on the NAFEX rate
(361 Naira:US $, which we use for sensitivity analysis purposes).
While risks remain, it is expected that the actions taken to
improve ETI's financial position and governance, along with
an improving macroeconomic environment, will continue to
drive an improved financial performance in 2018. ETI's results
for the six months to 30 June 2018, released on 19 July 2018,
highlighted the continuing trend of strong earnings growth as
attributable profit increased to US $58m for Q2 2018, with
Nedbank's estimated share though associate income being
R162m (reported in Q3 2018 a quarter in arrear).
In line with IFRS requirements the R1bn impairment provision
recognised at 31 December 2016 was reviewed at 30 June
2018 and management determined that there were no
indicators of further impairment. We observed an improvement
in ETI's recent financial performance, but it is not yet considered
to be a sufficient indicator of sustainable performance to
release the impairment provision or part thereof. Our position
will be reassessed at 31 December 2018. Should ETI continue the
recent trend of delivering increased earnings during the second
half of 2018, there could be sufficient observable indicators at
year-end for the R1bn impairment provision to be decreased or
no longer required.
A R40m 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 remains well capitalised at levels significantly above
the minimum regulatory requirements. The CET1 ratio of
12,4% is reflective of organic capital generation, offset by 5%
growth in RWA during the period and after accounting for the
full impact of the implementation of IFRS 9 and IFRS 15 on
1 January 2018. The group CET 1 capital ratio was also positively
impacted following a weakening of the rand against the US
dollar during the period.
The total tier 1 and total CARs decreased as a result of a further
grandfathering of old-style preference shares (R531m) in
January 2018 in line with the Basel III transitional arrangements.
The total CAR was positively impacted by the issuance of
further tier 2 capital of R2,0bn during March 2018.
Internal
Jun Dec Jun target Regulatory
Basel III (%) 2018 2017 2017 range minimum(1)
CET1 ratio 12,4 12,6 12,3 10,5–12,5 7,375
Tier 1 ratio 13,2 13,4 13,2 > 12,0 8,875
Total capital
ratio 15,6 15,5 15,7 > 14,0 11,125
(Ratios calculated with full IFRS 9 phase-in and 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.
The group's three-month average long-term funding ratio was
28,4% for the Q2 2018, supported by growth in Nedbank Retail
Savings Bonds of R3,5bn to R28,3bn and the successful capital
market issuances of R2,4bn senior unsecured debt and R2,0bn
tier 2 capital.
The group's June 2018 quarterly average LCR of 106,9%
exceeded the minimum regulatory requirement of 90% in
2018 and the group maintains appropriate operational buffers
designed to absorb seasonal and cyclical volatility in the LCR.
Jun Dec Jun
Nedbank Group LCR 2018 2017 2017
HQLA (Rm) 148 675 138 180 144 568
Net cash outflows (Rm) 139 043 118 956 138 260
Liquidity coverage ratio (%)(2) 106,9 116,2 104,6
Regulatory minimum (%) 90,0 80,0 80,0
(2) Average for the quarter.
Further details on the LCR are available in the Additional
information section of the condensed consolidated interim
financial results.
Nedbank's portfolio of LCR-compliant HQLA increased by
7,6% to a June 2018 quarterly average of R148,7bn. The LCR
increased yoy as a result of a marginal increase in HQLA,
while net cash outflows remained fairly constant. The HQLA
portfolio, taken together with our portfolio of other sources of
quick liquidity, resulted in total available sources of quick liquidity
of R203,8bn, representing 20,0% of total assets.
Nedbank exceeded the minimum NSFR regulatory requirement
of 100% effective from 1 January 2018 and reported a June
2018 ratio of 116,4%. The key focus in terms of the NSFR is to
achieve continued compliance in the context of balance sheet
optimisation.
Loans and advances
Loans and advances increased by 0,4% yoy to R712,7bn, driven
by solid growth in RBB, but offset by a decline in trading
advances and short-dated lending in CIB as well as the IFRS
day-one impact of R3,2bn. Excluding the IFRS impact, advances
grew 0,8%.
Loans and advances by cluster are as follows:
Change
Rm (%) Jun 2018 Jun 2017
CIB (5,0) 345 783 363 873
Banking activities (0,9) 322 492 325 266
Trading activities (39,7) 23 291 38 607
RBB 6,3 315 516 296 945
Wealth 5,5 31 089 29 464
RoA 8,5 22 123 20 382
Centre(3) (> 100%) (1 843) (800)
Group 0,4 712 668 709 864
(3) Intercompany eliminations.
RBB loans and advances grew 6,3% to R315,5bn, supported
by growth across all asset classes in line with risk appetite
and prudent origination strategies. Business Banking grew
advances 9,1%, largely due to an increase in new-loan payouts,
coupled with an increase in client drawdowns of existing
facilities. MFC (vehicle finance) increased advances by 9,2%
as new-business volumes remained robust despite a muted
new-vehicle sales market. Unsecured Lending grew advances
6,2% and we remain comfortable with the quality and overall
performance of the unsecured-lending portfolio based on the
conservative rules we apply to consolidation, restructuring and
term strategies. Card advances decreased 1,3%, reflecting gross
advance growth of 5,3%, offset by an increase in impairments
due to IFRS day-one changes. Home loan advances grew
at below-inflation levels as growth in the overall residential
mortgage market remains muted and Nedbank maintained
market share.
CIB loans and advances decreased 5,0% yoy to R345,8bn.
The banking book declined slightly due to a combination of
ongoing early repayments, managed selldowns, which allowed
for the diversification of risk, and a decrease in the preference
share book due to less appetite for preference share deals. This
was offset by increased demand for new term loans, as well as
commercial-mortgage loans and advances increasing 4,0% to
R132,2bn. The CPF portfolio contains good-quality collateralised
assets with low loan-to-value ratios, underpinned by a large
secure asset pool and a strong client base, and is managed by
a highly experienced property finance team. Trading advances
declined by 39,7% and includes the result of the choice to
settle more expensive foreign funding, which reduced interbank
foreign placements.
Deposits
Deposits grew 5,0% yoy to R801,2bn, with total funding-related
liabilities increasing 4,4% to R854,8bn, while the loan-to-deposit
ratio improved to 89,0%.
Through the active management of the RBB franchise, deposits
grew 8,8% yoy to R303,8bn, resulting in household deposits
market share remaining at 19,0%. This was supported by
Nedbank's strong market share in household CASA deposits
of 18,0%. Nedbank Wealth and RoA grew deposits by 4,3%
and 11,7% respectively in line with the objective of growing
Basel III-friendly deposits.
During the 12 months to June 2018 Nedbank has successfully
reduced its use of more expensive foreign currency funding in
the general rand funding pool through growth in negotiable
certificates of deposit, structured deposits, fixed deposits and
current and savings accounts. This strategy not only contributed
to the positive management of the long-term funding profile,
but also reduced foreign currency funding reliance.
The positive tilt towards more Basel III-friendly RBB
deposits and the reduction in foreign currency funding through
deliberate growth in negotiable certificates of deposit,
structured deposits and other deposits have contributed
positively to ensuring cost-effective regulatory compliance while
maintaining a strong balance sheet position.
Group strategic focus
During the first six months to 30 June 2018 we continued
to focus on delivering on our five strategic focus areas
that underpin sustainable earnings growth and improving
returns. We made good progress in delivering market-leading
CVPs and digital innovations. This focus enabled Nedbank
to increase its total client base to over eight million for
the first time, grow revenues and unlock operating
efficiencies. Our strategic enablers, including technology
investments (with our Managed Evolution IT strategy and
Digital Fast Lane as key components), our people, our culture
and our brand, are delivered through our target operating model
and by embracing New Ways of Work (NWoW). This is enabling
us to create a more client-focused, agile, competitive and digital
Nedbank.
- Delivering innovative market-leading client
experiences. The new Nedbank Money app™, which
makes banking more convenient for our retail clients,
has been downloaded one million times, with more than
400 000 clients having used it since November 2017.
UNLOCKED.ME, our first lifestyle marketplace proposition
aimed at the youth, was launched earlier this year. More
features and functionality on this ecommerce platform
will be released soon to enable clients to unlock even more
benefits. We also launched our new Stokvel Account that
offers members of stokvels up to 10% discount at our
retail partners, burial benefits of R10 000 a member for
only R15 a month, zero transaction fees and great interest
rates. In Nedbank Wealth we piloted geyser telemetry, an
innovative smart home solution that reduces electricity
consumption and may prevent resultant damage. Current
plans include extending the pilot to more than 500 clients.
As far as our integrated channels are concerned, we have
converted 57% of our outlets to new-image digital branches
to date, and our investment in distribution channels over
the next three years (until 2020) will result in 82% 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
experience through our contact centre and web-servicing
capabilities. Nedbank Insurance was the first-to-market
insurer in SA to have chatbot functionality, and we have
made significant strides in remaining ahead through
delivering live-agent service functionality and funeral
quoting capabilities. Nedgroup Investments won The
Financial Times Banker Magazine Technology Project award
in the Artificial Intelligence and Robotics category for our
robo-advice solution. We are continuing with our NZone
(digital self-service branch at the Sandton Gautrain station)
and solar-powered branch (in deep-rural areas such as
Upper Mncwasa in the Eastern Cape) pilots before extending
the rollout of these innovative concepts in the future.
The foundations put in place through Managed Evolution
(our core systems and technology platform transformation),
digital enhancements and NWoW are delivering ongoing
incremental digital benefits and enhanced client service.
In H2 2018 Nedbank will bring further exciting digital
innovations to market to enhance client experiences and
drive efficiencies. Some of these innovations 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; a new and
exciting loyalty and rewards solution; and the further rollout
of chatbots, robo-advisors and software robots (robotic
process automation). We are also launching MobiMoney,
which allows clients to receive and send money, buy airtime
and electricity from a cellphone and withdraw money at a
Nedbank ATM – all without a formal bank account.
- Growing our transactional banking franchise faster than
the market. Nedbank's SA retail franchise grew its total
client base 1,6% to 7,7 million, with 6,1 million clients having
a transactional account and 2,8 million main-banked
clients supporting retail transactional NIR growth of 8,1%
(excluding IFRS adjustments). Our main-banked client
numbers have grown yoy by 2,5%, driven largely by growth
in the middle-market, professional and small-business-client
segments. The 2017 Consulta Survey estimated Nedbank's
share of main-banked clients at 12,7%, up from the
10,1% recorded through the 2015 All Media and Products
Study Survey (using a similar methodology), as we aim
to reach a share of more than 15% by 2020. Our SADC
businesses grew their client base by 6% to 334 000,
supporting NIR growth of 12%. Our integrated model in CIB
enabled deeper client penetration and increased cross-sell,
resulting in 15 primary-bank client wins in the past six
months.
- Being operationally excellent in all we do. Cost discipline
is an imperative in a weak economic environment resulting
in slower revenue growth. We have ongoing initiatives to
optimise our cost base. These include the reduction of our
core systems from 251 to 125 since the 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 28 828 m² has
been achieved to date. Good progress was also made with
our target operating model initiatives, with cumulative
savings to June 2018 of R512m, with the aim of generating
R1,2bn pretax benefits for Nedbank by 2020 as disclosed in
an element of our long-term incentive scheme. Most cost
initiatives have been identified in RBB, and we delivered
savings of R337m to June 2018, which includes RBB's
target operating model savings. Over the past 18 months
we reduced headcount by 1 154 (mainly through natural
attrition), optimised our staffed points of presence by
closing eight branches (while maintaining our coverage of
the bankable population at 84%). We achieved efficiencies
through our increased footprint of Intelligent Depositor
devices, with the recycling of cash at these devices now at
58% of all cash, from 20% in 2015. During H1 2018, new
client-servicing functions that were previously only available
in branches or staffed channels were released on the
Nedbank Money app™ taking the total servicing functions
available to 42. The new Nedbank Online banking site was
also launched during this period, with 31 client-servicing
functions released. An additional two releases are planned,
which will increase the total app and web service functions to
60. We implemented 51 software robots to date (robotic
process automation) to enhance efficiencies and reduce
processing errors in administrative-intense processes. These
exclude the temporary software robots used to onboard the
more than 17 000 VBS clients. Through our newly adopted
agile IT development approach and NWoW we have reduced
the time and cost of bringing new innovations to market.
- 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 (excluding the impact
of IFRS accounting changes) and CIB up 6,5% and 6,6%
respectively. Our selective origination of personal loans,
home loans and commercial-property finance has proactively
limited downside credit risk in this challenging operating
climate, enabling a CLR of 0,53%, below the bottom end of
our TTC target range. At the same time our balance sheet
metrics remain strong and we continue to deliver attractive
dividend growth. Nedbank is continually looking for
opportunities to grow and create value for shareholders and
in June 2018 has been selected as one of four short-listed
bidders for Mercantile Bank to proceed to the second phase
of the process. Any final bid will be evaluated against strict
strategic, financial and cultural criteria.
- Providing our clients with access to the best financial
services network in Africa.
- In Central and West Africa, where we have adopted a
partnership approach, 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. ETI reported six consecutive quarters of
profit and is making good progress on its transactional
banking and digital strategy and optimising its cost base.
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 continue to
provide a strong underpin to Nedbank Group's earnings
growth in 2018. We have also increased our levels of
collaboration, with more than 90 of our wholesale
clients being banked by ETI and progress being made
in partnering with ETI to expand our wealth franchise,
collaborating on the pan-African remittances product and
increasing treasury and trading activities.
- In SADC, where we own, manage and control six banks,
we continue to build scale and optimise costs. Our core
banking system, Flexcube, has now been implemented in
all subsidiaries (excluding Banco Único). We continued to
launch a number of new digital products and reported
a 146% increase in banking app transactions and a 6%
increase in client numbers. During the period Merchant
Bank of Central Africa (MBCA) in Zimbabwe was
rebranded to Nedbank Zimbabwe.
Old Mutual plc managed separation
Nedbank Group shareholders are referred to the
announcements published on 11 March 2016, 28 June 2016,
1 November 2017 and 20 April 2018 relating to Old Mutual plc's
managed separation strategy, which entails, among other
things, the creation of a new South African holding company,
Old Mutual Limited ('OML').
The admission of, and commencement of unconditional dealings
in, the ordinary shares of OML on the JSE as a primary listing
and also on the London Stock Exchange, the Namibian Stock
Exchange, the Zimbabwe Stock Exchange and the Malawi Stock
Exchange took place on 26 June 2018.
Listing of OML is the precursor to the third and final step of
the managed separation and entails the reduction in OML's
shareholding in Nedbank Group through the distribution of
Nedbank Group ordinary shares to OML's shareholders. This
will result in OML, immediately after the implementation of
distribution or unbundling, holding a 19,9% strategic minority
shareholding in Nedbank Group. It is anticipated that the
Nedbank unbundling will take place approximately six months
from the date of the OML listing as mentioned above, and will
allow 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 Nedbank 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 OML
shareholding).
Nedbank Group continues to operate on a business-as-usual
basis and the managed separation will have no impact on our
strategy, our day-to-day management or operations, our staff
or our clients. Our engagements with Old Mutual have been at
arm's length and are 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 to unlock synergies will
continue to be underpinned by OML's strategic shareholding in
Nedbank Group. We are committed to working with OML to
deliver ongoing synergistic benefits at arm's length.
Economic and regulatory outlook
The International Monetary Fund expects global economic
growth to accelerate to 3,9% in 2018 from 3,7% in 2017, with
advanced countries forecast to grow by 2,5% and emerging and
developing economies by 4,9%. Growth in sub-Saharan Africa is
expected to accelerate to 3,3% in 2018 from 2,9% in 2017.
Given SA's poor economic performance in early 2018, Nedbank
Group's current forecast for GDP growth in 2018 is 1,0%,
down from 1,3% in 2017. GDP growth thereafter is forecast
to increase to 1,8% and 2,2% in 2019 and 2020 respectively.
Although inflation is forecast to remain within SARB's inflation
target range, it is likely to drift higher during the rest of the year
and into 2019. The upward pressure on inflation is expected
to emanate from higher food, fuel and electricity prices, as
well as a moderately weaker rand. The rand is forecast to be
volatile as global risk appetite softens on growing concerns over
world growth prospects in light of rising protectionism and the
normalisation of monetary policy in most developed countries.
As a result, domestic interest rates are forecast to remain
unchanged for the remainder of the year, but the risk to the
interest rate outlook has shifted to the upside.
Consumer spending is likely to remain firm, supporting
moderate growth in household credit demand. Faster growth
appears unlikely given that household finances are likely
to be hurt by slower wage growth and higher living costs.
Corporate credit demand will remain subdued, but should
improve modestly off a low base. Continued global growth
and rising commodity prices could eventually translate into
cyclical recoveries in SA's major export-orientated industries.
Some revival is also expected in renewable-energy projects,
but persistent policy uncertainty, particularly around property
expropriation without compensation, the Mining Charter and
the challenging domestic operating environment, will probably
delay a more broad-based recovery in fixed investment.
Government spending should be kept in check by the need to
reduce the budget deficit and contain the rise in government
debt to avoid a further sovereign-ratings downgrade. Progress
with tackling strategic, structural and financial problems at
many state-owned enterprises – and Eskom in particular – is
essential to lift economic growth.
Overall economic conditions in SA should improve off a low base
over the next three years. Despite the many challenges faced by
the SA economy, the SA banking system remains sound, liquid
and well capitalised.
Prospects
On the back of the group's strong performance in H1 2018 and
developments in the environment, we have updated our
guidance on financial performance currently expected for the
full year 2018 as follows:
- Average interest-earning banking assets to grow below
nominal GDP (previously: in line with nominal GDP).
- NIM to be slightly above the 2017 level of 3,62% (unchanged).
- CLR to increase, but remain below the bottom of our target
range of 60 to 100 bps (under IFRS 9) (previously: increase
into the bottom half of our target range).
- NIR to grow above mid-single digits (unchanged).
- Associate income to be positive (ETI associate income
reported quarterly in arrear) (unchanged).
- Expenses to increase below mid-single digits (previously:
increase by mid-single digits).
Given the strong financial performance in the first half of 2018,
together with expectations of a slowly improving economic
outlook and ongoing delivery on our strategy, our guidance for
growth in DHEPS for 2018 remains unchanged, being in line with
our medium-to-long-term target of greater than or equal to
GDP plus CPI plus 5%.
The outlook for our medium-to-long-term targets in 2018 is as
follows, and we remind investors that we have 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.
Jun 2018
Metric performance Full-year 2018 outlook Medium-to-long-term target
ROE (excluding goodwill) 18,4% Remains below target 5% above COE(4) (>= 18% by 2020)
Growth in DHEPS 26,3% >= consumer price index + >= consumer price index +
GDP growth + 5% GDP growth + 5%
CLR 0,53% Increases, but remains below Between 0,6% and 1,0% of
our target range (under IFRS 9) average banking advances
NIR-to-expense ratio 82,9% Remains below target > 85%
Efficiency ratio (including
associate income) 55,8% Remains above target 50–53% (<= 53% by 2020)
CET1 capital adequacy ratio
(Basel III) 12,4% Within or above target 10,5–12,5%
Dividend cover 2,00 times Within target range 1,75–2,25 times
(4) The COE is currently forecast at 13,5% 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
Having served on the Nedbank Group board for nine years,
Nomavuso Mnxasana resigned as an independent non-executive
director with effect from the close of Nedbank Group's annual
general meeting on 10 May 2018. With managed separation
progressing according to plan, Peter Moyo was appointed as a
non-executive director and Bruce Hemphill resigned from the
Nedbank Group board on 11 June 2018.
Khensani Nobanda was appointed as Group Executive for Group
Marketing and Corporate Affairs on 15 May 2018, and Deborah
Fuller was appointed as Group Executive for Human Resources
on 25 June 2018 following the retirement of Abe Thebyane on
31 March 2018.
Basis of preparation*
Nedbank Group Limited is a company domiciled in SA.
The unaudited condensed consolidated interim financial results
of the group at and for the period ended 30 June 2018 comprise
the company and its subsidiaries (the 'group') and the group's
interests in associates and joint arrangements.
The condensed consolidated interim financial statements
comprise the condensed consolidated statement of financial
position at 30 June 2018, condensed consolidated statement
of comprehensive income, condensed consolidated statement
of changes in equity and condensed consolidated statement
of cashflows for the six months ended 30 June 2018 and
selected explanatory notes, which are indicated by the symbol*.
The condensed consolidated interim financial statements have
been prepared under the supervision of Raisibe Morathi CA(SA),
the Chief Financial Officer.
The condensed consolidated interim financial statements
are prepared in accordance with International Financial
Reporting Standard IAS 34 Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, Financial Pronouncements
as issued by the Financial Reporting Standards Council and
the requirements of the Companies Act (Act No 71 of 2008)
of SA. The accounting policies applied in the preparation of
these condensed consolidated interim financial statements
are in terms of IFRS and are consistent with those used for the
previous annual financial statements, except for changes arising
from the adoption of IFRS 9 and IFRS 15, as set out in the notes
to the condensed consolidated interim financial statements.
The directors of the group take full responsibility for the
preparation of this report. The condensed consolidated interim
financial results have not been audited or independently
reviewed by the group's external auditors. The group's
2017 annual financial information has been correctly extracted
from the underlying audited consolidated annual financial
statements.
Events after the reporting period*
There are no material events after the reporting period to
report on.
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.
Interim dividend declaration
Notice is hereby given that an interim dividend of 695 cents
per ordinary share has been declared, payable to shareholders
for the six months ended 30 June 2018. 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 139 cents per ordinary share, resulting
in a net dividend of 556 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 500 239 303.
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, 4 September 2018
Shares commence trading (ex
dividend) Wednesday, 5 September 2018
Record date (date shareholders
recorded in books) Friday, 7 September 2018
Payment date Monday, 10 September 2018
Share certificates may not be dematerialised or rematerialised
between Wednesday, 5 September 2018, and Friday,
7 September 2018, both days inclusive.
On Monday, 10 September 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,
10 September 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
7 August 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
Shareholders are reminded that, with effect from 1 June 2018,
Nedbank Group's transfer secretaries in SA has changed from
Computershare to Link Market Services.
Link Market Services South Africa Proprietary Limited,
19 Ameshoff Street, Braamfontein, Johannesburg, 2001, SA.
PO Box 4844, Marshalltown, 2000, 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), EM Kruger, RAG Leith, PM Makwana, L Manzini,
Dr MA Matooane, RK Morathi** (Chief Financial Officer), MP
Moyo, 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
Nedbank Group Limited: JSE alpha code: NEDI
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 to analysts.
- Link to a webcast of the presentation to analysts.
For further information please contact Nedbank Group Investor
Relations at nedgroupir@nedbank.co.za.
Financial highlights
at
30 June 30 June 31 December
Change 2018 2017 2017
(%) (Unaudited) (Reviewed) (Audited)
Statistics
Number of shares listed m 500,2 498,1 498,1
Number of shares in issue, excluding shares held by group
entities m 484,2 481,5 481,6
Weighted-average number of shares m 482,7 479,9 480,8
Diluted weighted-average number of shares m 492,0 488,9 490,0
Preprovisioning operating profit 20,2 Rm 10 873 9 047 19 358
Economic profit(1) >100 Rm 1 709 393 1 695
Headline earnings per share 26,3 cents 1 387 1 098 2 452
Diluted headline earnings per share 26,3 cents 1 361 1 078 2 406
Ordinary dividends declared per share 13,9 cents 695 610 1 285
Interim 13,9 cents 695 610 610
Final cents 675
Ordinary dividends paid per share 7,1 cents 675 630 1 240
Dividend cover 11,1 times 2,00 1,80 1,91
Net asset value per share 4,7 cents 16 956 16 200 16 990
Tangible net asset value per share 3,1 cents 14 440 14 007 14 626
Closing share price 19,5 cents 24 958 20 879 25 610
Price/earnings ratio historical 8,9 9,4 10,4
Price-to-book ratio historical 1,5 1,3 1,5
Market capitalisation 20,0 Rbn 124,8 104,0 127,6
Number of employees (permanent staff)(1) (3,3) 31 272 32 349 31 531
Number of employees (permanent and temporary staff)(1) (3,2) 31 592 32 645 31 887
Key ratios (%)
Return on ordinary shareholders' equity (ROE)(1) 17,2 14,0 15,3
ROE, excluding goodwill(1) 18,4 15,1 16,4
Return on tangible equity(1) 20,2 16,2 17,8
Return on total assets (ROA)(1) 1,37 1,10 1,22
Return on average risk-weighted assets1 2,48 2,07 2,28
Net interest income to average interest-earning banking
assets(1) 3,67 3,58 3,62
Credit loss ratio – banking advances(1) 0,53 0,47 0,49
Gross operating income growth rate less expense growth
rate (jaws ratio) 6,5 (3,9) (3,0)
Non-interest revenue to total operating expenses 82,9 81,6 80,7
Non-interest revenue to total income 46,6 46,4 46,6
Efficiency ratio 55,8 59,3 58,6
Effective taxation rate 25,1 28,0 25,5
Group capital adequacy ratios (including unappropriated
profits):(1)
– Common-equity tier 1 12,4 12,3 12,6
– Tier 1 13,2 13,2 13,4
– Total 15,6 15,7 15,5
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent 5,3 82 101 78 004 81 823
Total equity 5,1 88 962 84 659 88 539
Amounts owed to depositors 5,0 801 165 762 712 771 584
Loans and advances 0,4 712 668 709 864 710 329
Gross 0,7 726 934 721 910 722 330
Impairment of loans and advances (18,4) (14 266) (12 046) (12 001)
Total assets administered by the group 5,7 1 333 188 1 261 153 1 295 627
Total assets 5,5 1 019 015 965 830 983 314
Assets under management 6,4 314 173 295 323 312 313
Life insurance embedded value1 (4,3) 2 684 2 805 2 745
Life insurance value of new business1 16,9 173 148 349
(1) These metrics have not been audited by the group's auditors.
Unaudited condensed consolidated financial statements for the period ended 30 June 2018
Prepared under the supervision of the Nedbank Group CFO, Raisibe Morathi CA(SA).
Nedbank Group Limited Reg No 1966/010630/06.
Condensed consolidated
statement of comprehensive income
for the period ended
30 June 30 June 31 December
2018 2017 2017
Change (Unaudited) (Reviewed) (Audited)
(%) Rm Rm Rm
Interest and similar income 0,9 37 716 37 364 75 299
Interest expense and similar charges (0,4) 23 710 23 816 47 675
Net interest income 3,4 14 006 13 548 27 624
Impairments charge on loans and advances 13,9 1 815 1 594 3 304
Income from lending activities 2,0 12 191 11 954 24 320
Non-interest revenue 4,3 12 236 11 730 24 063
Operating income 3,1 24 427 23 684 48 383
Total operating expenses 2,7 14 756 14 369 29 812
Indirect taxation 0,4 476 474 1 001
Profit from operations before non-trading and capital items 4,0 9 195 8 841 17 570
Non-trading and capital items (74,2) (54) (31) (224)
Profit from operations 3,8 9 141 8 810 17 346
Share of income/(losses) of associate companies >100 207 (1 053) (838)
Profit before direct taxation 20,5 9 348 7 757 16 508
Total direct taxation 7,7 2 346 2 178 4 209
Direct taxation 2 362 2 182 4 267
Taxation on non-trading and capital items (16) (4) (58)
Profit for the period 25,5 7 002 5 579 12 299
Other comprehensive (losses)/income (OCI) net of taxation (62,7) (135) (83) 31
Items that may subsequently be reclassified to profit or loss
Exchange differences on translating foreign operations 846 (566) (1 046)
Share of OCI of investments accounted for using the equity method (194) 64 169
Fair-value adjustments on available-for-sale assets 1 22
Debt investments at fair value through OCI (FVOCI) – net change in
fair value (138)
Items that may not subsequently be reclassified to profit or loss
(Losses)/Gains on property revaluations (2) 3 190
Remeasurements on long-term employee benefit assets (631) 138 387
Share of OCI of investments accounted for using the equity method (16) 277 309
Total comprehensive income for the period 24,9 6 867 5 496 12 330
Profit attributable to:
– Ordinary shareholders 27,0 6 658 5 244 11 621
– Holders of preference shares (9,7) 158 175 338
– Non-controlling interest – holders of additional tier 1 capital
instruments 2,4 126 123 252
– Non-controlling interest – ordinary shareholders 62,2 60 37 88
Profit for the period 25,5 7 002 5 579 12 299
Total comprehensive income attributable to:
– Ordinary shareholders 25,2 6 423 5 131 11 625
– Holders of preference shares (9,7) 158 175 338
– Non-controlling interest – holders of additional tier 1 capital
instruments 2,4 126 123 252
– Non-controlling interest – ordinary shareholders >100 160 67 115
Total comprehensive income for the period 24,9 6 867 5 496 12 330
Basic earnings per share (cents) 26,2 1 379 1 093 2 417
Diluted earnings per share (cents) 26,1 1 353 1 073 2 372
Condensed consolidated
statement of financial position
at
30 June 30 June 31 December
2018 2017 2017
Change (Unaudited) (Reviewed) (Audited)
(%) Rm Rm Rm
Assets
Cash and cash equivalents (41,9) 11 222 19 314 16 900
Other short-term securities 3,8 94 226 90 741 92 775
Derivative financial instruments 49,8 28 058 18 727 29 904
Government and other securities 55,6 76 730 49 306 49 241
Loans and advances 0,4 712 668 709 864 710 329
Other assets >100 23 441 10 691 14 589
Current taxation assets >100 922 159 211
Investment securities(1) 11,9 20 837 18 622 19 803
Non-current assets held for sale (35,5) 382 592 388
Investments in associate companies(1) (6,6) 3 103 3 323 3 553
Deferred taxation assets >100 341 145 189
Investment property 21
Property and equipment (0,2) 8 630 8 644 8 902
Long-term employee benefit assets (16,0) 4 675 5 563 5 924
Mandatory reserve deposits with central banks 10,4 21 596 19 556 19 222
Intangible assets 15,4 12 184 10 562 11 384
Total assets 5,5 1 019 015 965 830 983 314
Equity and liabilities
Ordinary share capital 0,4 484 482 482
Ordinary share premium 3,4 19 332 18 698 18 688
Reserves 5,9 62 285 58 824 62 653
Total equity attributable to equity holders of the parent 5,3 82 101 78 004 81 823
Holders of preference shares 3 222 3 222 3 222
Non-controlling interest attributable to holders of additiona
tier 1 capital instruments 0,5 2 634 2 622 2 635
Non-controlling interest attributable to ordinary shareholders 23,9 1 005 811 859
Total equity 5,1 88 962 84 659 88 539
Derivative financial instruments 95,2 25 394 13 011 23 367
Amounts owed to depositors 5,0 801 165 762 712 771 584
Provisions and other liabilities 3,7 25 638 24 728 23 292
Current taxation liabilities 37,4 239 174 259
Deferred taxation liabilities (29,8) 765 1 089 761
Long-term employee benefit liabilities (21,0) 2 812 3 561 3 525
Investment contract liabilities 5,2 18 316 17 405 18 134
Insurance contract liabilities (19,9) 2 044 2 553 2 277
Long-term debt instruments (4,0) 53 680 55 938 51 576
Total liabilities 5,5 930 053 881 171 894 775
Total equity and liabilities 5,5 1 019 015 965 830 983 314
(1) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's
private-equity investments have been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment
securities better to reflect the measurement of these investments at fair value. To provide comparability the prior-period balances have been restated accordingly
(30 June 2017: R2 642m; 31 December 2017: R3 169m). The investments in private-equity associates, associate companies and joint arrangements were renamed
investments in associate companies.
Condensed consolidated
statement of changes in equity
Non-
controlling
interest Non-
Total equity attributable controlling
attributable Equity to additional interest
to equity attributable tier 1 capital attributable
holders of to preference instrument to ordinary
the parent shareholders holders shareholders Total equity
Rm Rm Rm Rm Rm
Audited balance at 31 December 2016 75 733 3 222 2 000 756 81 711
Additional tier 1 capital instruments issued 600 600
Dividend to shareholders (3 109) (12) (3 121)
Additional tier 1 capital instruments interest paid (101) (101)
Preference share dividend (175) (175)
Issues of shares net of expenses 687 687
Shares (acquired)/no longer held by group entities and
BEE trusts (61) (61)
Total comprehensive income for the period 5 131 175 123 67 5 496
Share-based payment reserve movement (391) (391)
Other movements 14 14
Reviewed balance at 30 June 2017 78 004 3 222 2 622 811 84 659
Dividend to shareholders (2 971) (2 971)
Additional tier 1 capital instruments interest paid (116) (116)
Preference share dividend (163) (163)
Shares (acquired)/no longer held by group entities and
BEE trusts (10) (10)
Total comprehensive income for the period 6 494 163 129 48 6 834
Share-based payment reserve movement 326 326
Other movements (20) (20)
Audited balance at 31 December 2017 81 823 3 222 2 635 859 88 539
Impact of adopting IFRS 9, net of taxation (2 964) (14) (2 978)
Impact of adopting IFRS 15, net of taxation (254) (254)
Restated balance at 31 December 2017 78 605 3 222 2 635 845 85 307
Dividend to shareholders (3 347) (3 347)
Additional tier 1 capital instruments interest paid (127) (127)
Preference share dividend (158) (158)
Issues of shares net of expenses 628 628
Shares (acquired)/no longer held by group entities and
BEE trusts (12) (12)
Total comprehensive income for the period 6 423 158 126 160 6 867
Share-based payment reserve movement (191) (191)
Other movements (5) (5)
Unaudited balance at 30 June 2018 82 101 3 222 2 634 1 005 88 962
Condensed consolidated
statement of cashflows
for the period ended
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
Rm Rm Rm
Cash generated by operations 13 052 12 565 25 351
Change in funds for operating activities (10 130) (14 248) (17 407)
Net cash from/(utilsed by) operating activities before taxation 2 922 (1 683) 7 944
Taxation paid (2 414) (1 851) (4 730)
Cashflows from/(utilised by) operating activities 508 (3 534) 3 214
Cashflows utilised by investing activities (2 576) (3 543) (6 119)
Cashflows (utilised by)/from financing activities (882) 1 081 (5 946)
Effects of exchange rate changes on opening cash and cash equivalents (354) (218) (111)
Net decrease in cash and cash equivalents (3 304) (6 214) (8 962)
Cash and cash equivalents at the beginning of the period(1) 36 122 45 084 45 084
Cash and cash equivalents at the end of the period(1) 32 818 38 870 36 122
(1) Including mandatory reserve deposits with central banks.
Notes to the unaudited condensed consolidated financial statements for the period ended
30 June 2018*
Significant accounting policies
CHANGE IN ACCOUNTING POLICIES: FINANCIAL INSTRUMENTS
IFRS 9: Financial Instruments (IFRS 9) was issued in July 2014 and has replaced IAS 39: Financial Instruments: Recognition and
Measurement (IAS 39). The standard was effective and was implemented by the group from 1 January 2018. This standard
incorporates amendments to the classification and measurement of financial instruments [see part (ii)], hedge accounting guidance
and the accounting requirements for the impairment of financial assets measured at amortised cost and fair value through OCI [see
part (iii)]. The group has elected to continue to apply the hedge accounting requirements of IAS 39 on adoption of IFRS 9.
For notes disclosures the consequential amendments to IFRS 7: Financial Instruments: Disclosures have also been applied only to the
current period. Notes disclosures for the comparative period repeat those disclosures made in the previous year. Set out below are
disclosures relating to the impact of the adoption of IFRS 9 on the group.
The group's approach to transition is discussed and the resultant net impact on opening reserves on 1 January 2018 is provided in
part (i).
(i) Transition
As permitted by the transitional provisions of IFRS 9, the group has elected not to restate comparative figures. Any adjustments to
the carrying amounts of financial assets and financial liabilities at the date of transition have been recognised in the opening retained
earnings and other reserves at 1 January 2018. The following table illustrates the impact on opening reserves on transition to IFRS 9.
Further information relating to this impact is provided in part (ii) and part (iii).
Balance at IFRS 9 IFRS 15 Adjusted
31 December transitional transitional balance at 1
2017 adjustments adjustments January 2018
Rm (Audited) (Unaudited) (Unaudited) (Unaudited)
Ordinary share capital and share premium 19 170 19 170
Retained earnings 60 546 (3 584) (254) 56 708
Other reserves 2 107 620 2 727
Total equity attributable to equity holders of the parent 81 823 (2 964) (254) 78 605
Holders of preference shares 3 222 3 222
Non-controlling interest attributable to holders of additional
tier 1 capital instruments 2 635 2 635
Non-controlling interest attributable to ordinary shareholders 859 (14) 845
Total equity 88 539 (2 978) (254) 85 307
(ii) Classification and measurement
Financial assets are classified based on:
- the business model within which the financial assets are held and managed; and
- the contractual cashflow characteristics of the financial assets, ie whether the cashflows represent 'solely payments of principal
and interest'.
Financial assets are measured at amortised cost if they are held within a business model of which the objective is to hold those assets
for the purpose of collecting contractual cashflows and those cashflows comprise solely payments of principal and interest (ie 'hold to
collect' business model).
Financial assets are measured at FVOCI if they are held within a business model of which the objective is achieved by both collecting
contractual cashflows and selling financial assets, and those contractual cashflows comprise solely payments of principal and interest
(ie 'hold to collect and sell' business model). Movements in the carrying amount of these financial assets are taken through OCI,
except for impairment gains or losses, interest revenue and foreign exchange gains or losses, which are recognised in profit or loss.
Where the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit
or loss.
The remaining financial assets are measured at fair value through profit or loss (FVTPL). All derivative instruments that are either
financial assets or financial liabilities will continue to be classified as held for trading and measured at FVTPL.
For equity investments that are held neither for trading nor for contingent consideration the group may irrevocably elect to present
subsequent changes in fair value of these equity investments in OCI. Where the equity investment is derecognised, the cumulative
gain or loss previously recognised in OCI is not reclassified from equity to profit or loss. However, it may be reclassified in equity.
Alternatively, where the group does not make the abovementioned election, fair-value changes are recognised in profit or loss. This
election is made on an investment-by-investment basis. On initial recognition the group may irrevocably designate a financial asset
otherwise meeting the requirements for measurement at amortised cost or FVOCI, as FVTPL, if doing so eliminates or significantly
reduces an accounting mismatch that would otherwise arise.
The accounting for financial liabilities is largely unchanged, except for financial liabilities designated at FVTPL. Changes in the fair
value of these financial liabilities that are attributable to the group's own credit risk are recognised in OCI. Where the financial liability
is derecognised, the cumulative gain or loss previously recognised in OCI is not reclassified from equity to profit or loss. However, it
may be reclassified in equity.
On the initial application of IFRS 9 an entity may revoke its previous designation of financial assets and financial liabilities measured
at FVTPL (fair-value option), with the loans being reclassified in amortised cost or FVOCI, depending on the entity's business model
for the asset.
The following table facilitates a measurement category comparison between IAS 39 and IFRS 9:
IFRS 9 measurement categories
Carrying IFRS 9: FVOCI FVTPL
amount IFRS 9: ECL Classification Carrying Non-financial
31 December remeasure- and measure- IFRS 15: amount Debt Equity Mandatory at Designated at assets, liabili-
2017 ment ment IFRS 9: ETI Revenue 1 January 2018 Amortised cost instruments instruments fair value fair value ties and equity
Rm (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Amortised Cost 731 952 (2 785) 54 729 221 705 638 18 583 5 000
FVTPL 201 036 (258) 200 778 61 580 135 415 3 783
Available for sale 19 775 19 775 3 454 14 263 923 1 135
Non-financial assets 30 551 855 60 (780) 30 686 30 686
Total assets 983 314 (1 930) (144) (780) – 980 460 770 672 32 846 923 141 550 3 783 30 686
Financial liabilities at
amortised cost 759 004 205 (112) 759 097 759 097
FVTPL 127 369 127 369 59 655 67 406 308
Non-financial liabilities 8 402 31 254 8 687 8 687
Equity 88 539 (2 135) (63) (780) (254) 85 307 85 307
Total equity and liabilities 983 314 (1 930) (144) (780) – 980 460 818 752 – – 67 406 308 93 994
The following table illustrates the original assessment categories under IAS 39, the new measurement categories under IFRS 9 for each class of the group's financial assets at 1 January 2018 and
the reclassifications between the IAS 39 measurement categories and the IFRS 9 measurement categories:
IFRS 9 reclassification to:
Carrying IFRS 9: FVOCI FVTPL
amount IFRS 9: ECL Classification Carrying
31 December remeasure- and measure- IFRS 15: amount Amortised Debt Equity Mandatory at Designated at Non-financial
2017 ment ment IFRS 9: ETI Revenue 1 January 2018 cost(1) instruments(2) instruments fair value(3) fair value assets
Rm (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial assets
Cash and cash equivalents 16 900 (1) 16 899 16 899
Other short-term securities 92 775 (8) 92 767 26 105 14 264 51 907 491
Derivative financial
instruments 29 904 29 904 29 904
Government and other
securities 49 241 (8) 39 49 272 37 314 11 835 123
Loans and advances 710 329 (2 752) (504) 707 073 656 248 18 582 32 243
Other assets 14 589 (16) 14 573 14 573
Investment securities 19 803 261 20 064 311 923 15 661 3 169
Investments in associate
companies 3 553 (780) 2 773 2 773
Mandatory reserve deposits
with central banks 19 222 19 222 19 222
Current and deferred
taxation assets 400 855 60 1 315 1 315
Other non-financial assets 26 598 26 598 26 598
Total assets 983 314 (1 930) (144) (780) – 980 460 770 672 32 846 923 141 550 3 783 30 686
Financial liabilities
Derivative financial
instruments 23 367 23 367 23 367
Amounts owed to depositors 771 584 (112) 771 472 752 816 18 452 204
Provisions and other
liabilities 23 292 205 347 23 844 14 464 7 453 1 927
Investment contract
liabilities 18 134 18 134 18 134
Long-term debt instruments 51 576 51 576 51 472 104
Current and deferred
taxation liabilities 1 020 31 (93) 958 958
Other non-financial liabilities 5 802 5 802 5 802
Equity 88 539 (2 135) (63) (780) (254) 85 307 85 307
Total equity and liabilities 983 314 (1 930) (144) (780) – 980 460 818 752 – – 67 406 308 93 994
(1) Macro fair-value hedge accounting solution – Nedbank has adopted a macro fair-value hedge accounting solution that accounts for changes in the fair value of interest rate risk.
(2) Held for distribution (FVOCI) – In light of the business model requirements certain instruments have been reclassified from amortised cost to FVOCI.
(3) Held for sale (FVTPL) – In light of the business model requirements certain instruments have been reclassified from amortised cost to FVTPL.
The following table illustrates the IFRS 9 classification and measurement transitional impact:
FVTPL
business Review of
FVOCI model and effective Classification
Hedge business contractual interest rate and
accounting(1) model(2) cashflows(3) guidance measurement
Assets
Cash, government and other securities, and derivative
financial instruments 39 39
Loans and advances (297) 820 (369) (658) (504)
Current and deferred taxation assets 72 (227) 31 184 60
Investment securities 261 261
Total assets (186) 593 (77) (474) (144)
Total equity (105) 593 (77) (474) (63)
Amounts owed to depositors and other liabilities (112) (112)
Current and deferred taxation liabilities 31 31
Total liabilities (81) – – – (81)
Total liabilities and equity (186) 593 (77) (474) (144)
(1) Macro fair-value hedge accounting solution – Nedbank has adopted a macro fair-value hedge accounting solution that accounts for changes in the fair value of
interest rate risk.
(2) Held for distribution (FVOCI) – In light of the business model requirements certain instruments have been reclassified from amortised cost to FVOCI.
(3) Held for sale (FVTPL) – In light of the business model requirements certain instruments have been reclassified from amortised cost to FVTPL.
On initial application of IFRS 9 on 1 January 2018 the group elected to revoke the existing designation of R58bn of loans classified
in FVTPL and R60bn of amounts due to depositors classified at FVTPL under the fair-value option of IAS 39, and reclassified the
underlying assets and liabilities in amortised cost.
(iii) Impairments
Impairments in terms of IFRS 9 are determined based on an ECL model, as opposed to an incurred loss model in terms of IAS 39.
The ECL model applies to financial assets measured at amortised cost and debt instruments at FVOCI, lease receivables and certain
loan commitments as well as financial guarantee contracts.
Under IFRS 9 loss allowances are measured on either of the following bases:
- twelve-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and
- lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument.
The group is required to recognise an allowance for either 12-month or lifetime ECLs, depending on whether there has been a
significant increase in credit risk (SICR) since initial recognition. Indicators of a SICR in the retail portfolio may include any of
the following:
- Short-term forbearance.
- Direct debit cancellation.
- Extension to the terms granted.
- Previous arrears within the past months.
Indicators of a significant increase in credit risk in the wholesale portfolio may include any of the following:
- Significant increase in the credit spread.
- Significant adverse changes in business, financial and/or economic conditions in which the client operates.
- Actual or expected forbearance or restructuring.
- Significant change in collateral value.
- Early signs of liquidity and cashflow problems, such as a delay in the servicing of trade creditors/loans.
Measurement of ECLs
The measurement of ECLs reflects a probability-weighted outcome, the time value of money and the entity's best available
forward-looking information. The abovementioned probability-weighted outcome considers the possibility of a credit loss occurring
and the possibility of no credit loss occurring, even if the possibility of a credit loss occurring is low. Credit losses are measured as the
present value of all cash shortfalls (ie the difference between the cashflows due to the entity in accordance with the contract and the
cashflows that the group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.
The assessment of the ECL of a financial asset or portfolio of financial assets entails estimations of the likelihood of defaults
occurring and of default correlations between counterparties. The group measures ECL using probability of default (PD), exposure at
default (EAD) and loss given default (LGD). These three components are multiplied together and adjusted for the likelihood of default.
The calculated ECL is then discounted using the original effective interest rate of the financial asset.
The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The group has performed historical
analyses and identified the key economic variables impacting credit risk and ECL for each portfolio. These economic variables and
their associated impact on the PD, EAD and LGD vary by financial instrument. The group's economics unit provides a forecast of
economic variables and an overview of the economy quarterly or more often if necessary. Significant judgement and estimates are
applied in this process of incorporating forward-looking information into the SICR assessment and ECL calculation.
Credit-impaired financial assets
At each reporting date the group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is credit-impaired when one or
more events that have a detrimental impact on the estimated future cashflows of the financial asset have occurred. The group's definition of credit-impaired is aligned to our internal definition
of default.
Presentation of impairment
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets, and the amortised cost is presented on the face of the statement of
financial position.
For debt securities at FVOCI the loss allowance is recognised in OCI, instead of reducing the carrying amount of the asset.
For off-balance-sheet exposures, such as financial guarantee contracts, the loss allowance is presented in 'Provisions and other liabilities' on the face of the statement of financial position.
The following table illustrates the closing specific and portfolio impairment allowances in terms of IAS 39 and the opening impairment allowances in terms of IFRS 9:
IAS 39 impairment provisions
at 31 December 2017 IFRS 9 ECL provision at 1 January 2018
Stage 2: Lifetime
Stage 1: ECL allowance – Stage 3: Lifetime
Portfolio Specific Total IAS 39 Reclassification 12-month ECL not credit-im- ECL allowance – Total ECL on
impairment impairment provision in FVTPL allowance paired credit-impaired 1 January 2018 ECL impact
Rm (Audited) (Audited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Financial assets
Loans and advances 4 921 7 081 12 002 (545) 2 693 3 821 7 695 14 209 (2 752)
Home loans 469 1 269 1 738 274 639 1 505 2 418 (680)
Commercial mortgages 495 319 814 314 210 320 844 (30)
Properties in possession 27 27 2 1 25 28 (1)
Credit cards 140 1 245 1 385 421 509 1 236 2 166 (781)
Overdrafts 144 596 740 131 144 602 877 (137)
Other loans to clients 2 149 2 404 4 553 (501) 845 1 410 2 433 4 688 (636)
Net finance lease and instalment debtors 1 434 1 209 2 643 680 855 1 574 3 109 (466)
Preference shares and debentures 90 12 102 (44) 26 53 79 (21)
Cash and cash equivalents – 1 1 (1)
Other short-term securities – 7 1 8 (8)
Government and other securities – 8 8 (8)
Other assets – 15 1 16 (16)
Financial liabilities
Provisions and other liabilities – 82 63 60 205 (205)
Total 4 921 7 081 12 002 (545) 2 806 3 886 7 755 14 447 (2 990)
Total ECL recognised on FVOCI loans and advances – 23 144 167
Total ECL allowance per statement of financial position – 2 783 3 742 7 755 14 280
Total – – – – 2 806 3 886 7 755 14 447 –
A reconciliation between the opening balances of the IFRS 9 ECL allowance and the closing balances at 30 June 2018 is provided below:
Not credit-impaired Credit-impaired
Subject to
lifetime
Subject to Subject to ECL – credit-
12-month ECL lifetime ECL impaired Total
Rm (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Beginning of the period – 1 January 2018 2 806 3 886 7 755 14 447
New financial assets originated or purchased 1 028 53 51 1 132
Financial assets derecognised/written-off (37) (47) (2 303) (2 387)
Repayments (238) 149 (132) (221)
Transfers to 12-month ECL (stage 1) 196 (552) (170) (526)
Transfers to lifetime ECL (not credit-impaired – stage 2) (302) 1 511 (352) 857
Transfers to lifetime ECL (credit-impaired – stage 3) (548) (1 204) 3 362 1 610
Foreign exchange and other movements (44) (79) (93) (216)
End of the period – 30 June 2018 2 861 3 717 8 118 14 696
Condensed consolidated
segmental reporting
for the period ended
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2018 2017 2017 2018 2017 2017 2018 2017 2017 2018 2017 2017
(Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Total assets Total liabilities Revenue(1) Headline earnings/(losses)
Nedbank Corporate and Investment
Banking 497 796 479 359 487 632 464 671 448 288 457 195 7 407 6 997 14 380 3 296 3 211 6 315
Nedbank Retail and Business Banking 337 549 311 490 326 225 309 621 284 075 298 413 15 181 14 780 30 102 2 581 2 544 5 302
Nedbank Wealth 69 778 66 621 66 832 65 662 62 857 62 947 2 229 2 150 4 393 519 519 1 068
Rest of Africa 39 540 35 623 37 487 33 018 28 835 31 042 1 301 1 201 2 471 245 (1 092) (810)
Centre 74 352 72 737 65 138 57 081 57 116 45 178 124 150 341 55 89 (88)
Total 1 019 015 965 830 983 314 930 053 881 171 894 775 26 242 25 278 51 687 6 696 5 271 11 787
(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 Group EXCO
therefore separately reviews the performance of the group's managed operations and, on this basis, the total assets are R1 016 143m
(June 2017: 962 747m; December 2017: R979 994m), total liabilities are R928 122m (June 2017: R880 185m; December 2017: R892 919m),
revenue is R26 398m (June 2017: R25 418m; December 2017: R52 008m) and headline earnings is R6 562m (June 2017: R6 433m;
December 2017: R12 762m). ETI forms part of the Rest of Africa segment, whose segmental information on a managed-operations
basis include total assets of R36 675m (June 2017: R32 540m; December 2017: R34 167m), total liabilities of R31 094m (June 2017:
R27 849m; December 2017: R29 186m), revenue of R1 457m (June 2017: R1 341m; December 2017: R2 792m) and headline earnings of
R111m (June 2017: R70m; December 2017: R165m).
Headline earnings reconciliation
for the period ended
30 Jun 30 Jun 30 Jun 30 Jun 31 Dec 31 Dec
2018 2018 2017 2017 2017 2017
(Unaudited) (Unaudited) (Reviewed) (Reviewed) (Audited) (Audited)
Change Rm Rm Rm Rm Rm Rm
Net of Net of Net of
(%) Gross taxation Gross taxation Gross taxation
Profit attributable to equity
holders of the parent 27,0 6 658 5 244 11 621
Non-trading and capital items 40,7 54 38 31 27 224 166
IAS 16: (Profit)/Loss on disposal of
property and equipment (2) (2) 16 12 47 35
IAS 38: Impairment of property,
equipment and intangible assets 56 40 163 117
IAS 39: Loss on disposal of
available-for-sale financial assets 15 15 14 14
27,0 6 696 5 271 11 787
Contingent liabilities and commitments
CONTINGENT LIABILITIES AND UNDRAWN FACILITIES
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
at Rm Rm Rm
Guarantees on behalf of clients 29 601 20 839 28 402
Letters of credit and discounting transactions 2 938 3 545 3 225
Irrevocable unutilised facilities and other 137 860 95 273 103 562
170 399 119 657 135 189
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 be foreseen at present.
COMMITMENTS
Capital expenditure approved by directors
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
at Rm Rm Rm
Contracted 348 402 463
Not yet contracted 2 446 2 320 2 433
2 794 2 722 2 896
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 period.
Investments in associate companies
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
at Rm Rm Rm
Listed associates(1) 2 865 3 083 3 320
Unlisted associates(2) 238 240 233
3 103 3 323 3 553
(1) The group's investment in ETI is recorded under listed associates.
(2) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's
private-equity investments have been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment
securities better to reflect the measurement of these investments at fair value. To provide comparability the prior-period balances have been restated accordingly
(30 June 2017: R2 642m; 31 December 2017: R3 169m). The investments in private-equity associates, associate companies and joint arrangements have been renamed
investments in associate companies.
Listed associates: ETI
Carrying value 2 865 3 083 3 320
Fair value of investment(1) 4 643 3 045 3 597
(1) Based on the official USD/NGN exchange rate. Based on the NAFEX rate, the fair value is R3 983m (31 December 2017: R3 047m).
Cashflow information
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
for the period ended Rm Rm Rm
Acquisition of property and equipment, computer software and development costs and
investment property (1 765) (1 193) (3 299)
Issue of additional tier 1 capital instruments 600 600
Issue of long-term debt instruments 4 503 7 080 7 540
Redemption of long-term debt instruments (2 370) (3 218) (8 067)
Dividends to ordinary shareholders (3 347) (3 109) (6 080)
Preference share dividends paid (158) (175) (338)
Additional tier 1 capital instruments interest paid (126) (123) (217)
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, a 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 those of 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 assets Total financial assets Total financial assets Total financial assets
Total financial assets recognised at amortised cost classified as level 1 classified as level 2 classified as level 3
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2018 2017 2017 2018 2017 2017 2018 2017 2017 2018 2017 2017 2018 2017 2017
(Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Cash and cash equivalents 32 818 38 870 36 122 32 818 38 870 36 122
Other short-term securities 94 226 90 741 92 775 30 497 27 811 25 193 33 63 729 62 897 67 582
Derivative financial instruments 28 058 18 727 29 904 24 103 28 034 18 596 29 903 28 1
Government and other securities 76 730 49 306 49 241 49 385 29 046 28 862 22 818 8 918 5 173 4 527 11 342 15 206
Loans and advances 712 668 709 864 710 329 676 319 625 987 632 156 591 2 550 78 35 758 81 205 78 062 122 33
Other assets 23 441 10 691 14 589 14 298 6 887 9 619 9 143 3 804 4 970
Investment securities(1) 20 837 18 622 19 803 508 31 37 14 109 14 766 15 184 6 220 3 825 4 582
988 778 936 821 952 763 803 317 728 601 731 952 33 084 15 439 10 258 146 157 188 806 205 937 6 220 3 975 4 616
(1) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's private-equity investments have been reclassified from investments in private-equity
associates, associate companies and joint arrangements to investment securities better to reflect the measurement of these investments at fair value. To provide comparability the prior-period balances have been restated accordingly
(30 June 2017: R2 642m; 31 December 2017: R3 169m). The investments in private-equity associates, associate companies and joint arrangements have been renamed investments in associate companies.
FINANCIAL LIABILITIES
Total financial liabilities Total financial liabilities Total financial liabilities Total financial liabilities
Total financial liabilities recognised at amortised cost classified as level 1 classified as level 2 classified as level 3
30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec 30 Jun 30 Jun 31 Dec
2018 2017 2017 2018 2017 2017 2018 2017 2017 2018 2017 2017 2018 2017 2017
(Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited) (Unaudited) (Reviewed) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Derivative financial instruments 25 394 13 011 23 367 17 53 25 377 12 958 23 367
Amounts owed to depositors 801 165 762 712 771 584 765 981 689 397 693 621 35 184 73 315 77 963
Provisions and other liabilities 23 601 23 191 21 712 14 498 11 533 14 259 8 506 11 264 6 983 145 35 452 394 435
Investment contract liabilities 18 316 17 405 18 134 18 316 17 405 18 134
Long-term debt instruments 53 680 55 938 51 576 53 528 55 649 51 124 152 289 452
922 156 872 257 886 373 834 007 756 579 759 004 8 523 11 317 6 983 79 174 103 967 119 951 452 394 435
LEVEL 3 RECONCILIATION
Gains
relating to
investments
in equity
instruments
at FVOCI
Losses in and debt
non-interest instruments
Opening revenue in at FVOCI in Closing
balance at profit for the OCI for the Purchases Sales and balance at
1 Jan period period and issues settlements Transfers in 30 Jun
30 June 2018 (Unaudited) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Investment securities 5 457 (149) 4 1 020 (135) 23 6 220
5 457 (149) 4 1 020 (135) 23 6 220
FINANCIAL LIABILITIES
Provisions and other liabilities 435 17 452
435 17 – – – – 452
Gains in
fair-value
Gains/ adjustments
(Losses) in on available-
non-interest for-sale
Opening revenue in assets in Closing
balance at profit for the OCI for the Purchases Sales and balance at
1 Jan period period and issues settlements Transfers in 30 Jun
30 June 2017 (Reviewed) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 37 9 (18) 28
Loans and advances 77 45 122
Investment securities(1) 3 449 (52) 2 523 (112) 15 3 825
3 563 2 2 523 (130) 15 3 975
(1) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's private-equity
investments have been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment securities better to reflect the
measurement of these investments at fair value. To provide comparability the prior-period balances have been restated accordingly (30 June 2017: R2 642m; 31 December 2017: R3 169m).
The investments in private-equity associates, associate companies and joint arrangements have been renamed investments in associate companies.
FINANCIAL LIABILITIES
Provisions and other liabilities 330 64 394
330 64 – – – – 394
Gains in
non-interest
Opening revenue in Closing
balance at profit for the Purchases Sales and balance at
1 Jan year and issues settlements 31 Dec
31 December 2017 (Audited) Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Derivative financial instruments 37 18 (54) 1
Loans and advances 77 45 (89) 33
Investment securities(1) 3 449 81 1 747 (695) 4 582
3 563 144 1 747 (838) 4 616
(1) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's private-equity
investments have been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment securities better to reflect the
measurement of these investments at fair value. To provide comparability the prior-period balances have been restated accordingly (30 June 2017: R2 642m; 31 December 2017: R3 169m).
The investments in private-equity associates, associate companies and joint arrangements have been renamed investments in associate companies.
FINANCIAL LIABILITIES
Provisions and other liabilities 330 105 435
330 105 – – 435
EFFECT OF CHANGES IN SIGNIFICANT UNOBSERVABLE ASSUMPTIONS TO REASONABLE POSSIBLE ALTERNATIVES
The fair value of financial instruments is, 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. When 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.
Value per
statement Favourable Unfavourable
Significant Variance in of financial change in fair change in fair
Valuation technique unobservable input fair value position value value
30 June 2018 (Unaudited) % Rm Rm Rm
FINANCIAL ASSETS
Discounted
cashflows, adjusted
net asset value,
earnings multiples, Valuation multiples,
third-party correlations,
valuations, dividend volatilities and credit Between (10)
Investment securities yields spreads and 13 6 220 787 (636)
Total financial assets classified as level 3 6 220 787 (636)
FINANCIAL LIABILITIES
Discounted Between
cashflows, earnings Discount rates, (10,0) and
Provisions and other liabilities multiples forecasts 10,0 (452) 45 (45)
Value per
statement Favourable Unfavourable
Significant Variance in of financial change in change in fair
Valuation technique unobservable input fair value position fair value value
30 June 2017 (Reviewed) % Rm Rm Rm
FINANCIAL ASSETS
Discounted Discount rates, Between
cashflows earnings before (11,5) and 9,0
interest, tax and
depreciation and
Derivative financial instruments amortisation 28 3 (3)
Discounted Credit spreads and Between
Loans and advances cashflows discount rates (11,5) and 9,0 122 11 (14)
Discounted Valuation multiples, Between
cashflows, adjusted correlations, (11,5) and 9,0
net asset value, volatilities and credit
earnings multiples, spreads
third-party
valuations, dividend
Investment securities(1) yields 3 825 348 (439)
Total financial assets classified as level 3 3 975 362 (456)
(1) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's private-equity investments have
been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment securities better to reflect the measurement of these investments
at fair value. To provide comparability the prior-period balances have been restated accordingly (30 June 2017: R2 642m; 31 December 2017: R3 169m). The investments in private-equity associates,
associate companies and joint arrangements have been renamed investments in associate companies.
Value per
statement Favourable Unfavourable
Significant Variance in of financial change in change in fair
Valuation technique unobservable input fair value position fair value value
30 June 2017 (Reviewed) % Rm Rm Rm
FINANCIAL LIABILITIES
Discounted Between
cashflows, earnings Discount rates, (10,0)
Provisions and other liabilities multiples forecasts and 10,0 (394) 39 (39)
Value per
statement Favourable Unfavourable
Significant Variance in of financial change in change in fair
Valuation technique unobservable input fair value position fair value value
31 December 2017 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Discounted Discount rates, Between (12)
Derivative financial instruments cashflows Ebitda and 9 1 (1) (1)
Discounted Credit spreads and Between (12)
Loans and advances cashflows discount rates and 9 33 3 (4)
Discounted Valuation multiples, Between (12)
cashflows, adjusted correlations, and 9
net asset value, volatilities and credit
earnings multiples, spreads
third-party
valuations, dividend
Investment securities(2) yields 4 582 428 (538)
Total financial assets classified as level 3 4 616 432 (541)
(1) Represents amounts less than R1m.
(2) During the period the group reviewed the classification of certain investments on the statement of financial position. As a result of this review the group's private-equity investments
have been reclassified from investments in private-equity associates, associate companies and joint arrangements to investment securities better to reflect the measurement of these
investments at fair value. To provide comparability the prior-period balances have been restated accordingly (30 June 2017: R2 642m; 31 December 2017: R3 169m). The investments in
private-equity associates, associate companies and joint arrangements have been renamed investments in associate companies.
FINANCIAL LIABILITIES
Discounted cashflow, Discount rates, Between (10)
Provisions and other liabilities earnings multiples forecasts and 10 (435) 36 (43)
UNREALISED GAINS
The unrealised gains arising on instruments classified as level 3 include the following:
30 June 30 June 31 December
2018 2017 2017
(Unaudited) (Reviewed) (Audited)
Rm Rm Rm
Private-equity (losses)/gains (149) 2 144
SUMMARY OF PRINCIPAL VALUATION TECHNIQUES — LEVEL 2 INSTRUMENTS (UNAUDITED)
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 models 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 (UNAUDITED)
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 and are measured 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:
Carrying
Rm value Fair value Level 1 Level 2 Level 3
30 June 2018 (Unaudited)
Financial assets 756 201 751 766 24 679 54 758 672 329
Other short-term securities 30 497 30 457 30 457
Government and other securities 49 385 48 980 24 679 24 301
Loans and advances 676 319 672 329 672 329
Financial liabilities 53 528 55 042 20 758 34 284 –
Long-term debt instruments 53 528 55 042 20 758 34 284
Carrying
Rm value Fair value Level 1 Level 2 Level 3
30 June 2017 (Reviewed)
Financial assets 682 844 674 976 23 914 32 648 618 414
Other short-term securities 27 810 27 812 27 812
Government and other securities 29 046 28 750 23 914 4 836
Loans and advances 625 988 618 414 618 414
Financial liabilities 55 649 56 107 23 240 32 867 –
Long-term debt instruments 55 649 56 107 23 240 32 867
Carrying
Rm 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
There have been no significant changes in the methodology used to estimate the fair value of the above instruments during
the period.
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 IFRS 9 expected
credit losses, 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 (PD) and loss given defaults (LGDs) for the
periods 2019 to 2021 (2017: for periods 2018 to 2020) are based on the latest available internal data and is applied to the projected
cashflows of the first three years. 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 Total
unweighted weighted
value(1) value(2)
Rm (average) (average)
Total high-quality liquid assets 148 675
Cash outflows
Retail deposits and deposits from small-business clients 177 418 17 570
Stable deposits 3 442 172
Less stable deposits 173 976 17 398
Unsecured wholesale funding 251 871 129 708
Operational deposits (all counterparties) and deposits in institutional networks of cooperative banks 119 797 29 949
Non-operational deposits (all counterparties) 131 285 98 970
Unsecured debt 789 789
Secured wholesale funding 24 566
Additional requirements 109 936 20 453
Outflows related to derivative exposures and other collateral requirements 1 553 1 553
Credit and liquidity facilities 108 383 18 900
Other contingent funding obligations 174 816 8 960
Total cash outflows 738 607 176 691
Cash inflows
Secured lending (eg reverse repurchase agreements) 9 318 20
Inflows from fully performing exposures 56 103 37 498
Other cash inflows 5 291 5 144
Total cash inflows 70 712 42 662
Total
adjusted
value
Total HQLA 148 675
Total net cash outflows(3) 139 043
Liquidity coverage ratio (%) 106,9%
(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 June 2018 for Nedbank Limited and the
simple average of the month-end values at 30 April 2018, 31 May 2018 and 30 June 2018 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.
Net stable funding ratio
Unweighted value by residual maturity
> 6 months to Weighted
Rm No maturity <= 6 months 1 year > 1 year value
Available stable funding
Capital 87 790 – – – 87 790
Regulatory capital 83 654 83 654
Other capital instruments 4 136 4 136
Retail deposits and deposits from small-business
clients – 214 581 13 539 23 194 228 664
Stable deposits 3 259 1 3 096
Less stable deposits 211 322 13 538 23 194 225 568
Wholesale funding – 414 557 67 715 132 057 324 415
Operational deposits 135 063 67 532
Other wholesale funding 279 494 67 715 132 057 256 883
Other liabilities 11 218 6 793 – 11 061 7 478
Net stable funding ratio (NSFR) derivative liabilities 9 560
All other liabilities and equity not included in the
above categories 11 218 6 793 1 501 7 478
Total ASF 648 347
Required stable funding
Total NSFR high-quality liquid assets (HQLA) 12 582
Performing loans and securities – 188 916 70 329 474 866 489 702
Performing loans to financial institutions secured
by level 1 HQLA 11 834 1 183
Performing loans to financial institutions secured
by non-level 1 HQLA and unsecured performing
loans to financial institutions 51 624 7 393 26 013 37 453
Performing loans to non-financial corporate clients,
loans to retail and small-business clients and loans
to sovereigns, central banks and public sector
enterprises, of which 112 246 57 239 314 330 349 065
with a risk weight of less than or equal to 35%
under the Basel II Standardised Approach for
credit risk 14 291 9 289
Performing residential mortgages, of which 9 083 2 489 120 615 86 511
with a risk weight of less than or equal to 35%
under the Basel II Standardised Approach for
credit risk 9 083 2 489 108 990 76 629
Securities that are not in default and do not qualify
as HQLA, including exchange-traded equities 4 129 3 208 13 908 15 490
Other assets 8 642 89 – 53 822 44 362
Physical traded commodities, including gold 49 41
NSFR derivative assets 9 489
NSFR derivative liabilities before deduction of
variation margin posted 9 561 956
All other assets not included in the above categories 8 593 89 34 772 43 365
Off-balance-sheet items 292 486 10 240
Total required stable funding 556 886
NSFR (%) 116,4%
The figures above reflect the quarter ending June 2018 , based on regulatory submissions to SARB, where applicable. This section on
the net stable funding 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 systemically important bank
ECL expected credit loss
EP economic profit
EPS earnings per share
EV embedded value
ETI Ecobank Transnational Incorporated
FVOCI Fair value through other comprehensive income
FVTPL Fair value through profit or loss
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
qoq quarter on quarter
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
SICR Significant increase in credit risk
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: 07/08/2018 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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