Wrap Text
Preliminary Audited Results for the year ended 31 December 2018
NEDBANK GROUP LIMITED
(Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
JSE alpha code: NEDI
('Nedbank Group' or 'the group')
Preliminary Audited Results
for the year ended 31 December 2018
A year of achievement across a broad front
In 2018 Nedbank Group seamlessly concluded the process of managed separation
from Old Mutual and delivered a resilient financial performance, boosted by the
ongoing turnaround in our share of associate income from ETI. Headline earnings
increased 14,5% to R13,5bn and ROE (excluding goodwill) improved from 16,4%
to 17,9%. Revenue growth accelerated in the second half of the year and, as
expected, impairments increased gradually, reflecting excellent risk management
and a high-quality book. We maintained a strong balance sheet, as evident in our
IFRS 9 fully phased-in CET1 ratio of 11,7% (which includes the 34 bps impact from
the odd-lot offer completed in December 2018), our strong liquidity profile and the
total dividend per share increasing by 10,1%. Total assets exceeded R1 trillion for the
first time.
We made excellent progress on a number of client satisfaction measures as
we continued to focus on delivery of market-leading client value propositions
supported by our investments in technology, digital platforms and our people. This
was evident in the Nedbank Money app™ receiving the highest client satisfaction
ratings among SA banking apps on iOS devices, our Nedbank Private Wealth app
being rated second best globally by Cutter Associates International Research, and
our Net Promoter Score improving the most among SA banks in 2018. Our progress
in 2018 enabled us to grow our market share of main-banked clients across all our
business clusters, underpinning solid NIR growth. Our strategic enablers, including
ongoing technology investments through our managed evolution programme, our
people, our culture and our brand continue to create a more client-focused, agile,
competitive and digital Nedbank. The innovations we plan to launch during 2019 are
expected to result in another step change in client experiences, enabling ongoing
revenue growth and efficiencies over time.
Our focus on sustainable transformation has resulted in Nedbank achieving level
1 BBBEE contributor status under the new Amended Financial Sector Code, having
been at level 2 for the past 10 years.
From the low base in the SA economy in 2018 we anticipate a slow improvement
in business and consumer confidence, and economic and credit growth in the year
ahead. These assumptions, along with ongoing delivery on our strategy, support our
current guidance for growth in diluted headline earnings per share for 2019 to be at
or above nominal GDP growth.
Mike Brown
Chief Executive
2018 results commentary
BANKING AND ECONOMIC ENVIRONMENT
Global economic growth was relatively strong in 2018, although
easing towards the end of the year, impacted by nervousness
in financial markets, higher US interest rates and a decline in
global trade volumes due to increased protectionism among
the world's largest economies. US growth remained robust,
driven mainly by rising business and consumer confidence on
the back of job creation and substantial tax relief. The pace of
activity elsewhere in the developed world slowed noticeably,
impacted by increased political turmoil, poor fiscal discipline
and unsustainable public debt burdens. Performance among
emerging and developing economies diverged significantly as
the year progressed. China's growth slowed, contributing to
a relapse in certain commodity prices, which placed renewed
pressure on the exports of many commodity-producing
countries. Developing countries with high levels of
dollar-denominated debt and low foreign currency reserves
were hardest hit, as debt-service costs increased due to rising
US interest rates and a strong US dollar, triggering capital flight
and causing currency corrections and higher inflation rates.
These global circumstances caused some central banks to hike
interest rates despite deteriorating economic conditions.
While the SA economy recorded a technical recession in the first
half of 2018, real GDP growth for the year recovered to 0,7%.
Although the pace of the recovery remained modest, given the
very low base, the improvement was relatively widespread, with
most major industries recording mild output growth, driven by
firmer domestic spending and stronger exports.
Consumer spending picked up in the second half, but household
finances remain fragile due to high unemployment, subdued
income growth, lower net wealth levels and higher indirect
taxes as a result of the VAT increase. Consumer spending was
largely financed through increased borrowing, with bank credit
extended to households increasing gradually throughout the
year.
In contrast to the gradual improvement in economic growth,
the slump in fixed investment activity deepened. Capital
outlays by private sector and state-owned enterprises
(SOEs) declined further, while growth in capital expenditure
by government slowed. Consequently, growth in loans to
companies was slow.
Inflation drifted higher for much of 2018, driven by the surge
in fuel prices earlier in the year and higher tariffs on electricity,
water and other services. The inflation outlook has since
improved significantly due to sharp declines in fuel prices
– the result of the reduction in global oil prices, coupled with
a steadier rand towards the end of 2018. After a decline of
25 bps in both July 2017 and March 2018, SARB's Monetary
Policy Committee increased the repo rate in November 2018 by
25 bps. In line with expectations of a benign interest rate
cycle we currently anticipate a further two more increases of
25 bps each by the end of 2020.
Banking conditions remained challenging throughout 2018,
with the weak economic environment resulting in subdued
growth across all categories of credit and transactional
banking, although activity picked up in the second half off a
low base as the economy recovered.
REVIEW OF RESULTS
Nedbank Group produced a solid performance in a difficult
domestic macro and political environment. HE increased 14,5%
to R13 495m, boosted by associate income from ETI returning
to profitability, while our managed operations delivered
positive earnings growth. This translated into an increase
in DHEPS of 13,7% to 2 736 cents and an increase in HEPS
of 13,9% to 2 793 cents. 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. As previously communicated,
we will revert to group-level reporting in 2019. Our managed
operations produced HE growth of 2,8% to R13 119m, with
slow NII growth, and higher impairments offset by solid NIR
growth and good cost management.
ROE (excluding goodwill) and ROE improved to 17,9% and
16,8% respectively. These ratios benefited from the reduction
in equity of R3,2bn following the day 1 transitional adjustments
in respect of IFRS 9 and IFRS 15. The implementation of these
IFRS adjustments had an estimated impact of 0,3% on ROE
(excluding goodwill). As ROE is computed on daily average
equity, the odd-lot offer completed in December 2018 would
have had almost no impact on our 2018 ROE, with the positive
impact of this on ROE being more apparent in 2019. Total
assets for the group exceeded the R1 trillion mark for the first
time during 2018. ROA increased 11 bps to 1,33% and return on
RWA increased from 2,28% to 2,40%.
NAV per share of 17 559 cents increased 3,3%. The benefits
from strong growth in earnings were offset by the
day 1 impact of IFRS 9 and IFRS 15 (R3,2bn), the odd-lot
offer (R2,0bn), accounting for the anticipated impact of ETI
changing to the NAFEX exchange rate (R361m), and Zimbabwe
currency devaluation estimates (R499m). Excluding these
impacts, NAV per share would have increased by 9,2%.
Our IFRS 9 fully phased-in CET1 and tier 1 capital ratios
of 11,7% and 12,5% respectively, average LCR for the
fourth quarter of 109,4% and an NSFR of 114,0% are all
Basel III-compliant and are a reflection of a strong balance
sheet. On the back of strong earnings growth and our capital
position a final dividend of 720 cents was declared, an increase
of 6,7%. The total dividend per share for the year increased
10,1% to 1 415 cents.
DELIVERING SUSTAINABLY TO ALL OUR STAKEHOLDERS
Nedbank continues to play an important role in society and in the economy, and we remain committed to delivering on our purpose of
using our financial expertise to do good. We continue to contribute to the wellbeing and growth of the societies in which we operate
by delivering value to our staff, clients, shareholders, regulators and society.
For staff
We currently employ 31 277 staffmembers, and invested
R468m in training and paid salaries and benefits of R17,5bn.
Our bargaining unit staff received annual salary increases
of 7,0% in 2018, ahead of inflation, and with management
and executives receiving lower increases of around 5%, the
blended average staff salaries increased by 5,8%. As part
of our groupwide People 2020 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 (USA). On the back of increased
training spend, we achieved 14,4 points for skills development
under the new amended FSC scorecard, a notable increase
from 12,8 in 2017. 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 1 500 staffmembers
are working according to this new approach and we aim to
increase this number incrementally to support an optimal
agile scaling framework over the 2019 period. 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 level is 63%, at executive is 46% and for our total staff
at just more than 78%. Female representation at board level
is 25%, at executive 46% and for total staff at 62%.
For clients
We supported our clients by advancing R181bn (2017:
R153bn) of new loans to enable them to finance their homes,
vehicles and education, and to grow their businesses, while
safeguarding R826bn of deposits at competitive rates.
Our clients' access to banking improved through our network
of 1 076 Intelligent Depositor devices and we increased the
total number of digitally focused branches to 363 or 60%
of all outlets. Digitally active and enabled clients grew as
we launched new market-leading digital innovations, such
as MobiMoney, and 70 new services through our apps and
new online banking site. The Nedbank Money app™ has been
downloaded 1,6 million times since its launch in November
2017. Our Net Promoter Score is second-highest among
full-service banks in SA, and under this measure we posted
the largest improvement in client experience of any major
bank in SA last year (up 11% to 37%), while our market
share of main-banked clients in retail increased from 12,7%
to 13,1%. In recognition of the market-leading innovations
and CVPs launched, Nedbank won The International Banker
award for Best Innovation in Retail Banking SA 2018 as
well as The Banker Africa's award for Best Corporate Bank
in SA. Nedgroup Investments was named Offshore
Management Company of the Year for the fourth consecutive
year at the Raging Bull Awards.
For shareholders
Notwithstanding some market concerns of a potential share
overhang as a result of the Old Mutual managed separation,
Nedbank ended the year as the top-performing SA bank
share, up 7,3%, performing 15,6% above the FINI 15 index and
delivering a TSR of 12,6%. The total dividend declared was up
10,1%. Eligible shareholders who participated in the odd-lot
offer received a 5% premium on the 10-day VWAP of the
Nedbank Group ordinary share at the close of business on
Monday, 3 December 2018, without incurring any transaction
costs or brokerage fees. We significantly expanded our investor
engagement activities ahead of the Old Mutual managed
separation and engaged constructively with the investment
community in over 400 meetings during 2018. At our 51st AGM
all resolutions were passed, with more than 90% of votes
in favour. Following engagements with shareholders and
enhancements to our remuneration practices, we were pleased
that our remuneration policy and disclosures received more than
99% of 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 9,8 times and 1,6 times respectively and a dividend
yield of 5,0% at 31 December 2018.
For regulators
We attained Basel III requirements ahead of full compliance
timelines, including a strong capital position, achieving a
CET1 ratio of 11,7% (after the fully phased-in day 1 impact of
IFRS 9, the impact of IFRS 15 and the impact of the odd-lot
offer), an average LCR of 109,4% in the fourth quarter of
2018 and an NSFR of 114,0% at December 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 R10,3bn were made relating to direct, indirect,
pay-as-you-earn and other taxation. We continued to work
closely with all our regulators to ensure delivery of the various
regulatory programmes including completion of POPI/privacy
requirements and finalisation of the SA remediation and
thematic sanctions review within anti-money-laundering
(AML), combatting the financing of terrorism (CFT) and
sanctions legislation. We implemented IFRS 9 and IFRS 15 on
1 January 2018, with a fully phased-in impact of 21 bps on our
CET1 ratio at 1 January 2018, inclusive of 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. Through the considered development and delivery
of products and services that satisfy societal needs we 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.
We have adopted the United Nations Sustainable
Developments Goals (SDGs) as a framework for measuring
delivery on our purpose. Key highlights include:
- Clean Water and Sanitation (SDG 6) – We continue to
engage with private and public sector stakeholders to
provide assistance, advisory services and finance to address
the water challenges facing individuals, businesses and the
country as a whole. Our financial commitments, in support
of the WWF, to remove water-sapping invasive alien trees
around water catchment areas will see the release of an
additional one billion litres of water annually.
- Affordable and Clean Energy (SDG 7) – We closed a
further 12 renewable-energy project deals to the value
of R13bn under round 4 of the REIPPPP. In all projects
completed to date Nedbank has arranged and funded a
total of 42 transactions, underwriting a total of R40bn.
In 2018 almost R1bn of our lending into property finance
incorporated the installation of solar power. In 2018 we
undertook not to provide new project financing or other
forms of asset-specific financing where the proceeds would
be used to develop a new coal-fired power plant, regardless
of country or technology. This commitment extends to
round 1 of SA's Coal Baseload Procurement Programme.
- Decent Work and Economic Growth (SDG 8) – We
launched the Nedbank Stokvel Account to provide safe, easy
and effective ways for groups of individuals to pool their
savings and grow their money collectively. Since its launch
it has attracted over 1 600 stokvel groups with more than
48 000 members.
- Industry, Innovation and Infrastructure (SDG 9) – We
participated in the US$50m ECIC-backed facility to the
Nacala Railway Corridor and Port Project in Mozambique
and Malawi. The project is a key regional infrastructure
initiative providing a significant socioeconomic benefit to
the region. We promote innovation through our corporate
sponsorships of Startupbootcamp AfriTech (SA) and the Plug
and Play fintech based in San Francisco. These programmes
assist us to identify the top technology disruptors globally
and across the African continent for both our own and our
clients' benefit.
- Reduced Inequalities (SDG 10) – We introduced, in
partnership with Ecobank, a crossborder remittance solution
that allows people living and working in SA to transfer money
instantly to friends and families in 33 countries across Africa.
- Sustainable Cities and Communities (SDG 11) – We
disbursed R1,2bn towards the development of new
affordable-housing in commercial-property finance, and
almost R1bn in home loans. Funding of R4,8bn was provided
for the construction of buildings that conform to green
building standards.
- In our own operations:
- Through our support of the WWF-SA Water Balance
Programme, which removes alien-invasive, water-hungry
trees from our strategic water source areas. We are
effectively a net-zero operation water user.
- We increased our BBBEE contributor status to
level 1 measured under the Amended Financial Sector
Code (FSC), gazetted in terms of section 9(1) of the
BBBEE Act, 53 of 2003, and have now maintained
level 2 or higher for 10 consecutive years.
- We invested R124m in socioeconomic development, with
more than 50% allocated to education.
- A total of 78% of our procurement spend was used to
support local SA business, up from 75% in 2017.
- We continued 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, starting during
2019, this is estimated to translate into an annual cost equal
to approximately 1,5% of net profit after tax (SA business),
supporting more than 3 000 youth through internal or
sponsored placements.
- Our #VaxTheNation initiative served as a call to action
for all South Africans to get involved and make access
to vaccinations a reality. Over 430 000 people have
been vaccinated since December 2018, leaving a lasting
impact as we support the most vulnerable people in society.
CLUSTER FINANCIAL PERFORMANCE
Nedbank's managed operations generated HE growth of
2,8% to R13 119m and delivered an ROE (excluding goodwill) of
17,7%. It should be noted that in this disclosure format of our
results all costs are allocated to managed operations and no
apportionment is made to the ETI result.
ROE (excluding
Change HE goodwill)
(%) (Rm) (%)
2018 2017 2018 2017
CIB 6,3 6 714 6 315 20,0 20,7
RBB 1,5 5 379 5 302 18,9 19,1
Wealth 6,1 1 133 1 068 26,8 27,5
RoA
subsidiaries 98,2 327 165 5,6 3,3
Centre > (100) (433) (88)
Nedbank
managed
operations 2,8 13 119 12 762 17,7 18,1
ETI > 100 375 (975) 37,7 (66,6)
Group 14,5 13 495 11 787 17,9 16,4
CIB grew HE by 6,3% to R6,7bn, while delivering an attractive
ROE of 20,0%. HE growth was underpinned by a very strong
18,9% growth in NIR. Growth in banking advances was slow, but
increased in the latter part of the year. Credit quality remained
excellent through proactive risk management resulting from
close monitoring and management of exposures to stressed
sectors of the economy, such as construction and cement, as
well as certain SOEs.
HE in RBB increased by 1,5% to R5,4bn, which was negatively
impacted by the higher levels of coverage on new business as
a result of the introduction of IFRS 9 and changes to loyalty
scheme accounting due to IFRS 15 – these reduced HE growth
by 4,9%. The ROE at 18,9% was well above the group's cost of
equity. The growth momentum of Retail advances has been
maintained and the CLR was flat, reflecting a high-quality
portfolio and remaining below the TTC target range. Underlying
transactional NIR growth was solid, supported by the 6,9%
growth in main-banked client numbers. Low expense growth
reflects the ongoing benefit of optimising processes and
operations, including headcount reductions of 698, largely
through natural attrition.
Nedbank Wealth grew HE 6,1% to R1,1bn and maintained an
attractive ROE of 26,8%. These results were attributable
to solid performances in Insurance and the international Wealth
Management business, muted growth in Asset Management
and a decline in earnings in the local Wealth Management
business.
RoA's HE increased strongly as our share of associate
income from our investment in ETI returned to profitability.
Our RoA subsidiaries also grew HE strongly as benefits
emerge from the recent investments we have made in the
franchises as a platform to create scale. During the year
we also benefited from impairment recoveries. The difficult
environment in Zimbabwe resulted in a judgemental
negative FCTR adjustment to equity of R755m before minorities
(R499m after minorities) as we anticipated possible impacts on
Nedbank's NAV from exchange rate movements in Zimbabwe.
No income statement changes were made in 2018 as these are
not material, and we policy clarification from regulators.
The performance in the Centre reflects the impact of central
provision releases in the prior year of R252m after tax (none in
2018) and fair-value gains of R199m after tax in 2017 largely
not repeated in 2018. On the back of IFRS 9 changes, we
implemented a central macro fair-value hedge accounting
solution in 2018 that will result in lower accounting volatility
in NIR on our hedged portfolios in future. A postretirement
medical aid (PRMA) credit amounting to R180m after tax was
recorded in the first half of the year and the balance of the
credit of a similar amount after tax is expected to be realised
in 2019 when the restructure of the scheme is complete. Final
costs of R77m relating to the managed separation were
recorded in 2018 (cumulative costs since 2016 were R142m).
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 without
any restatement of the 2017 comparative numbers. After
the adoption of 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) certain initiation fees
previously recognised as NIR are now amortised to NII through
the effective-interest-rate method. Under IFRS 15 costs of our
rewards programme were previously recognised as an expense,
but are now recognised as a reduction in NIR.
Net interest income
NII increased 4,3% to R28 819m, ahead of AIEBA growth of
3,6%. AIEBA grew 0,8% in the first half of the year and 2,8%
in the second half. AIEBA growth adjusted for IFRS opening
balance changes was 4,0%.
NIM at 3,65% increased from 3,62% recorded in 2017 and is in
line with our guidance. This increase was driven primarily by a
4 bps improvement in asset pricing as well as asset mix benefits
as retail advances grew faster than wholesale advances.
These were offset by a 2 bps negative endowment impact as
the average prime interest rate declined from 10,4% in 2017 to
10,1% in 2018. 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 the IFRS 9 initiation fee.
Impairments charge on loans and advances
Impairments increased 11,6% to R3 688m and the CLR increased
4 bps to 0,53% as RBB advances - which attract a higher
CLR – grew faster than CIB advances. The CLR benefited from
recoveries of accounts previously provided for in CIB and RoA.
The implementation of IFRS 9 also impacted the treatment of
suspended interest and resulted in the extension of the point of
writeoff. The low CLR continues to be a reflection of Nedbank's
selective advances growth strategy and the high quality of the
portfolio across all our businesses.
Impairments in CIB decreased marginally from the previous
year, with its CLR at 4 bps remaining below the TTC target
of 15 to 45 bps. The CIB CLR is a reflection of a high-quality
book, settlements that enabled the reversal of historic
impairment provisions, a proactive restructure process and
positive traction with the rehabilitation of distressed clients.
Specific impairments are individually determined in CIB
and are dependent on the value of the security we hold for
each exposure. Altogether 71% of specific impairments are
concentrated in approximately 10 counters.
RBB impairments increased by 6,5% to R3,4bn and include the
impact of IFRS 9, with increases in provision requirements of
R322m on the performing book being offset by reductions in
provisions of R374m due to the revised treatment of interest on
impaired financial advances.
The group's central provision remains unchanged from 2017 at
R150m. This provision is held for risks that may have occurred
but are likely to emerge only in the future and relate to, inter
alia, the macroeconomic environment, including Zimbabwe,
and SOEs. In RBB overlays of R281m were released as the
risks provided against have either been built into our detailed
IFRS 9 models or reassessed. A total of R69m of overlays remain
in RBB, while CIB raised R144m of overlays (relating to risks not
adequately reflected in our IFRS 9 models). These are supportive
of our prudent provisioning approach, which is reflected in total
postwriteoff recoveries of previously fully provided accounts
totalling R1 271m (2017: R1 224m).
Banking TTC
advances target
CLR (%) (%) 2018 2017 ranges
CIB 46,9 0,04 0,06 0,15–0,45
RBB 45,8 1,06 1,06 1,30–1,80
Wealth 4,4 0,13 0,09 0,20–0,40
RoA 2,9 0,51 1,02 0,65–1,00
Group 100,0 0,53 0,49 0,60–1,00
Defaulted advances rose 28,9% to R25,2bn, inclusive of a R1,9bn
increase attributable to an extension of our point of writeoff
in RBB to comply prospectively with IFRS 9. On a like-for-like
basis defaulted advances rose 19,4% and increases were evident
across all clusters. The weakened economic environment
placed additional stress on certain specific wholesale counters,
especially within the construction and cement industries. In RBB,
under IFRS 9, a loan is now written off when the group has no
reasonable expectations of recovering the asset partially or in
its entirety. The change in the point of writeoff has resulted in a
R97m reduction in the impairment charge, while increasing our
specific coverage and defaulted advances ratios.
Stage 1 and 2 (portfolio) coverage ratio increased from 0,70%
at 31 December 2017 (under IAS 39) to 0,93% on 1 January 2018,
reflecting the IFRS 9 day 1 impact. The decline to 0,88% at
December 2018 was primarily driven by some stressed clients
in CIB moving into default (stage 3) and the overlay releases
in RBB. Stage 3 (specific) coverage ratio increased from 36,2%
(under IAS 39) to 39,3% on 1 January 2018. Over the course of
2018 stage 3 coverage declined to 36,8%, primarily due to the
change in the defaulted-portfolio mix. RBB stage 3 coverage
increased to 46,0% from 42,5% as a result of higher defaults
caused by the extension of the point of writeoff (as mentioned
before). Stage 3 coverage for CIB decreased to 11,6% from
21,9% due to the successful restructure and repayment of a
few large exposures with higher coverage. 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.
Non-interest revenue
NIR growth of 7,9% to R25 976m is a reflection of solid gains in
main-banked clients across our retail and wholesale businesses
in SA and the rest of Africa. In addition, NIR growth benefited
from a strong performance in Global Markets and the
finalisation of the round 4 renewable-energy transactions after
several years of delay. This was partially offset by the negative
impact of IFRS 9 and IFRS 15, as well as weaker business
and consumer confidence, lower equity markets and ongoing
subdued levels of client transactional activity.
- Commission and fee income grew 6,5% to R18 279m.
RBB reported good underlying transactional NIR growth,
supported by solid main-banked client growth across
entry-level, middle-market, professional and small-business
client segments. CIB delivered strong growth benefiting
from the closure of round 4 renewable-energy transactions
in the second half of 2018 and increased levels of investment
banking activity.
- Insurance income increased 6,2% to R1 859m, supported by
a lower-claims experience in homeowner's cover due to the
absence of catastrophic weather events experienced in
relation to the previous year and funeral reserve releases
owing to lower new-business strain and higher lapses.
- Trading income grew strongly by 13,6% to R4 429m,
supported by growth in equities and debt trading and
finalisation of the round 4 renewable-energy deals, including
hedging activities.
- Private-equity income was marginally down to R697m as
realisations decreased, partially offset by lower unrealised
valuation losses.
Expenses
Expenses grew 6,1% to R31 632m. In the second half of 2018 cost
growth increased due to higher levels of amortisation,
managed-separation costs, STI alignment to earnings growth
and the non-repeat of the PRMA credit recorded in the first
half of 2018. An additional credit from the PRMA, which we
previously anticipated to finalise in the second half of 2018, is
now expected in 2019. The underlying movements included:
- Staff-related costs increasing at 5,6%, following:
- an average annual salary increase of 5,8% and a
reduction in staff numbers by 610 since December 2017;
- a 9,9% increase in STIs in line with the group's financial
performance and 22,0% increase in LTIs, as expected
vesting rates have increased as a result of improved
yoy performance against the group's corporate
performance targets; and
- a settlement with our staff with regard to PRMA
obligations and benefits, resulting in a provisional pretax
credit of R250m, recorded in the first half of 2018, in
respect of a reversal of actuarially estimated liabilities
previously raised.
- Computer-processing costs increasing 11,5% to R4 341m,
driven by increases in software amortisation and incremental
software licence costs and higher volumes, offset by reduced
network-related costs as a result of efficiency savings.
- Fees and insurance increasing 11,3% as a result of
managed-separation costs, association fees driven
by card-related volume increases and fees related to
digital innovations.
- Other cost lines being well managed, with increases below
inflation, and reflecting the cumulative benefits of R680m
from implementing our target operating model.
The group's growth in expenses of 6,1% was below total revenue
and associate income growth of 8,8%, resulting in a positive
JAWS ratio of 2,7% and an efficiency ratio of 57,2%, compared
with 58,6% in the December 2017. The JAWS ratio in managed
operations (inclusive of ETI-related expenses) was -0,1%.
Earnings from associates
Associate income of R608m relating to ETI was the result of ETI
reporting four consecutive quarters of attributable profit from
the fourth quarter of 2017 to the third quarter of 2018, in line
with our policy of accounting for our share of ETI's attributable
earnings a quarter in arrear. The total effect of ETI on the
group's HE was a profit of R375m, including the R233m impact
of funding costs.
Accounting for associate income, together with Nedbank's
share of ETI's other comprehensive income and movements in
Nedbank's FCTR 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 R3,2bn at 31 December 2018. This
amount includes a R361m FCTR adjustment to account
for the anticipated impact of ETI changing from using the
official Central Bank of Nigeria (CBN) exchange rate to the
NAFEX exchange rate in translating the results of its Nigerian
operations to US dollars, as announced by ETI in December
2018. ETI's listed share price decreased 17,7% during 2018, which
resulted in the market value of the group's investment in ETI
decreasing to R3,5bn at 31 December 2018, using the official
CBN exchange rate (307 naira:US$) and R2,9bn based on the
NAFEX exchange rate (364 naira:US$). The market value of our
investment at 28 February 2019, based on the NAFEX exchange
rate, was R2,8bn.
In line with IFRS requirements the R1bn impairment provision
recognised by Nedbank against its investment in ETI at
31 December 2016 was reviewed at 31 December 2018 and
management determined that there were no indicators of
further impairment. Our value-in-use computation supports the
current carrying value of our investment. We have observed an
improvement in ETI's recent financial performance, but this is
not yet considered to be a sufficient indicator to release the
full impairment provision or part thereof. Our position will be
reassessed again at 30 June 2019 and at year-end.
A R97m associate loss (2017: R96m loss) was incurred due to
losses from 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 11,7%
is a reflection of organic capital generation, offset by the
payment of cash dividends to shareholders, 11,1% growth in
RWA, ongoing investment in software development costs as
part of the group's Managed Evolution programme, accounting
for the full impact of the implementation of IFRS 9 and
IFRS 15 on 1 January 2018 (R1,2bn), the impact of the odd-lot
offer concluded in December 2018 (R2,0bn) and the impact of
the ETI NAFEX revaluation.
The total tier 1 CAR was positively impacted by the issuance of
an additional tier 1 instrument of R750m at improved pricing
of JIBAR plus 464 bps, compared with the previous R600m
issuance at JIBAR plus 565 bps (30 June 2017). This was offset
by the further grandfathering of old-style preference shares
(R531m) in January 2018 in line with the Basel III transitional
arrangements. The total CAR was further impacted by the
redemption of R3,0bn tier 2 capital instruments (NED 13 and
NED 14) and the issuance of new-style tier 2 capital of R4,5bn
in line with the group's capital plan.
Internal
target Regulatory
Basel III (%) 2018 2017 range minimum(1)
CET1 ratio
11,7 12,6 10,5–12,5 7,375
Tier 1 ratio 12,5 13,4 > 12,0 8,875
Total capital ratio 14,8 15,5 > 14,0 11,125
(Ratios calculated with full IFRS 9 phase-in for both Nedbank and ETI 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 mix, and maintaining a
strong liquidity position, remain a priority for the group.
The group's three-month average long-term funding ratio was
26,5% for the fourth quarter of 2018, supported by growth in
Nedbank Retail Savings Bonds of R5,0bn to R29,9bn and the
successful capital market issuances of R4,9bn senior unsecured
debt and R4,5bn tier 2 capital.
The group's December 2018 quarterly average LCR of 109,4%
exceeded the minimum regulatory requirement of 100%
effective from 1 January 2019, representing the end of the Basel
III LCR phase-in from a minimum regulatory requirement of
60% in 2015, which has been increased by 10% a year to reach
100% in 2019. To ensure ongoing compliance Nedbank maintains
appropriate operational buffers designed to absorb seasonal
and cyclical volatility in the LCR.
Nedbank Group LCR 2018 2017
HQLA (Rm) 162 678 138 180
Net cash outflows (Rm) 148 694 118 956
Liquidity coverage ratio (%)(2) 109,4 116,2
Regulatory minimum (%) 90,0 80,0
(2) Average for the quarter.
Further details on the LCR are available in the Additional
information section of the condensed consolidated financial
results.
Nedbank's portfolio of LCR-compliant HQLA increased by 17,7%
to a December 2018 quarterly average of R162,7bn. Looking
forward, growth in the HQLA portfolio will be more aligned with
balance sheet growth, without the incremental HQLA growth
requirements that have emanated from the LCR phase-in
of minimum regulatory requirements since 2015. The HQLA
portfolio, taken together with Nedbank's portfolio of other
sources of quick liquidity, resulted in total available sources of
quick liquidity of R213,3bn, representing 20,4% of total assets.
Nedbank exceeded the minimum NSFR regulatory requirement
of 100% effective from 1 January 2018 and reported a
December 2018 ratio of 114,0%.
Loans and advances
Loans and advances increased by 3,7% to R736,3bn, driven by
solid growth in RBB and an increase in CIB banking advances
during the second half of the year. This was partially offset by
a decline in trading advances and short-dated lending in CIB
as well as the IFRS day 1 impact of R3,2bn. Banking advances
grew 5,6%, excluding the increase in impairments due to
implementation of IFRS 9.
Loans and advances growth by cluster was as follows:
Change
Rm (%) 2018 2017
CIB 0,7 358 639 356 029
Banking activities 3,1 335 002 324 673
Trading activities (24,6) 23 637 31 356
RBB 7,1 326 762 305 198
Wealth 5,8 31 111 29 413
RoA 2,4 21 037 20 541
Centre(3) (> 100%) (1 244) (852)
Group 3,7 736 305 710 329
(3) Consolidation adjustments.
RBB loans and advances grew 7,1% to R326,8bn, supported by
growth across all asset classes in line with our risk appetite
and prudent origination strategies. Loans and advances was
negatively impacted by the IFRS 9 transitional day 1 changes.
Business Banking grew advances 11,8%, due to an increase in
new-loan payouts and higher utilisation of existing facilities.
MFC (vehicle finance) advances increased by 7,9% as business
volumes remained robust despite a muted new-vehicle sales
market. Unsecured Lending grew 6,6% as a result of product
and process enhancements driving increased take up. After the
IFRS 9 day 1 transitional impact, Unsecured Lending grew 9,7%,
marginally ahead of the market. Card advances decreased
1,8%, impacted by an increase in impairments as a result of
IFRS 9 transitional day 1 changes. Underlying card growth, as
reflected in gross advances, was 4,8%. Residential-mortgage
loans grew 3,9%, in line with the overall market.
CIB loans and advances grew 0,7% to R358,6bn. The banking
book increased 3,1%, driven by a strong pipeline conversion and
as early repayments decreased in the second half of the year.
Commercial mortgages increased 1,4% to R135,0bn, impacted
by increased competition and muted industry growth.
The CPF portfolio contains good-quality collateralised assets
with low loan-to-value ratios and is managed by a highly
experienced property finance team. Trading advances declined
24,6%, largely as a result of a reduction in reverse repurchase
agreements as traders freed up cash to deploy into government
bonds and other securities in order to hedge new client-related
bond futures positions.
Deposits
Deposits grew 7,0% to R825,8bn, with total funding-related
liabilities increasing 7,1% to R881,4bn, while the loan-to-deposit
ratio improved to 89,2%.
In line with Nedbank's objective of tilting towards a greater
proportion of Basel III-friendly deposits, RBB through the active
management of its franchise has grown retail and commercial
deposits 9,2% to R322,5bn. CIB grew deposits 2,8% as we
shifted away from more-expensive structured-note issuances
towards lower-cost NCD funding, housed in the Centre where
deposits grew 15,8%. Wealth and RoA grew deposits 12,6% and
4,8% respectively.
During the 12 months to December 2018 Nedbank reduced its
reliance on short-term wholesale funding through proportionally
higher levels of growth in commercial deposits. Growth in
transactional current-account and cash management deposits
of 6,9% contributed positively towards the strategic objective
of growing Nedbank's transactional-deposit franchise,
while the increases in fixed deposits and NCDs of 16,7% and
16,0% respectively resulted in a strong funding profile and
consequently a strong balance sheet position.
Group strategic focus
During 2018 we continued to focus on delivering on our five
strategic focus areas that are designed to drive sustainable
earnings growth and improve returns on equity. We made
excellent progress in delivering market-leading CVPs and
digital innovations, which were acknowledged by improved
client satisfaction ratings and various industry awards. This
focus enabled us to grow revenues and unlock operating
efficiencies. Our strategic enablers – which include technology
investments (with our Managed Evolution IT strategy and Digital
Fast Lane (DFL) as key components), our people, our culture and
our brand – are delivered through our target operating model
and by embracing nWoW. This is enabling us to create a more
client-focused, agile, competitive and digital Nedbank.
- Delivering innovative market-leading client experiences
- The Nedbank Money app™, which makes banking more
convenient for our retail clients, has been downloaded
1,6 million times, with more than 435 000 clients having
used it actively since November 2017. The Nedbank
Private Wealth app ranked second best globally by Cutter
Associates International Research, an improvement from
seventh in 2017. These achievements are the result of our
DFL approach of continuously enhancing functionality
and adopting the global gold standard. Client ratings
for iOS and Android Nedbank apps are at the top end of
SA banking peers. Towards the end of 2018 we launched
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. In 2018 we processed on average R8,4bn of
third-party payments per month on all digital channels for
our retail clients.
- Unlocked.Me, a new CVP for the youth segment, was
launched at the start of 2018. Its first release included our
first lifestyle marketplace (www.unlocked.me) and a new
account for students and young adults. The marketplace
recorded a reach of more than 12,5 million unique
impressions across social media and the web.
- We launched our new Stokvel Account, which 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 good interest
rates. Since its launch the product has attracted
over 1 600 stokvel groups, representing more than
48 000 members.
- As far as our integrated channels are concerned, we
have converted 60% of our outlets to new-image digital
branches to date, and our investment in distribution
channels over the next three years (until 2021) will result
in 80% of our retail clients being exposed to the new
digitally focused branch formats and self-service offerings.
The introduction of new channels such as chatbots and
robo-advisors will continue to enhance client experience
and increase the efficiencies of our contact centre and
web-servicing capabilities.
- As a result of the abovementioned innovations and ongoing
focus on improving client service, in the Consulta survey
Nedbank has seen the largest increase in NPS scores
among all banks in SA, increasing 11% to 37%.
- 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'robo-advisor and chatbot was
named The Banker's Tech Project of the Year in the category
Artificial Intelligence and Robotics, and was a finalist in the
Gartner Eye on Innovation Awards.
- With the foundations put in place through Managed
Evolution (our system and technology platform
transformation), digital enhancements and nWoW we are
delivering ongoing benefits and enhanced client service.
In 2019 we will bring further exciting digital innovations
to market to enhance client experiences and drive
efficiencies. Some of these innovations include 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).
- Growing our transactional banking franchise faster than
the market
- Our SA retail main-banked client numbers have
grown by 6,9% to 3,0 million, driven largely by growth
in the entry-level, middle-market, professional and
small-business segments and supporting solid underlying
retail transactional NIR growth. The 2018 Consulta survey
estimated Nedbank's share of main-banked clients at
13,1%, up from 12,7% in 2017, as we aim to reach a share
of more than 15% by 2020. In addition, Business Banking's
market share increased from 19% in 2017 to 22% in 2018,
the highest market share gain across all business banks as
measured by the 2018 KPI Research Business Electronic
Banking and Tracking Study.
- Our SADC businesses grew their client base by 4,8% to
352 921, supporting NIR growth of 21,0% as the newly
launched products and digital innovations started
delivering benefits.
- Our integrated model in CIB enabled deeper client
penetration and increased cross-sell, resulting in
30 primary-bank client wins in the last year. This
supported NIR growth in CIB of 18,9%.
- Being operationally excellent in all we do
- Cost discipline is an imperative as we balance investment
with growth. We have ongoing initiatives to optimise
our cost base. These include the reduction of our core
systems from 250 to 114 since the inception of the
Managed Evolution programme, and we are well on our
way to reaching a target end-state of less than 60 core
systems by 2020. The rationalisation, standardisation and
simplification of core banking operating systems enable
reduced infrastructure, support and maintenance costs,
as well as reduced complexity and increased agility in
adopting new innovations. The time and cost of bringing
new products and services to market have been reduced
significantly as many of the foundational capabilities are
built into our onboarding and servicing programmes.
Investments in various foundational IT programmes are
either complete or nearing completion and we expect IT
cashflow spend to peak in 2019 and capitalised IT costs
peaking just above R9bn in 2020.
- During 2018 new self-servicing functions that were
previously available in branches or staffed channels only
were released on the Nedbank Money app™ and the new
Nedbank Online Banking site, taking the total digital
servicing functions to 70. This digitisation of services in
RBB has enabled us to reduce related call centre volumes
by 15 000 per month in 2018 and branch floor space
by 32 971 m² to date, and we plan to achieve more than
45 000 m² of optimisation by 2020 (a revision of our initial
2020 target of 30 000 m2). Over the past 24 months
we reduced total headcount by 1 469 (mainly through
natural attrition) and optimised our staffed points of
presence by closing 18 branches (while maintaining our
coverage of the bankable population at 84%). Through
our Intelligent Depositor devices we now process, monthly,
more than one million deposits and 300 000 request for
three-month bank statements, which previously could be
done only over the counter in a branch. In 2018 these
devices recycled 75% of all cash, up from 20% in 2015.
- We implemented 51 software robots to date (robotic
process automation) to enhance efficiencies and reduce
processing errors in administratively intense processes.
These exclude the 153 temporary software robots used to
onboard the more than 17 000 VBS Mutual Bank clients.
- Our target operating model recorded cumulative savings
of R680m at December 2018, with the aim of generating
R1,0bn pretax benefits for Nedbank by 2019 and R1,2bn
by 2020, as disclosed in an element of our long-term
incentive scheme.
- Managing scarce resources to optimise economic outcomes
- We maintained our focus on growing activities that
generate higher levels of EP, such as transactional
deposits and transactional-banking revenues.
- 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.
- During 2018 we embedded our commitment to the United
Nations SDGs, which will see lending flowing into targeted
areas that contribute to a better society. To this end our
renewable-energy funding solutions have seen R22,8bn
drawn as part of R40bn of commitments across all four
rounds of renewable energy.
- Providing our clients with access to the best financial
services network in Africa
- In Central and West Africa ETI remains an important
strategic investment for Nedbank, providing our clients
with access to a pan-African transactional banking
network across 39 countries and Nedbank with access
to dealflow in those markets. ETI has now reported
seven consecutive quarters of profit and is making good
progress on its transactional banking and digital strategy
and on optimising its cost base. Asset quality and risk
management remain key priorities for the ETI board
and executive, and although the movement towards
risk appetite in the key risk metrics is still expected to
take a further 12 to 18 months, the credit loss experience
has improved and management remains committed
to resolving legacy risk matters. We remain supportive
of ETI's endeavours to deliver an ROE in excess of its
COE over time. Economic conditions in West Africa are
improving and our investment in ETI should continue
to support Nedbank's earnings growth. We have also
increased our levels of collaboration, with more than
100 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
- In the 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 launched a number of new digital products and
reported a 44% increase in banking app transactions
and a 4,8% increase in client numbers. Asset and
deposits have grown in line with expectations and
we have increased our retail profit contribution as
a share of our overall business. Merchant Bank of
Central Africa (MBCA) in Zimbabwe was rebranded
Nedbank Zimbabwe. The difficult environment in
Zimbabwe resulted in a negative FCTR adjustment
to equity of R755m before minorities (R499m after
minorities) as we anticipated possible impacts from
exchange rate movements. We continue to monitor
developments in Zimbabwe brought about by currency
shortages and pressure on the fiscus.
Old Mutual plc managed separation
The unbundling of Nedbank shares by Old Mutual
Limited (OML), which took place on 15 October 2018,
completed the managed-separation process. OML is now
a strategic minority shareholder owning 19,9% of Nedbank
Group in OML's shareholder funds under the terms of the new
relationship agreement.
As a result of the OML unbundling, Nedbank Group inherited a
significantly larger number of shareholders – increasing from
approximately 20 000 to approximately 500 000 shareholders.
The vast majority of these shareholders held less than
100 Nedbank Group ordinary shares (referred to as odd-lot
holders). An odd-lot offer was approved by shareholders
at a general meeting on 22 November 2018 and closed on
14 December 2018 (the record date of the odd-lot offer).
The price of the odd-lot offer was set at R276,47672 per share
based on a 5% premium to the 10-day VWAP leading up
to 3 December 2018. The odd-lot offer provided eligible holders
with the ability to dispose of their shares on an efficient basis,
and provided liquidity for those shareholders who elected to
sell their holdings or who made no election. For Nedbank Group
this offer reduced the complexity and ongoing administration
costs associated with a significantly larger shareholder base,
including a sizeable number of odd-lot holders. In terms of
the odd-lot offer, Nedbank Group repurchased a total of
7 056 639 Nedbank Group ordinary shares, representing 1,4% of
the total issued ordinary share capital of Nedbank Group for a
total consideration of R2,0bn, and the impact on our CET1 ratio
was 34 bps. The repurchased ordinary shares were cancelled
and delisted on Friday, 21 December 2018, and accordingly the
total issued ordinary shares decreased from 500 239 303 to
493 182 664.
Nedbank Group continues to operate on a business-as-usual
basis and the managed separation had no impact on our
strategy, our day-to-day management or operations, our staff
or our clients. Our engagements with OML are at arm's length
and overseen by independent board structures. OML 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. In addition, our technology systems,
brands and businesses are not integrated. As noted before, our
collaboration to unlock synergies will continue to be underpinned
by OML's strategic shareholding in Nedbank Group and we are
committed to working with OML to deliver ongoing synergistic
benefits while operating at arm's length.
Economic and regulatory outlook
The International Monetary Fund expects global economic
growth to slow slightly from 3,7% in 2018 to 3,5% in 2019 and to
move to 3,6% in 2020. Softer growth is forecast for advanced
countries, at around 2,0% in 2019 and 1,7% in 2020 from 2,3%
in 2018, while growth in emerging and developing economies
are forecast to ease slightly to 4,5% in 2019 from 4,6% in 2018.
Encouragingly, faster growth is expected in sub-Saharan
Africa, where GDP growth is forecast to accelerate to 3,5% in
2019 from 2,9% in 2018.
The SA economy should perform better in 2019 than in 2018.
Exports are forecast to provide most of the momentum,
facilitating some improvement in mining and strengthening the
fragile recovery in manufacturing. However, downside risks have
increased in recent months, given the softer global outlook, low
commodity prices and the threat posed by disease and drought
to agriculture. While President Ramaphosa's efforts to revive
fixed investment should bear some fruit over the medium to
longer term, we expect only a slight increase in fixed investment
in 2019, mainly boosted by the signing of the fourth round of the
REIPPPP in 2018. Unfortunately, the current environment is not
supportive of much higher investment, given spare capacity in
many industries, unreliable electricity supply, high domestic cost
structures, slow progress in delivering policy certainty, the lack
of essential structural reforms and the uncertainties
surrounding the intended scale and scope of land expropriation
without compensation.
Household incomes and spending are likely to be bolstered
by receding inflation brought about by lower fuel
prices; however, the upside will be contained by limited
job-creation opportunities and stagnant asset prices. Interest
rates are likely to remain on hold for much of 2019 due to the
improved inflation outlook over the next 12 months. Thereafter
inflation is likely to drift higher and in response a slightly
tighter monetary policy stance is expected. This may contain
confidence and consumer spending, but is unlikely to result in
a significant increase in loan defaults. The recent SA budget
highlighted the limited fiscal flexibility that government has and
a further erosion in fiscal strength after the 2018 Medium-Term
Budget Policy Statement already pointed to wider deficits
for longer. On balance, GDP growth of about 1,3% and 1,8%
is forecast for 2019 and 2020 respectively. The key downside
risks include government's poor fiscal position, the perilous
state of many SOEs (particularly Eskom), a problematic start
to government's plans to fast-track land reform, uncertainty
around this year's general elections and ultimately the
persistent threat of further sovereign risk ratings downgrades,
particularly by Moody's who is currently the only major ratings
agency to rate SA sovereign debt at investment grade.
Despite the many challenges faced by the SA economy, the
SA banking system remains sound, liquid and well capitalised.
The operating environment is forecast to improve in
2019 off a low base. A recovery in corporate credit demand
is expected, mainly buoyed by the start of the next phase
of renewable-energy projects and a slight improvement
in fixed-investment activity towards the end of the year.
The gradual recovery in household credit demand is also
forecast to continue throughout 2019, supported by lower
inflation and relatively steady interest rates.
Prospects
Our guidance on financial performance for the full year 2019 is
currently as follows:
- Average interest-earning banking assets to grow at upper
single digits.
- NIM to be below the 2018 level of 3,65%.
- CLR to increase to within the bottom end of our target range
of 60 to 100 bps (under IFRS 9).
- NIR to grow mid-to-upper single digits.
- Expenses to increase slightly above mid-single digits.
Given the expectations of a slowly improving SA economy
and ongoing delivery on our strategy, our current guidance for
growth in DHEPS for the full 2019 year is to be at or above
nominal GDP growth.
At the start of 2018 we set ourselves specific 2020 targets
of an ROE (excluding goodwill) of greater than or equal to
18% and a cost-to-income ratio of lower than or equal to
53% as a pathway to ongoing and sustainable improvements
in the key metrics that support shareholder value creation.
Given resilient earnings growth and the impact of IFRS
changes and the odd-lot offer, which reduced equity in 2018,
we are currently more confident that we will meet our ROE
(excluding goodwill) target on a sustainable basis. While we
remain committed to our cost-to-income-ratio target, it has
become more challenging to achieve. This is the result of a
combination of weaker-than-anticipated economic growth,
primarily resulting in slower growth in wholesale advances
and retail transactional activity, lower-than-expected interest
rates; IFRS changes impacting the shape of the income
statement and negatively impacting the cost-to-income
ratio; new costs relating to the Youth Employment Service,
Deposit Insurance and Twin Peaks; and a decision to increase
our investments into platform-related activities in RBB as
we continually evolve our business model to underpin future
growth. Our medium-to-long-term targets have not changed
from what we published in 2018. The current outlook for these
targets in 2019 is as follows:
Metric Full-year 2019 outlook Medium-to-long-term target
ROE (excluding goodwill) 17,9% In line with target 5% above COE(4) (> 18% by 2020)
>= consumer price index + GDP
Growth in DHEPS 13,7% growth >= consumer price index + GDP growth + 5%
Increases to within the bottom end Between 0,6% and 1,0% of average banking
CLR 0,53% of our target range (under IFRS 9) advances
Increases, but remains below
NIR-to-expense ratio 82,1% target >= 85%
Efficiency ratio (including Decreases, but remains above
associate income) 57,2% target 50–53% (<= 53% by 2020)
CET1 capital adequacy ratio
(Basel III) 11,7% Within target range 10,5–12,5%
Dividend cover 1,97 times Within target range 1,75–2,25 times
(4) The COE is currently forecast at 14,0% in 2019.
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
Nomavuso Mnxasana retired as an independent non-executive
director with effect from the close of Nedbank Group's AGM
on 10 May 2018. Peter Moyo was appointed as a non-executive
director, while Bruce Hemphill stepped down from the Nedbank
Group board, on 11 June 2018. Rob Leith and Ian Gladman
resigned from the board on 15 October 2018 following Old
Mutual Limited's unbundling of its controlling interest in
Nedbank Group, thereby concluding the managed-separation
process. Rob Leith was reappointed as a non-executive director
with effect from 1 January 2019.
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. Anna Isaac was appointed as Group Chief
Compliance Officer with effect from 1 January 2019 following
the retirement of Thabani Jali. In addition, Jackie Katzin was
appointed Group Company Secretary, effective from the same
date.
Basis of preparation*
Nedbank Group Limited is a company domiciled in SA.
The summary consolidated financial statements of the group
at and for the year ended 31 December 2018 comprise the
company and its subsidiaries (group) and the group's interests
in associates and joint arrangements.
The summary consolidated financial statements and the full set
of consolidated financial statements have been prepared under
the supervision of Raisibe Morathi CA(SA), the Group Chief
Financial Officer.
The summary consolidated financial statements are prepared
in accordance with the requirements of the JSE Limited Listings
Requirements for preliminary reports, and the requirements
of the Companies Act applicable to summary financial
statements. In terms of the Listings Requirements preliminary
reports have to be prepared in accordance with the framework
concepts and the measurement and recognition requirements of
IFRS and the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements
as issued by the Financial Reporting Standards Council and also,
as a minimum, to contain the information required by IAS 34:
Interim Financial Reporting. The accounting policies applied in
the preparation of the consolidated financial statements, from
which the summary consolidated financial statements were
derived, are in terms of IFRS and are consistent with 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 consolidated financial statements.
IFRS 16: Leases*
IFRS 16 deals with the accounting for leases and replaces
IAS 17 for reporting periods beginning on or after 1 January
2019. The group has elected to apply IFRS 16 retrospectively
using the modified approach. The group will therefore not
restate comparative periods, which will continue to be
presented in terms of IAS 17, with a transitional adjustment
made at 1 January 2019. The implementation of IFRS 16 results
in the recognition of lease liabilities of R4,2bn and right-of-use
assets of R3,2bn, with equity decreasing by approximately
R700m on an after-tax basis. The IAS 17 straight-lining
liability of R125m and the associated deferred tax of R35m
will be reversed against equity. Total equity decreases by
approximately R610m on the adoption of IFRS 16.
Events after the reporting period*
There are no material events after the reporting period to
report on.
The summary consolidated financial statements comprise
the summary consolidated statement of financial position
at 31 December 2018, summary consolidated statement of
comprehensive income, summary consolidated statement of
changes in equity and summary consolidated statement of
cashflows for the year ended 31 December 2018 and selected
explanatory notes, which are indicated by the symbol*.
Audited summary consolidated financial statements –
independent auditors' opinion
The summary consolidated financial statements for the year
ended 31 December 2018 have been audited by KPMG Inc
and Deloitte & Touche, who expressed an unmodified opinion
thereon. The auditors also expressed an unmodified opinion on
the annual consolidated financial statements from which these
summary consolidated financial statements were derived.
Copies of the auditors' report on the summary consolidated
financial statements and of the auditors' report on the annual
consolidated financial statements are available for inspection
at the company's registered office, together with the financial
statements identified in the respective auditors' reports.
The auditors' report does not necessarily report on all of
the information contained in this results announcement.
Shareholders are therefore advised that, to obtain a full
understanding of the nature of the auditors' engagement, they
should obtain a copy of the auditors' report, together with
the accompanying consolidated financial statements, from
Nedbank Group's registered office.
Forward-looking statements
This announcement contains certain forward-looking
statements with respect to the financial condition and results
of operations of Nedbank Group and its group companies that,
by their nature, involve risk and uncertainty because they relate
to events and depend on circumstances that may or may not
occur in the future. Factors that could cause actual results to
differ materially from those in the forward-looking statements
include global, national and regional political and economic
conditions; sovereign credit ratings; levels of securities markets;
interest rates; credit or other risks of lending and investment
activities; as well as competitive, regulatory and legal factors.
By consequence, all forward-looking statements have not been
reviewed or reported on by the group's auditors.
Final dividend declaration
Notice is hereby given that a final dividend of 720 cents per
ordinary share has been declared, payable to shareholders for
the six months ended 31 December 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 144 cents per ordinary share, resulting
in a net dividend of 576 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 493 182 664.
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, 2 April 2019
Shares commence trading
(ex dividend) Wednesday, 3 April 2019
Record date (date shareholders
recorded in books) Friday, 5 April 2019
Payment date Monday, 8 April 2019
Share certificates may not be dematerialised or rematerialised
between Wednesday, 3 April 2019 and Friday, 5 April 2019, both
days inclusive.
On Monday, 8 April 2019 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, 8 April 2019.
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
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 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, EM Kruger, RAG Leith,
L Makalima, PM Makwana, 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
Group Company J Katzin
Secretary:
Reg number: 1966/010630/06
JSE share code: NED
NSX share code: NBK
ISIN: ZAE000004875
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 nedbank.co.za, together with the following additional
information:
- Detailed financial information.
- Financial results presentation.
- Link to a webcast of the presentation.
For further information please contact Nedbank Group Investor
Relations at nedgroupir@nedbank.co.za.
Vassi Naidoo Mike Brown
Chairman Chief Executive
5 March 2019
Financial highlights
at
31 December 31 December
Change 2018 2017
(%) (Audited) (Audited)
Statistics
Number of shares listed m 493,2 498,1
Number of shares in issue, excluding shares held by group entities m 477,1 481,6
Weighted-average number of shares m 483,2 480,8
Diluted weighted-average number of shares m 493,2 490,0
Preprovisioning operating profit 13,6 Rm 21 990 19 358
Economic profit(1) 69,2 Rm 2 868 1 695
Headline earnings per share 13,9 cents 2 793 2 452
Diluted headline earnings per share 13,7 cents 2 736 2 406
Ordinary dividends declared per share 10,1 cents 1 415 1 285
Interim 13,9 cents 695 610
Final 6,7 cents 720 675
Ordinary dividends paid per share 10,5 cents 1 370 1 240
Dividend cover 3,1 times 1,97 1,91
Net asset value per share 3,4 cents 17 560 16 990
Tangible net asset value per share 2,0 cents 14 917 14 626
Closing share price 7,3 cents 27 472 25 610
Price/earnings ratio historical 9,8 10,4
Price-to-book ratio historical 1,6 1,5
Market capitalisation 6,2 Rbn 135,5 127,6
Number of employees (permanent staff)(1) (2,1) 30 877 31 531
Number of employees (permanent and temporary staff)(1) (1,9) 31 277 31 887
Key ratios (%)
Return on ordinary shareholders' equity (ROE)(1) 16,8 15,3
ROE, excluding goodwill(1) 17,9 16,4
Return on tangible equity(1) 19,8 17,8
Return on total assets (ROA)(1) 1,33 1,22
Return on average risk-weighted assets(1) 2,40 2,28
Net interest income to average interest-earning banking assets(1) 3,65 3,62
Credit loss ratio – banking advances(1) 0,53 0,49
Gross operating income growth rate less expense growth rate (jaws
ratio) 2,7 (3,0)
Non-interest revenue to total operating expenses 82,1 80,7
Non-interest revenue to total income 47,4 46,6
Efficiency ratio 57,2 58,6
Effective taxation rate 25,2 25,5
Group capital adequacy ratios (including unappropriated profits):(1)
– Common-equity tier 1 11,7 12,6
– Tier 1 12,5 13,4
– Total 14,8 15,5
Statement of financial position statistics (Rm)
Total equity attributable to equity holders of the parent 2,4 83 778 81 823
Total equity 3,1 91 271 88 539
Amounts owed to depositors 7,0 825 804 771 584
Loans and advances 3,7 736 305 710 329
Gross 4,1 751 793 722 330
Impairment of loans and advances (29,1) (15 488) (12 001)
Total assets administered by the group 3,5 1 341 250 1 295 627
Total assets 6,2 1 043 912 983 314
Assets under management (4,8) 297 338 312 313
Life insurance embedded value(1) 1,5 2 786 2 745
Life insurance value of new business(1) 8,9 380 349
(1) These metrics have not been audited or reviewed by the group's auditors.
AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
Nedbank Group Limited Reg No 1966/010630/06.
Prepared under the supervision of the Nedbank Group CFO, Raisibe Morathi CA(SA).
A copy of the Nedbank Group Limited audited consolidated annual financial statements can be obtained by contacting Nedbank Group
Investor Relations at nedbankgroupir@nedbank.co.za.
Summary consolidated statement of
comprehensive income
for the year ended
31 December 31 December
2018 2017
Change (Audited) (Audited)
(%) Rm Rm
Interest and similar income 0,9 75 941 75 299
Interest expense and similar charges (1,2) 47 122 47 675
Net interest income 4,3 28 819 27 624
Impairments charge on financial instruments 11,6 3 688 3 304
Income from lending activities 3,3 25 131 24 320
Non-interest revenue 7,9 25 976 24 063
Operating income 5,6 51 107 48 383
Total operating expenses 6,1 31 632 29 812
Indirect taxation (5,9) 942 1 001
Profit from operations before non-trading and capital items 5,5 18 533 17 570
Non-trading and capital items 26,8 (164) (224)
Profit from operations 5,9 18 369 17 346
Share of income/(losses) of associate companies >100 528 (838)
Profit before direct taxation 14,5 18 897 16 508
Total direct taxation 13,1 4 762 4 209
Direct taxation 4 807 4 267
Taxation on non-trading and capital items (45) (58)
Profit for the year 14,9 14 135 12 299
Other comprehensive (losses)/income (OCI) net of taxation >(100) (341) 31
Items that may subsequently be reclassified to profit or loss
Exchange differences on translating foreign operations 449 (1 046)
Share of OCI of investments accounted for using the equity method (318) 169
Fair-value adjustments on available-for-sale assets 22
Debt investments at fair value through OCI (FVOCI) – net change in fair value (20)
Items that may not subsequently be reclassified to profit or loss
(Losses)/Gains on property revaluations (91) 190
Remeasurements on long-term employee benefit assets (345) 387
Share of OCI of investments accounted for using the equity method (16) 309
Total comprehensive income for the year 11,9 13 794 12 330
Profit attributable to:
– Ordinary shareholders 15,1 13 376 11 621
– Holders of preference shares (4,4) 323 338
– Holders of additional tier 1 capital instruments 6,0 267 252
– Non-controlling interest – ordinary shareholders 92,0 169 88
Profit for the year 14,9 14 135 12 299
Total comprehensive income attributable to:
– Ordinary shareholders 13,3 13 175 11 625
– Holders of preference shares (4,4) 323 338
– Holders of additional tier 1 capital instruments 6,0 267 252
– Non-controlling interest – ordinary shareholders (74,8) 29 115
Total comprehensive income for the year 11,9 13 794 12 330
Basic earnings per share (cents) 14,5 2 768 2 417
Diluted earnings per share (cents) 14,3 2 712 2 372
Summary consolidated
statement of financial position
at
31 December 31 December 31 December
2018 2017 2016
Change (Audited) (Audited) (Audited)
(%) Rm Rm Rm
(Restated) (Restated)
Assets
Cash and cash equivalents (22,1) 13 162 16 900 26 384
Other short-term securities (14,5) 79 362 92 775 84 679
Derivative financial instruments (24,1) 22 692 29 904 17 633
Government and other securities 96,6 96 791 49 241 51 048
Loans and advances 3,7 736 305 710 329 707 077
Other assets 36,0 19 836 14 589 14 077
Current taxation assets (11,8) 186 211 574
Investment securities(1) 13,1 22 404 19 803 16 582
Non-current assets held for sale (21,4) 305 388 287
Investments in associate companies and joint arrangements1 13,7 4 041 3 553 4 210
Deferred taxation assets 34,4 254 189 494
Investment property 22
Property and equipment 5,3 9 371 8 902 8 969
Long-term employee benefit assets (16,2) 4 966 5 924 5 203
Mandatory reserve deposits with central banks 12,5 21 629 19 222 18 700
Intangible assets 10,8 12 608 11 384 10 083
Total assets 6,2 1 043 912 983 314 966 022
Equity and liabilities
Ordinary share capital (1,0) 477 482 478
Ordinary share premium (7,3) 17 315 18 688 18 043
Reserves 5,3 65 986 62 653 57 212
Total equity attributable to equity holders of the parent 2,4 83 778 81 823 75 733
Holders of preference shares 3 222 3 222 3 222
Holders of additional tier 1 capital instruments 28,9 3 397 2 635 2 000
Non-controlling interest attributable to ordinary shareholders 1,7 874 859 756
Total equity 3,1 91 271 88 539 81 711
Derivative financial instruments (14,4) 20 003 23 367 13 296
Amounts owed to depositors 7,0 825 804 771 584 761 542
Provisions and other liabilities 9,9 25 602 23 292 34 667
Current taxation liabilities 40,2 363 259 214
Deferred taxation liabilities (12,1) 669 761 804
Long-term employee benefit liabilities (22,0) 2 749 3 525 3 448
Investment contract liabilities 10,5 20 035 18 134 15 342
Insurance contract liabilities (19,7) 1 829 2 277 2 922
Long-term debt instruments 7,8 55 587 51 576 52 076
Total liabilities 6,5 952 641 894 775 884 311
Total equity and liabilities 6,2 1 043 912 983 314 966 022
(1) During the year 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-year balances have been restated by R3 169m
(2016: R2 357m). The investments in private-equity associates, associate companies and joint arrangements were renamed investments in associate companies.
The reclassification had no impact on the group's statement of comprehensive income and statement of changes in equity.
Summary consolidated
statement of changes in equity
Non-
controlling
Total equity interest
attributable Holders of attributable
to equity Holders of additional to
holders preference tier 1 capital ordinary
of the parent shares instruments 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 (6 080) (12) (6 092)
Additional tier 1 capital instruments interest paid (217) (217)
Preference share dividend (338) (338)
Issues of shares net of expenses 687 687
Shares (acquired)/no longer held by group entities and
BEE trusts (71) (71)
Total comprehensive income for the year 11 625 338 252 115 12 330
Share-based payment reserve movement (65) (65)
Other movements (6) (6)
Audited balance at 31 December 2017 81 823 3 222 2 635 859 88 539
Impact of adopting IFRS 9, net of taxation (2 964) (14) (2 978)
Impact of adopting IFRS 15, net of taxation (254) (254)
Audited balance at 1 January 2018 78 605 3 222 2 635 845 85 307
Additional tier 1 capital instruments issued 750 750
Dividend to shareholders (6 744) (6 744)
Additional tier 1 capital instruments interest paid (255) (255)
Preference share dividend (323) (323)
Issues of shares net of expenses 628 628
Repurchase of odd-lot holdings (1 979) (1 979)
Shares (acquired)/no longer held by group entities and
BEE trusts (86) (86)
Total comprehensive income for the year 13 175 323 267 29 13 794
Share-based payment reserve movement 177 177
Other movements 2 2
Audited balance at 31 December 2018 83 778 3 222 3 397 874 91 271
Summary consolidated statement of cashflows
for the year ended
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
Cash generated by operations 26 974 25 351
Change in funds for operating activities (12 369) (17 407)
Net cash from operating activities before taxation 14 605 7 944
Taxation paid (4 684) (4 730)
Cashflows from operating activities 9 921 3 214
Cashflows utilised by investing activities (6 848) (6 119)
Cashflows utilised by financing activities (4 012) (5 946)
Effects of exchange rate changes on opening cash and cash equivalents (392) (111)
Net decrease in cash and cash equivalents (1 331) (8 962)
Cash and cash equivalents at the beginning of the year(1) 36 122 45 084
Cash and cash equivalents at the end of the year(1) 34 791 36 122
(1) Including mandatory reserve deposits with central banks.
NOTES TO THE AUDITED SUMMARY CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018*
Summary consolidated segmental reporting
for the year ended
31 31 31 31 31 31 31 31
December December December December December December December December
2018 2017 2018 2017 2018 2017 2018 2017
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm
Headline earnings/
Total assets Total liabilities Revenue(1) (losses)
Nedbank Corporate and
Investment Banking 507 807 487 632 474 252 457 195 15 767 14 380 6 714 6 315
Nedbank Retail and
Business Banking 355 614 326 225 327 143 298 413 31 283 30 102 5 379 5 302
Nedbank Wealth 71 142 66 832 66 917 62 947 4 597 4 393 1 133 1 068
Rest of Africa 37 518 37 487 30 706 31 042 2 833 2 471 702 (810)
Centre 71 831 65 138 53 623 45 178 315 341 (433) (88)
Total 1 043 912 983 314 952 641 894 775 54 795 51 687 13 495 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 chief
operating decisionmaker therefore separately reviews the performance of the group's managed operations and, on this basis,
the total assets are R1 040 667m (2017: R979 994m), total liabilities are R950 406m (2017: R892 919m), revenue is R55 118m (2017:
R52 008m) and headline earnings is R13 119m (2017: R12 762m). ETI forms part of the Nedbank Rest of Africa segment, whose
segmental information on a managed-operations basis include total assets of R34 273m (2017: R34 167m), total liabilities of R28 471m
(2017: R29 186m), revenue of R3 156m (2017: R2 792m) and headline earnings of R326m (2017: R165m).
Headline earnings reconciliation
for the year ended
31 December 31 December 31 December 31 December
2018 2018 2017 2017
(Audited) (Audited) (Audited) (Audited)
Change Rm Rm Rm Rm
(%) Gross Net of taxation Gross Net of taxation
Profit attributable to equity holders of the parent 15,1 13 376 11 621
Non-trading and capital items (28,3) 164 119 224 166
IAS 16 loss on disposal of property and equipment 29 21 47 35
IAS 38 lmpairment of property, equipment and
intangible assets 135 98 163 117
IAS 39 loss on disposal of available-for-sale
financial assets 14 14
14,5 13 495 11 787
Contingent liabilities and commitments
CONTINGENT LIABILITIES AND UNDRAWN FACILITIES
at
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
Guarantees on behalf of clients 29 802 28 402
Letters of credit and discounting transactions 9 654 3 225
Irrevocable unutilised facilities and other 136 381 103 562
175 837 135 189
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 currently be foreseen. None of these matters are material in nature.
COMMITMENTS
Capital expenditure approved by directors
at
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
Contracted 530 463
Not yet contracted 2 811 2 433
3 341 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 year.
Investments in associate companies
at
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
(Restated)
Listed associates(1) 3 245 3 320
Unlisted associates(2) 796 233
4 041 3 553
(1) The group's investment in ETI is recorded under listed associates.
(2) During the year 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-year balances have been restated accordingly
(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 3 245 3 320
Fair value of investment(1) 2 908 3 047
(1) Based on the NAFEX exchange rate.
Cashflow information
for the year ended
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
Acquisition of property and equipment, computer software and development costs and investment
property (4 250) (3 299)
Issue of additional tier 1 capital instruments 750 600
Issue of long-term debt instruments 9 504 7 540
Redemption of long-term debt instruments (5 495) (8 067)
Dividends to ordinary shareholders (6 744) (6 080)
Preference share dividends paid (323) (338)
Additional tier 1 capital instruments interest paid (267) (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
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Cash and cash equivalents 34 791 36 122 34 791 36 122
Other short-term securities 79 362 92 775 24 282 25 193 55 080 67 582
Derivative financial instruments 22 692 29 904 38 22 654 29 903 1
Government and other securities 96 791 49 241 67 824 28 862 25 505 5 173 3 462 15 206
Loans and advances 736 305 710 329 694 124 632 156 159 78 42 022 78 062 33
Other assets 18 507 14 589 12 312 9 619 6 195 4 970
Investment securities(1) 22 404 19 803 18 37 15 930 15 184 6 456 4 582
1 010 852 952 763 833 333 731 952 31 915 10 258 139 148 205 937 6 456 4 616
(1) During the year 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-year balances have been restated accordingly (R3 169m).
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
31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec
2018 2017 2018 2017 2018 2017 2018 2017 2018 2017
(Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited) (Audited)
Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm
Derivative financial instruments 20 003 23 367 8 19 995 23 367
Amounts owed to depositors 825 804 771 584 804 146 693 621 21 658 77 963
Provisions and other liabilities 18 477 21 712 6 614 14 259 11 432 6 983 35 431 435
Investment contract liabilities 20 035 18 134 20 035 18 134
Long-term debt instruments 55 587 51 576 55 587 51 124 452
939 906 886 373 866 347 759 004 11 440 6 983 61 688 119 951 431 435
LEVEL 3 RECONCILIATION
Gains
relating to
investments
in equity
instruments
Gains/ 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 Transfers balance at
1 January year year and issues settlements from level 2 31 December
31 December 2018 (Audited) Rm Rm Rm Rm Rm Rm Rm
FINANCIAL ASSETS
Investment securities 5 017 240 15 2 086 (955) 53 6 456
5 017 240 15 2 086 (955) 53 6 456
FINANCIAL LIABILITIES
Provisions and other liabilities 435 (4) 431
435 (4) – – – – 431
Gains in
non-interest
Opening revenue in Closing
lance at profit for the Purchases Sales and balance at
January year and issues settlements 31 December
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 year 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-year balances have been restated accordingly
(R3 169m).
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
31 December 2018 (Audited) % Rm Rm Rm
FINANCIAL ASSETS
Investment securities Discounted cashflows, Valuation multiples, Between (10) 6 456 851 (670)
adjusted net asset value, correlations, volatilities and and 13
earnings multiples, credit spreads
third-party valuations and
dividend yields
Total financial assets classified as level 3 6 456 851 (670)
FINANCIAL LIABILITIES
Provisions and other liabilities Discounted cashflow, Discount rates, forecasts Between (10)
earnings multiples and 10 (431) (43) 43
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 cashflows Discount rates, Ebitda Between (12) 1 (1) (1)
Derivative financial instruments and 9
Discounted cashflows Credit spreads and discount Between (12) 33 3 (4)
Loans and advances rates and 9
Investment securities(2) Discounted cashflows, Valuation multiples, Between (12) 4 582 428 (538)
adjusted net asset value, correlations, volatilities and and 9
earnings multiples, credit spreads
third-party valuations and
dividend yields
Total financial assets classified as level 3 4 616 431 (542)
(1) Represents amounts less than R1m.
(2) During the year 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-year balances have been restated accordingly (R3 169m).
FINANCIAL LIABILITIES
Provisions and other liabilities Discounted cashflow, Discount rates, forecasts Between (10) (435) (36) 43
earnings multiples and 10
UNREALISED GAINS
The unrealised gains arising on instruments classified as level 3 include the following:
31 December 31 December
2018 2017
(Audited) (Audited)
Rm Rm
Private-equity gains 240 144
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 model Money market rates and interest rates
Adjusted net asset value Underlying price of market-traded instruments
Dividend yield method Dividend growth rates
Liabilities
Derivative financial instruments Discounted-cashflow model Discount rates
Black-Scholes model Risk-free rates and volatilities
Multiple valuation techniques Valuation multiples
Amounts owed to depositors Discounted-cashflow model Discount rates
Provisions and other liabilities Discounted-cashflow model Discount rates
Investment contract liabilities Adjusted net asset value Underlying price of market-traded instruments
Long-term debt instruments Discounted-cashflow model Discount rates
TRANSFERS BETWEEN LEVELS OF THE FAIR-VALUE HIERARCHY (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 year.
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 the financial instruments incorporates the group's best estimate of the value at which the 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
31 December 2018 (Audited)
Financial assets 786 230 773 670 44 554 24 241 704 875
Other short-term securities 24 282 24 241 24 241
Government and other securities 67 824 67 036 44 554 22 482
Loans and advances 694 124 682 393 682 393
Financial liabilities 55 587 56 404 27 944 28 460 –
Long-term debt instruments 55 587 56 404 27 944 28 460
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 year.
LOANS AND ADVANCES
Loans and advances that are not recognised at fair value principally comprise variable-rate financial assets. The interest rates on
these variable-rate financial assets are adjusted when the applicable benchmark interest rate changes.
Loans and advances are not actively traded in most markets and it is therefore not possible to determine the fair value of these
loans and advances using observable market prices and market inputs. Due to the unique characteristics of the loans and advances
portfolio and the fact that there have been no recent transactions involving the disposal of such loans and advances, there is no basis
to determine a price that could be negotiated between market participants in an orderly transaction. The group is not currently in
the position of a forced sale of such underlying loans and advances and it would therefore be inappropriate to value the loans and
advances on a forced-sale basis.
For specifically impaired loans and advances the carrying value, as determined after consideration of the group's 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 are 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 3), 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 variable-rate liabilities and hedge-accounted fixed-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 (UNAUDITED)
Liquidity coverage ratio
Total Total
unweighted weighted
value(1) value(2)
Rm (average) (average)
Total high-quality liquid assets 162 678
Cash outflows
Retail deposits and deposits from small-business clients 185 468 18 368
Stable deposits 3 575 179
Less stable deposits 181 893 18 189
Unsecured wholesale funding 256 029 125 951
Operational deposits (all counterparties) and deposits in institutional networks of cooperative
banks 126 492 31 623
Non-operational deposits (all counterparties) 129 328 94 119
Unsecured debt 209 209
Secured wholesale funding 24 530
Additional requirements 138 173 27 010
Outflows related to derivative exposures and other collateral requirements 3 291 3 291
Credit and liquidity facilities 134 882 23 719
Other contingent funding obligations 167 670 8 601
Total cash outflows 771 870 179 930
Cash inflows
Secured lending (eg reverse repurchase agreements) 7 809 19
Inflows from fully performing exposures 44 250 30 050
Other cash inflows 4 477 4 332
Total cash inflows 56 536 34 401
Total
adjusted
value
Total HQLA 162 678
Total net cash outflows(3) 148 693
Liquidity coverage ratio (%) 109,4%
(1) Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).
(2) Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
(3) Note that total cash outflows less total cash inflows may not be equal to total net cash outflows to the extent that regulatory caps have been applied to cash
inflows as specified by the regulations.
The figures above reflect a simple average of daily observations over the quarter ending December 2018 for Nedbank Limited and
the simple average of the month-end values at 31 October 2018, 30 November 2018 and 31 Decemeber 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
Between
six months
No Six months and one More than Weighted
Rm maturity or less year one year value
Available stable funding (ASF)
Capital 93 221 – – – 93 221
Regulatory capital 89 056 89 056
Other capital instruments 4 165 4 165
Retail deposits and deposits from small-business clients – 229 406 15 833 22 412 243 289
Stable deposits 3 255 1 3 093
Less stable deposits 226 151 15 833 22 411 240 196
Wholesale funding – 453 858 47 804 120 667 326 690
Operational deposits 143 589 71 794
Other wholesale funding 310 269 47 804 120 667 254 896
Other liabilities 10 041 1 706 320 8 382 1 268
Net stable funding ratio (NSFR) derivative liabilities 7 273
All other liabilities and equity not included in the above
categories 10 041 1 706 320 1 109 1 268
Total ASF 664 468
Required stable funding
Total NSFR high-quality liquid assets (HQLA) 14 332
Performing loans and securities – 154 642 72 853 518 264 513 439
Performing loans to financial institutions secured by
level 1 HQLA 8 661 866
Performing loans to financial institutions secured by
non-level 1 HQLA and unsecured performing loans to
financial institutions 41 650 7 314 22 372 32 277
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 91 432 61 108 359 263 379 134
with a risk weight of less than or equal to 35% under the
Basel II Standardised Approach for credit risk 12 548 8 156
Performing residential mortgages, of which 3 480 2 777 130 407 90 337
with a risk weight of less than or equal to 35% under the
Basel II Standardised Approach for credit risk 3 480 2 777 118 185 79 949
Securities that are not in default and do not qualify as
HQLA, including exchange-traded equities 9 419 1 654 6 222 10 825
Other assets 8 340 248 – 49 705 44 188
Assets posted as an initial margin for derivative contracts
and contributions to default funds of central counterparties 248 210
NSFR derivative assets 7 500 227
NSFR derivative liabilities before deduction of variation
margin posted 7 273 727
All other assets not included in the above categories 8 340 34 932 43 024
Off-balance-sheet items 297 093 10 732
Total required stable funding 582 691
NSFR (%) 114,0%
The figures above reflect the quarter ending December 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
12-month ECL An ECL on a default event expected to occur in the 12 months after the reporting date.
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.
Coverage (%) On-balance-sheet impairments divided by gross loans and advances. Coverage excludes ECL on off-balance-sheet
amounts, ECL and gross loans and advances on the FVOCI portfolio, and gross loans and advances classified at FVTPL.
Credit loss ratio (CLR) (% or bps) Impairments charge on loans and advances as a percentage of daily average gross loans and
advances. Includes the ECL recognised in respect of the off-balance-sheet portion of 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.
Forward-looking economic expectations The impact of forecast macroeconomic expectations in determining SICR and the
measurement of the ECL.
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.
Lifetime ECL An ECL on any default event between the reporting date and the end of the lifetime of the financial asset.
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.
Off-balance-sheet exposures Undrawn loan commitments, guarantees and similar arrangements that expose the group to credit risk.
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 (excluding taxation on non-trading and capital
items) 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.
Stage 1 Financial assets without objective evidence of impairment, for which the credit risk (risk of default) at the reporting date has
not significantly increased since initial recognition.
Stage 2 Financial assets without objective evidence of impairment, for which the credit risk (risk of default) at the reporting date has
significantly increased since initial recognition.
Stage 3 Financial assets with objective evidence of impairment.
Tangible net asset value (Rm) Equity attributable to equity holders of the parent, excluding intangible assets.
Tangible net asset value per share (cents) Tangible 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 NAFEX Nigerian Autonomous Foreign Exchange
AIEBA average interest-earning banking assets NAV net asset value
AIRB Advanced Internal Ratings-based NCA National Credit Act, 34 of 2005
AUA assets under administration NCD negotiable certificate of deposit
AUM assets under management NCOF net cash outflows
BBBEE broad-based black economic empowerment NGN Nigerian naira
BEE black economic empowerment NII net interest income
bn billion NIM net interest margin
bps basis point(s) NIR non-interest revenue
CAGR compound annual growth rate NPL non-performing loan(s)
CAR capital adequacy ratio NSFR net stable funding ratio
CET1 common equity tier 1 OM Old Mutual
CIB Corporate and Investment Banking plc public listed company
CLR credit loss ratio POPI protection of personal information
COE cost of equity PPOP preprovisioning operating profit
CPI consumer price index R rand
CPF commercial-property finance RBB Retail and Business Banking
CVP client value proposition Rbn South African rands expressed in billions
DHEPS diluted headline earnings per share REIPPPP Renewable Energy Independent Power Producer
Procurement Programme
D-SIB domestic systematically important bank
Rm South African rands expressed in millions
ECIC Export Credit Insurance Corporation of South Africa
RoA Rest of Africa (cluster name)
ECL expected credit loss
ROA return on total assets
EP economic profit
ROE return on equity
EPS earnings per share
RORWA return on risk-weighted assets
EV embedded value
RRB Retail Relationship Banking
ETI Ecobank Transnational Incorporated
RWA risk-weighted assets
FCTR foreign currency translation reserve
SA South Africa
GDP gross domestic product
SADC Southern African Development Community
GOI gross operating income
SAICA South African Institute of Chartered Accountants
group Nedbank Group Limited
SARB South African Reserve Bank
HE headline earnings
SDGs Sustainability Development Goals
HEPS headline earnings per share
SICR Significant increase in credit risk
HQLA high-quality liquid asset(s)
STI short-term incentive
IAS International Accounting Standard(s)
TTC through the cycle
ICAAP Internal Capital Adequacy Assessment Process
UK United Kingdom
IFRS International Financial Reporting Standard(s)
US United States
ILAAP Internal Liquidity Adequacy Assessment Process
VAF vehicle and asset finance
JIBAR Johannesburg Interbank Agreed Rate
VaR value at risk
JSE JSE Limited
VIU value in use
LAP liquid-asset portfolio
VNB value of new business
LCR liquidity coverage ratio
VWAP volume-weighted average price
LIBOR London Interbank Offered Rate
yoy year on year
LTI long-term incentive
ytd year to date
m million
ZAR South African rand (currency code)
MFC Motor Finance Corporation (vehicle finance lending
division of Nedbank)
MRC minimum required capital
Date: 05/03/2019 07:13:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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