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RESULTS: Nedbank


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Johannesburg, Feb 28 (I-Net Bridge) - Nedbank Group (NED) boosted headline earnings by 14.6% to 4.9 billion rand for the year ended December 2010.

This translated into diluted headline earnings per share of 1,069 cents, which was an 8.7% increase on the 983 cents earned the previous year.

The group declared a full year dividend of 480 cents per share, which represented an increase of 9.1%.

The group recorded strong non-interest revenue (NIR) growth of 11% to 13.2 billion rand, with net interest income up 1.9% to 16.6 billion rand. The credit loss ratio on the banking book improved to 1.36%, with the reduction in impairments driven mostly by Nedbank Retail.

Commenting on the results, Nedbank group CEO Mike Brown said: "2010 saw our headline earnings grow for the first time since 2007, ending the year marginally above our expectations as set out in the third-quarter trading update. Earnings momentum built during the year, with earnings in the second half up strongly on the first half.

"These results were driven by improving economic conditions and the group's strategic focus on growing non-interest revenue (NIR). Our wholesale businesses remained resilient and the performance of Nedbank Retail improved as impairments decreased and we began to realise the benefits of the Imperial Bank acquisition. Nedbank Wealth grew strongly following the integration of the former joint ventures and pleasing growth in new business.

"While the global economic recovery remains fragile, we believe the worst of the cycle is behind us and expect continued earnings growth in 2011."

The group maintained its well-capitalised balance sheet with core Tier 1 capital at 10.1% (2009: 9.9%), while advances grew by 5.5%, with market share gains in most lending classes aside from home loans.

The net asset value per share grew by 8% from 9,100 cents in December 2009 to 9,831 cents in December 2010. "This is a pleasing result given the increase in the average number of shares in issue following the acquisition of the joint ventures from Old Mutual and scrip dividend distributions last year," the group stated.

The business clusters delivered strong NIR growth, improved impairments and contained costs below original forecasts given to the market through continued cost discipline and optimisation, while expanding the group's footprint.

The banking clusters' results were impacted by increased allocation of central costs and negative endowment earnings from average interest rates that were 198 basis points lower when compared with 2009. The capital optimisation exercises in Nedbank Retail and Nedbank Business Banking continued and resulted in more efficient use of capital, while the lower levels of capital used resulted in lower endowment-related interest revenue in these clusters.

Nedbank Retail reported an encouraging improvement in impairments, particularly in home loans. Impairments improved in most other businesses, with Nedbank Corporate, Nedbank Wealth and Nedbank Business Banking again recording credit loss ratios within or below through-the-cycle target ranges. Nedbank Capital incurred a higher level of impairments in shareholders' loans in its private equity portfolio.

The businesses generated strong growth in core fee and commission income, driven primarily by volume growth, new primary clients and a number of innovative products focused on growing NIR. Nedbank Capital recorded improved trading income, particularly in the equity businesses. Nedbank Wealth's earnings benefited from the integration of the former joint ventures and strong growth in new business, particularly in the insurance and asset management businesses.

Nedbank Retail delivered a turnaround in performance, with headline earnings increasing from a R27 million loss to a R760 million profit and ROE growing to 4.6% (2009: -0.2%). Improved earnings were achieved following the acquisition of the Motor Finance Corporation business from Imperial Bank and through outperformance in the card and personal loans businesses, good quality growth in transactional clients, improved risk-based pricing and lower impairment levels following a step change improvement in collections, asset realisations and restructured loans. This stabilisation of Retail, combined with the repositioning of the cluster to an integrated and client-centred business, should contribute to a sustainable momentum in earnings growth, according to Nedbank.

The wholesale businesses and Nedbank Wealth recorded strong ROEs and Nedbank Retail much improved earnings.

Looking ahead, Nedbank said it was is well placed for earnings growth in 2011 and remained on track to meet its medium- to long-term financial targets in 2013.

"The group will continue to invest to generate sustainable revenue growth, underpinned by ongoing cost optimisation and efficiency improvements. Growing the bank's overall franchise and maintaining momentum on the turnaround in the Retail Cluster, supported by a liquid and well-capitalised balance sheet, are key to delivering sustainable growth.

"Margins should widen slightly, given that interest rates are expected to remain unchanged, and hence the negative effect of assets repricing quicker than liabilities out to three months will decrease. In addition, the cost of term liquidity is expected to decline as more expensive deposits mature and as below- trend economic growth continues, albeit at higher levels than last year. Overall advances growth is expected to be in the mid to upper single digits.

"Impairments are expected to continue reducing in line with the improved quality of assets supported by asset pricing on new advances that appropriately reflects risk and the related cost of funds. The credit loss ratio is currently expected to decrease but to remain above the group's target range in 2011.

"Transactional volumes are expected to increase as the economy improves and the group's focus on growing primary clients is maintained," Nedbank added.


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