To view the PDF file, sign up for a MySharenet subscription.

NEDBANK GROUP LIMITED - Nedbank Group pre-close investor update and updated trading statement for the twelve-month period ending 31 Dec 2021

Release Date: 06/12/2021 08:30
Wrap Text
Nedbank Group pre-close investor update and updated trading statement for the twelve-month period ending 31 Dec 2021

Nedbank Group Limited                                   Nedbank Limited
(Incorporated in the Republic of South Africa)        (Incorporated in the Republic of South Africa)
Registration number: 1966/010630/06                      Registration No. 1951/000009/06
JSE share code: NED                                     JSE share code: NBKP
NSX share code: NBK                                      ISIN: ZAE000043667
ISIN: ZAE000004875                                      JSE alpha code: BINBK
JSE alpha code: NEDI                                    (‘Nedbank’)
(‘Nedbank Group’)
(collectively the ‘group’)

NEDBANK GROUP PRE-CLOSE INVESTOR UPDATE AND UPDATED TRADING STATEMENT
FOR THE TWELVE-MONTH PERIOD ENDING 31 DECEMBER 2021

Operating conditions for Nedbank and our clients continue to improve. High frequency data from our
point of sale devices and card-related digital channels to the end of November 2021 reflects good growth
in total turnover into the second half of 2021 and overall levels are back above pre-Covid levels.
Turnover in all of the key underlying industry sectors is also now above March 2020 levels, including
those sectors most impacted by the various levels of Covid-19 related lockdowns such as hotels/lodging
and airlines, although turnover in these two industries still remain below 2019 levels.

The civil unrest in KwaZulu-Natal and parts of Gauteng in July 2021 resulted in significant damage to
property and temporary interruptions to supply chains, although almost all Nedbank clients who were
impacted were covered by SASRIA insurance. The uncertainty following this unrest and slow progress
with the arrests of the organisers are weighing on businesses’ willingness to invest for the longer term
as evident in the Bureau of Economic Research’s business confidence index declining to 43 in both Q3
2021 and Q4 2021 (from 50 in Q2 2021). Household borrowings continue to benefit from the low interest
rate environment. Industry wide credit growth to September 2021 reflects solid retail credit demand,
while corporate credit growth remains weak and levels of repayment remain high.

In November 2021, the Nedbank Group Economic Unit revised its SA GDP growth forecast for 2021 to
5,1%, up from 4,2% as disclosed in our results for the six months to 30 June 2021 (‘H1 2021’). This
stronger economic growth in 2021 continues to reflect the low base of 2020, benefits from a surge in
global commodity prices and stronger global demand. After growing by 7,5% in H1 2021, GDP growth
is expected to slow by the end of the second half of 2021 (‘H2 2021') as a result of the impacts of tighter
lockdowns relating to the third wave of Covid-19 infections, the July unrests, softer commodity prices
and ongoing energy supply constraints. On 18 November 2021, the SARB Monetary Policy Committee
increased the repo rate by 25 bps to 3,75% as a result of increased risks to inflation. Our latest forecast
is for SA interest rates to increase by a further four increments of 25 bps throughout 2022 and by a
further 50 bps in both 2023 and 2024. Industry credit growth for 2021 is expected to be around 3,2%.
An emerging fourth wave of Covid-19 infections in SA, particularly the impact of the new Omicron variant
and ongoing global and domestic reactions thereto, pose downside risks towards the end of 2021 and
into 2022. Currently data on the Omicron variant is limited and points to higher infection rates but mild
severity and the next few weeks will be important as more data emerges.

Pre-close investor update
Commentary on the group’s financial performance in this pre-close investor update reflects the
performance of the group to 31 October 2021 (‘10M 2021’ or ‘the period’), compared to the prior period
(‘10M 2020’), and highlights expected trends through to the end of 2021.

Banking loans and advances declined by low single digits over the period, an improvement from the 7%
decline reported for H1 2021. Gross banking loans and advances in Nedbank Corporate and Investment
Banking (CIB) have increased by low single digits from the 30 June 2021 levels following a yoy decline
of 19% in H1 2021. Although corporate SA remains cautious on committing to longer-term investment,
this is a pleasing improvement on the H1 2021 trend and is in line with our expectations. The growth
momentum in Nedbank Retail and Business Banking (RBB) gross loans and advances over the period
was sustained at levels similar to the 7% growth reported in H1 2021, as clients continued to benefit
from the lower interest rate environment and use of our innovative digital channels. Retail loans and
advances growth was across personal loans, overdrafts, credit cards, home loans and vehicle finance.

Net interest income (NII) growth for the period increased by more than the 6% growth reported for H1
2021 and is slightly above the top end of our full year 2021 guidance of growth in NII of between 5%
and 7%. This increase was driven by the group’s net interest margin (NIM) increasing to slightly above
the 368 bps reported in H1 2021 largely as a result of higher levels of endowment (on higher levels of
capital and transactional deposits) as well as improved asset pricing and positive asset mix changes.
Growth in NII for the twelve-month period ending 31 December 2021 (‘FY 2021’) is expected to be at or
above the top end of the 5% to 7% guidance we provided.

Impairments continued to decline during the period and the group’s credit loss ratio (CLR) was within
the lower half of our 2021 full year guidance range of between 80 bps to 110 bps, and is expected to
end the year at a similar level.
-   The CIB CLR was within its through-the-cycle (TTC) target range of 15 bps to 45 bps, supported by
    the commercial property advances portfolio that continues to perform well and ahead of
    expectations. The SARB Directive 3/2020 (payment relief) loan portfolio reduced further to R5,2bn,
    mainly in the hospitality and consumer goods sectors (H1 2021: R9,5bn).
-   The RBB CLR was at the lower end of its TTC target range of 130 bps to 180 bps, reflecting the
    benefit of lower interest rates, a good collections experience as well as once off benefits in H1 2021
    relating to restructured SARB Directive D7 loans exiting their monitoring period. Some of the Covid-
    19-related overlays raised in 2020 have been released as the inherent risks that were provided for
    have now emerged in the new underlying IFRS models. There are no more residual SARB Directive
    3/2020 loans in the RBB portfolio.
-   The Nedbank Wealth and Nedbank Africa Regions’ CLRs were both below their TTC target ranges
    of 20 bps to 40 bps and 75 bps to 100 bps, respectively.

Non-interest revenue (NIR) growth for the period was positive and in line with our expectations, with
growth levels into the second half improving compared to the decline of 3% reported in H1 2021.
Excluding macro fair-value hedge accounting (MFVHA) losses, NIR growth for the period was high-
single digits.
-   Commission and fees in the period increased by similar levels to the 5% growth reported in H1 2021,
    reflecting the ongoing improvement in client transactional activity, as well as the benefits of higher
    levels of cross-sell and main-banked client gains. In the 2021 Consulta annual consumer main-
    banked client survey, released in November 2021, Nedbank was the only large universal bank to
    have increased its market share (Nedbank’s main banked market share was up 1,2% to 12,4%). In
    CIB, client activity continues to improve and the cluster recorded 30 primary client wins that will
    support growth into the future.
-   Insurance income continued to grow strongly, benefitting from strategic actions in H1 2021, good
    market performance as well as lower non-life retrenchment and loss of income claims which have
    helped to absorb the increase in death and funeral claims as a result of the second and third Covid-
    19 waves.
-   Trading income remained robust but declined on the prior period, given the high base as a result of
    volatile market conditions in the six months to 30 June 2020 (‘H1 2020’). The decline in trading
    income for the period was less than the 27% decline reported at H1 2021.
-   Equity revaluations continued to benefit from positive revaluations in 2021 due to the recovery in
    SA economic conditions and markets, compared to negative revaluations in the prior period.
-   Fair-value adjustments including accounting mismatches from the group’s MFVHA solution
    remained negative.

We expect NIR growth, including MFVHA, for the full year to be at or below the lower end of our full year
2021 guidance range of an increase of between 2% and 5%. Excluding MFVHA, NIR growth for FY
2021 is expected to be mid to upper single digits.

Expenses continued to be well managed in response to the more challenging environment and growth
for the period was within our full year 2021 guidance of between 6% and 8%. The increase in expenses
continues to be driven by improved levels of profitability resulting in higher incentive-related costs, early
double-digit growth in IT related investments, as well as the impact of marketing expenses normalising
off a low 2020 base. We expect expense growth for the full year to be at or below the bottom end of our
guidance of 6% to 8%.

Associate income of R669m, relating to Nedbank Group’s 21% shareholding in ETI, for FY 2021 (2020:
R178m loss), has been recognised, subject to final Q4 2021 foreign exchange rates. This reflects
associate income from our share of ETI’s Q4 2020 and unaudited 9M 2021 attributable profits (a quarter
in arrear) of US$46m. Pleasingly the ETI share price is up 39% year to date.

The group’s effective tax rate for FY 2021 is expected to be between 24% and 25%.

Headline earnings for 10M 2021 increased by more than 100% on the comparative period and the
group’s ROE remained at low double-digits. Pre-provisioning operating profit growth was positive
(compared to a 2% decline reported at H1 2021) and was up early double digits when excluding the
MFVHA impact. The JAWS ratio improved from the -3,9% reported in H1 2021, and although it is likely
to be slightly negative for FY 2021, it is expected to be positive in H2 2021. JAWS excluding MFVHA
was positive in H1 2021 and is expected to be positive for FY 2021.

At 30 September 2021, Nedbank Group reported strong capital and liquidity ratios. The group CET1
capital adequacy ratio of 12,3% was slightly above the 12,2% reported at 30 June 2021 and above the
group’s board-approved target range of 10% to 12%, reflective of strong organic capital generation and
after accounting for the impact of the group’s 2021 interim dividend. The group’s LCR and NSFR ratios
were 128% and 118% respectively, both significantly above the minimum regulatory requirements of
80% and 100% for these metrics. The group’s final 2021 dividend is expected to be declared at a
dividend cover within the board-approved target range of 1,75 times to 2,25 times.

Updated trading statement for Nedbank Group
As noted in our H1 2021 disclosures, full-year HEPS and basic EPS were expected to increase by more
than 20% (HEPS greater than 1351 cents and basic EPS greater than 860 cents) when compared with
those in the 12-month period ended 31 December 2020 (HEPS: 1126 cents, basic EPS: 717 cents). We
now expect full-year HEPS to increase by more than 90% (HEPS greater than 2139 cents) and basic
EPS by more than 180% (basic EPS greater than 2008 cents) when compared with those in the 12-
month period ended 31 December 2020 as noted above. Risk to our guidance includes a significantly
more severe fourth wave of Covid-19 and consequential lockdowns than currently expected. A further
trading statement will be issued in Q1 2022 to provide more specific guidance when there is reasonable
certainty about the extent of the increases and the relevant HEPS and basic EPS ranges.

Nedbank Group will enter its closed period on 1 January 2022 and we currently expect to release our
results for the year ended 31 December 2021 on the JSE Stock Exchange News Service (SENS) around
9 March 2022.

Nedbank Group Chief Executive, Mike Brown, noted: ‘Despite the challenging environment I am very
pleased with the group’s performance to date. We continue to support our staff, clients and stakeholders
during these difficult times and wish to thank them for their loyalty.’

Old Mutual unbundling announced on 23 June 2021 concluded
During November 2021, Old Mutual Limited unbundled 62,1 million Nedbank Group ordinary shares,
comprising 12,2% of the issued ordinary share capital of Nedbank Group to Old Mutual shareholders by
way of a dividend in specie. This concludes the unbundling that was announced on 23 June 2021. Old
Mutual Life Assurance Company (South Africa) continues to hold c.7,2% of the Nedbank Group ordinary
shares in issue.

Investor call
Our Nedbank CFO, Mike Davis, will host a pre-close investor call based on this release at 17:15 (SA-
time) on Monday, 6 December 2021. Please contact NedgroupIR@nedbank.co.za for the details of this
meeting.

Shareholders are advised that the financial information contained in this pre-close announcement,
trading statement and investor call has not been reviewed or reported on by the group´s joint auditors.

Sandton
6 December 2021

Enquiries
Nedbank Group Investor Relations:
Email: NedgroupIR@nedbank.co.za
Alfred Visagie (Head: Investor Relations)
Email: Alfredv@nedbank.co.za

Sponsors
Sponsors to Nedbank Group in South Africa:
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Merrill Lynch South Africa (Pty) Ltd

Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd

Sponsors to Nedbank Limited in South Africa:
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
Investec Bank Limited

Date: 06-12-2021 08:30:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story