Nedbank delivers an excellent H1 2022 performance

• Headline earnings increased by 27% to R6,7bn.
• RoE increased to 13,6% and cost to income ratio improved to 56,2%
• Capital and liquidity ratios robust with common equity tier 1 (CET1) ratio of 13,5% (Dec 2021: 12,8%), tier 1 capital ratio of 15,1% (Dec 2021: 14,3%), average second-quarter liquidity coverage ratio (LCR) of 144% (Dec 2021: 128%)
• Interim dividend declared of 783 cents per share, up 81%.

Johannesburg - Nedbank Group has today announced the delivery of what it has called "an excellent financial performance" for the six months ended 30 June 2022. The group said its headline earnings increased by 27% to R6,7bn, driven by strong revenue growth, a flat credit loss ratio, an improved performance from associate ETI, and a well managed expense base.

Nedbank Chief Executive, Mike Brown said the group's performance in the first half of 2022 reflects improvements across all key metrics in a complex and difficult operating environment. "The group’s return on equity (ROE) increased to 13,6% (June 2021: 11,7%), and all frontline business units generated ROEs above the group’s cost of equity."

The banking group said its balance sheet remained very strong, with CET1 and tier 1 capital ratios of 13,5% and 15,1% having respectively increased from the 31 December 2021 levels and remaining well above South African Reserve Bank's (SARB) minimum regulatory requirements. The average Liquidity Coverage Ratio (LCR) for the second quarter of 144% and a Net Stable Funding Ratio (NSFR) of 119% were well above the 100% regulatory minimums.

"On the back of strong earnings growth and robust capital and liquidity positions, the group declared an interim dividend of 783 cents, up by 81% year on year and back above the 2019 pre-Covid-19 interim dividend," Brown said.

Good strategic progress

During the past six months, Nedbank said it continued to make good progress on its strategic value drivers of growth, productivity and risk and capital management. Growth trends across net interest income (NII) (+9%), non interest revenue (NIR) (+13%) and gross advances (+7%) improved from the Covid-19 pandemic lows, supported by main-banked client gains across business clusters and strong growth in digital activity, it said, adding that levels of productivity improved, evident in the cost-to-income ratio declining to 56,2% (from 58,5% in H1 2021) and a 17% increase in preprovisioning operating profit.

It explaied that its Managed Evolution technology strategy has reached 89% completion of the IT build, enabling continued double-digit growth in client digital metrics, and these initiatives helped to increase its number of digitally active retail clients in SA by 10% to 2,4 million (H1 2021: 2,3 million) and by 60% since H1 2019. This now represents 67% of main-banked clients (H1 2021: 61% and H1 2019: 47%).

The banking Group said client satisfaction scores are at the top end of the SA banking peer group, levels of cross-sell are increasing and cumulative Target Operating Model programme (TOM 2.0) cost savings of R1,2bn are ahead of target, adding that it continues to create positive impacts and remains committed to its market-leading Energy Policy as evidenced in renewable-energy lending exposures of R28bn, strong lending pipelines related to the Sustainable Development Goals (SDGs) and retaining our top-tier environmental, social and governance (ESG) ratings.

"Our efforts in sustainability and ESG matters were externally recognised, including through Nedbank winning the Best Corporate ESG Strategy South Africa Award at the prestigious Global Banking and Finance Awards 2022," Brown said, "I believe that our focus on leading in renewable energy will be a multi-year growth opportunity for Nedbank."

"I would like to thank Nedbank employees for their commitment to delivering value to our clients and the economies in which we operate in line with our purpose of using our financial expertise to do good. As we continue to reintegrate increasing numbers of employees into the office in a phased manner, we look forward to reinforcing our strong Nedbank culture and reconnecting safely as one Nedbank," Brown said.

Outlook

Looking forward, Nedbank expects SA’s GDP to increase by 1,8% in 2022; interest rates to increase by a further 75 bps, taking the repo rate to 6,25% and the prime lending rate to 9,75% by the end of the year. Inflation is expected to peak in Q3 at around 7,8% and average 6,8% for 2022.

Early in the year South Africa’s (SA’s) economy continued to gather momentum off the back of favourable terms of trade, resulting in strong seasonally adjusted gross domestic product (GDP) growth of 1,9% quarter on quarter (qoq) in Q1 2022. However, considering the challenges that emerged more strongly in the second quarter, Nedbank expects SA GDP to contract by 1,2% qoq in Q2 2022.

"SA’s economy is likely to return to growth in the second half of the year as activity normalises from the floods and extreme power outages of the second quarter. The recovery is likely to be muted, contained by softer growth in consumer spending, government expenditure and fixed investment. While fixed investment will be propped up by an increase in renewable-energy projects, the upside for consumer spending will be capped by the acceleration in inflation and the faster rise in interest rates. At the same time, exports are likely to be stunted by weaker global growth, some easing in export prices, persistent load-shedding and logistical constraints," Brown said.

"A continuation of the good strategic and operational delivery, as evidenced in the first half of 2022, should support ongoing earnings growth for Nedbank in the full-year 2022 and a year-on-year increase in ROE and a reduction in the cost to income ratio," Brown said.