| Wed 7 May 2008, 9:00 | | NED - Nedbank Group - First Quarter 2008 Trading U |
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NED - Nedbank Group - First Quarter 2008 Trading Update
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
(`Nedbank Group` or `the group`)
FIRST QUARTER 2008 TRADING UPDATE
OVERVIEW
At the time of announcing the 2007 financial results in February 2008 the
group cautioned that the deteriorating macroeconomic outlook was likely to
make 2008 significantly more challenging for the South African economy and the
banking sector. The impact of increased interest rates, electricity outages
and fuel and food price inflation, combined with the effects of the global
economic slowdown, has contributed to a less attractive banking market in the
first quarter of 2008, compared with the same period last year.
The results for the first quarter were broadly in line with expectations for
headline earnings. Underlying growth in assets and net interest income (NII)
has remained solid, but impairment levels have now risen above the group`s
through-the-cycle expectations.
Nedbank Corporate recorded good earnings growth. Earnings in both Nedbank
Retail and Imperial Bank slowed as impairment charges continued to increase.
Nedbank Capital experienced a slowdown in certain business lines and, as
expected, lower private-equity earnings.
REVIEW OF RESULTS
NII grew by 21,9% to R3 871 million (Q1 2007: R3 176 million). Net interest
margin reduced as expected from 3,94% for the 2007 year to 3,85% for the
quarter (Q1 2007: 3,89%). Average interest-earning banking assets grew by
22,5% (Q1 2008 compared with Q1 2007). Closing advances balances grew by 24,7%
(annualised) to R396,9 billion since December 2007. Total assets at 31 March
2008 amounted to R534,5 billion, an annualised increase of 37,5% in the
quarter. The higher growth in total assets was largely due to higher
derivatives balances and increased holdings of government stock, as the group
increased its liquidity buffers.
Owing to increased consumer credit stress and also partly due to the higher
cyclical retail impairments always experienced in the first quarter, the
credit loss ratio continued to increase. Retail credit loss ratios are now
above expected through-the-cycle levels, while wholesale credit loss ratios
remain below expected through-the-cycle levels, aided by further recoveries.
Following the 50 basis points increase in interest rates in April 2008, we
currently anticipate that the group`s credit loss ratio for the year is now
likely to move above our medium- to long-term target range of between 0,55%
and 0,85%.
Non-interest revenue (NIR) for the period increased by 0,7% to R2 289 million
(Q1 2007: R2 273 million). Within NIR, commission and fee income continued to
grow and trading income improved from the low level reported in the first
quarter in 2007, remaining, however, below original expectations. In total, no
material fair-value gains were recorded on the private equity books, as
property valuations in Nedbank Corporate reduced in line with market
benchmarks, offsetting small gains in the Nedbank Capital portfolio. No
commission income was recorded in NIR from Bond Choice as the company ceased
to be a subsidiary of the group on 1 January 2008. Excluding Bond Choice`s
commission and sundry income, NIR grew by 6,1% on a like-for-like basis.
By introducing a BEE shareholding into Bond Choice, the group reduced its
investment in Bond Choice from 62% to 28,5%. This was effected through the
sale of 26,5% to Kapela Investment Holdings (Kapela) and 7% to an employee
trust for a total of R68,75 million. The sale to Kapela resulted in a capital
profit included as a non-headline item of R13,4 million after tax. The
classification of the remaining investment as an associate will significantly
improve the group`s efficiency ratio.
Expenses continue to be well-managed and have been contained below budgeted
levels in response to the more challenging macroenvironment. The group`s
efficiency ratio improved further on that reported at the year-end as expenses
grew more slowly than income.
During the period the group recorded a profit from non-trading and capital
items, mostly attributable to the profit on the sale of Visa shares from the
Visa initial public offering (IPO). Nedbank Group received 1 689 500 Visa `C
Class` shares as part of the IPO. In terms of the IPO the group redeemed
56,19% of its holding at $42,77 per share on 28 March 2008. The profit on
disposal of these shares was R281 million after tax, and was accounted for as
a non-headline item. The remaining Visa shares, which are currently valued at
R261,7 million, are designated as an available-for-sale financial asset on the
balance sheet and are subject to a lockup period. The shares are revalued
quarterly, with any revaluation movement recorded directly in equity (R225
million after taxation for the period).
The profit from non-trading and capital items, together with headline
earnings, increased the group`s Tier 1 capital ratios. The group`s Tier 1
capital adequacy ratio improved from 8,0% in December 2007 to 8,2% in March
2008 and the total capital adequacy from 11,2% to 11,4%.
DIVISIONAL TRADING
Nedbank Corporate grew average advances by 15,3% (Q1 2008 compared with Q1
2007) and maintained a low credit loss ratio. NIR growth was negatively
impacted by valuation writedowns on the property private-equity portfolio in
line with market movements and the continued migration by clients from cheque
payments to electronic payments at lower fees. Expenses remain controlled,
with the cluster reporting good headline earnings growth for the quarter.
Nedbank Capital showed strong NII growth and trading income improved over
2007, although trading conditions remain challenging. After strong private-
equity earnings in 2007 the cluster showed lower earnings from this portfolio
in 2008 in line with the reduction in overall market levels. Expenses on a
like-for-like basis, excluding Macquarie Alliance management fee recoveries
included in 2007, reduced slightly.
Nedbank Retail continued to show above-budget average advances growth of 22,7%
(Q1 2008 compared with Q1 2007), but asset growth is slowing, as reflected in
the closing balance of advances, which has grown by 16,6% (annualised) since
December 2007. NII and NIR growth remained solid. Expense growth was contained
below budgeted levels. The key factors impacting growth in earnings were the
increase in impairments, which were above budgeted levels for the first
quarter, and the 2007 base effect from Nedbank`s share of a once-off profit on
the sale of JSE Limited shares during the first quarter of 2007 by the BoE
Private Clients joint venture, which amounted to R65 million.
Imperial Bank`s earnings reduced, with NII and NIR growth being offset by
increases in impairments, particularly in the motor vehicle financing
business, and an increased tax rate following utilisation of previous taxation
losses.
PROSPECTS
Although earnings growth has slowed in 2008, this was not unexpected. The
environment is, however, becoming increasingly challenging. The further
interest rate rise in April, together with the effects of electricity outages
and the continued increases in the cost of basic commodities, including fuel
and food, will increase pressure on clients` disposable income, which will
further compound levels of credit stress, particularly in the retail advances
portfolios. Further interest rate increases, should they occur, will add to
consumer and business credit stress.
These pressures on the economy, together with heightened market volatility,
have increased forecast risk. The group still expects to show positive
earnings growth for the first half of 2008, but growth is expected to be at
lower levels than originally anticipated.
The above information has not been reviewed or reported on by the group`s
auditors.
CHANGE IN REPORTING FORMAT
To align with the reporting requirements of our parent company, Old Mutual
plc, which is listed on the London Stock Exchange, this trading update has
been prepared using a similar format to that adopted by companies listed on
the London Stock Exchange. Following Old Mutual`s delisting from the Stockholm
Stock Exchange in September 2007, the requirement for full quarterly reporting
by Old Mutual and its subsidiaries has fallen away.
FORWARD-LOOKING STATEMENT
This announcement contains certain forward-looking statements with respect to
the financial condition and results of operations of Nedbank Group and its
group companies, which by their nature involve risk and uncertainty because
they relate to events and depend on circumstances that may occur in the
future. Factors that could cause actual results to differ materially from
those in the forward-looking statements include, but are not limited to,
global, national and regional economic conditions, levels of securities
markets, interest rates, credit or other risks of lending and investment
activities, together with competitive and regulatory factors.
Sandton
7 May 2008
For further information kindly contact
Tier 1 Investor Relations
Tel: +27 (0)21 702 3102
Sponsors
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Date: 07/05/2008 09:00:01 Produced by the JSE SENS Department.
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