| Tue 4 Nov 2008, 11:19 | | NED - Nedbank Group - Third Quarter 2008 Trading Update |
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NED
NED
NED - Nedbank Group - Third 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`)
NEDBANK GROUP - THIRD QUARTER 2008 TRADING UPDATE
`In an environment of unprecedented challenges for financial services
businesses globally, Nedbank Group remained solidly profitable in the third
quarter, although earnings growth rates have slowed. Liquidity remains sound
and capital levels are at the top end of our target ranges. While our retail
businesses continue to experience cyclical impairment increases and
investment banking revenues are slowing, our corporate businesses have
continued to perform well.`
Tom Boardman
Chief Executive
ECONOMIC OVERVIEW
The global financial crisis is leading to a significant slowdown in growth in
first-world economies and this is having a knock on effect on emerging-market
economies like South Africa. The recent decline in world commodity prices
will also have an adverse impact on the South African economy.
The local economic environment continued to deteriorate during the third
quarter of 2008, particularly on the consumer front. The prime lending rate
remained unchanged, but longer-term interest rates fell by approximately 2%
over the quarter. Food prices have started to stabilise and, importantly, the
oil price declined. These are hopefully leading indicators that inflation has
reached its peak and will start to decline into early 2009. This is currently
expected to result in the prime interest rate decreasing during 2009.
However, the volatility and rapid deterioration in the value of the rand
against major currencies in recent weeks could impact negatively on this
inflation and interest rate outlook.
Throughout the period rand liquidity in South Africa has remained stable,
with the interbank market operating normally. Banks in South Africa have
therefore been able to finance new assets in the normal course of business.
Nedbank has no direct exposure to the foreign subprime market or any of the
related derivative instruments. Nedbank has strong retail, business and
corporate banking deposit franchises that performed well during the quarter
and liquidity remained sound.
REVIEW OF RESULTS
Net interest income grew by 17,3% to R12 069 million (Q3 2007: R10 288
million). The net interest margin reduced from 3,83% at June 2008 to 3,75%
for the quarter ended September 2008 (Q3 2007: 3,94%), reflecting the higher
cost of term funding together with changes to the asset mix. Asset pricing
continues to be a key focus for improving margins, with higher margins being
generated on new assets. This, however, will take some time to filter through
to the overall margin.
The group`s impairment charge increased by 88,8% (June 2008: 86,4%) from R1
646 million for the period to September 2007 to R3 107 million in the period
to September 2008. The credit loss ratio deteriorated from 0,96% in June 2008
to 1,02% at the end of September 2008. Retail credit loss ratios have
worsened since June and remain above expected through-the-cycle levels
largely as a result of continued increases in defaulted advances in the Home
Loan and Vehicle and Asset Finance Divisions. Wholesale banking credit loss
ratios remain below expected through-the-cycle levels, although the credit
loss ratio in Business Banking has increased marginally as expected. No large
defaults were experienced in the quarter. While the group`s credit loss ratio
is anticipated to remain above the medium- to long-term target range of
between 0,55% and 0,85% for both 2008 and 2009, the credit loss ratio
compares well with that of the group`s South African banking peers.
Non-interest revenue (NIR), excluding Bond Choice`s commission and sundry
income from the 2007 base, grew by 0,9% on a like-for-like basis. Total NIR
(including Bond Choice in the 2007 base) for the period decreased by 5,0% to
R7 141 million (Q3 2007: R7 519 million). Increases in commission and fee
income of 13,2% (excluding Bond Choice) were offset by lower trading and
private equity income in Nedbank Capital as unrealised gains in historic
private equity investments and equity profit sharing arrangements reduced in
line with market benchmarks.
The group`s efficiency ratio improved to 52,5% for the quarter, compared with
the 54,6% reported for September 2007. This is above the 51,5% reported at
June 2008, owing largely to slower NIR growth in the third quarter. Good cost
discipline across the businesses made it possible to keep expenses below
budgeted levels, resulting in the group maintaining a positive `jaws` ratio
of 4,1% (3,0%, excluding Bond Choice) for the year to date.
Total assets increased by an annualised 20,3% to R563 billion at 30 September
2008 (Q3 2007: 20,6%). Advances were 19,1% (annualised) higher at R427,3
billion, largely resulting from growth in term loans. Growth in average
interest-earning banking assets slowed to 23,1% (Q3 2007: 30,7%). Advances
growth is expected to continue slowing, particularly in retail and business
banking asset classes. Corporate Banking advances growth remains resilient.
Deposits have grown by a strong 27,9% (annualised) to R465,0 billion since
December 2007, exceeding the growth in advances.
Income after taxation from non-trading and capital items increased from R37
million in September 2007 to R634 million for the nine-month period. The main
contributions have been the R622 million after-tax profit on the sale of Visa
shares and the R13 million profit on the sale of 36,5% in Bond Choice, both
of which were reported at the interim stage.
Capital adequacy ratios are robust and have continued to increase in line
with the group`s conservative stance in the current environment. The group`s
Tier 1 capital adequacy ratio increased from 8,0% in December 2007 to 8,8% in
September 2008 and the total capital adequacy increased from 11,2% to 11,7%.
These ratios are close to the top end of the group`s current target ranges of
8% to 9% for the Tier 1 capital adequacy ratio and 11% to 12% for the total
capital adequacy ratio.
Recent international developments have again highlighted that the appropriate
level of capital for a bank is a function of its individual risk appetite and
existing risk profile, including the proportion of fair-value assets in the
overall portfolio. The group has low levels of lending assets that are
subject to the volatility of fair-value accounting, and current capital
levels are considered appropriate in the context of our risk appetite, stress
and scenario testing, and not holding excess capital for acquisitions.
RATINGS
On 11 July 2008 Fitch Ratings reaffirmed the ratings of Nedbank Group and
Nedbank Limited and on 6 October 2008 the ratings of Imperial Bank Limited
were also reaffirmed.
GROUP FOCUS
In these challenging times the group continued to focus on appropriate
balance sheet positioning and the application of risk-based measurement
techniques in seeking to optimise economic profit. The group is currently
taking a conservative stance rather than seeking to maximise short-term
profitability that could hamper longer-term sustainability, and is
concentrating on:
- managing impairments through focusing on collections and refining credit
assessment policies;
- increasing liquidity buffers by focusing on liability growth and
maintaining our strong depositor franchise;
- slowing advances growth with increased focus on economic value;
- keeping balance sheet leverage at levels well below the average of
global banks and increasing capital adequacy levels towards the top end of
the group`s target ranges;
- transactional income and growth of primary clients;
- cross-selling;
- sound cost management; and
- remaining agile and alert to opportunities that volatile markets will
present to stronger domestically focused franchises.
PROSPECTS
The economic environment remains uncertain. Pressures on the domestic
economy, together with heightened market volatility, global uncertainty and
the potential for an extended global recession, increase forecast risk.
Increasing impairments and reducing transaction volumes continue to affect
earnings growth negatively in Nedbank Retail and Imperial Bank and investment
banking revenues have slowed in Nedbank Capital. Growth in Nedbank
Corporate`s earnings remains solid, although impacted by lower levels of
property private equity earnings as anticipated.
The group currently expects headline earnings for the full year to 31
December 2008 to be at similar levels to or slightly lower than those of
2007. Basic earnings for the full year are currently expected to be slightly
higher than those of 2007.
CHIEF EXECUTIVE OFFICER SUCCESSION
Given the strong and stable position of the bank against the background of
the current volatile market conditions, the board considers it prudent to
delay the process relating to the succession of Chief Executive Officer, Tom
Boardman, whose contract only expires in February 2010 as previously
announced.
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 or may not 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; as well as competitive and regulatory factors.
The financial information contained in this announcement has not been
reviewed or reported on by the group`s auditors.
Sandton
4 November 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: 04/11/2008 11:19:01 Produced by the JSE SENS Department.
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