| Thu 7 May 2009, 8:00 | | NED - Nedbank Group Limited - First Quarter 2009 Trading Update |
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NED
NED
NED - Nedbank Group Limited - First Quarter 2009 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 - FIRST QUARTER 2009 TRADING UPDATE
ECONOMIC OVERVIEW
South African banks continue to be profitable, well capitalised and liquid
resulting in the banking system remaining stable and performing better than
many developed markets.
On the back of the global slowdown, domestic economic conditions continued to
weaken in the first quarter of 2009. As a result, the group`s outlook for
gross domestic product growth (GDP) has reduced from 0,4% at the time of
releasing the 2008 results, to the current view that there will be a marginal
decline in 2009 GDP.
The slowing economy combined with rising unemployment and falling house prices
has resulted in slower growth in lending and transactional volumes and
continued pressure on asset quality. Household demand for credit continues to
reduce, reflecting the slower economic conditions and the effects of tighter
lending criteria. Corporate demand for credit also reduced in the first
quarter as a result of growing conservatism amongst wholesale customers and
reduced fixed investment plans in response to the deteriorating economic
outlook.
However, on a relative basis the South African economy remains in a stronger
position than many developed countries as:
- The fiscal authorities have remained disciplined and still
have room to reduce interest rates to stimulate growth.
Household demand should gradually begin to respond to lower
interest rates and more manageable debt levels;
- The country will receive an economic boost from the FIFA
World Cup in 2010, and several other large international
sporting events taking place prior to that;
- The government and parastatal infrastructure programmes, of
which many have already been initiated, will continue to
boost the economy and should support moderate corporate
asset growth; and
- Banks remain strong, well capitalised and continue to lend.
REVIEW OF RESULTS
Net interest income (NII) grew by 6,6% to R4 128 million (Q1 2008: R3 870
million) on the back of interest bearing asset growth of 19,3% compared to the
same period last year and a narrowing of the net interest margin (NIM). NIM
reduced from 3,66% for the full 2008 year (Q1 2008: 3,85%) to 3,48% for the
quarter, largely as a result of margin compression from the increased cost of
funds, balance sheet mix and the effect of assets repricing faster than
liabilities. Ongoing repricing initiatives, in line with the group`s strategy
to maximise economic profit, have assisted in widening asset margins on new
business being written and the pressure on liability pricing is forecast to
alleviate as money markets price in interest rate cuts. The effect of reduced
endowment on capital as interest rates reduce is likely to increase and be
felt for the remainder of the year.
Advances increased by 6,4% (annualised) from R434,2 billion in December 2008
to R441,0 billion at 31 March 2009 (Q1 2008: R396,9 billion). Total assets at
31 March 2009 amounted to R560,4 billion down marginally from the R567,0
billion in December 2008. This drop in total assets arose mainly from the
maturity of additional liquid assets that were accumulated prior to year end
and repayment of the associated funding.
Deposits at R465,7 billion in March 2009 were in line with the R466,9 billion
at December 2008, with retail deposit growth of 7,8% (annualised) remaining
solid and reflecting the success of retail products launched in the past year
to target this client base.
The credit environment remains challenging with the group`s impairment charge
increasing by 108,2% from R881 million for the period to March 2008 to R1 834
million in the current period. This is an increase of 6,9% compared to the R1
715 million charge for the quarter ended December 2008, reflecting a slowing
of the rate of deterioration in impairments. The credit loss ratio increased
from 1,56% for the quarter ended December 2008 to 1,67% for the period (Q1
2008: 0,91%). Although interest rates are currently expected to fall another
200 basis points this year, there is a lag period before the benefits from
this are reflected in improved debt servicing and thereafter in reduced
impairment trends. Credit loss ratios across the divisions have increased from
2008 year end levels however, the Nedbank Corporate book still reflects low
impairment levels.
Non-interest revenue (NIR) for the period increased by 11,4% to R2 551 million
(Q1 2008: R2 289 million). Commission and fee income grew by 2,9% comprising
mid single digit growth in Nedbank Retail, Nedbank Corporate and Nedbank
Business Banking and lower fee income in Nedbank Capital. Trading income was
pleasing and continued to grow as global markets and treasury benefited from
increased cross-sell, improved margins, and improved contributions from equity
capital markets. As expected, private equity revaluations decreased in line
with market benchmarks. NIR also benefited from additional fair value
adjustments on sub debt and related swap hedges.
Tight expense management contained expense growth at 7,2% for the year-to-date
to R3 384 million (Q1 2008: R3 156 million). The efficiency ratio improved to
50,7% for the quarter, compared with the 51,2% reported for the March 2008
quarter and 51,1% for the December 2008 year.
A key feature of the quarter was the continued improvement in the group`s core
Tier 1 capital adequacy ratio which increased to 8,6% from 8,2% in December
2008 and the Tier 1 capital adequacy ratio which increased to 10,0% from 9,6%.
Nedbank Group has privately placed a 13 year (non-call eight year) $100
million listed lower Tier 2 subordinated unsecured fixed rate note with an
international investor. These together resulted in the total capital adequacy
increasing to 13,2% from 12,4% in December 2008 and is now marginally above
the top end of the group`s revised total capital adequacy target range of
11,5% to 13,0%. This is consistent with the group`s strategy to maintain
strong capital adequacy ratios during the current market dislocation.
The group retained a conservative liquidity position with an ongoing focus on
lengthening the bank`s funding profile through various deposit bases, products
and capital markets.
PROSPECTS
In spite of a very difficult economic environment, Nedbank remains solidly
profitable, although at levels below the prior year, and well positioned to
meet the challenges facing the banking sector. The group will continue to
focus on prudent capital and liquidity management and maximising the longer
term potential of the group rather than seeking to maximise short term
profitability.
Given the uncertain global market conditions, the progressive deterioration in
consensus expectations for domestic economic prospects and the faster than
anticipated reduction in interest rates, the group remains cautious on its
earnings outlook for the 2009 year. Diluted headline and basic earnings per
share are expected to be lower than the 2009 outlook given at the time of
announcing the 2008 results.
Shareholders are advised that this outlook and the figures mentioned in the
"Review of results" section have not been reviewed or reported on by the
group`s auditors.
The group is well positioned to grow when market conditions improve and
interest rate reductions translate into lower consumer impairments.
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 2009
For further information kindly contact
Tier 1 Investor Relations
Tel: +27 (0)21 702 3102
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Ltd
Date: 07/05/2009 08:00:02 Produced by the JSE SENS Department.
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