| Tue 4 May 2010, 8:00 | | NED - Nedbank Group - First Quarter 2010 Trading Update |
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NED
NED
NED - Nedbank Group - First Quarter 2010 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 2010 TRADING UPDATE
"The worst of the economic downturn appears to be behind us. Whilst the global
recovery is fragile and we remain cautious about short term growth prospects,
the improving domestic economic conditions are starting to reflect positively in
Nedbank Group`s performance. This should lead to improved earnings in 2010 in
line with our expectations given at the time of announcing the 2009 results."
"It is encouraging to see solid growth in core transactional revenue as part of
our focus on improving non-interest revenue. This focus will continue as we
strive to build Africa`s most admired bank."
Mike Brown
Chief Executive
OPERATING ENVIRONMENT
In March 2010 interest rates were reduced by a further 50 basis points, lowering
the prime rate to 10,0%. South African banks continued to advance credit to
households and businesses, supported by the healthy liquidity and capital
profile of the industry.
The economic recovery is expected to be gradual as high levels of household
indebtedness and resultant de-leveraging remain in place. In the corporate
sector, although balance sheets have proven resilient through the cycle,
downside risk remains, resulting in conservative risk appetites and restrained
business volumes.
OPERATIONAL PERFORMANCE
The group has performed in line with the guidance given in the 2009 annual
results announcement for our key financial indicators.
Net interest income (NII) decreased by 2,0% to R4 046 million for the quarter
ended 31 March 2010 ("the quarter") (Q1 2009: R4 128 million). The prime rate
averaged 10,47% for the quarter, 3,89% lower than the average rate in Q1 2009.
Average interest-earning banking assets increased by 0,8%. The net interest
margin (NIM) narrowed from 3,39% for the 2009 year to 3,38% for the quarter (Q1
2009: 3,48%). Continued focus on risk-adjusted asset pricing has partially
offset the compression in margins which was primarily driven by lower endowment
resulting from the reduction in interest rates and liability margin compression.
Improved economic conditions and risk management practices resulted in the group
credit loss ratio improving to 1,46% for the period (Q1 2009: 1,67%). This ratio
is in line with seasonal expectations for the first quarter. The credit loss
ratio for Nedbank Corporate worsened slightly from the ratio for the year to
December 2009, mainly in the Property Finance portfolio. Nedbank Capital`s
credit loss ratio for the quarter also increased relative to the 2009 year.
Nedbank Business Banking`s credit loss ratio improved aided by client
rehabilitations. Nedbank Bancassurance and Wealth improved and Nedbank Retail
showed a modest improvement in its credit loss ratios primarily across the
unsecured lending product categories compared to December 2009. Improved client
affordability, combined with stabilising house prices has contributed towards
the ongoing improvement of early arrears in home loan advances. As anticipated
defaulted home loan advances continued to rise albeit at a slower rate and cure
rates on older defaulted advances remain challenging.
Non-interest revenue (NIR) increased by 18,9% to R3 034 million (Q1 2009: R2 551
million). On a like-for-like basis, excluding the acquisition of the balance of
the Bancassurance and Wealth joint ventures in June 2009, NIR growth was 10,4%.
Commission and fee income grew by 25,6% (18,4% excluding the joint ventures)
from good transactional volume in all clusters and annual inflation-linked price
increases. Trading income increased by 31,8% to R555 million on the back of
improved equity trading. Nedbank Corporate`s property private equity earnings
showed an improvement over the comparative period. These improvements were
offset to an extent by negative fair value adjustments and lower private equity
earnings in Nedbank Capital.
The group has maintained good expense management discipline whilst investing for
growth. As expected, slower NII growth has contributed to a slight increase in
the cost-to-income ratio. Importantly the ratio of NIR to expenses has improved
from the December 2009 ratio.
Total assets grew 5,8% (annualised) to R578,9 billion (December 2009: R570,7
billion). Advances growth remained muted and increased by 3,9% (annualised) to
R454,7 billion (December 2009: R450,3 billion). Deposits of R470,8 billion were
1,3% (annualised) higher than the December 2009 balance of R469,4 billion.
Capital and liquidity management remains fundamental to the group. As previously
communicated, the strong capital ratios which are above the group`s internal
targets, allowed for the acquisition of the minority shareholding in Imperial
Bank to be settled in cash. This resulted in a marginal decrease of
approximately 0,5% in the group`s capital adequacy ratios as the full purchase
consideration has been accounted for during the period. The group`s capital
ratios remain well above target levels and it is anticipated that for the 2010
year these ratios will return to levels similar to those reported at the end of
2009.
Q1 2010 FY 2009 Internal Regulatory
ratio ratio target range minimum
Core Tier 1 ratio 9,8% 9,9% 7,5% to 9,0% 5,25%
Tier 1 ratio 11,4% 11,5% 8,5% to 10,0% 7,00%
Total capital ratio 14,7% 14,9% 11,5% to 13,0% 9,75%
(ratios calculated including unappropriated profits)
Nedbank Group has continued to manage funding and liquidity prudently. Funding
markets have improved and there has been good appetite for Nedbank Limited debt
issuances. During the first quarter of 2010, Nedbank Limited issued over R3
billion of senior debt. In addition, a further R3 billion was issued in April.
This has enabled the group to further diversify its funding base and lengthen
the average term of funding.
UPDATE ON ACQUISITION OF IMPERIAL BANK
Nedbank Group reported in the annual results announcement that final regulatory
approvals were received for Nedbank Limited to acquire 100% of the ordinary and
preference shares in Imperial Bank. The section 54 application has subsequently
been submitted to the Regulator and the Minister of Finance to request approval
to merge Nedbank Limited and Imperial Bank Limited. The purchase consideration
of R1 775 million plus interest is being settled in four cash instalments, with
the first payment having being made during the period.
The merged businesses will have a combined 30% share of the South African
consumer vehicle and asset financing market.
PROSPECTS
The South African economy is expected to gather momentum as the year progresses
with GDP growth of 2,8% currently forecast for 2010, driven by improving
commodity prices and increasing exports, although retail consumption expenditure
is anticipated to remain muted.
Whilst we believe that the worst of the economic cycle has passed, our outlook
remains cautious. Our current outlook for earnings remains unchanged with growth
in diluted headline earnings per share for 2010 expected to be in line with the
guidance given at the time of announcing the 2009 results.
Shareholders are reminded that these forecasts have not been reviewed or
reported on by the group`s auditors.
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
4 May 2010
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) Limited
Date: 04/05/2010 08:00:02 Produced by the JSE SENS Department.
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