| Fri 6 May 2011, 8:00 | | NED - Nedbank Group - First Quarter 2011 Trading Update |
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NED
NED
NED - Nedbank Group - First Quarter 2011 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 2011 TRADING UPDATE
"The group had a good first quarter and made strong progress against its
strategic objectives.
We have seen ongoing improvement in performance, building on the momentum
created in the 2nd half of 2010. This resulted in continued revenue growth,
improvement in impairments and margins are showing signs of recovery. The
group`s focus on growth is evident from the strong progress in the delivery of
our NIR growth strategy, the turnaround in our retail business and our focus on
"portfolio tilt" towards businesses that generate higher levels of economic
profit."
Mike Brown
Chief Executive
OPERATING ENVIRONMENT
Local economic conditions improved in early 2011. Momentum mainly came from
stronger consumer spending, improved labour market conditions, improving
household disposable income and continued low interest rates. Household demand
for credit has continued to favour instalment sales, leasing finance and
personal loans while home loan demand remains muted.
Manufacturing production and exports also increased, after a slow start to the
year, resulting in improved business confidence.
Globally, doubts about the strength and sustainability of the current economic
recovery remain. Concerns over the impact of tighter monetary policies in China,
surging global food and fuel prices, the devastating impact of Japan`s natural
disaster on supply chains globally and continued high levels of sovereign debt
in Europe and the United States of America have made businesses hesitant to
overextend and commit to capital expenditure whilst corporate activity remains
subdued.
OPERATIONAL PERFORMANCE
Nedbank Group`s earnings momentum that developed in the second half of 2010
continued in the first quarter of 2011 with performance in line with the
guidance provided on key financial indicators in the 2010 annual results
announcement.
Net interest income grew by 5,9% to R4 284 million (Q1 2010: R4 046 million).
Average interest-earning banking assets increased by 4,4%. The net interest
margin improved from 3,35% for the 2010 financial year to 3,42% for the quarter
(Q1 2010: 3,38%). This was primarily due to the ongoing benefit of pricing
assets to more appropriately reflect risk and funding costs, asset mix changes
and the lower funding cost of term liquidity during the quarter. These factors
were partially offset by the ongoing endowment effect of the 2010 interest rate
cuts with the average interest rate being 1,47% lower than in Q1 2010.
Proactive risk management and the lower interest rates contributed to the credit
loss ratio improving to 1,15% (Q1 2010: 1,46%). The reduction of impairments has
moved the credit loss ratio closer towards the top end of the group`s 0,60% to
1,00% target range with improvements in Nedbank Capital and Nedbank Retail.
There has been improvement in specific impairments and the group has maintained
a prudent approach to portfolio provisions.
Non-interest revenue increased by 16,4% to R3 531 million (Q1 2010: R3 034
million). Commission and fee income grew by 14,0% primarily as a result of
continued growth in primary clients and transactional volumes in electronic
banking. Nedbank Wealth achieved good growth in advice-based sales, insurance
income and assets under management. Insurance income grew by 12,2%. Trading
income increased by 13,2% to R628 million, driven by improved foreign currency
trading performance and increased foreign exchange volumes in the Global Markets
division, in addition to good performance from the Equity Trading division.
Nedbank Corporate`s property private equity earnings decreased as a result of
slower growth in asset valuations. Nedbank Capital`s improved private equity
earnings were partially offset by lower levels of positive fair value
adjustments compared to Q1 2010. NIR included negative fair-value adjustments of
R46 million (Q1 2010: negative R45 million) on the group`s subordinated debt
resulting from the tightening of credit spreads. Total fair value adjustments
improved from negative R116 million in Q1 2010 to negative R28 million.
The NIR-to-expenses ratio improved from the levels achieved in 2010 reflecting
strong growth in NIR and disciplined expense control.
Total assets grew 0,6% (annualised) to R609,7 billion (December 2010: R608,8
billion). Advances increased modestly by 0,8% (annualised) to R476,2 billion
(December 2010: R475,3 billion) reflecting the generally muted demand for
credit. The group`s focus on portfolio tilt resulted in slower home loan
advances growth offset by an increase in other advances categories, such as
wholesale advances, credit card balances, personal loans and vehicle and asset
finance. Deposits of R488,9 billion decreased by 1,2% (annualised) from the
December 2010 balance of R490,4 billion reflecting slow asset growth and limited
demand for deposits while interest rates remain at their lowest levels for 36-
years.
The group continued to increase liability duration and during the quarter the
group exceeded its 2011 long term funding target ratio of 25% and further
increased liquidity buffers. Investor appetite for Nedbank Limited debt
issuances was strong and resulted in over R3 billion of senior debt being issued
at competitive rates. This issue was 1,7 times oversubscribed
The group`s capital adequacy ratios remained well above current and expected
Basel III regulatory minima and continued to increase resulting in a 10,8% Core
Tier 1 ratio. We expect these ratios to benefit further from the group`s ongoing
risk weighted asset optimisation programme and increased earnings.
Q1 2011 FY 2010 Internal Regulatory
ratio ratio target range minimum
(Basel II) (Basel II)
Core Tier 1 ratio 10,8% 10,1% 7,5% to 9,0% 5,25%
Tier 1 ratio 12,4% 11,7% 8,5% to 10,0% 7,00%
Total capital ratio 15,7% 15,0% 11,5% to 13,0% 9,75%
(Ratios include unappropriated profits)
PROSPECTS
The South African economic recovery is expected to strengthen and broaden in
2011. Gross domestic product is currently forecast to grow by 3,3% driven mainly
by improving consumer spending and continued growth in exports. Consumers should
benefit from rising household incomes, increased social benefits, a modest
increase in employment and low interest rates.
The group expects interest rates to remain unchanged throughout 2011, but the
upside risks have increased due mainly to rising global food and fuel prices.
Rising cost pressures and the risk of potential interest rate hikes may
constrain household spending and borrowing later in the year. Producers should
benefit from continued demand for commodities driven by rapid growth in China
and other emerging markets, but capital expenditure is likely to remain subdued
due to pressure on power supply should the economy expand too quickly together
with other infrastructure constraints and continued concerns over global growth
prospects.
The group`s earnings guidance for 2011 given at the time of the 2010 results
announcement remains unchanged.
Shareholders are reminded that this outlook and the figures mentioned in the
"operational performance" section 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
6 May 2011
Sponsors to Nedbank Group in South Africa:
Merrill Lynch South Africa (Pty) Limited
Nedbank Capital a division of Nedbank Limited
Sponsor to Nedbank Group in Namibia:
Old Mutual Investment Services (Namibia) (Pty) Limited
Date: 06/05/2011 08:00:01 Produced by the JSE SENS Department.
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