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Nedbank earnings driven by strong revenue growth

2022-08-12  Staff Reporter

Nedbank earnings driven by strong revenue growth

The Nedbank Group this week reported excellent financial results for the six months ended 30 June 2022 as headline earnings (HE) increased by 27% to R6.7bn, driven by strong revenue growth, a flat credit loss ratio, an improved performance from associate ETI and a well-managed expense base. 

Nedbank CE Mike Brown said the group’s performance in the first half of 2022 reflects improvements across all key metrics in a complex and difficult operating environment. 

“The group’s return on equity (ROE) increased to 13,6% (June 2021: 11.7%), and all frontline business units generated ROEs above the group’s cost of equity (COE),” said Brown.  

The latest half-year results show the group’s balance sheet remained very strong. CET1 and tier 1 capital ratios of 13.5% and 15.1%, respectively, increased from the 31 December 2021 levels and are well above South African Reserve Bank (SARB) minimum regulatory requirements. 

The average Liquidity Coverage Ratio (LCR) for the second quarter of 144% and a Net Stable Funding Ratio (NSFR) of 119% were well above the 100% regulatory minimum. 

“On the back of strong earnings growth and robust capital and liquidity positions, the group declared an interim dividend of 783 cents, up by 81% year on year and back above the 2019 pre-Covid-19 interim dividend,” Brown said. 

Meanwhile, HE of the Nedbank Africa Regions (NAR) business increased by more than 100% to R574m from R182m for the period, delivering an ROE of 15.9% - above the group’s COE. 

This increase is attributable to improved performance in the Southern African Development Community (SADC) operations and a continued turnaround of the group’s Ecobank Transnational Incorporated (ETI) associate investment. 

Outside South Africa, Nedbank has operations in five countries in SADC through subsidiaries and banks in Eswatini, Lesotho, Mozambique, Namibia and Zimbabwe, with representative offices in Kenya (Nairobi) and Ghana (Accra). 

To ensure coverage and earnings in West and Central Africa, Nedbank has a 21% shareholding in the ETI (also known as Ecobank Group). 

“I am pleased that the NAR business delivered a good set of results driven by a great performance from our associated investment in ETI and an improved performance from the SADC operations,” said Dr Terence Sibiya, Group managing executive, Nedbank Africa regions.

Nedbank’s SADC operations generated HE of R190m and ROE of 6.1% in H1 2022 from a headline loss of R11m and ROE of -0.4% in H1 2021. 

The improved performance was driven mainly by increases in revenue; SADC operations gross operating income (GOI) increased by 41% to R1 966m. 

 

Outlook 

Looking forward, Nedbank expects SA’s GDP to increase by 1.8% in 2022; interest rates to increase by a further 75 bps, taking the repo rate to 6.25% and the prime lending rate to 9.75% by the end of the
year. 

Inflation is expected to peak in Q3 at around 7.8% and average 6.8% for 2022. 

Economic growth in sub-Saharan Africa, slowed down by the impact of the conflict between Russia and Ukraine, is forecast to grow by 3.8% in 2022 and accelerate to 4.0% in 2023, lower than previous projections of 4.5%. 

“This ongoing conflict as well as lockdowns in China and softer global demand pose a risk to business performance as various supply chains remain under pressure and the cost of living rises across the countries in which we operate. We continue to monitor the socio-political situations in Eswatini and Mozambique for their potential impact on their economies and their growth. Responsive management action plans are in place to deal with Zimbabwe’s hyperinflationary environment and macroeconomic policy uncertainties,” Nedbank stated. 


2022-08-12  Staff Reporter

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