Nedbank remains resilient, makes good strategic progress and delivers improved financial performance in second half
17 March 2021
Salient features
- Headline earnings declined by 56,5% to R5,4bn
- Capital and liquidity ratios remained strong and key ratios finished the year at higher levels than those reported in June
- Assisted clients with cashflow relief on more than R120bn of loans during peak Covid stress. Pleasingly clients have been able to reduce this level of support to R28bn, with only R2bn remaining in retail
- Excellent outcomes on client satisfaction metrics and strong growth in digital
- No dividend has been declared, dividends expected to resume at 2021 interim results
Nedbank Group delivered an improved financial performance in the second half of 2020 as headline earnings for the year ended 31 December 2020 declined by 56,5%, compared to a decline of 69,2% in the first half. Headline earnings for the year were affected by higher impairments and lower revenues, the latter mainly due to lower levels of client activity and the impact of lower interest rates on endowment income.
Nedbank CE Mike Brown said the group had demonstrated strong levels of resilience in a difficult economic environment and was able to provide significant levels of cashflow support to clients who were negatively impacted by the Covid lockdowns, while remaining well-capitalised, liquid and profitable, albeit at levels lower than in the prior year.
"Our primary focus has been on the health and safety of our stakeholders, including employees and clients, as well as on helping our clients in good standing to navigate the financial challenges that arose in their business and personal finances. We thank all our committed Nedbank employees for remaining resilient during an extraordinarily difficult time."
At the peak of the crisis Nedbank supported clients with cashflow relief on more than R120bn of loans. "We are pleased that by the end of the year our clients have been able to reduce this level of support to R28bn (with only R2bn remaining for retail clients) as economic conditions improved," Brown said.
As the impact of Covid-19 pandemic and related lockdowns escalated, the group pivoted its strategy to focus, at first, on resilience and maintaining a well-capitalised and liquid balance sheet. Capital and liquidity ratios remained strong and key ratios finished the year at higherlevels than those reported in June, reflected in tier 1 capital ratio of 12,1% (June 2020: 11,7%), CET1 ratio of 10,9% (June 2020: 10,6%), average fourth-quarter LCR of 126% (June 2020: 114,5%) and NSFR of 113% (June 2020: 114%) - all well above regulatory minima.
Despite the strong capital and liquidity position at 31 December 2020, having considered the spirit of the South African Reserve Bank Guidance Notes 4/2020 and 3/2021 and noting growth opportunities and the bank’s responsibility to support clients and the economy, alongside the current uncertainty about the progression of the virus, possible future waves, and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on current forecasts the group expects to resume dividend payments when reporting interim results in 2021.
Strategic progress
The impact of the Covid-19 pandemic resulted in a tilt in Nedbank’s strategic focus since the lockdown began at the end of March 2020. "Initially, our focus was on 'Resilience', as we managed the group through the most restrictive phases of the lockdown and the extreme volatility experienced in financial markets. Our focus on 'Transition' continued thereafter as the strict lockdown at levels four and five eased and we reintroduced our full-suite of financial services. As part of business planning in the latter part of the year our focus shifted to 'Reimagine', as we strategised to emerge stronger in a post-Covid-19 world and set revised medium-term targets for 2023," Brown said.
The group made excellent progress on its goal of delivering market-leading client experiences, evidenced by improved client satisfaction rankings. In the 2020 Consulta survey Nedbank increased its position to number two in the Net Promoter Score (NPS) among the five large South African banks and maintained the second-highest-rated position in the South African Customer Satisfaction Index.
Nedbank also launched various innovations such as Avo (a super app) during the lockdown. The group introduced more retail digital onboarding capabilities to new products such as investments, cards and overdrafts, and started the roll-out of juristic client onboarding. This resulted in retail digital sales increasing to 49% of all sales (2019: 21%) and digitally active clients increasing by 25% to 2,2-million. The digital successes were underpinned by the group’s Managed Evolution technology strategy, which is materially complete for all the foundation projects and overall 78% complete (2019: 70%).
"The Nedbank franchise is well positioned for growth as the economy recovers, as reflected in our ‘Reimagine’ strategy, which includes delivering market-leading client solutions, unlocking value through our Strategic Portfolio Tilt 2.0 and Target Operating Model 2.0 initiatives, and leading sustainably as we deliver on our purpose of using our financial expertise to do good for all our stakeholders," Brown said.
Committed to our purpose
Nedbank continues to play an important role in society and in the economy, and this role has been elevated during the Covid-19 crisis. Nedbank remains committed to delivering on its purpose of using our financial expertise to do good. The group did not retrench any employees as a result of Covid-19 and paid its 28 324 employees’ salaries and benefits of R16,8bn.
Nedbank launched a R2,0bn Sustainable Development Goals (SDG)-linked tier 2 capital instrument (SDG green bond), which is the first of its kind in SA, listed on the Green Bondssegment of the JSE and created in partnership with the African Development Bank. Proceeds will be used to fund solar and wind renewable-energy projects. During the year Nedbank also became the first South African sustainable bond issuer to be invited to join the Nasdaq Sustainable Bond Network as a contributing member.
In December 2020 Nedbank partnered with the International Finance Corporation in raising $200m of climate-linked loan financing. This funding is being directed towards a combination of solar, wind and biomass projects and is aimed at supporting the construction of new projects under future rounds of SA’s REIPPP.
Outlook
Forecasting remains difficult in a volatile health and economic environment and risks of further waves and variants remain high, but off the lower 2020 base the group currently expects the country's GDP to increase by 3,4% in 2021. Given the economic forecasts from the Nedbank Group Economic Unit, the strategic drivers and particularly the expectation of an ongoing improvement in the credit loss ratio, Nedbank’s current guidance on financial performance for the half-year to June 2021 is to grow headline earnings per share and earnings per share by more than 20%.
"It is essential that government follows the path to deficit reduction set out in the national budget to avoid any further sovereign risk rating downgrades and the resultant negative feedback loops. Given government’s limited resources, focus should be on implementing much-needed growth-enhancing structural reforms, particularly ensuring a more stable energy supply, stabilising SOEs and the release of spectrum."
"Ultimately, the pace of the domestic economic recovery will depend on how quickly SA can achieve population immunity as the phased Covid-19 vaccine rollout races against new and more contagious variants of the virus. Simply put, in 2021 vaccination is the best economic policy. The outlook for the SA economy is nevertheless more promising, with the recovery supported by firmer consumer spending, the rebuilding of domestic inventories and stronger commodity prices and export growth, particularly during the second half of the year," Brown said.
For a detailed breakdown of business unit performance, please refer to SENS announcement and analyst booklet.
