Nedbank delivers a strong first half performance in a difficult operating environment
Published - 6 August 2024
Salient features
- Headline earnings increased by 8% to R7,9bn, with DHEPS up 12%
- ROE increased to 15,0% (H1 2023: 14,2%)
- Strong capital and liquidity ratios with CET1 capital ratio of 13,3%
- Interim dividend of 971, up 11,5%
- Strong growth in digital clients and volumes
Nedbank Group delivered a relatively strong financial performance for the six months to 30 June 2024 amid a challenging operating environment as headline earnings (HE) increased by 8% yoy to R7,9bn, and return on equity (ROE) increased to 15,0% (H1 2023: 14,2%). The increase in HE was underpinned by good non-interest revenue (NIR) growth, a lower impairment charge and targeted expense management, partially offset by muted net interest income (NII) growth and lower associate income.
The operating environment in the first half of 2024 was challenging as economic activity remained weak, said Nedbank CE Jason Quinn. “In addition to geopolitical uncertainty, persistent inflation, high interest rates and uncertainty ahead of the national elections in South Africa (SA) impacted domestic activity negatively.
“We remain cautiously optimistic around the potential benefits associated with SA's Government of National Unity and expect better macroeconomic conditions in the second half of 2024 and into the medium-to-long term. While trading conditions improved noticeably as some of the most pressing structural constraints on the economy eased as a result of stabilised electricity supply, progress in resolving some of the other infrastructure constraints remained limited.
“Our relatively strong financial performance in H1 2024, including the progress made in executing on our strategy and better economic prospects, give us confidence in making progress towards our medium-term targets and our aim to increase our ROE to 17% by 2025 and above 18% in the long term.”
The group’s headline earnings per share (HEPS) increased by 11% to 1 699 cents, diluted HEPS (DHEPS) increased by 12% to 1 650 cents and basic earnings per share (EPS) increased by 12% to 1 700 cents, ahead of the HE growth of 8%, as a result of the R5bn capital optimisation initiative that was materially completed in H1 2023.
The group’s balance sheet remained very strong. CET1 and tier 1 capital ratios of 13,3% and 14,7% were well above board-approved target ranges and SARB minimum requirements. Following a solid performance and strong capital and liquidity positions, the group declared an interim dividend of 971 cents per share, up by 11,5% (June 2023: 871 cents per share) at a payout ratio of 57%.
Digital Gains
The group’s world-class technology platform, delivered through our Managed Evolution (ME) programme, has now reached 95% completion. This has supported ongoing strong growth in digital-related metrics; client satisfaction scores at the top end of the South African banking peer group; good main-banked client growth; higher levels of cross-sell; market share gains in areas that create most value, including retail deposits, home loans, vehicle finance and overdrafts; and efficiency gains as we delivered on our Target Operating Model (TOM) 2.0 target of R2,5bn. As we finalise the ME programme, our focus shifts to commercialising our technology platform to simplify and rationalise our product range, make banking easier and more affordable for our clients by migrating existing accounts onto new products.
Nedbank Money app active clients increased to 2,6 million in H1 2024, up by 16%. Transaction volumes on the Money app increased by 13% yoy and transaction values increased by 19%. Revenue from value-added services grew by 28% yoy across prepaid data, voucher, and electricity purchases, and the sending of money to cellphones. The Nedbank Money app (Africa), which offers convenience, a wide range of functionality and great user experiences for our NAR clients, reported a 19% yoy increase in app users.
Our digital initiatives helped us to increase the number of digitally active retail clients in SA by 9% yoy to 3 million, representing 70% of retail main-banked clients (H1 2023: 69%). Retail digital transaction volumes and values in SA both increased by 7%. Digitally active clients across the NAR business increased from 60% to 67% of its total active client base.
Since its launch in 2020, the Avo super app (SuperShop) has signed up 2,7 million clients (up by 19% yoy), with over 24 000 businesses registered to offer their products and services on this e-commerce platform.
In recognition of our market-leading digital positioning, Nedbank was recently recognised as the Best Digital Bank in Africa at the 2024 Euromoney Awards, number one in Net Promotor Score among South African banks in 2022 and 2023 (Kantar survey) and received the Forrester EMEA 2024 Customer-Obsessed Enterprise Award.
Demonstrating our purpose
We remain committed to fulfilling our purpose of using our financial expertise to do good and contribute to the well-being and growth of the societies in which we operate.
Our commitment to deliver against the United Nations (UN) Sustainable Development Goals (SDGs) and the progress we have made on our sustainable development finance (SDF) is evident. At 30 June 2024 we had exposures of R154bn (December 2023: R145bn) that support SDF, representing 17% of the group’s gross loans and advances (December 2023: 16%). In support of our net-zero 2050 commitment to have zero fossil fuel exposure by 2045, in March 2024 we became the first South African bank to publish sectoral glidepaths which inform our exit from the thermal coal and oil and gas sectors over time.
In support of our 7,5 million clients, we continue to focus on enhancing client experiences and providing access to financing through the advancement of new loans to enable them to finance their homes, vehicles, and education and grow their businesses.
Outlook
Global growth is expected to improve modestly during the remainder of this year, before gaining slightly stronger momentum throughout 2025. The IMF forecasts world growth at a steady 3,2% for 2024, strengthening marginally to 3,3% in 2025. Most advanced and developing countries are likely to accelerate interest rate reductions throughout 2025 as inflation returns to targeted levels.
Inflationary pressures for SA are forecast to ease further, ending 2024 at 4,4% and averaging 4,9% for the entire 2024. The Nedbank Group Economic Unit expects monetary policy easing to begin in September 2024, with a cumulative 50 bps reduction in interest rates in the second half of the year, taking the prime lending rate down to 11,25% by the end of 2024, followed by cuts of a further 75 bps in 2025.
Nedbank expects SA’s economy to fare better in the second half of 2024 and throughout 2025 if the recent improvements in electricity supply and confidence are sustained. Exporters should benefit from more reliable energy supply, firmer global growth, and the anticipated upturn in commodity prices as US interest rates decline and the US dollar softens. Consumer spending will also recover as inflation falls further, real household incomes return to growth, and debt service costs decline on lower interest rates.
Conclusion
“Since joining Nedbank as CE, I’ve experienced tremendous support from employees, our clients, the investment community, regulators, and all other stakeholders and I am aligned with the board and executive teams, which has enabled us to continue running our business smoothly.
“Improving performance is a key priority and I have adopted Nedbank’s medium-term performance targets as my own. I am extremely comfortable with the strong foundations that Nedbank has built, including capital and liquidity levels and an improving financial performance, as well as the group’s strong and vibrant culture, its focus on transformation, leading ESG credentials and significant investments in technology. We will continue to build on these strong foundations as we evolve and continuously refresh our strategy in response to an everchanging operating environment,” said Quinn.
For a detailed breakdown of business unit performance, please refer to SENS announcement and analyst booklet.
Contact: Nedbank Strategic Communications
Annaleigh Vallie
Phone: +27 (0)66 479 0936
Email: annaleighv@nedbank.co.za
Joanne Isaacs
Phone: +27 (0)78 800 4989
Email: joannei@nedbank.co.za
About Nedbank Group
Nedbank Group is a bank holding company listed on the JSE Limited, with a market capitalisation of R125bn as at 30 June 2024. Nedbank is one of Africa’s largest banking groups, with operations in South Africa, Namibia, Eswatini, Mozambique, Lesotho and Zimbabwe, and offshore in the Isle of Man and Jersey. It also has representative offices in other Africa countries, including Kenya, and has key global financial centres to provide international banking services for SA-based multinational and high-net-worth clients in London and Dubai. The group is a diversified financial services provider, offering a wide range of wholesale and retail banking services, as well as insurance, asset management and wealth management solutions. Nedbank has maintained its level 1 BBBEE status for the past 6 years and rates in the top quartile of local and international banks on ESG scores.
