HomeBusiness DigestNedbank headline earnings up 148%

Nedbank headline earnings up 148%


PAN-African financial services powerhouse Nedbank Group delivered a strong financial performance in the half-year ended June 30, 2021, with headline earnings rising by 148% to R5,3 billion (US$351,9 million), the firm said last week.

The Johannesburg Securities Exchange-quoted bank, with a market capitalisation of R87 billion (US$5,77 billion) as at June 30, 2021, has a footprint across southern African countries, including Zimbabwe, where it operates one of the fastest growing banks.

Financial statements for the period showed the Zimbabwean operation in good stead despite Covid-19-induced shocks, which grounded the economy during the review period. The group said headline earnings were boosted by significantly lower impairments, higher net interest margins and disciplined expense management.

However, the firm said the R5,3 billion was 24% below the first half of 2019.

Nedbank revenues were boosted by non-interest income, which followed higher levels of client activity and improved insurance income, according to chief executive officer Mike Brown.

“Operating conditions in the first half of 2021 were better than we had expected at the start of the year, helped by improved commodity prices,” Brown said in a commentary to the financial statements.

“This was evident in upward revisions to South African (SA) gross domestic product growth, vaccine rollouts gathering pace and positive developments on key reforms.”

Following a difficult 2020 when the region’s economies were hit by the relentless Covid-19 health crisis, which was felt more in Sadc than most African regions, regional economies have launched aggressive vaccination programmes to boost citizens’ immunity and drive back economies to pre-crisis growth levels.

But Brown said Nedbank benefited from record low interest rates during the period, which stimulated higher demand for retail credit, although corporate loans remained subdued.

“A 53-year low in interest rates supported robust demand for retail credit while transactional activity increased off a low base and benefited from ongoing strong digital growth. Against this progress, demand for corporate loans remained muted and excess cash was used to repay debt, particularly in the commodity sector. We remain well prepared to manage risks associated with the impact of the third wave of Covid-19 infections, which appears to have passed its peak, and help our clients deal with any further waves as well as the impact of recent civil unrest and looting in parts of SA,” he said.

Friday’s financial statements showed that during the period under review, the group’s key balance sheet resilience metrics all strengthened to above pre-crisis levels.

Capital and liquidity ratios increased as reflected in the group’s tier 1 capital ratio of 13,6%, from 12,1% in December 2020.

On the back of the performance in the first half and strong capital and liquidity positions, Nedbank declared an interim dividend of 433 cents per share.

“Our primary focus during the unrest and looting was to ensure the safety and security of our employees and clients. We are grateful that there were no related injuries or casualties. These developments are a stark reminder of the importance of accelerating structural economic reforms to deliver higher levels of sustainable economic growth to address the challenges of poverty, unemployment and inequality,” Brown said.

“Law and order and the protection of citizens’ assets are the foundation for investment and economic growth, and it will be vital for the government to provide suitable explanations as to what happened, why it happened and assurances that this will not be allowed to happen again. Those responsible must be speedily held to account.”

He said South Africa’s economic recovery remained under threat from new waves and variants of Covid-19 infections.

Brown said these had been compounded more recently, and unexpectedly, by the violent unrest and looting in parts of the country.

“Accelerated structural reforms remain the key to unlocking faster economic growth and job creation over the medium-to-long term. There have been some encouraging developments on this front, including the concession made to allow 100MW of embedded generation and evidence of greater resolve to eradicate corruption,” he added.

“The surge in unemployment and poverty caused by a long period of weak economic growth and amplified by the pandemic lockdowns and factional political battles all contributed to the protests in July. Sadly, the destruction of infrastructure and businesses will discourage investment and trigger more job losses, aggravating poverty and social tensions even further and the cost of the damages to property will largely be borne by taxpayers through Sasria, the state monopoly for riot insurance. Within this context, downside risks to the economic outlook remain.”

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