Nedbank Group · JSE:NED
Nedbank — H1 2016 Earnings Presentation
36 slides from Nedbank's earnings presentation, August 2016
Slide 1: Nedbank Group Limited Interim Results
NEDBANK GROUP LIMITED INTERIM RESULTS For the six months ended 30 June 2016 NEDBANK GROUP LIMITED INVESTOR PRESENTATION A Member of the Group
Slide 2: Difficult macro environment evident in declining GDP growth
Difficult macro environment evident in declining GDP growth SA GDP growth Business, government & labour working (%) together to stimulate growth & employment 6 SA current forecasts: 2016: 0.2% 5 2017: 1.0% 2018: 1.5% 1 Preventing a sovereign credit ratings 4 downgrade to below investment grade 3 2 1
Slide 3: Volatility & uncertainty in currencies, bond yields, credit spreads & commodities
Volatility & uncertainty evident in currencies, bond yields, credit spreads & commodities Currencies Bond yields & CDS spreads Commodities (vs US$ based to 100) (R186, 5-year CDS, %) (Brent oil US$/barrel) 110 10 400 150 100 350 125 9 300 90 100 250 8 80 200 75 70 7 150 50 60 SA rand 100 6 Turkish l
Slide 4: Higher interest rates & weaker economy resulting in slower credit growth
Higher interest rates & weaker economic environment resulting in slower credit growth SA interest rates & inflation Credit growth (%) (%) 15 40 Corporate forecasts Repo rate forecasts 2016: +10.1% Jan 2017: +25 bps 2017: +11.0% Jul 2017: -50 bps 2018: +8.7% Nov 2017: -50 bps 30 Mar 2018: -25 bps 10
Slide 5: Managed separation update
Managed separation update Distribution of Nedbank shares to shareholders of New SA holding company in an orderly manner, at an appropriate time Current shareholding structure Envisaged shareholding structure Old Mutual plc New SA holding company* (listed on the LSE & JSE) (listed on the JSE & LSE) O
Slide 6: Client-centred innovation: strategic highlights
Strategic highlights Retail main-banked RBB ROE Integration of CIB Growing our clients +7.3% 18.3% supporting NIR transactional growth Retail transactional Retail ROE banking franchise +14.0% NIR growth +9.4% 17.0% Selective origination Wholesale > retail Client-centred innovation Retail household r
Slide 7: Delivering value to shareholders
Delivering value to shareholders NAV ROE > COE Dividends NAV per share ROE & cost of equity Interim dividend per share (cents) (%) (cents) CAGR 18.4 CAGR 9.7% 6.1% +9.1% +13.8% 17.3 16.5 15.8 16.1 17.2 15.7 EP 14.41 13.5 13.1 13.0 13.0 12 180 13 596 14 428 15 826 11 143 570 340 390 460 537 12 13 14
Slide 8: Key performance indicators
Key performance indicators Excluding ETI1 H1 H1 H1 H1 2016 2015 2016 2015 Headline earnings (Rm) 5 427 5 323 6 030 5 019 ROE (excl goodwill) 15.7% 17.3% 18.4% 17.2% Diluted HEPS growth 1.6% 14.1% 19.7% 7,6% Preprovisioning profit growth 1.5% 10.4% 11.6% 7,4% Net interest margin 3,37% 3,36% Credit lo
Slide 9: Strong performance from Nedbank operations excluding ETI
Strong performance from Nedbank operations excluding ETI Headline % change earnings ROE (Rm) (%) H1 H1 H1 H1 2016 2015 2016 2015 CIB 20,9 3 004 2 485 21.3 22.9 RBB 11,2 2 371 2 132 18.3 15.9 Wealth 18,3 614 519 35.9 38.9 Rest of Africa subsidiaries 32,5 53 40 2.7 5.0 Centre 92,4 (12) (157) Nedbank m
Slide 10: Advances mix still favours wholesale
Advances mix still favours wholesale BA 900 market share % yoy Jun Gross advances (Rbn) change 2016 CIB 8.5 360.8 Commercial property 9.7 117.4 Other corporate loans 12.2 209.6 Trading advances (12.5) 33.8 RBB 3.4 293.6 Home loans 2.1 109.1 Motor finance 6.9 83.2 Card 3.5 14.5 Personal loans 3.4 16.
Slide 11: Strong deposit & funding growth in Basel III-friendly categories
Strong deposit & funding growth in Basel III −friendly categories Transactional Lengthen BA 900 market share franchise funding profile Increasing Increasing +3.5% behavioural contractual tenure tenure (+ for Basel III) (+ for Basel III) Driven by Linked to client trading behaviour activities in the
Slide 12: Net interest margin – benefit from endowment, asset mix & pricing
Net interest margin – benefit from endowment, reduced asset mix impact & improved pricing Net interest margin (bps) 6 (13) (2) 15 (6) 1 336 334 337 June Endowment Asset Asset HQLA Liability Other June 2015 impact pricing mix pricing & mix 2016 Note: NIM for FY 2015 was 330 bps. 12
Slide 13: Net interest margin – asset mix change & endowment over time
Net interest margin – driven by asset mix change & endowment over time with increasing impact from Basel III requirements Mix change (bps) Endowment (bps) Reducing impact: only -5bps for 6 months to 30 June 2016 15 1 6 5 5 (4) (11) (13) (2) R1,2bn NII impact for every (17) 100bps change in interest
Slide 14: Credit loss ratio – reflective of quality portfolio
Credit loss ratio – reflective of quality portfolio while maintaining high coverage Group credit loss ratio & portfolio coverage Overlays & central provision (bps) (Rm) 131 111 350 83 225 77 200 350 71 140 561 701 67 68 67 504 366 441 60 66 H1 H1 H1 H1 H1 RBB Centre 2012 2013 2014 2015 2016 CLR Port
Slide 15: Defaulted advances & coverage
Defaulted advances & coverage − driven by change in mix towards wholesale defaults Defaulted advances (Rbn) Defaulted advances as % of book (%) Total & specific coverage (%) 7.0% 1 65.9 65.9 62.6 52.9 58.8 4.9% 4.6% 4.1% 42.7 39.0 40.9 39.6 36.2 2.5% 2.6% Writeoffs (Rm) 2.4% 1.3% 1.6% 3 082 2 918 2
Slide 16: Managing our risks & industry exposures
Managing our risks & industry exposures – bolstering portfolio provisioning & overlays Nedbank Group industry exposures 1 (%) Overview of selected portfolios in CIB Concentration Migration Downside 2 Portfolio 3.1% (3.2%) risk1 risk risk 1.4% (1.5%) Oil & Gas L M M 93.7% 0.6% (0.7%) (93.1%) 0.5% (0.
Slide 17: Non-interest revenue – strong commission & fee income growth
Non-interest revenue – strong commission & fee income growth across all clusters Non-interest revenue Non-interest revenue growth (Rm) (%) +9.1% Strong main-banked client 15.8% 15.4% growth Improved cross-sell 14.7% Below-inflation fee increases 10.2% 14.2% CIB deal closures 9.1% 8.7% 8 185
Slide 18: Corporate & Investment Banking NIR – up 14,1%
Corporate & Investment Banking NIR – up 14,1% year-on-year Total NIR (Rm) Key drivers 3 505 Effective cross-sell continues to 17,8% produce positive results 3 072 CIB NIR to advances ratio 25,3% 2.0% 2.0% 1.8% 5,5% 2010 2015 H1 2016 Commission & fee growth mainly originating from Transactional &
Slide 19: Retail transactional NIR & main-banked client growth
Retail transactional NIR & main-banked client growth ahead of total client growth Total retail client base Retail NIR #000 Rm +4.1% +5.8% +8.2% 7 329 +5.7% 4 874 7 038 180 Total 6 655 189 4 507 346 Personal 240 Total 4 262 Loans +7.3% 359 +8.2% 2 712 Personal 456 Main- 2 526 Loans +9.4% 2 335 banked
Slide 20: Retail transactional NIR enabled by cross sell
Retail transactional NIR enabled by cross sell & growth across all client segments # 000 Total retail clients % CAGR growth Number of product line clients Jun-11 Jun-11 – Jun-16 with transactional products Jun-16 715 Investments 14,5 74% 74% 1 406 709 Card1 5,4 53% 56% Steady increase in 921 main-ba
Slide 21: Expenses – well managed & aligned to key drivers
Expenses – well managed & aligned to key drivers Expense drivers Staff Fees & Other insurances − Headcount +3.8% (regulatory demands) +11.2% − Average annual salary increase of 6.3% 6% − Incentives linked to CPTs 10% Marketing +6.1 6% Computer processing Operating 46% − Increased spend on client
Slide 22: Expenses – growth adjusted downwards as revenues slowed
Expenses – Growth adjusted downwards as revenues slowed, with flexibility in a tougher environment Expense growth vs CPI (inflation) (%) 12.7 Fixed1 76% 8.9 8.8 8.0 7.4 Flexibility of expenses 6.2 6.4 5.9 5.7 24% 4.4 Variable2 H1 H1 H1 H1 H1 2012 2013 2014 2015 2016 Expense growth Inflation 1 Fixed,
Slide 23: Efficiency metrics impacted by associate income
Efficiency metrics impacted by associate income – focus remains on our medium-to-long-term targets Non-interest revenue to expenses Efficiency ratio (%) (%) 88.7 MLT target: >85% MLT target: 50 - 53% 83.1 83.0 83.0 80.9 Jaws (%) Ex. ETI +1,6% 2.9% 1.3% 0.5% 55.6 54.2 56.4 55.8 56.4 57.1 55.6 (2.6%)
Slide 24: Capital well positioned for Basel III
Capital well positioned for Basel III regulatory environment Capital ratios Capital stack (%) (Rbn) 14.5 14.1 10.2 2.0 10.4 2.1 9.3 4.3 (0.6) 0.9 8.0 3.4 0.7 1.1 4.0 (0.2) 7.3 4.7 CET 1 Basel III target range: 5.3 10.5% −12.5% 56.7 59.0 11.3 11.6 51.1 48.9 40.9 SARB minimum CET 1: 6.875% Dec Organic
Slide 25: Dividend growth ahead of HEPS growth
Dividend growth ahead of HEPS growth DPS vs HEPS growth Interim dividend cover (%) (x times) +4,8% +2,3% +1,5% +3,0% +5.5% 2.23 28.3 2.18 2.16 2.16 2.10 23.5 17.9 16.7 18.7 1.99 14.7 1.93 16.4 Board-approved target range: 13.7 1.75 – 2.25x 12.4 6.1 7.2 0.6 H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 2012 2013 201
Slide 26: The long-term opportunity in Rest of Africa
The long-term opportunity in Rest of Africa Gradual recovery in GDP growth … GDP growth1 (%) Key drivers 10 Forecast One of the fastest growing regions globally since the 2008 financial crisis 8 Positive demographic shifts with 6 significant labour & consumer potential: 4 − Only continent with g
Slide 27: Building a regional champion with a Pan African network
Building a regional champion with access to a Pan African network A client-centred, risk-mitigated, capital-efficient, long term strategy SADC & East Africa (A) Own, manage & control banks − Standardised business & operating model including IT systems − Banco Unico (Mozambique): 38,7% shareholding
Slide 28: West & Central Africa – Ecobank strategic investment
West & Central Africa – Ecobank strategic investment & partnership Headline earnings (Rm) ETI attributable profit (US$) 111 71 304 60 (199) (603) H1 2015 H1 2016 Q4 Q42014 2014 Q1 Q1 2015 2015 Q4 Q4 2015 2015 Q1 2016 Strategic positioning ETI revenues 630 534 508 502 New CEO & key executive (new t
Slide 29: Associate income – ETI recovery in progress
Associate income – ETI recovery in progress but naira devaluation introduces uncertainty Associate income (Rm) Book value (Rm) 278 292 230 446 146 148 152 165 (676) 1 348 7 808 6 014 (446) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Dec Associate FCTR & Jun 14 15 15 15 15 16 16 16 est 2015 income OCI change 2016 Relati
Slide 30: 2016 guidance – updated
2016 guidance – updated Volatile economic Forecast Growing our franchise environment risk high for the long term Average advances to grow at mid-to-upper single digits (no change) NII NIM to be slightly above the 2015 level of 3.30% (from ‘in line with 2015 level’) CLR Below the midpoint of ou
Slide 31: Medium-to-long-term targets
Medium-to-long-term targets H1 vs Medium-to-long-term Metric 2016 MLT target 2016 outlook1 ROE 15.7% 5% above COE Below target (excl goodwill) Positive, but below 2015 Diluted HEPS growth 1.6% ≥ CPI + GDP growth + 5% growth & below target Below the midpoint Credit loss ratio 67 bps 60–100 bps
Slide 32: Implications of a potential SA sovereign downgrade
Implications of a potential SA sovereign downgrade SA sovereign credit ratings Implications of a SA sovereign downgrade 11 A‐ (pos) A‐ 10 Bond, CDS yields & foreign funding costs A‐ (neg) 9 increase (but recover within 12 months) 8 BBB+ (pos) Property prices & JSE contract BBB+ 7 6 BBB+ (neg)
Slide 33: Funding position – impact of a sovereign downgrade manageable
Funding position – Impact of a SA sovereign downgrade to sub-investment grade manageable Funding contribution & downgrade impact Interest rate sensitivity (Rbn) Funding Funding R1,2bn NII impact from 1% change in Base Sources interest rates over 12-months Mix Households 19% -100 -50 0 50 100 Limited
Slide 34: Nedbank Group in a strong position
Nedbank Group in a strong position Headline earnings (Rm) Loan growth (CAGR %) 20.1 Global 16.3 10 831 financial crisis 8.3 4.9 06 - 08 13 - H1 16 Wholesale Retail 5 921 (28%) Endowment benefit for 1% change in interest rates (Rm) 4 277 1 259 3 167 584 481 05 6 07 08 09 10 11 12 13 14 15 08 09 H1 16
Slide 35: Nedbank Group in a strong position
Nedbank Group in a strong position Number of clients (m) NIR income contribution (%) Defaulted advances (%) 81% 7.6 4.4% 46.6 5.9 42.2 3.9 4.4 4.2 2.6 39.8 08 09 H1 16 08 09 H1 16 08 09 H1 16 CET 1 ratio (%) Funding tenor (%) Coverage (%) 11.6 62.6 LT 19.2 21.1 30.9 9.91 MT 19.9 45.4 41.9 26.4 8.2(1
Slide 36: Contact us
Contact us Nedbank Group Nedbank Investor Relations nedbankgroup.co.za Head of Investor Relations Nedbank Group Limited Alfred Visagie Tel: +27 (0) 11 294 4444 Direct tel: +27 (0) 11 295 6249 Physical address Cell: +27 (0) 82 855 4692 135 Rivonia Road Email: [email protected] Sandown 2196 Invest