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Nedbank bucks low growth trend on strong interest income

Johannesburg – Nedbank delivered a solid performance for the 2016 financial year, mainly driven by growth in net interest income (NII) and non-interest revenue (NIR).

This is according to the preliminary audited results for the year ended December 31, 2016, released on Tuesday.

Headline earnings were up by 5.9% to R11.4bn. The group reported lower growth in diluted headline earnings per share (HEPS) by 4.8%, down from 8.5% reported in 2015, to 2350c. Return on Equity (ROE) was at 16.5%, this is 0.5 percentage points lower than ROE reported in 2015.

A dividend declared of 1200c was declared, up 8.4%.

The Corporate Investment Banking (CIB) division earnings grew by 15.5% to over R6bn. Retail Business Banking (RBB) reported earnings growth of 11.2% to R4.9bn. Nedbank Wealth also grew by 5.1% to over R1.1bn. “This was supported by strong balance sheet growth and continued low levels of impairments in Wealth Management,” the group’s report explained.

Rest of Africa subsidiaries reported a growth of 85.1% to R87m. These earnings were negatively impacted by earnings from Nedbank’s associate Ecobank Transnational Incorporated (ETI).

“The performance of our approximately 20% investment in Ecobank Transnational Incorporated was below our expectations, as it was impacted by weaker economic conditions in West Africa and currency volatilities, particularly in Nigeria,” explained CEO Mike Brown.

“Conditions in the key markets in which ETI operates are currently expected to remain difficult in 2017, before improving in 2018 and beyond,” he added

The bank’s operations at Centre reported losses of R414m, but this is still an improvement from the previous year’s loss of R662m. “The decrease in losses in the Centre was largely due to the lower cost of basis risk retained in the Centre,” the group explained.

Brown said that the bank expects growth in diluted headline earnings per share to be greater than the inflation plus GDP growth.

Growth factors

NII grew by 10.6% to R26.4bn, which was driven by growth in average interest-earning banking assets of 7% and net interest margin (NIM) expansion to 3.41%. NIR grew by 8.1% to R23.5bn.

Impairments decreased by 4.9% to R4.5bn, which supported the improvement in the CLR to 0.68% from 0.77% in the previous year. “The CLR reflects improvements in CIB’s impairments following the increase in oil and other commodity prices and the settlement or successful restructuring of certain counters during the year,” said the report.

Expenses, increased by 8.6% but were managed within expectations, said the report. Expenses growth was linked to increasing staff-related costs, computer processing costs and fees and insurance costs being higher.

“The group's growth in revenue of 9.4% exceeded growth in expenses,” said the report.

Loans and advances increased 3.7% to R707.1bn and deposits grew 4.9% to R761.5bn. 

Nedbank's share price closed  0.2% firmer R245 on the JSE.

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