Johannesburg - Banking group Nedbank [JSE:NED] said Tuesday that it has performed in line with the guidance given in the 2009 annual results announcement for its key financial indicators.
Net interest income (NII) decreased by 2% to R4.046bn for the quarter ended March 2010. Average interest-earning banking assets increased by 0.8%. The net interest margin (NIM) narrowed from 3.39% for the 2009 year to 3.38% for the quarter.
The group said in a trading update that continued focus on risk-adjusted asset pricing has partially offset the compression in margins which was primarily driven by lower endowment resulting from the reduction in interest rates and liability margin compression.
Improved economic conditions and risk management practices resulted in the group credit loss ratio improving to 1.46% for the period (Q1 2009: 1.67%). This ratio is in line with seasonal expectations for the first quarter.
The credit loss ratio for Nedbank Corporate worsened slightly from the ratio for the year to December 2009, mainly in the Property Finance portfolio. Nedbank Capital's credit loss ratio for the quarter also increased relative to the 2009 year.
The company said that the worst of the economic downturn appears to be behind us.
"While the global recovery is fragile and we remain cautious about short-term growth prospects, the improving domestic economic conditions are starting to reflect positively in Nedbank Group's performance. This should lead to improved earnings in 2010 in line with our expectations given at the time of announcing the 2009 results," said Nedbank chief executive Mike Brown.
It is encouraging to see solid growth in core transactional revenue as part of the group's focus on improving non-interest revenue. This focus will continue, he said.
The company said the economic recovery is expected to be gradual as high levels of household indebtedness and resultant de-leveraging remain in place. In the corporate sector, although balance sheets have proven resilient through the cycle, downside risk remains, resulting in conservative risk appetites and restrained business volumes.
The group noted that during the first quarter, Nedbank Business Banking's credit loss ratio improved aided by client rehabilitations. Nedbank Bancassurance and Wealth improved and Nedbank Retail showed a modest improvement in its credit loss ratios primarily across the unsecured lending product categories compared to December 2009.
Improved client affordability, combined with stabilising house prices has contributed towards the ongoing improvement of early arrears in home loan advances. As anticipated defaulted home loan advances continued to rise albeit at a slower rate and cure rates on older defaulted advances remain challenging.
Non-interest revenue (NIR) increased by 18.9% to R3.034bn. On a like-for-like basis, excluding the acquisition of the balance of the
Bancassurance and Wealth joint ventures in June 2009, NIR growth was 10.4%.
Commission and fee income grew by 25.6% (18.4% excluding the joint ventures) from good transactional volume in all clusters and annual inflation-linked price increases.
Trading income increased by 31.8% to R555m on the back of improved equity trading. Nedbank Corporate's property private equity
earnings showed an improvement over the comparative period. These improvements were offset to an extent by negative fair value adjustments and lower private equity earnings in Nedbank Capital.
The group has maintained good expense management discipline whilst investing for growth. As expected, slower NII growth has contributed to a slight increase in the cost-to-income ratio. Importantly the ratio of NIR to expenses has improved from the December 2009 ratio.
Total assets grew 5.8% (annualised) to R578.9bn.
Advances growth remained muted and increased by 3.9% (annualised) to R454.7bn. Deposits of R470.8bn were higher than the
December 2009 balance of R469.4bn.
Nedbank Group reported in the annual results announcement that final regulatory approvals were received for Nedbank to acquire 100% of the ordinary and preference shares in Imperial Bank. The section 54 application has subsequently been submitted to the Regulator and the minister of finance to request approval to merge Nedbank and Imperial Bank. The purchase consideration of R1.775bn plus interest is being settled in four cash instalments, with the first payment having being made during the period.
The merged businesses will have a combined 30% share of the South African consumer vehicle and asset financing market.
Looking ahead, Nedbank said the South African economy is expected to gather momentum as the year progresses, although retail consumption expenditure is anticipated to remain muted.
While it believes that the worst of the economic cycle has passed, its outlook remains cautious.
"Our current outlook for earnings remains unchanged with growth in diluted headline earnings per share for 2010 expected to be in line with the guidance given at the time of announcing the 2009 results," it concluded.
- I-Net Bridge