Nedbank's growth path questioned

Johannesburg - Nedbank has its work cut out for it to come up with some innovative new growth strategies as competition for clients gets tougher.

That's the view of analysts following the release of full year results for the banking group. Nedbank reported a 29% decrease in headline earnings per share to 983c and an increase in provisions for bad debts, which rose by 24.7% to R9.8bn.

"The issue for them is that they have few avenues for growth, retail has proved a disaster and corporate and business banking is very competitive," said Patrice Rassou, a portfolio manager at Sanlam Investment Management (Sim).

Rassou points out that Absa is planning the rollout of a corporate banking offering and Rand Merchant Bank (RMB) was becoming more refocused on activities in the local market. This points to more competition in the local market.

Other analysts polled by Fin24.com indicated that they would be giving incoming chief executive Mike Brown a chance to put his own stamp on the business. Brown takes over from Tom Boardman on the first of March.

In an interview with Fin24.com, Brown was upbeat about the prospects for some of the bank's divisions. He said that the asset quality of the industrial and commercial property lending books had been a plus for the bank.

"We have taken less pain than we expected," he said.

Nedbank Capital and Nedbank Corporate have credit loss ratios of 0.26% and 0.24% but in the retail lending business this figure has risen to 3.08% of the portfolio. A challenge identified by Brown was the need to grow the retail lending business without raising the risk profile further.

Another segment of the business that Brown said he is keen to grow is the bancassurance and wealth offerings for Nedbank.

One of the key short-fallings that have been identified by analysts in previous years is Nedbank's lack of expansion plans into Africa. In 2009 Nedbank announced a strategic partnership with pan-African banking group Econbank. The joint venture sees Nedbank and Ecobank collaborating on deals and integrating technology platforms to facilitate easier transacting for clients of both banks.

The two have also established a knowledge centre to exchange skills.

Asked whether this relationship had shown much in the way of material benefits for Nedbank Brown said: "We see this as a defensive business and it will be a long time before we make any real money from this."

Shares in Nedbank closed down 0.4% (50c) at R121.50 on Thursday.

- Fin24.com