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Johannesburg - Nedbank Group's net interest margin narrowed to 3.32% in the third quarter of 2015, compared to 3.53% in the third quarter of 2014 and 3.36% in June 2015.
According to CEO Mike Brown, this was as the benefits of endowment income and improved pricing in certain advances categories were offset by asset mix changes, increased levels of high-quality liquid assets and a higher cost of funding.
By mid-afternoon Nedbank Group's share price was down 1.58% at R226.84.
Nedbank Group [JSE:NED] is the majority-owned banking subsidiary of Old Mutual [JSE:OML]. According to Brown, the banking group delivered a resilient performance for the nine months, despite the weaker than expected economic environments and volatile market conditions in South Africa and in the rest of Africa.
"Our expectation of organic growth in diluted headline earnings per share in 2015 to be above nominal gross domestic product (GDP) growth remains unchanged," said Brown.
Nedbank Group's net interest income for the nine months ended September 30 2015 increased 3.7% to R17 681m.
This was supported by annualised growth in average interest-earning banking assets of 10.4%, including an increased proportion of high quality liquid assets held for Basel III liquidity coverage ratio requirements.
READ: Nedbank lifts profit on fee income
The credit loss ratio (CLR) remained below the group's through-the-cycle target range at 0.76% - compared to 0.77% in 2014.
Brown added that the retail portfolio continued to benefit from selective origination, prudent credit granting criteria and good collections in home loans and personal loans. In wholesale banking, portfolio and specific provisions were further strengthened, he said, driven by pressure in the commodity sectors, offset in part by some recoveries in commercial property finance.
Non-interest revenue (NIR) increased 7.6% to R15 614m. Brown said this was due to commission and fee income growth of 6.3%, underpinned by continued net gains in transactional banking clients, improved cross-sell and growing contributions from our digital banking products.
Trading income growth of 23.6% was driven by its client-led markets business, while insurance income reduced by 2.1% following lower personal loan volumes. This was partially offset by a lower short-term claims experience. Private equity and sundry income decreased by 16.6% from lower mark-to-market valuations in the investment portfolios.
Total advances increased by 10.4% (annualised) to R660.8bn, largely due to growth in banking advances of 9%. Deposits increased by 11.3% (annualised) to R708.5bn.
"Our balance sheet metrics remain strong," said Brown.
The group has revised its forecast for GDP growth for 2015 downwards from 2% to 1.4%. Interest rates are currently forecast to increase by a further 25 basis points in November 2015, resulting in a cumulative 50 basis point increase for 2015, according to the group.
"In view of the economic headwinds and increasing interest rate cycle, consumer credit demand will remain subdued while credit growth in the wholesale sector is expected to remain at current levels," the group stated.
"Retail impairments are expected to remain benign, while wholesale impairments are likely to be more volatile in South Africa and in the rest of Africa. Shareholders are advised that the forecasts and figures stated in this trading update have not been reviewed or reported on by the group's auditors."
