Nedbank Group headline earnings up by 10% – Solid financial performance amid challenging operating environment
Nedbank Group delivered a solid financial performance for the six months to 30 June 2023 as headline earnings (HE) increased by 10% to R7,3bn in a challenging operating environment and return on equity (ROE) increased to 14,2% (H1 2022: 13,6%).
In an announcement on Tuesday, the group said the increase in headline earnings was underpinned by strong revenue growth, including associate income, of 14% and good expense management, enabling pre-provisioning operating profit growth of 22%.
This was partially offset by a 57% increase in the impairment charge, particularly in the retail consumer banking segment in South Africa.
The operating environment in the first half was much more challenging than we had initially forecast, Nedbank Chief Executive Mike Brown said.
“In addition to a weak global economy and lower commodity prices, domestic economic activity continued to be negatively impacted by very high levels of load-shedding, logistical constraints, higher-than-expected levels of inflation, and as a result higher-than-expected increases in interest rates.
The group’s solid financial performance and strong balance sheet metrics enabled the group to declare an interim dividend of 871 cents per share, up by 11%, at a payout ratio of 57%.
Dr Terence G. Sibiya, Nedbank Group Managing Executive, Nedbank Africa Regions, said, “I am incredibly pleased that the NAR cluster delivered a stellar performance achieved because of improved performances from the SADC operations & strong earnings from our Ecobank Transnational Incorporated (ETI) associate investment and the release of the R175m Ghana domestic sovereign bond provision we took in 2022”.
The Nedbank Africa Regions (NAR) business has operations in Eswatini, Lesotho, Mozambique, Namibia, and Zimbabwe as well as representative offices in Ghana and Kenya.
Nedbank Group also has a 21,2% shareholding in Ecobank Transnational Incorporated (ETI), which is a leading private pan-African banking group present in thirty-five (35) sub-Saharan African countries in Francophone West Africa, Nigeria, Anglophone West Africa, and Central, Eastern and Southern Africa (CESA).
Dr Sibiya said, “I am also happy that our ETI associate investment has continued to deliver an impressive performance. With the ongoing performance improvement, ETI has declared dividends in the last two cycles. A new Group Chief Executive, Jeremy Awori, assumed full executive responsibility at ETI effective 1 March 2023, and as a banking veteran his new leadership bodes well for the group’s future.”
Nedbank currently expects the economic environment in SA to remain very challenging, particularly given the high levels of electricity shortages and increased levels of pressure on consumers’ disposable income as a result of higher levels of inflation and interest rates.
To support our clients during these challenging times, we offer clients tailored payment plans to help address their temporary financial distress and provide restructures and debt consolidation options that reduce monthly debt payments to help clients deal with the increase in interest rates and keep them in their homes and their vehicles.
The Nedbank Group Economic Unit currently forecasts SA’s gross domestic product (GDP) to increase by only 0,3% in 2023 and interest rates to remain at elevated levels, with the repo rate at 8,25% and the prime lending rate at 11,75% for the remainder of the year.
The International Monetary Fund (IMF) expects sub-Saharan Africa to grow by a softer 3,5% in 2023, down from 3,9% in 2022, before accelerating to 4,1% in 2024. With considerable uncertainty surrounding the outlook for world growth, inflation, and interest rates, global risk appetites and markets are likely to remain volatile and conditions in the banking industry are likely to remain challenging. We continue to monitor the socio-political situations in Eswatini, Mozambique, and Zimbabwe (elections this month) for their potential impact on their economies and their growth.
Responsive management action plans are in place to deal with Zimbabwe’s hyperinflationary environment and macroeconomic policy uncertainties.
“The solid financial performance in H1 2023 supports our ambition of achieving our published 2023 targets an ROE greater than the 2019 ROE level of 15% and a cost-to-income ratio of below 54%, but the deteriorating macroeconomic environment has made these and our medium-term targets for 2025 more difficult to achieve. Pleasingly, in 2022 we had already achieved our 2023 target of exceeding the group’s 2019 diluted headline earnings per share (DHEPS) of 2 565 and we aim to maintain our current #1 ranking on Net Promoter Score (NPS) among South African banks,” Brown said.