Nedbank Group First Quarter Performance Update
NEWS RELEASE
Old Mutual plc
Ref 205/18
10 May 2018
UPDATE ON NEDBANK GROUP'S PERFORMANCE FOR THE THREE MONTHS TO 31 MARCH 2018 AND PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND LIQUIDITY RATIOS AT 31 MARCH 2018
Nedbank Group Limited ("Nedbank Group"), the majority-owned South African banking subsidiary of Old Mutual plc, released its first quarter performance update today, 10 May 2018.
The following is the full text of Nedbank Group's announcement:
"UPDATE ON THE GROUP'S PERFORMANCE FOR THE THREE MONTHS TO 31 MARCH 2018
Nedbank Group produced a strong performance for the first three months of the year, underpinned by the return to profitability of Ecobank Transnational Incorporated (ETI) in their fourth-quarter of 2017 (equity-accounted one quarter in arrear in Nedbank Group's first quarter of 2018). Managed Operations performed in line with our expectations. While business and consumer confidence levels have improved, the beneficial impact thereof in the group's performance to date has largely been limited to improved trading and market-related activities. Credit demand and transactional activity has remained subdued, but an improvement is expected from the second half of 2018.
Net interest income grew at low- to mid-single-digit levels. The net interest margin (NIM) for the period widened ahead of the full-year 2017 level of 3,62% led by advances and funding mix benefits, as well as improved asset pricing.
The group's credit loss ratio (CLR) now reported under IFRS 9, increased in line with expectations and was slightly below the lower end of our 60 to 100 bps through-the-cycle target range.
Non-interest revenue grew just above mid-single-digit levels. Commission and fee growth reflects subdued levels of client transactional activity as well as accounting impacts from IFRS 15, offset by continued cross-sell and gains in clients across our retail and wholesale businesses. In line with the improved business sentiment, trading and private equity income grew strongly, while insurance income increased off a low base in the first quarter of 2017.
Disciplined expense management resulted in expenses growing in line with our expectations.
Associate income from the group's share of ETI's attributable income is equity-accounted one quarter in arrear, based on ETI's publicly disclosed results. In Q1 2018 the group's share of ETI's attributable profit of US $16,5m for their fourth quarter in 2017 (announced on 21 March 2018) was R42m (Q1 2017: R1 203m loss) and in Q2 2018 the group's share of ETI's attributable profit of US $77m for their first quarter in 2018 (announced on 23 April 2018) is estimated at R198m (subject to exchange rate movements) (Q2 2017: R142m). As a result, the group's associate income relating to ETI for the first six months of 2018 is estimated at R240m (H1 2017: R1 061m loss).
Our earnings guidance for 2018 remains the same as announced on 2 March 2018, where we noted: 'Reflecting on the impact on the group of the greater levels of business and consumer confidence evident in the early part of 2018, an improving economic outlook, ongoing delivery on our strategy and ETI's returning to sustained levels of profitability, our guidance for growth in diluted headline earnings per share for 2018 is to be in line with our medium-to-long-term target of greater than or equal to GDP plus CPI plus 5%.'
Shareholders are advised that the guidance is based on organic earnings and our latest macroeconomic outlook, and have not been reviewed or reported on by the group's auditors.
Pillar 3 Basel III capital adequacy, leverage and liquidity ratios at 31 March 2018
This quarterly Pillar 3 disclosure covers the operations of Nedbank Group Limited (group) as well as Nedbank Limited (bank) and complies with the Basel Committee on Banking Supervision's (BCBS) revised Pillar 3 disclosure requirements and the South African Reserve Bank's (SARB) Directive 1/2018.
|
|
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Nedbank Group |
|||||
|
|
|
Mar 2018 |
Dec 2017 |
Sep 2017 |
Jun 2017 |
Mar 2017 |
|
|
|
Available capital |
|
|
|
|
|
|
|
1 |
Common equity tier 1 (CET1) |
(Rm) |
59 438 |
60 313 |
60 772 |
56 274 |
56 592 |
|
1a |
Fully loaded ECL accounting model |
(Rm) |
59 438 |
|
|
|
|
|
2 |
Tier 1 |
(Rm) |
63 623 |
64 737 |
65 200 |
60 689 |
60 390 |
|
2a |
Fully loaded ECL accounting model Tier 1 |
(Rm) |
63 623 |
|
|
|
|
|
3 |
Total capital |
(Rm) |
77 046 |
75 920 |
76 384 |
73 994 |
73 153 |
|
3a |
Fully loaded ECL accounting model total capital |
(Rm) |
77 046 |
|
|
|
|
|
|
Risk-weighted assets |
|
|
|
|
|
|
|
4 |
Total risk-weighted assets (RWA) |
(Rm) |
542 314 |
528 206 |
522 810 |
516 051 |
508 793 |
|
|
Risk-based capital ratios as a percentage of RWA |
|
|
|
|
|
|
|
5 |
Common equity tier 1 ratio |
(%) |
11,0 |
11,4 |
11,6 |
10,9 |
11,1 |
|
5a |
Fully loaded ECL accounting model common equity tier 1 |
(%) |
11,0 |
|
|
|
|
|
6 |
Tier 1 ratio |
(%) |
11,7 |
12,3 |
12,5 |
11,8 |
11,9 |
|
6a |
Fully loaded ECL accounting model tier 1 ratio |
(%) |
11,7 |
|
|
|
|
|
7 |
Total capital ratio |
(%) |
14,2 |
14,4 |
14,6 |
14,3 |
14,4 |
|
7a |
Fully loaded ECL accounting model total capital ratio |
(%) |
14,2 |
|
|
|
|
|
|
Additional CET1 buffer requirements as a percentage of RWA |
|
|
|
|
|
|
|
8 |
Capital conservation buffer requirement |
(%) |
1,875 |
1,25 |
1,25 |
1,25 |
1,25 |
|
9 |
Countercyclical buffer requirement |
(%) |
|
|
|
|
|
|
10 |
Bank G-SIB and/or D-SIB additional requirements |
(%) |
|
|
|
|
|
|
11 |
Total of bank CET1 specific buffer requirements (row 8 + row 9 + row 10) |
(%) |
1,875 |
1,25 |
1,25 |
1,25 |
1,25 |
|
12 |
CET1 available after meeting the bank's minimum capital requirements |
(%) |
3,6 |
4,2 |
4,4 |
3,7 |
3,9 |
|
|
Basel III leverage ratio |
|
|
|
|
|
|
|
13 |
Total Basel III leverage ratio exposure measure |
(Rm) |
1 019 589 |
1 009 172 |
1 013 565 |
1 000 130 |
999 644 |
|
14 |
Basel III leverage ratio (row 2/row 13) |
(%) |
6,2 |
6,4 |
6,4 |
6,1 |
6,0 |
|
14a |
Fully loaded ECL accounting model Basel III leverage ratio (row 2a /row13) |
(%) |
6,2 |
|
|
|
|
|
|
Liquidity Coverage Ratio |
|
|
|
|
|
|
|
15 |
Total HQLA |
(Rm) |
139 476 |
138 180 |
151 314 |
144 568 |
141 704 |
|
16 |
Total net cash outflow |
(Rm) |
132 001 |
118 956 |
125 652 |
138 260 |
144 159 |
|
17 |
LCR ratio |
(%) |
105,7 |
116,2 |
120,0 |
104,6 |
98,3 |
Basel III capital adequacy
Both the group and bank remain well capitalised at levels significantly above the minimum regulatory requirements. The common-equity tier 1 ratios of 12,5% (December 2017: 12,6%) and 12,3% (December 2017: 12,6%), respectively are reflective of organic capital generation and growth in risk weighted assets during the period and include the full impact of the implementation of IFRS 9 on 1 January 2018. The group CET 1 capital ratio also decreased marginally following the strengthening of the ZAR against the USD during the period. The total tier 1 and total capital adequacy ratios were adversely impacted by a further grandfathering of old-style preference shares (R531m) in January 2018 in line with the Basel III transitional arrangements. The total CARs were positively impacted by the issuance of further new-style tier 2 capital of R2bn during March 2018.
The following table sets out the capital ratios including unappropriated profits at 31 March 2018:
|
% |
Nedbank Group |
Nedbank Limited |
|
Including unappropriated profits |
|
|
|
Common-equity tier 1 capital |
12,5 |
12,3 |
|
Tier 1 capital |
13,2 |
13,3 |
|
Total capital |
15,7 |
16,5 |
OV1: OVERVIEW OF RISK-WEIGHTED ASSETS
|
|
|
Nedbank Group |
Nedbank Limited1 |
||||
|
|
|
Mar 2018 |
Dec 2017 |
Mar 2018 |
Dec 2017 |
||
|
|
|
RWA |
MRC2 |
RWA |
RWA |
MRC2 |
RWA |
|
1 |
Credit risk |
365 177 |
40 626 |
356 893 |
305 159 |
33 949 |
295 646 |
|
2 |
Standardised Approach |
38 064 |
4 235 |
37 410 |
415 |
46 |
426 |
|
3 |
AIRB Approach |
327 113 |
36 391 |
319 483 |
304 744 |
33 903 |
295 220 |
|
4 |
Counterparty credit risk |
27 269 |
3 034 |
23 921 |
26 583 |
2 957 |
23 169 |
|
5 |
Current Exposure Method |
27 269 |
3 034 |
23 921 |
26 583 |
2 957 |
23 169 |
|
7 |
Equity positions in banking book under Market-based Approach |
27 537 |
3 063 |
26 927 |
20 482 |
2 279 |
20 386 |
|
12 |
Securitisation exposures in banking book under Internal Ratings-based Approach |
546 |
61 |
621 |
546 |
61 |
621 |
|
16 |
Market risk |
21 157 |
2 354 |
17 142 |
18 240 |
2 029 |
14 046 |
|
17 |
Standardised Approach |
3 750 |
417 |
3 643 |
1 394 |
155 |
1 222 |
|
18 |
Internal Model Approach |
17 407 |
1 937 |
13 499 |
16 846 |
1 874 |
12 824 |
|
19 |
Operational risk |
66 333 |
7 379 |
66 333 |
57 664 |
6 415 |
57 664 |
|
21 |
Standardised Approach |
6 030 |
671 |
6 030 |
16 |
1 |
16 |
|
22 |
Advanced Measurement Approach |
52 596 |
5 851 |
52 596 |
50 380 |
5 605 |
50 380 |
|
24 |
Floor adjustment |
7 707 |
857 |
7 707 |
7 268 |
809 |
7 268 |
|
23 |
Amounts below the thresholds for deduction (subject to 250% risk weighting) |
12 956 |
1 441 |
15 016 |
2 373 |
264 |
2 058 |
|
25 |
Other assets (100% risk weighting) |
21 339 |
2 374 |
21 353 |
18 096 |
2 013 |
17 616 |
|
26 |
Total |
542 314 |
60 332 |
528 206 |
449 143 |
49 967 |
431 206 |
1 Nedbank Limited refers to the SA reporting entity in terms of regulation 38 (BA700) of the regulations relating to banks issued in terms of the Banks Act (Act No 94 of 1990).
2 Total minimum required capital (MRC) is measured at 11,125% in line with the transitional requirements and excludes bank-specific Pillar 2b and D-SIB capital requirements.
Credit RWA
Nedbank Limited's lending portfolios make up approximately 94% of the total credit extended by the group and utilise the AIRB Approach. The lending portfolios of Nedbank Private Wealth International, the Rest of Africa subsidiaries and some of the legacy Imperial Bank portfolio remain on TSA.
CR8: RWA FLOW STATEMENTS OF CREDIT RISK EXPOSURES UNDER AIRB
|
Rm |
|
RWA |
|
1 |
RWA at 31 December 2017 |
319 483 |
|
2 |
Asset size |
4 567 |
|
3 |
Asset quality |
1 552 |
|
4 |
Model updates |
1 500 |
|
5 |
Methodology and policy |
|
|
6 |
Acquisitions and disposals |
|
|
7 |
Foreign exchange movements |
|
|
8 |
Other |
11 |
|
9 |
RWA at 31 March 2018 |
327 113 |
Market RWA
Trading activity in Nedbank Corporate and Investment Banking (CIB) is primarily focused on client activities and flow trading. This includes market making and the facilitation of client business in the foreign exchange, interest rate, equity, credit and commodity markets. There were no incremental or comprehensive risk capital charges.
MR3: RWA FLOW STATEMENT OF MARKET RISK EXPOSURES UNDER IMA
|
Rm |
|
VaR |
Stressed VaR |
Total RWA |
|
1 |
RWA at 31 December 2017 |
5 066 |
8 433 |
13 499 |
|
2 |
Movement in risk levels |
1 319 |
700 |
2 018 |
|
3 |
Model updates/changes |
|
|
|
|
4 |
Methodology and policy |
|
|
|
|
5 |
Acquisitions and disposals |
|
|
|
|
6 |
Foreign exchange movements |
467 |
1 422 |
1 890 |
|
7 |
Other |
|
|
|
|
8 |
RWA at 31 March 2018 |
6 852 |
10 555 |
17 407 |
Leverage ratio
The leverage ratio is a supplementary measure to risk-based capital requirements. The leverage ratios of both the group and bank are well above minimum regulatory requirements.
LR1: SUMMARY COMPARISON OF ACCOUNTING ASSETS VS LEVERAGE RATIO EXPOSURE MEASURE
|
Item |
Mar 2018 |
|
|
1 |
Total consolidated assets as per published financial statements |
993 447 |
|
2 |
Adjustment for investments in banking, financial, insurance or commercial entities that are consolidated for accounting purposes but outside the scope of regulatory consolidation |
|
|
3 |
Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative accounting framework but excluded from the leverage ratio exposure measure |
|
|
4 |
Adjustments for derivative financial instruments |
(5 315) |
|
5 |
Adjustment for securities financing transactions (ie repos and similar secured lending) |
(16 243) |
|
6 |
Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) |
51 142 |
|
7 |
Other adjustments |
(3 442) |
|
8 |
Leverage ratio exposure |
1 019 589 |
LR2: LEVERAGE RATIO COMMON DISCLOSURE TEMPLATE
|
Item |
Mar 2018 |
Dec 2017 |
|
|
On-balance sheet exposures |
|
|
|
|
1 |
On-balance sheet items (excluding derivatives and SFTs, but including collateral) |
956 768 |
941 050 |
|
2 |
Asset amounts deducted in determining Basel III Tier 1 capital |
(13 718) |
(15 445) |
|
3 |
Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2) |
943 050 |
925 605 |
|
Derivative exposures |
|
|
|
|
4 |
Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) |
19 559 |
25 358 |
|
5 |
Add-on amounts for PFE associated with all derivatives transactions |
13 818 |
13 372 |
|
6 |
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework |
1 363 |
1 452 |
|
7 |
Deductions of receivables assets for cash variation margin provided in derivatives transactions |
|
(142) |
|
8 |
Exempted CCP leg of client-cleared trade exposures |
(10 826) |
(8 791) |
|
9 |
Adjusted effective notional amount of written credit derivatives |
395 |
1 845 |
|
10 |
Credit derivatives (protection bought) (same reference name with equal to or greater remaining maturity) |
(680) |
(1 998) |
|
11 |
Total derivative exposures (sum of lines 4 to 10) |
23 629 |
31 096 |
|
Securities financing transaction exposures |
|
|
|
|
12 |
Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions |
18 109 |
17 366 |
|
13 |
Netted amounts of cash payables and cash receivables of gross SFT assets |
(17 333) |
(16 758) |
|
14 |
CCR exposure for SFT assets |
776 |
609 |
|
15 |
Agent transaction exposures |
216 |
112 |
|
16 |
Total securities financing transaction exposures (sum of lines 12 to 15) |
1 768 |
1 329 |
|
Other off-balance sheet exposures |
|
|
|
|
17 |
Off-balance sheet exposure at gross notional amount |
197 398 |
197 398 |
|
18 |
Adjustments for conversion to credit equivalent amounts |
(146 256) |
(146 256) |
|
19 |
Off-balance sheet items (sum of lines 17 and 18) |
51 142 |
51 142 |
|
Capital and total exposures |
|
|
|
|
20 |
Tier 1 capital |
63 623 |
64 737 |
|
21 |
Total exposures (sum of lines 3, 11, 16 and 19) |
1 019 589 |
1 009 172 |
|
Leverage ratio1 |
|
|
|
|
22 |
Basel III leverage ratio (%) |
6,2 |
6,4 |
1 Basis of preparation for the leverage ratio is quarterly averaging.
Liquidity coverage ratio (LCR)
In accordance with the provisions of section 6(6) of the Banks Act, 1990 (Act No 94 of 1990), banks are directed to comply with the relevant LCR disclosure requirements, as set out in Directive 6/2014, Directive 11/2014 and Directive 1/2018.
The LCR aims to ensure that a bank holds an adequate stock of unencumbered high quality liquid assets (HQLA) to cover total net cash outflows over a 30-day period under a prescribed stress scenario. Based on the final revisions announced by the Basel Committee the LCR is being phased-in by 10% each year and will reach a minimum requirement of 100% from 1 January 2019.
The figures below reflect the simple average of daily observations over the quarter ending 31 March 2018 for Nedbank Limited and the simple average of the month-end values at 31 January 2018, 28 February 2018 and 31 March 2018 for all non-SA banking entities. The figures are based on the regulatory submissions to SARB.
|
|
|
Nedbank Group Limited1 |
Nedbank Limited |
||
|
Rm |
Total |
Total |
Total |
Total |
|
|
1 |
Total HQLA |
|
139 476 |
|
134 784 |
|
|
Cash outflows |
|
|
|
|
|
2 |
Retail deposits and deposits from small-business clients, of which |
175 866 |
17 428 |
160 521 |
16 052 |
|
3 |
stable deposits |
3 162 |
158 |
|
|
|
4 |
less stable deposits |
172 704 |
17 270 |
160 521 |
16 052 |
|
5 |
Unsecured wholesale funding, of which |
246 276 |
121 572 |
214 762 |
107 157 |
|
6 |
operational deposits (all counterparties) and deposits in institutional networks of cooperative banks |
123 490 |
30 883 |
105 495 |
26 374 |
|
7 |
non-operational deposits (all counterparties) |
122 313 |
90 216 |
109 083 |
80 599 |
|
8 |
unsecured debt |
473 |
473 |
184 |
184 |
|
9 |
Secured wholesale funding |
24 109 |
|
23 882 |
|
|
10 |
Additional requirements, of which |
101 903 |
17 602 |
91 974 |
14 759 |
|
11 |
outflows related to derivative exposures and other collateral requirements |
758 |
758 |
723 |
723 |
|
12 |
outflows related to loss of funding on debt products |
|
|
|
|
|
13 |
credit and liquidity facilities |
101 145 |
16 844 |
91 251 |
14 036 |
|
14 |
Other contractual funding obligations |
|
|
|
|
|
15 |
Other contingent funding obligations |
164 688 |
8 531 |
155 642 |
8 068 |
|
16 |
Total cash outflows |
712 842 |
165 133 |
646 781 |
146 036 |
|
|
Cash inflows |
|
|
|
|
|
17 |
Secured lending |
15 296 |
38 |
15 296 |
38 |
|
18 |
Inflows from fully performing exposures |
50 036 |
32 332 |
37 196 |
21 817 |
|
19 |
Other cash inflows |
4 263 |
4 143 |
522 |
522 |
|
20 |
Total cash inflows |
69 595 |
36 513 |
53 014 |
22 377 |
|
21 |
Total HQLA |
|
139 476 |
|
134 784 |
|
22 |
Total net cash outflows4 |
|
132 001 |
|
123 659 |
|
23 |
LCR (%) |
|
105,7 |
|
109,0 |
1 Only banking and/or deposit-taking entities are included and the group data represents an aggregation of the relevant individual net cash outflows and the individual HQLA portfolios, where surplus HQLA holdings in excess of the minimum requirement of 90% for 2018 have been excluded from the aggregated HQLA number in the case of all non-SA banking entities.
2 Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).
3 Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).
4 Note that total cash outflows less total cash inflows may not be equal to total net cash outflows to the extent that regulatory caps have been applied to cash inflows as specified by the regulations.
The group's quarterly average LCR exceeded the minimum regulatory requirement of 90% applicable in 2018, where the group maintains appropriate operational buffers designed to absorb seasonal and cyclical volatility in the LCR. Nedbank's portfolio of LCR‑compliant HQLA (comprising mainly of government bonds and treasury bills) increased to a quarterly average of R139,5bn, up marginally from December 2017 where the portfolio amounted to R138,2bn. Nedbank will continue to procure additional HQLA to support balance sheet growth and the LCR phase-in, while maintaining appropriately sized surplus liquid-asset buffers. The lower LCR observed in the current quarter (105,7%), compared with the previous quarter (116,2%), relates to a business-as-usual seasonal trends observed every year after the December holiday period.
Shareholders are advised that this report has not been reviewed or reported on by the group's auditors.
Sandton
10 May 2018"
Enquiries
|
External communications |
|
|
Patrick Bowes |
+44 20 7002 7440 |
|
Investor relations |
|
|
Dominic Lagan (Old Mutual plc) |
+44 20 7002 7190 |
|
John-Paul Crutchley (Quilter) |
+44 20 7002 7016 |
|
Nwabisa Piki (Old Mutual Emerging Markets) |
+27 11 217 1951 |
|
Media |
|
|
William Baldwin-Charles |
+44 20 7002 7133 +44 7834 524833 |
Notes to Editors
About Old Mutual plc
Old Mutual plc is a holding company for several financial services companies. In March 2016, it announced a new strategy of managed separation entailing the separation of its underlying businesses into independently-listed, standalone entities.
BrightSphere Investment Group, a US based institutional asset manager, which rebranded from OM Asset Management in March 2018, is now independent from Old Mutual. The remaining underlying businesses are:
OML (which includes Old Mutual Emerging Markets): OML has an ambition to become a premium financial services group in sub-Saharan Africa and offers a broad spectrum of financial solutions to retail and corporate customers across key market segments in 17 countries.
Nedbank: Nedbank ranks as a top-5 bank by capital on the African continent and Ecobank, in which Nedbank maintains a 21.2% shareholding, ranks within the top-10 banks by assets on the African continent.
Quilter: Quilter (formerly Old Mutual Wealth) is a leader in the UK and in selected offshore markets in wealth management, providing advice-led investment solutions and investment platforms to over 900,000 customers, principally in the affluent market segment.
For the year ended 31 December 2017, Old Mutual reported an adjusted operating profit before tax of £2.0 billion. For further information on Old Mutual plc and the underlying businesses, please visit the corporate website at www.oldmutualplc.com.
This information is provided by RNS
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