Nedbank Group Limited - Q1 2011 trading update
Ref 52/11
6 May 2011
Old Mutual plc
Nedbank Group Limited - First Quarter 2011 Trading Update
Nedbank Group Limited ("Nedbank Group"), the majority owned South African banking subsidiary of Old Mutual plc, released its first quarter trading update today, 6 May 2011. The announcement can be found on the company's website www.nedbankgroup.co.za.
The following is the full text of Nedbank Group's announcement:
"NEDBANK GROUP - FIRST QUARTER 2011 TRADING UPDATE
"The group had a good first quarter and made strong progress against its strategic objectives.
We have seen ongoing improvement in performance, building on the momentum created in the 2nd half of 2010. This resulted in continued revenue growth, improvement in impairments and margins are showing signs of recovery. The group's focus on growth is evident from the strong progress in the delivery of our NIR growth strategy, the turnaround in our retail business and our focus on "portfolio tilt" towards businesses that generate higher levels of economic profit."
Mike Brown
Chief Executive
OPERATING ENVIRONMENT
Local economic conditions improved in early 2011. Momentum mainly came from stronger consumer spending, improved labour market conditions, improving household disposable income and continued low interest rates. Household demand for credit has continued to favour instalment sales, leasing finance and personal loans while home loan demand remains muted.
Manufacturing production and exports also increased, after a slow start to the year, resulting in improved business confidence.
Globally, doubts about the strength and sustainability of the current economic recovery remain. Concerns over the impact of tighter monetary policies in China, surging global food and fuel prices, the devastating impact of Japan's natural disaster on supply chains globally and continued high levels of sovereign debt in Europe and the United States of America have made businesses hesitant to overextend and commit to capital expenditure whilst corporate activity remains subdued.
OPERATIONAL PERFORMANCE
Nedbank Group's earnings momentum that developed in the second half of 2010 continued in the first quarter of 2011 with performance in line with the guidance provided on key financial indicators in the 2010 annual results announcement.
Net interest income grew by 5,9% to R4 284 million (Q1 2010: R4 046 million). Average interest-earning banking assets increased by 4,4%. The net interest margin improved from 3,35% for the 2010 financial year to 3,42% for the quarter (Q1 2010: 3,38%). This was primarily due to the ongoing benefit of pricing assets to more appropriately reflect risk and funding costs, asset mix changes and the lower funding cost of term liquidity during the quarter. These factors were partially offset by the ongoing endowment effect of the 2010 interest rate cuts with the average interest rate being 1,47% lower than in Q1 2010.
Proactive risk management and the lower interest rates contributed to the credit loss ratio improving to 1,15% (Q1 2010: 1,46%). The reduction of impairments has moved the credit loss ratio closer towards the top end of the group's 0,60% to 1,00% target range with improvements in Nedbank Capital and Nedbank Retail. There has been improvement in specific impairments and the group has maintained a prudent approach to portfolio provisions.
Non-interest revenue increased by 16,4% to R3 531 million (Q1 2010: R3 034 million). Commission and fee income grew by 14,0% primarily as a result of continued growth in primary clients and transactional volumes in electronic banking. Nedbank Wealth achieved good growth in advice-based sales, insurance income and assets under management. Insurance income grew by 12,2%. Trading income increased by 13,2% to R628 million, driven by improved foreign currency trading performance and increased foreign exchange volumes in the Global Markets division, in addition to good performance from the Equity Trading division. Nedbank Corporate's property private equity earnings decreased as a result of slower growth in asset valuations. Nedbank Capital's improved private equity earnings were partially offset by lower levels of positive fair value adjustments compared to Q1 2010. NIR included negative fair-value adjustments of R46 million (Q1 2010: negative R45 million) on the group's subordinated debt resulting from the tightening of credit spreads. Total fair value adjustments improved from negative R116 million in Q1 2010 to negative R28 million.
The NIR-to-expenses ratio improved from the levels achieved in 2010 reflecting strong growth in NIR and disciplined expense control.
Total assets grew 0,6% (annualised) to R609,7 billion (December 2010: R608,8 billion). Advances increased modestly by 0,8% (annualised) to R476,2 billion (December 2010: R475,3 billion) reflecting the generally muted demand for credit. The group's focus on portfolio tilt resulted in slower home loan advances growth offset by an increase in other advances categories, such as wholesale advances, credit card balances, personal loans and vehicle and asset finance. Deposits of R488,9 billion decreased by 1,2% (annualised) from the December 2010 balance of R490,4 billion reflecting slow asset growth and limited demand for deposits while interest rates remain at their lowest levels for 36-years.
The group continued to increase liability duration and during the quarter the group exceeded its 2011 long term funding target ratio of 25% and further increased liquidity buffers. Investor appetite for Nedbank Limited debt issuances was strong and resulted in over R3 billion of senior debt being issued at competitive rates. This issue was 1,7 times oversubscribed
The group's capital adequacy ratios remained well above current and expected Basel III regulatory minima and continued to increase resulting in a 10,8% Core Tier 1 ratio. We expect these ratios to benefit further from the group's ongoing risk weighted asset optimisation programme and increased earnings.
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Q1 2011 ratio |
FY 2010 ratio |
Internal target range (Basel II) |
Regulatory minimum (Basel II) |
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Core Tier 1 ratio |
10,8% |
10,1% |
7,5% to 9,0% |
5,25% |
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Tier 1 ratio |
12,4% |
11,7% |
8,5% to 10,0% |
7,00% |
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Total capital ratio |
15,7% |
15,0% |
11,5% to 13,0% |
9,75% |
(Ratios include unappropriated profits)
PROSPECTS
The South African economic recovery is expected to strengthen and broaden in 2011. Gross domestic product is currently forecast to grow by 3,3% driven mainly by improving consumer spending and continued growth in exports. Consumers should benefit from rising household incomes, increased social benefits, a modest increase in employment and low interest rates.
The group expects interest rates to remain unchanged throughout 2011, but the upside risks have increased due mainly to rising global food and fuel prices. Rising cost pressures and the risk of potential interest rate hikes may constrain household spending and borrowing later in the year. Producers should benefit from continued demand for commodities driven by rapid growth in China and other emerging markets, but capital expenditure is likely to remain subdued due to pressure on power supply should the economy expand too quickly together with other infrastructure constraints and continued concerns over global growth prospects.
The group's earnings guidance for 2011 given at the time of the 2010 results announcement remains unchanged.
Shareholders are reminded that this outlook and the figures mentioned in the "operational performance" section have not been reviewed or reported on by the group's auditors.
FORWARD-LOOKING STATEMENT
This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of Nedbank Group and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, global, national and regional economic conditions, levels of securities markets, interest rates, credit or other risks of lending and investment activities, together with competitive and regulatory factors.
Sandton
6 May 2011"
Enquiries
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External Communications |
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Patrick Bowes |
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+44 (0)20 7002 7440 |
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Investor Relations |
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Deward Serfontein |
SA |
+27 (0)82 810 5672 |
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Aleida White |
UK |
+44 (0)20 7002 7287 |
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Media |
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William Baldwin-Charles |
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+44 (0)20 7002 7133 |
Notes to Editors
Old Mutual
Old Mutual plc is an international long-term savings, protection and investment Group. Originating in South Africa in 1845, the Group provides life assurance, asset management, banking and general insurance to more than 15 million customers in Europe, the Americas, Africa and Asia. Old Mutual plc is listed on the London Stock Exchange and the Johannesburg Stock Exchange, among others.
In the year ended 31 December 2010, the Group reported adjusted operating profit before tax of £1.5 billion (on an IFRS basis) and had £309 billion of funds under management, from core operations.
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
This information is provided by RNS
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