Nedbank Group Limited - Q1 20
Ref 32/10
4 May 2010
Old Mutual plc
NEDBANK GROUP LIMITED - FIRST QUARTER 2010 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, 4 May 2010. The full Nedbank Group first quarter 2010 trading update can be found on the company's website www.nedbank.co.za.
The following is the full text of Nedbank Group's announcement:
""The worst of the economic downturn appears to be behind us. Whilst the global recovery is fragile and we remain cautious about short term growth prospects, the improving domestic economic conditions are starting to reflect positively in Nedbank Group's performance. This should lead to improved earnings in 2010 in line with our expectations given at the time of announcing the 2009 results."
"It is encouraging to see solid growth in core transactional revenue as part of our focus on improving non-interest revenue. This focus will continue as we strive to build Africa's most admired bank."
Mike Brown
Chief Executive
OPERATING ENVIRONMENT
In March 2010 interest rates were reduced by a further 50 basis points, lowering the prime rate to 10.0%. South African banks continued to advance credit to households and businesses, supported by the healthy liquidity and capital profile of the industry.
The economic recovery is expected to be gradual as high levels of household indebtedness and resultant de-leveraging remain in place. In the corporate sector, although balance sheets have proven resilient through the cycle, downside risk remains, resulting in conservative risk appetites and restrained business volumes.
OPERATIONAL PERFORMANCE
The group has performed in line with the guidance given in the 2009 annual results announcement for our key financial indicators.
Net interest income (NII) decreased by 2.0% to R4,046 million for the quarter ended 31 March 2010 ("the quarter") (Q1 2009: R4,128 million). The prime rate averaged 10.47% for the quarter, 3.89% lower than the average rate in Q1 2009. Average interest-earning banking assets increased by 0.8%. The net interest margin (NIM) narrowed from 3.39% for the 2009 year to 3.38% for the quarter (Q1 2009: 3.48%). Continued focus on risk-adjusted asset pricing has partially offset the compression in margins which was primarily driven by lower endowment resulting from the reduction in interest rates and liability margin compression.
Improved economic conditions and risk management practices resulted in the group credit loss ratio improving to 1.46% for the period (Q1 2009: 1.67%). This ratio is in line with seasonal expectations for the first quarter. The credit loss ratio for Nedbank Corporate worsened slightly from the ratio for the year to December 2009, mainly in the Property Finance portfolio. Nedbank Capital's credit loss ratio for the quarter also increased relative to the 2009 year. Nedbank Business Banking's credit loss ratio improved aided by client rehabilitations. Nedbank Bancassurance and Wealth improved and Nedbank Retail showed a modest improvement in its credit loss ratios primarily across the unsecured lending product categories compared to December 2009. Improved client affordability, combined with stabilising house prices has contributed towards the ongoing improvement of early arrears in home loan advances. As anticipated defaulted home loan advances continued to rise albeit at a slower rate and cure rates on older defaulted advances remain challenging.
Non-interest revenue (NIR) increased by 18.9% to R3,034 million (Q1 2009: R2,551 million). On a like-for-like basis, excluding the acquisition of the balance of the Bancassurance & Wealth joint ventures in June 2009, NIR growth was 10.4%. Commission and fee income grew by 25.6% (18,4% excluding the joint ventures) from good transactional volume in all clusters and annual inflation-linked price increases. Trading income increased by 31.8% to R555 million on the back of improved equity trading. Nedbank Corporate's property private equity earnings showed an improvement over the comparative period. These improvements were offset to an extent by negative fair value adjustments and lower private equity earnings in Nedbank Capital.
The group has maintained good expense management discipline whilst investing for growth. As expected, slower NII growth has contributed to a slight increase in the cost-to-income ratio. Importantly the ratio of NIR to expenses has improved from the December 2009 ratio.
Total assets grew 5.8% (annualised) to R578.9 billion (December 2009: R570.7 billion). Advances growth remained muted and increased by 3.9% (annualised) to R454.7 billion (December 2009: R450.3 billion). Deposits of R470.8 billion were 1.3% (annualised) higher than the December 2009 balance of R469.4 billion.
Capital and liquidity management remains fundamental to the group. As previously communicated, the strong capital ratios which are above the group's internal targets, allowed for the acquisition of the minority shareholding in Imperial Bank to be settled in cash. This resulted in a marginal decrease of approximately 0.5% in the group's capital adequacy ratios as the full purchase consideration has been accounted for during the period. The group's capital ratios remain well above target levels and it is anticipated that for the 2010 year these ratios will return to levels similar to those reported at the end of 2009.
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Q1 2010 ratio |
FY 2009 ratio |
Internal Target range |
Regulatory minimum |
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Core Tier 1 ratio |
9.8% |
9.9% |
7.5% to 9.0% |
5.25% |
|
Tier 1 ratio |
11.4% |
11.5% |
8.5% to 10.0% |
7.00% |
|
Total capital ratio |
14.7% |
14.9% |
11.5% to 13.0% |
9.75% |
(ratios calculated including unappropriated profits)
Nedbank Group has continued to manage funding and liquidity prudently. Funding markets have improved and there has been good appetite for Nedbank Limited debt issuances. During the first quarter of 2010, Nedbank Limited issued over R3 billion of senior debt. In addition, a further R3 billion was issued in April. This has enabled the group to further diversify its funding base and lengthen the average term of funding.
UPDATE ON ACQUISITION OF IMPERIAL BANK
Nedbank Group reported in the annual results announcement that final regulatory approvals were received for Nedbank Limited to acquire 100% of the ordinary and preference shares in Imperial Bank. The section 54 application has subsequently been submitted to the Regulator and the Minister of Finance to request approval to merge Nedbank Limited and Imperial Bank Limited. The purchase consideration of R1,775 million plus interest is being settled in four cash instalments, with the first payment having being made during the period.
The merged businesses will have a combined 30% share of the South African consumer vehicle and asset financing market.
PROSPECTS
The South African economy is expected to gather momentum as the year progresses with GDP growth of 2.8% currently forecast for 2010, driven by improving commodity prices and increasing exports, although retail consumption expenditure is anticipated to remain muted.
Whilst we believe that the worst of the economic cycle has passed, our outlook remains cautious. Our current outlook for earnings remains unchanged with growth in diluted headline earnings per share for 2010 expected to be in line with the guidance given at the time of announcing the 2009 results.
Shareholders are reminded that these forecasts 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."
For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com
Enquiries
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External Communications |
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Patrick Bowes |
UK |
+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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Don Hunter (Finsbury) |
UK |
+44 (0)20 7251 3801 |
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 in Europe, the Americas, Africa and Asia. Old Mutual plc is listed on the London Stock Exchange and the JSE, among others.
In the year ended 31 December 2009, the Group reported adjusted operating profit before tax of £1.2 billion (on an IFRS basis) and had £285 billion of funds under management at the year end. The Group has approximately 54,000 employees.
This information is provided by RNS
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