Nedbank achieves 8% earnings growth amid economic turmoil

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Nedbank’s strong H1 2024 performance, with headline earnings up 8% to R7.9bn, reflects tight cost control and robust digital growth amid challenging economic conditions.

From Jason Quinn, CEO, Nedbank

The operating environment during the first six months of 2024 was challenging, and economic activity remained weak. This was impacted by geopolitical uncertainty, high interest rates, persistent inflation, and general uncertainty ahead of the national elections in South Africa (SA). Household finances remained under pressure as real incomes contracted, and job prospects remained muted.

Corporate activity was also weak due to the uncertain political and economic environment. The financial implications of these complex macroeconomic outcomes were evident in continued elevated levels of consumer strain and slow lending and transactional revenue growth across both wholesale and retail clients. A peaceful and fair election outcome and the swift formation of a government of national unity (GNU) spurred cautious optimism in financial markets, resulting in lower bond yields, more robust equity markets and a stronger rand. Spreads on credit default swaps improved markedly, trending towards levels seen when the country’s sovereign credit ratings were at investment grade.

Against this backdrop, Nedbank Group produced a relatively strong financial performance. Headline earnings (HE) increased by 8% yoy to R7,9bn, underpinned by good non-interest revenue growth, a lower impairment charge and tight cost control. The group’s return on equity (ROE) improved to 15,0% from 14,2% in the prior period. Diluted headline earnings per share (HEPS) increased by 12%, benefitting from the R5bn capital optimisation programme.

Balance sheet metrics remained very strong, enabling the declaration of an interim dividend of 971 cents per share, up by 11,5%, at a payout ratio of 57%.

Our world-class technology platform, delivered through the Managed Evolution (ME) programme, has reached 95% completion. This has supported ongoing strong growth in digital-related metrics; client satisfaction scores at the top end of the South African banking peer group; good main-banked client growth; higher levels of cross-sell; market share gains in areas that create most value, including retail deposits, home loans, vehicle finance and overdrafts; and efficiency gains as we delivered on our Target Operating Model (TOM) 2.0 target of R2,5bn. We have also continued to create broader positive impacts through R154bn of funding that supports sustainable development finance, aligned with the United Nations Sustainable Development Goals. In particular, we are proud of growing renewable energy finance by 20% YTD, retaining our top-tier rankings on environmental, social and governance (ESG) scores, and maintaining our level 1 broad-based black economic empowerment status for the sixth year.

We remain cautiously optimistic about the potential benefits of SA’s GNU and expect better macroeconomic conditions in the second half of 2024 and into the medium-to-long term. We forecast SA’s gross domestic product to increase by 0,9% in 2024, inflation to continue to decline, and the South African prime lending rate to decline by a cumulative 50 bps in 2024 to end the year at 11,25%. On the back of an improving operating environment, we aspire to deliver ongoing improvements in ROE to increase shareholder value. Our strong financial performance in H1 2024, together with the progress made in executing our strategy and better economic prospects, give us confidence in making progress towards our medium-term targets* and, in particular, our aim to increase our ROE to 17% by 2025 and above 18% in the long term.

The seamless transition from Mike Brown to myself was well-planned and executed. I am aligned with the board and the leadership teams, enabling us to continue running our business smoothly. Improving performance is a key priority, and I have adopted Nedbank’s medium-term performance targets. I am incredibly comfortable with the strong foundations that Nedbank has built, including capital and liquidity levels and improving financial performance, as well as the group’s strong and vibrant culture, its focus on transformation (diversity, equity and inclusion), leading ESG credentials and significant investments in technology. We will continue to build on these firm foundations as we evolve and continuously refresh our strategy in response to an ever-changing operating environment.

I am grateful to all Nedbankers who have made me feel welcome as part of the organisation and contributed to our successes in the first half of the year. Thank you to our 7,5 million retail and wholesale clients who have entrusted Nedbank with serving their financial needs. I appreciate the continued support of the investment community, regulators, and other stakeholders. Nedbank remains firmly committed to making a meaningful and positive impact in society, using our financial expertise to do good for all stakeholders.

Financial highlights

• Headline earnings of R7 911m, up by 8% (June 2023: R7 329m)
• Revenue of R35 159m, up by 4% (June 2023: R33 691m)
• Credit loss ratio of 104 bps (June 2023: 121 bps)
• Total operating expenses of R19 775m, up by 8% (June 2023: R18 229m)
• Cost-to-income ratio of 55,3% (June 2023: 52,9%)
• Diluted headline earnings per share of 1 650, up by 12% (June 2023: 1477cents)
• Headline earnings per share of 1 699 cents, up by 11% (June 2023: 1 525cents)
• Basic earnings per share of 1 700 cents, up by 12% (June 2023: 1 524 cents)
• Interim dividend declared of 971 cents per share (June 2023: 871 cents)
• Net asset value per share of 23 097 cents, up by 2% (June 2023:22 548 cents)
• Common-equity tier 1 ratio of 13,3% (June 2023: 13,3%)

Read also:

• All 2023 targets met: A strong foundation to deliver on medium-term targets – Nedbank CEO Mike Brown
• Nedbank earnings driven by solid revenue growth partially offset by increases in retail impairments