Economic doldrums caught Nedbank’s management by surprise

Nedbank Group shares increased more than 3% Tuesday morning after it declared an 11% higher first-half dividend of 871 cents per share and despite management admitting the period had been much more difficult than they expected. Picture: Karen Sandison/African News Agency (ANA)

Nedbank Group shares increased more than 3% Tuesday morning after it declared an 11% higher first-half dividend of 871 cents per share and despite management admitting the period had been much more difficult than they expected. Picture: Karen Sandison/African News Agency (ANA)

Published Aug 10, 2023

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Nedbank Group shares increased more than 3% Tuesday morning after it declared an 11% higher first-half dividend of 871 cents per share and despite management admitting the period had been much more difficult than they expected.

“In the first half of 2023 the operating environment in South Africa was much more challenging than we had initially forecast,” the bank’s management said in the results.

After misjudging the first half, they said they now expect the economy to remain “very challenging” due to electricity shortages and increased pressure on consumers’ disposable income.

They said a “very strong” balance sheet had enabled them to declare the dividend.

A R5 billion capital optimisation initiative in March involving a share repurchase and odd-lot offer had enhanced return on equity and growth on a per-share basis, they said.

Headline earnings increased 10% to R7.3bn driven by revenue growth, partially offset by increases in retail impairments.

The headline earnings growth was well below the 27% reported at the same time last year.

The headline earnings growth was also below the 15% growth in its much younger, but now much larger competitor, Capitec Bank, which lifted earnings 15% to R9.71bn in the year to February 2023.

Nedbank’s headline earnings growth is also much lower than the likely figure of competitor Standard Bank, which last week forecast an increase in headline earnings a share for the six months to June of between 33% and 38%.

In line with other banks, Nedbank’s impairment charge increased sharply by 57%, which management said was due to higher interest rates and inflation and the impact of record load shedding on clients, particularly in the retail Consumer Banking segment.

They said the global economy had been weak through the period, commodity prices were lower, while clients had also been affected by transport issues.

Nevertheless, the bank’s management linked the “solid” growth in headline earnings to better growth in Africa regions and Nedbank Wealth.

“We continued to make good progress on our strategic value drivers of growth, productivity and risk and capital management.

“Growth trends across average interest-earning banking assets (+9%), net interest income (+18%), non-interest revenue (+7% or +10% on a like-for-like basis) and associate income (+53%) remained robust.”

The bank has R134bn of exposures that support sustainable development finance that is aligned with the UN Sustainable Development Goals.

The Nedbank Group Economic Unit forecasts South Africa’s gross domestic product to increase by only 0.3% in 2023 and interest rates to remain elevated, with the repo rate at 8.25% and the prime lending rate at 11.75% for the remainder of the year.

The bank’s share price traded 1.15% higher at R230.90 on Tuesday afternoon, but the price was only 6.6% higher than the price at the same time a year before. The share closed the day 0.63% higher at R229.70.

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