Nedbank Group · JSE:NED
Nedbank — BAML CALGEM Conference 2017
42 slides from Nedbank's conference presentation, June 2017
Slide 1: Nedbank Group Investor presentation
Nedbank Group Investor presentation BAML CALGEM conference June 2017
Slide 2: Macroeconomic environment – lacklustre growth with an uncertain outlook
Macroeconomic environment – lacklustre growth with an uncertain outlook GDP growth (%) Long-term bond yield & CDS spread (%) 8 SSA forecast 12 500 2017: 2.6% 2018: 3.5% 11 6 2019: 3.6% 400 2020: 3.7% 10 4 9 300 8 200 2 7 SA forecast 0 2017: 0.7% 100 2018: 1.3% 6 2019: 1.9% -2 2020: 2.3% 5 0 02 04 06
Slide 3: Macroeconomic environment – peak in inflation & interest rate cycle
Macroeconomic environment – peak in inflation & interest rate cycle bodes well for future credit growth when confidence returns SA interest rates & inflation (%) Credit growth (%) 16 Average Prime 45 Companies 2017: 10.5% 14 2017: 6.6% 2018: 9.7% 2019: 10.0% 35 2018: 8.6% 2019: 9.5% 12 2020: 10.4% 2
Slide 4: Macroeconomic environment – currency volatility, rand uncertainty & naira depreciation
Macroeconomic environment – currency volatility, rand uncertainty & naira depreciation Rand to US $, GBP £ | Naira to US $ Rand on PPP basis (%) 25 350 Log of index % from adjusted "fair" value 4.7 30 300 4.5 20 20 250 4.3 10 15 200 4.1 0 150 3.9 10 -10 3.7 100 -20 5 3.5 50 3.3 -30 0 0 3.1 -40 Jul 1
Slide 5: Nedbank Group – an overview
Nedbank Group – an overview Access to the largest Total retail clients Old Mutual Group Total ATMs JSE banking network in Africa 7.7m 54.6% 4 052 Top 40 39 Total outlets shareholding in Countries 6% CAGR Nedbank Group company (21.2% share in ETI) 2012 2013 2014 2015 2016 786 Assets Deposits Listed o
Slide 6: Old Mutual managed separation – May 2017 update
Old Mutual managed separation – 25 May 2017 update Timing − Managed Separation materially complete by the end of 2018 − Anticipate the listing of the South African holding company to take place at the earliest opportunity in 2018 after Old Mutual plc’s 2017 full year results Listing of a new Sou
Slide 7: Old Mutual managed separation
Old Mutual managed separation Distribution of Nedbank shares to shareholders of New SA holding company in an orderly manner, at an appropriate time Current shareholding structure Envisaged shareholding structure Old Mutual plc Old Mutual Limited* (listed on the LSE & JSE) (listed on the JSE & LSE) O
Slide 8: Our purpose, vision & strategy
Our purpose, vision & strategy Purpose TO USE OUR FINANCIAL EXPERTISE TO DO GOOD FOR INDIVIDUALS, FAMILIES, BUSINESSES & SOCIETY Vision TO BE THE MOST ADMIRED FINANCIAL SERVICES PROVIDER IN AFRICA BY OUR STAFF, CLIENTS, SHAREHOLDERS, REGULATORS & COMMUNITIES focus areas Strategic Delivering innovati
Slide 9: Our role in society – delivering value to all our stakeholders
Our role in society – contributing by delivering value to all our stakeholders STAFF SHAREHOLDERS Paid R15.5bn in salaries & benefits to support our Achieved a 32.3% total shareholder return 32 401 staffmembers & their families Paid R5.6bn dividends Facilitated transfer of R3.5bn payroll tax
Slide 10: Delivering value to shareholders
Delivering value to shareholders NAV ROE > COE Dividends NAV per share (cents) ROE & cost of equity (%) Dividend per share (cents) +0.9% 18.1 +8.4% CAGR: 7.8% 17.2 17.2 17.0 CAGR: 12.4% 16.4 16.8 16.5 14.2 13.5 13.1 13.0 13.0 13 143 14 395 15 685 15 830 11 721 1 028 1 107 1 200 752 895 12 13 14 15 1
Slide 11: Excellent performance from our managed operations – headline earnings up 16.2%
Excellent performance from our managed operations – headline earnings up 16.2% Headline earnings (Rm) Earnings contribution (Rm) (3%) (3%) +15.5% 10% +11.2% 6 014 5 208 4 960 4 460 +5.1% 53% 1 192 1 134 691 43% (287) (414) (662) CIB RBB Wealth Rest of Centre Africa CIB RBB Wealth Rest of Africa Cent
Slide 12: Key performance indicators
Key performance indicators Managed operations 2016 2015 2016¹ 2015¹ Headline earnings (Rm) 5.9% 11 465 10 831 16.2% 11 839 10 187 ROE (excl goodwill) 16.5% 17.0% 18.1% 16.8% Diluted HEPS growth 4.8% 8.5% 15.1% 2.8% Preprovisioning operating profit growth 4.4% 7.3% 10.0% 4.1% Net interest margin 3.41
Slide 13: Solid headline earnings growth supported by strong revenue growth
Solid headline earnings growth supported by strong revenue growth Headline earnings (Rm) HE growth (%) 16.2 1 755 235 (2 256) 5.9 2 541 (976) Group Managed (665) operations 15 127 ROE excl GW (%) 13 372 13 106 12 130 16.5 18.1 11 465 11 465 10 831 10 831 +10.6% +8.1% (4.9%) +8.6% (> 100.0%) 2015 NII
Slide 14: Net interest margin – driven by endowment, asset mix & Basel III funding costs
Net interest margin – driven by endowment, asset mix & Basel III funding costs Net interest margin (bps) (3) (5) 2 (1) 18 354 341 330 2015 Endowment Asset mix Liability mix, Trading Other 2016 Rebased 2016 impact & pricing1 pricing & LAP margin 2 HQLA 1 Average interest-earning banking assets +7.0%
Slide 15: Advances – solid growth & market share gains across key categories
Advances – solid growth & market share gains across key categories (AIEBA +7.0%) Gross advances (Rbn) BA900 market share Wholesale Retail Share3 Trend Leveraging Mostly Selective origination leadership & pipeline ST & Commercial & unique positioning 40.8 volatile property +4.5% Core corporate4 22.3
Slide 16: Deposits – good transactional & Basel III deposit growth
Deposits – good transactional & Basel III deposit growth Deposits (Rbn) BA900 market share Transactional Lengthen funding franchise profile 1 Share3 Trend Increasing Increasing Driven by client Linked to Wholesale 22.3 behavioural tenure contractual behaviour in the trading (+ for Basel III) tenure
Slide 17: Non-interest revenue up 8.1%
Non-interest revenue up 8.1% – solid commission & fee income growth & strong trading performance Non-interest revenue (Rm) NIR-to-expenses ratio (%) +6.8% Quality main-banked client gains Improved cross-sell Below-inflation fee increases 86.4 CIB deal closures 84.4 16 686 82.8 83.3 82.9 +18.
Slide 18: CIB – NIR growth of 14.5% underpinned by flows from an integrated model
CIB – NIR growth of 14.5% underpinned by flows from an integrated model NIR (Rm) Key drivers Integrated business enabling: +14.5% 7 453 − stronger client relationships 6 508 − deeper client penetration − transactional banking client gains 16% Trading-income growth from increased trading activity
Slide 19: RBB – transactional NIR growth ahead of client growth
RBB – transactional NIR growth ahead of client growth Total retail client base (#000) Retail NIR (Rm) +4.8% +7.4% +2.8% +5.7% 10 015 7 417 9 321 Total 6 888 7 080 Total 8 820 +3.0% +8.7 % +8.5% +7.3% Main- 2 784 4 563 2 492 2 703 Trans- 4 200 banked 3 915 actional Personal 666 857 697 Loans Retail e
Slide 20: RBB – client-centred strategy driving growth across all segments
RBB – client-centred strategy driving growth across all segments Main-banked, # 000 Kids & youth Professional +1% +4% 366.1 407.1 409.9 59.9 65.8 68.4 Small Business Entry level +2% +6% 1 271.9 1 380.9 1 404.4 94.8 101.3 107.4 +6% +0% Banking1 Business Middle 690.8 739.4 785.7 25.1 22.2 22.3 Dec 14
Slide 21: RBB – building more enduring client relationships through cross-sell
RBB – building more enduring client relationships through transactional product cross-sell # 000 Total Retail clients % CAGR growth Number of product line clients % CAGR growth Dec 15 Dec 16 Dec 15 – Dec 16 with transactional products Dec 15 – Dec 16 1 311 9.3 8.8 Investments 74% 74% 1 432 910 Card1
Slide 22: Credit loss ratio – improvement underpinned by quality portfolio
Credit loss ratio – improvement underpinned by quality portfolio Credit loss ratio (CLR) (bps) Cluster credit loss ratio (CLR) (bps) 1.25 105 106 1.14 1.12 0.98 79 77 68 0.40 0.34 0.15 0.08 1 2012 2013 2014 2015 2016 CIB RBB Wealth RoA 2015 2016 Banking 48.9% 43.9% 4.4% 2.7% advances 1 Nedbank throu
Slide 23: Defaulted advances – maintained healthy coverage levels & overlays
Defaulted advances – maintained healthy coverage levels & overlays Defaulted advances (Rbn, %) Specific coverage (%) Portfolio coverage (%) 40 3.6 3.8 3.0 38.0 37.4 0.70 0.69 2.7 30 2.5 2.5 2.8 2015 2016 2015 2016 +11.4% Overlays & central provision (Rm) 20 1.1 1.8 10 0.8 500 500 200 200 350 1 19.3
Slide 24: Home loans – improved asset quality from low-risk clients
Nedbank Retail & Business Banking Home loans – improved asset quality from low‒risk client & property contribution MFC – Benchmarking through the cycle Homeloans MFC new & used Delphi Score – low risk¹ (%) vehicle distribution(%) SA prime rate (%) Nedbank – greater percentage of low‒risk 80% custome
Slide 25: Personal Loans – improved product offering, onboarding & client targeting
Nedbank Retail & Business Banking Personal Loans – improved product offering, onboarding & client targeting has driven growth in desired lower‒risk segments Credit loss ratio Market share of new business by risk band 1 (%) Low risk Low-medium risk Medium risk High risk 13% 18.3% 73.1% 71.3% 74.9% 68
Slide 26: Managing our risks & exposures – improvement in key stressed sectors
Managing our risks & exposures – improvement in key stressed sectors Industry exposures (%) CIB portfolio Selected portfolios Concen- Migration Downside Sectors Trends 2016 Portfolio tration risk risk risk Mining ▼ 2.3% Oil & gas (2.1%) L L ▼ M Retailers Mining (4.0%) L M M (new) ▼ 0.8% Steel (0.5%)
Slide 27: Commercial property finance – strong asset quality & risk management
Commercial property finance – strong asset quality & risk management Advances growth (CAGR %) Key drivers Strong client base supported by an experienced team 22.1% Lending access to existing collateral pools 13.8% LTVs consistently < 50% 2006 - 2008 2013 - 2016 Vacant land < 3% & Residential
Slide 28: Expenses – ongoing investment for growth supported by efficiency gains
Expenses – ongoing investment for growth supported by efficiency gains Expenses (Rm) Cost to income (%) +6.3% +2.3% 56.9 56.4 2 232 599 48 66 510 MLT 50–53% 28 366 27 743 26 110 2015 BAU Efficiencies BAU Investments Regulatory Banco 2016 Group Excl ETI growth growth Único 1 Investments, including IT
Slide 29: Looking forward – opportunities to optimise our expense base
Looking forward – opportunities to optimise our expense base Variable expenses – Flexibility of expense Fixed & variable expenses – can be delayed or reduced base (%) structural optimisation planned ~10% staff attrition per annum Target operating model synergies of R1bn pre-tax by 2019 STI: Li
Slide 30: Associate income – ETI performance reflective of tough environment
Associate income – ETI performance reflective of tough environment, particularly in Nigeria Associate income from ETI (Rm) 870 (125) (1 059) 278 292 148 152 230 171 150 144 (676) (1 203) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2015 2016 2017 Note: Q2 2017 R144m based on share of ETI’s Q1 2017 attributable pro
Slide 31: ETI carrying value – impacted by weaker economic conditions
ETI carrying value – impacted by weaker economic conditions Carrying value & market value (Rm) 7 808 (125) 1016 527 (2529) (1000) 6 265 176 (1 203) 171 4 697 3 978 3 978 2 775 2 946 2 405 Carrying value Carrying value Carrying value Market value Share of ETI Dec 2015 Dec 2016 Mar 2017 May 2017 NAV M
Slide 32: ETI investment – supporting strategic review for growth
ETI investment – supporting strategic review for growth Challenging environment − Challenging economic conditions in West Africa with commodity exporters under pressure − Currency weakness & foreign currency liquidity constraints, particularly in Nigeria − Likelihood of ongoing pressure on quality
Slide 33: Capital – well positioned for Basel III regulatory environment
Capital – well positioned for Basel III regulatory environment CET 1 capital ratio (%) Liquidity coverage ratio & net stable funding ratio LCR (%) NSFR 109.3 12.5 12.1 11.6 11.6 11.3 88.5 SARB 70% On a pro forma SARB Minimum 60% basis NSFR was 6.875% above 100% at 31 December 2016 2012 2013 2014 201
Slide 34: Dividend cover at mid-point of our target range
Dividend cover at mid-point of our target range – supporting an attractive dividend yield Full-year dividend cover (x times) Dividend yield (%) 2.18 7 2.11 2.07 2.06 2.02 6 2.00 5 4.8 1.90 Board-approved target range: 4 1.75 – 2.25x 3 2.9 2 1 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Dividen
Slide 35: 2017 guidance
2017 guidance (under review – to be updated on 1 Aug 2017) Average interest-earning banking asset1 growth to increase slightly ahead of nominal NII GDP growth NIM to be slightly above the rebased 2016 level of 3.54% CLR To increase, but remaining below the mid-point of our target range of 60–1
Slide 36: Q1 2017 update
Q1 2017 update Average interest-earning banking asset growth at low single-digit levels NII NIM widened ahead of the full year 2016 level of 3.54% & the Q1 2016 level of 3.51% Improved from full year 2016 level of 68 bps & below our target range of 60–100 CLR bps NIR Grew at low-to-mid singl
Slide 37: Medium-to-long-term targets
Medium-to-long-term targets Medium-to-long-term Metric 2016 vs MLT target 2017 outlook1 ROE (excl goodwill) 16.5% ▼ 5% above COE Below target Diluted HEPS growth 4.8% ▼ ≥ CPI + GDP growth + 5% Below target Increase, but below Credit loss ratio 68 bps ► 60–100 bps the mid-point of target range NIR-to
Slide 38: Nedbank Group in a strong position
Nedbank Group in a strong position Headline earnings (Rm) Loan growth (CAGR %) Global 20.1 financial 16.3 crisis 7.8 4.7 06–08 13–16 Wholesale Retail (28%) Endowment benefit for 1% change in interest rates (Rm) 1 367 584 10 831 11 465 481 5 921 5 765 4 277 05 06 07 08 09 10 11 12 13 14 15 16 08 09 1
Slide 39: Nedbank Group in a strong position
Nedbank Group in a strong position Number of clients (m) NIR income contribution (%) Defaulted advances (%) 4.9% 5.9 83% 7.7 47.1 (3.2) 3.9 4.4 4.2 42.2 2.7 39.8 08 09 16 08 09 16 08 09 16 CET 1 ratio (%) Funding tenor (%) Coverage (%) 22% 12.1 62.2 LT 19.2 21.1 29.6 8.21 9.91 MT 19.9 45.4 41.9 21.0
Slide 40: Improved funding profile in a competitive market
Improved funding profile in a competitive market Funding mix & impact of possible Funding duration longer than industry average sovereign downgrade (%) Funding Funding sources base mix Peer average Nedbank Households 19% Limited impact - closed domestic market Commercial 27% 23 30 Wholesale 39% Repr
Slide 41: In summary
In summary Well-regulated & stable banking system Nedbank Group bias to wholesale, and growth opportunities in retail & rest of Africa Nedbank Group has a strong balance sheet – conservatively provided, liquid & well capitalised Positioned for sustainable growth & ROE increase over the mediu
Slide 42: Contact us
Contact us Nedbank Group Nedbank Investor Relations nedbankgroup.co.za Head of Investor Relations Nedbank Group Limited Alfred Visagie Tel: +27 (0) 11 294 4444 Direct tel: +27 (0) 11 295 6249 Physical address Cell: +27 (0) 82 855 4692 135 Rivonia Road Email: AlfredV@nedbank.co.za Sandown 2196 Invest