Nedbank Group · JSE:NED
Nedbank — FY2008 Earnings Presentation
40 slides from Nedbank's earnings presentation, March 2009
Slide 1: Nedbank Group Annual Financial Results 2008
NEDBANK GROUP ANNUAL FINANCIAL RESULTS YEAR ENDED 31 DECEMBER 2008 AGENDA Highlights Financial overview Operational review Summary & prospects 1
Slide 2: Highlights
Highlights • SA banks & financial system remain structurally sound – SA relatively insulated but not immune • Resilient performance in challenging environment – 15,7% growth in tangible NAV – R5,8 bn headline earnings - down 2,6% • Capital adequacy increased significantly – Core tier 1 7,2% to 8,2%
Slide 3: Continue to focus longer-term
Continue to focus longer-term • Further improvements in staff morale survey People • Further successes in building a vision led & values driven organisation • Electronic banking upgrades – done in Retail & Systems Business Banking – Corporate Banking in progress • Retail single client view systems a
Slide 4: Continued investment in staff; sustainability credentials
Continued investment in staff Nedbank Staff Survey overall 75.1 Rewards, recognition & Ethic performance management s 86.0 64.7 2005 79.1 Diversity Strategic direction 2006 59 6 59.6 69.5 82.4 2007 49.0 69.3 2008 57.2 Policies & procedures Leadership 69.9 50.4 60.1 80.0 61.2 67.1 Relationships & tru
Slide 5: Growth potential in SADC; Nedbank / Ecobank strategic alliance
Growth potential in SADC • Financial services economic profit Nedbank footprint pool in Africa: – Nedbank 12% - 14% of pool – SA 60% of pool – SADC 65% – 75% of pool • Opportunity to gain economic profit market share in SA • Selectively expand in Africa Real GDP growth rates 8% 7% SADC 6% 5% 4% 3% 2
Slide 6: Financial overview: Key financial indicators
FINANCIAL OVERVIEW MIKE BROWN Key financial indicators For the year ended % change 2008 2007 Headline earnings (Rm) (2,6) 5 765 5 921 Diluted HEPS (cents) (2,0) 1 401 1 429 Diluted basic EPS (cents) 7,2 1 558 1 454 ROE (%) 17,7 21,4 ROE (excluding goodwill) (%) 20,1 24,8 ROA (%) 1,09 1,30 Margin (%)
Slide 7: Income statement; Segmental performance
Income statement Rm – year ended % ch 2008 2007 Net interest income 14,3 16 170 14 146 Impairments >100 (4 822) (2 164) Income from lending activities (5,3) 11 348 11 982 Non-interest revenue 2,7 10 729 10 446 Total expenses 1,9 (13 741) (13 489) Indirect taxation 22,6 (374) (305) Associate income (
Slide 8: NII margin analysis; Impairment charge
NII - margin analysis % of daily average interest-earning banking assets % Rm December 2007 3,94 14 146 Asset growth 3 268 Endowment movement: 0,06 278 Positive net endowment effect 0 13 0,13 587 Increase cost of funding properties in possession (0,02) (79) Cost of reducing interest rate sensitivity
Slide 9: Defaulted advances; Non-interest revenue
Defaulted advances R m 16 000 1.17% 1.20% 14 000 0.96% 1.00% 12 000 Target 0.80% credit 10 000 loss 0.62% ratio 8 000 0.60% 17 301 range 11 795 6 000 9 909 0.40% 7 859 4 000 6 902 6 078 0 20% 0.20% 2 000 0 0.00% Dec-07 Jun-08 Dec-08 Defaulted advances (Basel II) Impairment provision Credit loss rati
Slide 10: Expenses; Taxation
Expenses % Dec 07 Bond Rm – year ended Dec 08 Dec 07 change excl BC Choice Staff costs 0,1 7 040 7 034 45 7 079 Computer processing 10,5 1 841 1 666 7 1 673 Communication & travel 16,9 636 544 15 559 Accommodation 6,1 1 122 1 057 11 1 068 Marketing & PR 1,6 877 863 24 887 Fees & insurance 15,3 1 326
Slide 11: Balance sheet; Group capital adequacy
Balance sheet Rm % change 2008 2007 Cash & securities 7,1 79 401 74 138 Advances 16,1 434 233 373 956 Investments 9 622 9 296 Property & equipment 4 327 3 929 Computer software 1 607 1 349 Goodwill 3 894 3 898 Derivatives >100 22 321 9 047 Other 11 618 13 243 Total assets 16,0 567 023 488 856 Ordina
Slide 12: Leverage ratio; Subordinated debt maturity profile
Leverage ratio & RWA / total assets Nedbank Bank A Bank B Bank C Leverage ratio Jun 2008 16,6 18,5 15,0 16,7 Leverage ratio Dec 2008 16 2 16,2 16 4 16,4 RWA / total assets Jun 2008 63,9 47,8 56,8 52,6 RWA / total assets Dec 2008 62,8 49,2 … notwithstanding similar leverage to peers, Nedbank’s higher
Slide 13: Advances; Deposits
Advances Rm % change 2008 2007 Home loans 15,6 143 342 123 980 Commercial mortgages 21,6 73 031 60 045 P Properties ti iin possession i >100 100 791 308 Term loans 61,0 64 144 39 835 Credit cards 2,0 7 248 7 109 Overnight loans (14,0) 15 760 18 336 Overdrafts (0,4) 12 461 12 514 Other loans to clien
Slide 14: Funding & liquidity risk management; NAV & ROE
Funding & liquidity risk management o No exposure to US sub-prime o Small conduit business o Limited use made of securitisation market o Limited use made of foreign markets uidity barometerr o Strong retail & corporate deposit franchises o Sound capital position o Asset growth slowing due to market
Slide 15: Financial drivers 2009; Group targets
Financial drivers - 2009 NII • Advances growth upper single digits • Margin compression around 10 to 15 bps • Wholesale up but within through the cycle Impairments • Retail worsen from 2008 (as economy worsens) • Overall to remain below 1,30% NIR • Mid single digit growth for year Expenses • Growth
Slide 16: Nedbank Capital - financial highlights
NEDBANK CAPITAL BRIAN KENNEDY Nedbank Capital - financial highlights Year ended – Rm % change 2008 2007 Headline earnings 7,8 1 266 1 174 Efficiency ratio 52,2% 47,9% Credit loss ratio 0,06% 0,05% Average advances 23,3 57 079 46 302 Average deposits 32,0 130 106 98 579 Allocated economic capital 15,
Slide 17: Nedbank Capital revenue split; Risk perspective: trading activities
Nedbank Capital – revenue split Rm % change 2008 2007 Net interest income 72,1 938 545 I Impairments i t (44 0) (44,0) 36 25 Income from lending activities 73,5 902 520 Non-interest revenue (16,5) 1 782 2 135 Trading 13,7 1 333 1 172 Advisory & other (9,3) 322 355 Private equity (79,1) 127 608 Reali
Slide 18: Single stock future & CFD portfolios; Global Markets
Single stock future & contracts for differences portfolios SSF portfolio - exposure to clients SSF portfolio - exposure to safex Jun-08 Sep-08 Dec-08 Current Jun-08 Sep-08 Dec-08 Current Tier 1 Tier 2 Tier 3 Tier 4 CFD portfolio - exposure to clients • Growth in CFD business during 2008 • Reduced de
Slide 19: Investment Banking Review
Investment Banking Review • Strong book growth R'bn 35 Gross exposure – Improved margin 30 • Primary domestic lending focus 25 CAGR = 26,3% • Diversification - geography & sector 20 • No new foreign deals in H2 2008 – 15 pricing uncertainty 10 • Ecobank alliance enhances African 5 opportunities 0 20
Slide 20: Performance against prospects & strategy; Nedbank Capital prospects
Performance against prospects & strategy What we said Commentary Deepen client relationships • Acquired new clients while boosting current relationships Create new revenue streams • 7 new businesses gained traction in 2008 Strong sector focus • Bolstered sector teams with increased deal flow Multipl
Slide 21: Nedbank Corporate - financial highlights
NEDBANK CORPORATE GRAHAM DEMPSTER Nedbank Corporate - financial highlights Year ended – Rm % change 2008 2007 Headline earnings 11,1 2 924 2 632 Margin 2,68% 2,82% Efficiency ratio 47 4% 47,4% 53 5% 53,5% Credit loss ratio 0,27% 0,11% Average advances 21,2 172 357 142 238 Average deposits 21,1 208 4
Slide 22: 2008 Highlights
2008 Highlights • Strong core banking performance • Headline earnings up 20,1% to R2 764m • Efficient capital management (up only 0,6%) • RORAC 28 28,2% 2% • Jaws 8,9% Financial • Property investment returns exceeded market performance • Good advances & deposits growth >20% • Growth in overall econo
Slide 23: Nedbank Corporate segmental analysis; Corporate Banking
Nedbank Corporate - segmental analysis Average Headline earnings RORAC advances % 2008 % Rm 2008 2007 2008 change % change Business Banking 1 369 1 117 22,6 31,7 54 524 14,6 Corporate Banking 648 450 44,0 32,6 59 770 29,2 Property Finance 800 909 (12,0) 23,7 51 215 24,4 Africa 94 78 20,5 19,7 5 650
Slide 24: Property Finance; Africa
Property Finance Earnings of R800m & RORAC of 23,7% • Advances up 24% driven by high quality, large deals • Levels of impaired assets & arrears low despite difficult economic conditions • Property Investment returns exceeded market performance – down on record 2007 level • Successful affordable hous
Slide 25: Transactional Banking; Nedbank Corporate future focus
Transactional Banking Banking solutions to address our clients’ needs …driving transactional banking market share 49 Nedbank Corporate – future focus • Sustaining economic profit • Managing through these uncertain times • Tight risk management focus • Gain primary bank clients • Continue building on
Slide 26: Nedbank Business Banking - highlights
NEDBANK BUSINESS BANKING INGRID JOHNSON Nedbank Business Banking - highlights Earnings growth of 22,6% to R1 369m & RORAC of 31,7% • Growth in average advances 15% & deposits 12% • Increased transactional volume ol me gro growth, th complemented by net new client acquisition • Client value managemen
Slide 27: Nedbank Business Banking - a new cluster
Nedbank Business Banking – a new Cluster High growth, high cross sell, high ROE in a major market segment • Effective decentralised business model based on accountability • Significantly transformed culture & employment equity profile • Continued improvement in staff satisfaction survey • Higher foc
Slide 28: Nedbank Retail - financial summary
NEDBANK RETAIL ROB SHUTER Nedbank Retail - financial summary Year ended – Rm % change 2008 2007 Headline earnings (46,6) 1 002 1 876 Margin 4,93% 5,23% Efficiency ratio 61 1% 61,1% 63 5% 63,5% Credit loss ratio 2,47% 1,26% Average advances 17,6 143 334 121 851 Average deposits 14,7 92 856 80 951 All
Slide 29: Retail detailed income statement; segmental results
Nedbank Retail – detailed income statement Year ended - Rm % change 2008 2007 Net interest income 11,1 7 497 6 745 Impairments charge 130,9 (3 630) (1 572) Income from lending activities (25,2) 3 867 5 173 Non-interest revenue 14,3 5 546 4 851 Total expenses 8,2 (7 973) (7 367) Indirect taxation 28,
Slide 30: Retail - Bancassurance & Wealth; Small Business Services
Nedbank Retail – Bancassurance & Wealth Headline RORAC Efficiency Average Credit loss ratio Earnings (Rm) (%) ratio (%) Advances (Rb) (%) Division 2008 %ch 2008 2008 2008 %ch Dec 08 Jun 08 Bancassurance & Wealth 441 28,2 60,7 ▲ 61,0 ▼ 14,9 18,5 0,47 0,41 • Business performed well in turbulent market
Slide 31: Retail - Card; Personal Loans
Nedbank Retail – Card Headline RORAC Efficiency Average Credit loss ratio Earnings (Rm) (%) ratio (%) Advances (Rb) (%) Division 2008 %ch 2008 2008 2008 %ch Dec 08 Jun 08 Card 251 (10,4) 15,9 ▼ 59,4 ▼ 6,8 11,7 9,41 10,57 • Credit metrics stable • Book shrinking – pressure on NII • Industry volumes s
Slide 32: Retail - TIP; Private Banking
Nedbank Retail – TIP Headline RORAC Efficiency Average Credit loss ratio Earnings (Rm) (%) ratio (%) Advances (Rb) (%) Division 2008 %ch 2008 2008 2008 %ch Dec 08 Jun 08 Trans & Investment Products 100 42,9 10,4 ▲ 89,0 ▼ 1,1 (8,3) 12,86 16,64 • 119k net new primary clients (2007: 90k) • Liability ta
Slide 33: Retail - Vehicle & Asset Finance; Home Loans
Nedbank Retail – Vehicle & Asset Finance Headline RORAC Efficiency Average Credit loss ratio Earnings (Rm) (%) ratio (%) Advances (Rb) (%) Division 2008 %ch 2008 2008 2008 %ch Dec 08 Jun 08 Vehicle & Asset Finance (175) (>100) (29,8) ▼ 72,3 ▼ 6,6 28,5 4,99 4,19 • Very difficult year • Credit metrics
Slide 34: Retail default trends; home loans credit review
Nedbank Retail – default trends in 2008 1.0% Change in default rates across asset classes SBS 0.9% 0.8% Home 0.7% ates Loans Monthly Change in Default Ra 0.6% 0.5% Private Bank 0.4% 0.3% VAF 0.2% Card 0.1% 0.0% Personal Loans -0.1% 0 1% Current -0.2% Accounts -0.3% Apr-08 Aug-08 Jan-08 Feb-08 Mar-08
Slide 35: Retail Banking Services; 2009 focus & outlook
Nedbank Retail – Banking Services 2008 Distribution 2008 Service • R1bn plan delivered successfully • Launched phase II of explicit service • 75 new outlets (branches & retailer) promise - Ask Once™ • 1 621 merchants enabled for cash • CMAT assessmentt - global l b l ttop advance quartile • 278 ATM’
Slide 36: Prospects
PROSPECTS TOM BOARDMAN We continue to look at the bank holistically • To understand our clients needs in difficult times – Step change in client service – Flexible collections arrangements – Continued focus on affordable banking • To maintain strength of SA banking industry – Conservative management
Slide 37: 2009 key objectives; Thank you
2009 key objectives • Remain strongly profitable, but at marginally lower levels than 2008 • Focus on economic profitf & remain alert to opportunities • Continue to strengthen capital adequacy • Manage risk as an enabler • Maintain focus on efficiency • Continue to increase net asset value … at the
Slide 38: Retail book distribution & provisions
BOOKLET SLIDES Nedbank Retail – book distribution & provisions Home Loans Vehicle Asset Finance 25.0% 25.0% Book distriibution 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% Current Arrear Defaulted Current Arrear Defaulted 2007 93.3% 2.9% 3.8% 2007 94.2% 2.6% 3.2% 2008 86.2% 5.8% 8.0% 2008
Slide 39: Retail book distribution & provisions (continued)
Nedbank Retail – book distribution & provisions Personal Loans Card 25.0% 25.0% Book distriibution 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% Current Arrear Defaulted Current Arrear Defaulted 2007 73.9% 10.3% 15.8% 2007 89.2% 5.1% 5.6% 2008 77.0% 8.4% 14.7% 2008 87.1% 4.9% 8.0% 100.0% 1
Slide 40: Home Loans age distribution; Disclaimer
Nedbank Retail – Home Loans: age distribution & BTV Age Distribution Jun-08 Dec-08 42% 33% 34% 33% 31% 28% 0-12 mths 13-24 mths > 24 mths 79 Disclaimer Nedbank Group has acted in good faith & has made every reasonable effort to ensure the accuracy & completeness of the information contained in this