Nedbank Group · JSE:NED
Nedbank — H1 2024 Earnings Presentation
58 slides from Nedbank's earnings presentation, Aug 6, 2024
Slide 1: 2024 Interim Results
2024 Interim Results for the 6 months ended 30 June 2024 6 August 2024 NEDBANK GROUP LIMITED – 2024 Interim Financial Results 1
Slide 2: Agenda
Agenda Overview Operating environment Strategic progress Financial overview Jason Quinn Outlook & guidance Chief Executive NEDBANK GROUP LIMITED – 2024 Interim Financial Results 2
Slide 3: Overview
Overview Difficult operating environment – challenging H1 2024 as corporates remained cautious ahead of the SA national elections & consumer finances Environment strained, given ongoing high interest rates & inflation. Cautious optimism emerged post elections on the back of market-friendly outcomes.
Slide 4: Operating environment – a difficult start to the year ahead of the SA elections
Operating environment – a difficult start to the year ahead of the SA elections, but cautious optimism on the back of GNU outcomes SA Government bond yields (%) SA foreign bond & equity sales1 (Rbn) 14 Bond yields 50 Stability reflect risk in foreign reduction 0 buying/selling Pre-elections 12 activ
Slide 5: Operating environment – a difficult start to the year ahead of the SA elections (additional info)
Additional info Operating environment – a difficult start to the year ahead of the SA elections, but cautious optimism on the back of GNU outcomes Business confidence index SA rail freight (kt) JSE Index (000, LHS) & volumes (#m) 100 Business 25 No further 85 Higher JSE 4 500 Confidence confidence d
Slide 6: Operating environment – consumers remain under pressure
Operating environment – consumers remain under pressure, but the environment is expected to improve from here Prime interest rate Inflation High but Sticky but (year-end, %) (annual average, %) slowly trending stable rates 15 since H2 2023 8 down 6 ▪ Consumers remain under 10 pressure, given high in
Slide 7: Nedbank Group strategy – well-positioned for refresh
Nedbank Group strategy – well-positioned for refresh, building on strong foundations Our purpose To use our financial expertise to do good for individuals, families, businesses & society Strategic value drivers Risk & Growth Productivity Capital Management Strategic value unlocks Digital Market-lead
Slide 8: Steady execution across the board with further opportunities to improve
Steady execution across the board with further opportunities to improve Strategic value drivers Risk & Growth Productivity Capital Management • Gross banking advances: • Good collection outcomes in Strong balance sheet +4% yoy RBB & resolution of stage 3 loans in CIB • CET1 ratio: 13,3% • Retail mai
Slide 9: Strategic overview
Strategic overview Mfundo Nkuhlu Chief Operating Officer NEDBANK GROUP LIMITED – 2024 Interim Financial Results 9
Slide 10: Nedbank Group strategy
Nedbank Group strategy Our purpose To use our financial expertise to do good for individuals, families, businesses & society Strategic value drivers Risk and Growth Productivity Capital Management Strategic value unlocks Digital Market-leading Focusing on areas Efficient Creating leadership client e
Slide 11: Our world-class technology platform – Managed Evolution
Our world-class technology platform – Managed Evolution (ME) IT build materially on time, on scope, on budget ME completion – 95% Key focus areas ME completion Rationalisation ▪ Core banking modules Targeted product reduction1: (increased focus & more ▪ Transactional 60% resources allocated) ▪ Inves
Slide 12: Managed Evolution IT build programme – cash flow spend peaked in 2017
Managed Evolution IT build programme – cash flow spend peaked in 2017 at R2,3bn & intangible software assets peaked in 2020 at R9bn, while benefits are being realised according to plan Additional info IT software development spend Intangible software assets on the Investment vs benefit realisation t
Slide 13: Benefits from our world-class technology platform
Benefits from our world-class technology platform & enhanced digital Strategic value unlocks innovation continue to differentiate Nedbank Benefits for our clients Benefits for Nedbank Digital Digital servicing Revenue uplift Beyond Banking onboarding Retail Main-banked VAS > 200 > 400 cross-sell cli
Slide 14: Digital uptake & usage continue to grow strongly
Digital uptake & usage continue to grow strongly – independent Strategic value unlocks benchmarking ranks Nedbank’s digital capabilities highly Digital transaction volumes App transaction volumes Additional info Digitally active clients Capability (# m) (# m) (# m) Servicing features offered (%) +7%
Slide 15: Main-banked growth is evident & sustained across most segments
Strategic value unlocks Main-banked growth is evident & sustained across most segments Main-banked clients1, # 000 Additional info Private Clients Kids & youth +10% +10% (6%) +1% +8% (2%) +8% +10% 108 118 129 447 422 413 446 450 91 100 Small Business +11% Entry level +1% +1% +15% 4% +1% +3% +4% Serv
Slide 16: Profitable market share gains in areas that create most value
Profitable market share gains in areas that create most value Strategic value unlocks (Strategic Portfolio Tilt) BA900 market share May May Yoy (%) 23 24 change Total core loans 18,8 18,5 ▼ ▪ Yoy market share gains in retail home loans, retail vehicle finance, retail overdrafts & retail deposits Who
Slide 17: Efficient execution – ongoing operating model changes
Efficient execution – ongoing operating model changes to support a lower Strategic value unlocks cost-to-income ratio over the medium term Branch floor space1 Corporate real estate floor Target operating model (TOM) (’000 m2) space (’000 m2) Saved Saved 60 since 201 since ▪ TOM 2.0 – cumulative bene
Slide 18: Creating positive impacts – more than R150bn support for sustainable development financing
Creating positive impacts – more than R150bn support for sustainable Strategic value unlocks development financing (SDF) Sustainable development finance1 (Rbn) R23bn lending exposure to small businesses & their owners R16bn 20% sustainable finance 17% R28bn across multiple Registered business users
Slide 19: Creating positive impacts – building on our leadership in renewable energy
Creating positive impacts – building on our leadership in renewable energy: Strategic value unlocks exposures +20% & limits +27% since December 2023 Renewable energy financing Renewable energy financing opportunities ( drawn exposures, limits, Rbn) to date RBB renewable finance 58 ▪ Solid growth in
Slide 20: Creating positive impacts – ESG highlights
Strategic value unlocks Creating positive impacts – ESG highlights Nedbank ESG ratings Top 5% 2030 financed Nature position Zero exposure AAA of global emissions targets statement to fossil-fuel- banks1 set for thermal-coal, oil published related activities by & gas, and power Top 9% (1st SA bank) 2
Slide 21: Nedbank’s climate change journey – our commitment to net zero
Nedbank’s climate change journey – our commitment to net zero Additional info Our journey to net zero Climate change resolutions passed with Thermal-coal glidepaths Power generation Oil & gas glidepaths 2020 100% votes of approval at our 53rd AGM (ktCO2e financed) (ktCO2e financed) Adopted & disclos
Slide 22: External recognition received in H1 2024
External recognition received in H1 2024 – across business excellence, technology & innovation and purpose & ESG Additional info 2024 Global Banking 2024 Global Finance 2024 Global 2024 Global Banking 2024 City of London 2024 Morningstar Banking & Finance & Finance Review & Finance Review Wealth Awa
Slide 23: Financial overview
Financial overview Mike Davis Chief Financial Officer NEDBANK GROUP LIMITED – 2024 Interim Financial Results 23
Slide 24: Key drivers – the impact of a difficult operating environment in H1 2024
Key drivers – the impact of a difficult operating environment in H1 2024 was offset by good strategic delivery Operating environment Strategic delivery ▪ Geopolitical ▪ High interest rates uncertainty Technology/Digital ▪ Reduced levels of ▪ SA political & social load-shedding risk Cross-sell & main
Slide 25: Profitability metrics improved & a strong balance sheet maintained
Profitability metrics improved & a strong balance sheet maintained +8% 15,0% +4% 13,3% 127% R7,9bn (H1 23: 14,2%) R913bn (H1 23: 13,3%) (Q2 23: 143%) Headline ROE Gross banking CET1 ratio LCR earnings advances +12% 104 bps +3% +11,5% 114% 1 650 cents (H1 23: 121 bps) R1 120bn 971 cents (Q2 23: 119%)
Slide 26: Shareholder value creation – interim ROE and dividend
Shareholder value creation – seasonally lower interim ROE, but higher yoy & now equal to COE, with interim dividend declared at the top of our payout ratio ROE & cost of equity (%) Dividend per share (cents) NAV per share (cents) 1 COE around 15% No dividends 23 097 22 548 15,0% 14,2% 871 971 H1 H1
Slide 27: Headline earnings up by 8%
Headline earnings up by 8% – driven by good NIR growth, lower impairments & tight cost control Headline earnings (Rm) +2% +7% (26%) (12%) +8% +8% 204 651 1 546 978 213 490 7 329 7 911 HE NII NIR Associate Impairments Expenses Direct tax1 HE H1 23 income & other H1 24 1Other’ includes indirect tax an
Slide 28: Banking advances up by 4% yoy
Banking advances up by 4% yoy – slowed momentum with consumers under pressure & corporates cautious ahead of the SA elections RBB gross actual & average CIB gross actual & average banking advances (Rbn) banking advances (Rbn) 550 +5% ▪ RBB 500 ‒ Solid growth in RRB with more +5% muted growth in NCB
Slide 29: Gross banking advances up by 4%
Gross banking advances up by 4% Additional info Commercial Term loan growth Good HL growth Strong MFC growth, mortgages flat in selective with market share leveraging our market- given election sectors, but gains, but slight leading position, strong uncertainty & high- corporates decline in alliance
Slide 30: Deposits up by 3%
Deposits up by 3% – clients continued to shift to longer-term & other duration products, given the higher-interest-rate environment & the expectation that rates have peaked Deposits (Rbn) +7% (4%) (14%) (3%) (5%) +15% 449 245 146 419 124 214 151 119 98 85 76 79 CASA Cash Call Fixed NCDs Other manage
Slide 31: NII up by 2%
NII up by 2% ‒ driven by AIEBA growth of 3% & NIM compression of 5 bps, primarily from asset & liability pricing pressure, partly offset by ongoing positive endowment benefit Net interest margin (bps) 8 (5) (4) (4) +2 Mix 0 (7) Pricing (3) DIS** (1) 336 373 393 421 418 413 20 21 22 23 H1 Endowment A
Slide 32: Endowment income – interest rate risk management
Endowment income – interest rate risk management, net of impairments is a focus, while new strategies are being evaluated Additional info Change in endowment income Directional drivers vs impairments (Rbn) H1 H2 H1 H2 23 23 24 24 2025 Average SA 11,07% 11,75% 11,75% 11,54% 10,78% interest rates 11,4
Slide 33: NIR up by 7%
NIR up by 7% – supported by solid growth in commission & fees and strong trading income performance. NIR, excluding the Zimbabwe FX base impact & Eqstra acquisition, was +9,5% Non-interest revenue & income1 (Rm) ▪ Commission & fees – growth driven by deal closures in CIB, as well as strong VAS & car
Slide 34: Trading income up by 14%
Trading income up by 14% – positive results in debt securities & equities markets Additional info Trading income breakdown (Rm) ▪ Asset class diversification buffers against changing market dynamics Strong ▪ Strong growth despite: corporate ‒ challenging macroeconomic conditions; activity & gains in
Slide 35: Insurance – strong growth in the MyCover suite
Insurance – strong growth in the MyCover suite & digitally active client base Additional info Digital growth MyCover Funeral 24% 49% growth in gross written premiums Gross written premium from the MyCover suite H1 23 H1 24 Credit Life cover MyCover 21 digitally integrated in the active product Perso
Slide 36: Asset Management – good growth in NIR
Asset Management – good growth in NIR, driven by increased AUM on the back of net inflows and positive market movements Additional info Assets under management (Rbn) ASISA stats +3% ranking 463 Launch of • SA –7th largest in 448 Global Strategic total AUM (7% 424 393 Bond Fund market share) 375 331
Slide 37: Impairment charge down by 12% yoy to R4,7bn
Impairment charge down by 12% yoy to R4,7bn – driven by a decline in RBB impairments Impairment charge (Rbn) ▪ RBB impairments down by 15% yoy – Consumer pressure remained elevated given the high SA prime rate & sticky inflation, but the environment has been more stable since H2 2023 – Stage 3 loan
Slide 38: Group CLR 104 bps
Group CLR 104 bps – further improvement to almost back within target range Credit loss ratios (bps) H1 24 H1 23 H1 22 H1 21 H1 20 TTC 250 GFC Covid CIB 19 16 20 38 118 15–45 CIB excl CPF 19 9 26 31 156 200 CPF 20 26 13 46 63 RBB 183 226 152 122 269 120–175 150 NCB 26 75 12 9 150 50–70 121 Retail 222
Slide 39: GLAA stage movements & coverage
GLAA stage movements & coverage – significant reduction of CIB stage 3 loans GLAA (Rbn) Coverage (%) 1 H1 22 H1 23 H1 24 840 ▪ Stage 1 loans 816 3,37 3,67 3,51 800 799 51 ‒ Increase driven by book growth & CIB loan migrations from stage 2 & 3 40 57 34,3 34,5 38,2 748 52 ▪ Stage 2 loans 75 39 80 7,3
Slide 40: RBB impairments
RBB impairments – focus on collections, loan origination & credit policy tightening, leading to an ongoing improvement in CLRs & material slowdown in NPL formation Additional info RBB stage 3 loans (hoh growth, Rbn) Business & product level CLRs Drivers of key trends RBB CLR (%) (%) 226 ▪ A more sta
Slide 41: Commercial property finance – a high-quality portfolio
Commercial property finance – a high-quality, well-diversified & highly collateralised portfolio Additional info Credit loss ratio (bps) & loan-to-value ratios (%) Portfolio LTVs 54 30 28 47 20 High-quality, CLR: 20 bps CLR well-diversified low at 51% Adequate collateral – Client resilience & highly
Slide 42: Commercial Property Finance – sector trends
Additional info Commercial Property Finance – sector trends Office vacancies 1 Sector trends Listed sector ▪ Office vacancies maintain downward ▪ Valuations appear to have ▪ Listed property sector continues to trajectory: stabilised: outperform (up 6% ytd vs All Share up 3%) ‒ Q2 2022: 16,7% (peak)
Slide 43: Expenses up by 8,5%
Expenses up by 8,5% – reflecting good expense management. Excluding Eqstra acquisition, expense growth was 7,9% Expenses (Rm) ▪ Employee-related costs +9% +7% +7% (3%) +14% ‒ Salaries & wages – driven by annual average salary increase (+6%), use of additional contractors to complete ME & additional
Slide 44: ETI associate investment
ETI associate investment – carrying value insignificant in the group context & well below market value Associate income1 ETI carrying value vs market value (Rm) (Rbn) 24,1 Return on ETI investment2 15,1 8,7 0,51 5,6 18,5 16,3 excl R175m (%) reversal 1,15 (32%) 76 509 470 749 270 1,25 0,61 1,35 H1 H1
Slide 45: Capital – CET1 ratio at 13,3%
Capital – CET1 ratio at 13,3% well above target range, positioning us well for growth, sustainable dividend payments & active capital management opportunities CET1 ratio (%) Active capital management ▪ Maintain CET1 ratio above our 11%-12% target range – considered appropriate in a (0,7) difficult &
Slide 46: CIB financial performance
CIB financial performance – strong performance in a challenging macroeconomic environment Financial performance ▪ NII flat 20,8 ‒ Actual advances +5% & average +1% due to lower Q1 demand 17,9 18,2 15,8 ROE ‒ Economic growth sectors optimised, ie Energy (+16%) and (%) 7,3 Leveraged & Diversified Fina
Slide 47: RBB financial performance
RBB financial performance – HE growth shows good recovery, driven by an improved impairment performance Financial performance 13,0 15,1 14,6 ▪ NII up by 3% 12,8 ‒ Average advances growth momentum continued at +5% ROE (%) ‒ Endowment benefit from higher interest rates 1,5 +24% ▪ NIR up by 6% (excludi
Slide 48: RBB financial performance – Eqstra acquisition
RBB financial performance – Eqstra acquisition effective from 1 June 2024 Additional info Strategic purpose Salient features Eqstra enhances & complements Nedbank’s Income statement June 2024 fleet management business offerings NIR R135m ▪ Integrated world-class internet-based fleet Expenses R109m m
Slide 49: Wealth financial performance
Wealth financial performance – modest performance driven by lower bancassurance volumes, introduction of OECD Pillar 2 tax, investments in future growth initiatives, offset by growth in AUM Financial performance ▪ NII up by 3% 30,1 22,0 24,8 – NIM expansion due to higher local & international intere
Slide 50: NAR financial performance
NAR financial performance – ROE maintained above COE Financial performance ▪ SADC operations – HE of R271m, down by 41% & ROE of 7,3% 29,2 ‒ Excluding base effect of Zimbabwe FX gains, HE up by 65% 15,9 18,2 ROE ‒ NII up by 8%, driven by improved margins (%) 1 5,8 ‒ NIR down by 13%, impacted by base
Slide 51: Outlook
Outlook Jason Quinn Chief Executive NEDBANK GROUP LIMITED – 2024 Interim Financial Results 51
Slide 52: Operating environment – forecasts point to some improvement
Operating environment – our forecasts point to some improvement in key macro- economic indicators, with the possibility of a more optimistic scenario emerging slowly SA GDP growth (%) Inflation (average, %) Industry credit growth (ye, %) GNU upside: 9,2% +1,0% to +1,5% 6,1% 6,3% 6,2% 2,3% 6,9% 2,1%
Slide 53: Short-term guidance (2024)
Short-term guidance (2024) – slower NII offset by good performance across other income statement lines H1 2024 2024 guidance1 Updated 2024 guidance1 performance (March 2024) (August 2024) Above Below NII growth +2% mid-single digits mid-single digits Back within the top half of the Back within the t
Slide 54: Government of National Unity (GNU) – potential upside
Government of National Unity (GNU) – the environment for banks & our clients could become more positive should the GNU be effective & enable an environment that delivers higher levels of GDP growth SA elections GNU outcomes Potential upside for Nedbank … may result in higher GDP growth ▪ Benefit giv
Slide 55: Medium-term & long-term targets – path towards ROE of >17%
Medium-term & long-term targets – path towards ROE of >17% Additional info Stronger Strong NIR & Manage >18% CLR to associate expense Active NII around income growth for capital 17% target 80 bps management growth growth + Jaws target Advances growth Impairments NIR & associate Expenses Capital inco
Slide 56: Our medium- & long-term targets support shareholder value creation
Our medium- & long-term targets support shareholder value creation Diluted headline ROE Cost-to-income Net promoter earnings per share ratio score Medium By end 2025 term > CPI + GDP + 5% 17% 52% #1 bank (CAGR to end-2025) (around COE + 2%) (delayed beyond 2025 given macro impact on revenue growth)
Slide 57: Thank you
Thank you NEDBANK GROUP LIMITED – 2024 Interim Financial Results 57
Slide 58: Disclaimer
Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities le