Nedbank Group · JSE:NED
Nedbank — FY2019 Earnings Presentation
44 slides from Nedbank's earnings presentation, March 2020
Slide 1: Annual Results for the year ended 31 December 2019
ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2019 NON-DEAL ROADSHOW INVESTOR PRESENTATION NEDBANK GROUP LIMITED – Annual Results 2019 1
Slide 2: Nedbank Group – a leading African financial services provider
Nedbank Group – a leading African financial services provider Market Free-float JSE capitalisation Majority Top 40 80% independent directors R107bn (from 45% before 69% Company (at 31 Dec ‘19) OML unbundling) Total clients Access to the largest banking Headline earnings Employees network in Africa 7
Slide 3: Nedbank Group in a strong position
Nedbank Group in a strong position Headline earnings (Rm) Loan growth (CAGR %) 20.1 16.3 Global financial 6.0 3.3 crisis 06–08 15–19 Wholesale Retail (28%) Stage 3 coverage (%) 4% 13 495 12 506 11 787 5 921 5 765 4 277 32.0 33.9 38.0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 08 09 19 NEDBANK GROUP L
Slide 4: Nedbank Group in a strong position
Nedbank Group in a strong position Number of clients (m) NIR income contribution (%) Defaulted advances (%) 4.3% 83% (2.3) 4.4 4.2 7.81 39.8 42.2 46.5 3.9 5.9 3.6 08 09 19 08 09 19 08 09 19 CET1 ratio (%) Funding tenor (%) 1.6% LT 19.2 21.1 30.2 MT 19.9 21.0 22.9 ST 60.9 57.9 46.9 8.2 9.9 11.5 08 09
Slide 5: A responsible corporate citizen & focus on ESG
A responsible corporate citizen & focus on ESG Delivering on our purpose Dow Jones Sustainability Index – included of using our financial expertise to do good for 15th year >50% of SED Launched 3 Africa’s first carbon-neutral financial spend on zero-monthly- organisation – since 2010 (& balanced our
Slide 6: Stronger economic growth dependent on structural reforms, policy certainty, confidence, investment
Stronger economic growth dependent on structural reforms, policy certainty, improved levels of confidence, investment & job creation Progress on structural reforms & policy certainty – too slow Job creation Increased & reduced: levels of − unemployment Increased Improved inclusive levels of local −
Slide 7: SA economic growth in 2019 much slower than expected
SA economic growth in 2019 much slower than expected SA GDP growth forecasts revised1 (%) Key drivers ▪ Current SA economic downswing the longest since records began in 1945. 2.0 1.8 ▪ Unsustainable financial & operational position of Eskom. 1.3 ▪ Severe & frequent power outages in Q1 & Q4 19. 1.1 0
Slide 8: Corporate & business clients – muted investment activity; retail disposable income slowed
Corporate & business clients – muted investment activity & profitability under pressure Retail clients – disposable income growth slowed Business & consumer confidence at multi- Personal disposable income growth year lows1 slowing2 (%) 100 30 15 20 10 75 10 5 50 0 0 -10 -5 25 -20 -10 0 -30 -15 94 99
Slide 9: Initial responses to COVID-19 & lower oil prices
Initial responses to COVID-19 & lower oil prices Economic forecasts revised down (on 16 March 2020) ▪ 2020 GDP growth forecast revised from 0.7% to -0.1% to reflect emerging economic impact – high degree of forecast risk ▪ On the back of the US Fed interest rate cut, SA interest rate forecasts now i
Slide 10: Initial responses to COVID-19 & lower oil prices (continued)
Initial responses to COVID-19 & lower oil prices (continued) Key SA government actions ▪ National State of Disaster declared by the President ▪ Travel ban on high risk countries starting 18 March, visas have been cancelled & existing visas will be revoked. SA citizens returning from high risk countr
Slide 11: Economic forecasts – slow recovery, but macroeconomic risks remain elevated
Economic forecasts – slow recovery, but macroeconomic risks remain elevated with increased uncertainty around COVID-19 impact Macroeconomic drivers1 (%) Prospects 2019 2020 2021 2022 ▪ Balance sheet GDP SA 0.7% 1.1% 1.3% – Muted wholesale & retail advances growth 0.2% GDP SA (Mar 2020) (0.1%) 0.9% 1
Slide 12: Macroeconomic scenarios – increased forecast risk in current environment
Macroeconomic scenarios1 – increased forecast risk in current environment High probability of forecasts moving to a high-stress scenario ‘More of the same’ ‘Seeing light’ ‘Sinking into darkness’ (base case) (positive scenario) (high-stress scenario) 19 20 21 22 19 20 21 22 19 20 21 22 SA GDP growth
Slide 13: Macroeconomic scenarios – increased forecast risk in current environment
Macroeconomic scenarios – increased forecast risk in current environment ‘More of the same’ ‘Seeing light’ ‘Sinking into darkness’ (base case) (positive scenario) (high-stress scenario) 19 20 21 22 19 20 21 22 19 20 21 22 Limited structural reform Significant improvements Domestic reform stalls and
Slide 14: 2020 financial guidance based on macroeconomic forecasts
2020 financial guidance based on macroeconomic forecasts Official 3 March 20201 guidance 16 March 20202 views (based on January 2020 economic forecast) (based on updated 2020 economic forecast) Average interest-earning banking asset growth just above mid-single digits. NII NIM similar to the 2019 le
Slide 15: 2020 & medium-to-long-term targets (downside risk)
2020 & medium-to-long-term targets (downside risk) vs Medium-term Longterm Metric 2019 2020 outlook1 2019 target (2-3 years) target (5+ years) Around ROE 15.0% ≥ 17% ≥ COE + 4% ▲ 2019 levels Diluted HEPS Around CPI + Around CPI + ≥ CPI + (6.3%) ▼ growth GDP growth GDP growth GDP growth + 5% Credit l
Slide 16: 2019 headline earnings down by 7% – impact of higher impairments
2019 headline earnings down by 7% – impact of higher impairments Headline earnings (Rm) 22 1 348 (2 441) 265 (296) (547) 660 +5% +0% +66% +2% +50% 13 495 12 506 2018 NII NIR Impairments Expenses Associate Zimbabwe Direct tax 2019 income net monetary & other loss (1) 1 Net monetary loss – hyperinflat
Slide 17: Quality of earnings – illustrative impact of various items & higher impairments
Quality of earnings – illustrative impact of various items & higher impairments Headline earnings (Rm) Growth impact: +2% +1% +2% +1% 500 144 238 140 250 12 506 13 779 2019 Zimbabwe Banco Private MFC CIB 2019 yoy change Único equity collections impairments after option revaluations (Dec 19) items (1
Slide 18: Net interest income +5% – strong AIEBA growth offset by a decrease in NIM
Net interest income +5% – strong AIEBA growth offset by a decrease in NIM Net interest margin (bps) (3) 2 (6) (4) (2) 365 352 2018 Endowment Asset Asset IFRS 16 Other 2019 impact mix pricing Average interest-earning banking assets: +8.6% NEDBANK GROUP LIMITED – Annual Results 2019 18
Slide 19: Gross banking advances +7% – selective origination
Gross banking advances +7% – selective origination Gross banking advances (Rbn) BA900 market share2 (%) Wholesale Retail Yoy Leveraging relationships Selective origination & unique Share trend & pipeline positioning Commercial property 38.7 (0.4) +8% +9% +50% (14%) +4% +7% +12% +3% Core corporate3 2
Slide 20: Deposits +9.5% – committed to grow retail & commercial deposits
Deposits +9.5% – committed to grow retail & commercial deposits, while managing the funding profile Deposits (Rbn) BA900 market share1 Yoy 29 904 Share trend 1 Wholesale 23.2 +1.6 31 Corporate (non- 16 1 16.5 (0.1) financial) 826 Household 16.9 (1.1) Foreign 12.0 +1.6 currency +5% +1% +9% +3% +34% L
Slide 21: NIR growth flat – solid underlying growth offset by private equity revaluations
NIR growth flat – solid underlying growth offset by private equity revaluations NIR (Rm) Key drivers ▪ Commission & fees +3% – Solid underlying Retail transactional NIR growth: +6% (deeper share of wallet & main- banked growth in upper client segments) – Subdued client activity ▪ Trading – impacted
Slide 22: Retail transactional NIR growth ahead of client growth
Retail transactional NIR growth ahead of client growth – deeper client penetration Total retail client base (#000) Retail NIR (Rm) +6.1% +0.1% (0.3%) +1.8% 11 384 7 538 7 543 7 523 10 537 10 725 3 714 Total Total 3 572 3 507 4 755 4 567 4 578 Other Retail, excl main- banked +6.3% +3.6% Transactional
Slide 23: Client-centred strategy intact – strong growth across most segments
Client-centred strategy intact – strong growth across most segments Main-banked, # 000 +10% +9% (3%) Kids & youth Professional (10%) 70 77 84 382 372 336 (2%) +6% Small Business +8% +6% Services2,3 Entry level 1 411 1 525 1 495 116 123 130 +9% +1% +2% +2% Banking1,3 Business Middle 797 872 884 21.1
Slide 24: Credit loss ratio up to 82 bps – normalisation off a low base
Credit loss ratio up to 82 bps – normalisation of credit losses off a low base & increased provisioning in H2 2019 Group CLR1 (bps) Cluster CLR (bps) 138 82 128 77 68 106 108 101 49 53 51 26 16 13 14 18 4 2 3 4 5 15 16 17 18 19 CIB RBB Wealth NAR 18 H1 19 19 Ave banking advances 46.3% 46.5% 4.2% 3.0
Slide 25: Stage 3 advances – increase in RBB defaults, offset by CIB restructures
Stage 3 advances – increase in RBB defaults as the macroeconomic environment deteriorated, offset by successful restructures in CIB Stage 3 advances1 (Rbn) Stage 3 coverage (%) 26.8 +4% 27.6 +10% yoy Total 25.2 +6% 2.4 2.3 Other 2.2 (28%) yoy 4.1 36.8 37.1 38.0 5.4 (24%) CIB 5.7 (5%) Dec 18 Jun 19 D
Slide 26: Key stressed industries in CIB
Key stressed industries in CIB Top 10 client contribution (%) CIB selected sector exposures (%) Change – Change – Migration Downside Migration Downside risk risk Risk Risk State Owned 3.5% 13% 15% Entities 3.4% M L ▼ ▼ 2.5% CPF 28% Retailers 1.9% H M - ▲ 4.4% 87% 85% Mining 4.3% M M - ▲ Share Based
Slide 27: Quality commercial property book
Quality commercial property book CLR (bps), LTVs (%) Key drivers ▪ Strong client base supported by an experienced team CLR 8 4 (5) 10 (2) ▪ Awarded Top African Real-Estate Bank (API Awards) ▪ Well-diversified portfolio & weighted to the correct segments in the market LTV 48% ▪ CLR below target range
Slide 28: Commercial property sector insights
Commercial property sector insights Office space – oversupplied Retail sector – largely oversupplied in metros ▪ Office vacancies remain high but stable at 11.0% across the ▪ Retail vacancies currently at 4.4%, above the long-term board average of 2.9% ▪ Rentals remain under pressure with negative r
Slide 29: Expenses +2% – good cost management in response to slowing revenue growth
Expenses +2% – good cost management in response to slowing revenue growth & benefits from digitisation Expenses (Rm) Key drivers Digital & TOM benefits ▪ Staff packages – Average salary increases of 5.4% +5% (24%) +12% +1% – Reduction in headcount of 1 874 ▪ Incentives – STI decline > earnings decli
Slide 30: Expenses – progress on key cost optimisation initiatives
Expenses – progress on key cost optimisation initiatives Central costs, property & Process RBB & branch Technology procurement optimisation optimisation ▪ Group shared services ▪ Improved IT project delivery ▪ Digital client onboarding & sales ▪ Number of outlets – ongoing (onboarding & back office
Slide 31: Optimisation of processes & operations
Optimisation of processes & operations Group employees Branch floor space saved Number of retail outlets (#) (‘000 m2)1 (#) -4% -6% 31 887 31 277 29 403 24 33 42 613 604 589 17 18 19 17 18 19 17 18 19 Teller activity Cumulative robotics process Cumulative group TOM (# 000)2 automation (#) efficienci
Slide 32: ETI associate income – reflects ETI progress, Nigeria challenging
ETI associate income – reflects ETI progress, although environment in Nigeria remains challenging & growth has slowed Associate income from ETI1 (Rm) ETI 9M 2019 results Q1 191 ▪ Nigerian operations 870 668 ‒ Challenging economic 608 Q2 190 & regulatory environment ‒ NPLs remain elevated Q3 180 ‒ $1
Slide 33: ETI carrying value – Value-in-use slightly above carrying value
ETI carrying value – Value-in-use slightly above carrying value Carrying value drivers vs market value (Rbn) (1.0) (2.1) (0.5) Value-in-use > R2.7bn (1) 6.3 3.2 2.7 1.3 4.3 Original cost of Carrying value Carrying value Market value Share of ETI investment Dec 2018 Dec 2019 Dec 2019 NAV Sep 2019 Imp
Slide 34: Africa Regions: SADC – strategic developments
Africa Regions: SADC – strategic developments Portfolio optimisation Adapting to market changes Sale of Nedbank Malawi1 Zimbabwe hyperinflation ▪ Reviewed strategic fit ▪ Nedbank Zimbabwe: R108m HE loss (2018: R142m profit) ▪ Less than 0.1% of group assets & earnings ▪ Re-configuring the shape of th
Slide 35: Capital – CET1 at the midpoint of our target range
Capital – CET1 at the midpoint of our target range CET1 capital ratio (%) – after full IFRS implementation (1.2) 2.1 (0.2) (0.7) (0.2) CET1 target range: 10.5 – 12.5% 11.7 SARB minimum CET1: 7.5% 11.5 11.3 Dec IFRS 16 Organic Dividends RWA Intangibles Dec Jun 2018 impact profit paid increase 2019 20
Slide 36: Dividend – within board-approved target range, supporting attractive yield
Dividend – within board-approved target range, supporting a dividend yield that is attractive for investors Dividend cover (times) Dividend yield (%) 8 Board-approved target range: 1.75–2.25x 7 6.6 2.06 2.00 1.97 6 1.91 1.84 5 4 Payout ratio: 3.6 3 2 1 49% 50% 52% 51% 54% 0 Dec Dec Dec Dec Dec 2015
Slide 37: Spine of the Nedbank strategy
Spine of the Nedbank strategy Create great client experiences & grow market share in key value-creating areas ▪ TOM 1.0 – new Ways of Work Enabled by including front, middle & backoffice optimisation & digital (agile) delivery. People Benefits delivery ahead of targets (up Technology + & brand to 20
Slide 38: IT advancement – Managed Evolution strategy
Managed Evolution strategy is enabling core banking system rationalisation, standardisation & simplification Managed Evolution approach Core systems1 (#) 2020 outcomes Digitise Delight Disrupt Robust, Rationalise, standardise & simplify ‘Big bang’ flexible IT landscape ▪ 24/7, real-time systems ▪ Ag
Slide 39: Good progress on our digital strategy
Good progress on our digital strategy To be Africa's #1 digital financial services player Long-term 75% digital 70% digitally active 60 < 50% Cost-to- aspirations sales1 clients2 NPS3 income ratio 70% Nedbank digital 60% Dec 2019: 30% 75% NPS > 60% 58.6% 57.2% 56.6% 37% 38% < 50% 26% 24% 21% 20% 12%
Slide 40: Eclipse – simplified end-to-end digital client onboarding
Eclipse – simplified end-to-end digital client onboarding for individuals in 2019 End-to-end digital client onboarding, digitising our top 10 products & more than 180 services by end-2020 H1 2019 H2 2019 H1 2020 H2 2020 H2 2021 a Juristic client Juristic client Clients: Individual client onboarding
Slide 41: Eclipse & app – improved client experiences & unlocking efficiencies
Eclipse & app – improved client experiences & unlocking efficiencies Time to open a personal loan & transactional Sales through Eclipse & app product (minutes, majority of transactions) (% of total) Paper volumes in backoffices down 79% 50–60% 75% 3% 45-50 61% 14% 2% Skilled staff can Existing clien
Slide 42: IT spend reducing from 2020
IT spend reducing from 2020 IT software development spend (Rbn) Capitalised IT costs (Rbn) Amortisation charge (Rbn) Regulatory projects almost complete & development cost on new technologies decreasing 2.3 2.1 2.1 8.3 1.7 7.4 6.0 1.2 1.2 1.0 1.0 4.6 0.8 0.8 0.7 0.7 3.1 3.5 14 15 16 17 18 19 20 21 2
Slide 43: Various new innovations & digital enhancements delivering improved client experiences
Various new innovations & digital enhancements delivering improved client experiences iOS & Android app store client ratings1 Net promoter score2 (stars / 5) (%) Only SA bank to increase NPS in 2019 60 < 55 < 2.6 3.3 3.7 3.7 4.4 4.6 4.6 26 37 38 34 Bank A Bank B Bank C Bank D Nedbank Nedbank Bank E
Slide 44: 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