Nedbank Group · JSE:NED
Nedbank — UBS 11th SA Financial Services Conference 2008
47 slides from Nedbank's conference presentation, Oct 14, 2008
Slide 1: Navigating the Downcycle
Mike Brown- Chief Financial Officer UBS SA Financial Services Conference - Navigating the Downcycle 14 October 2008
Slide 2: Contents
Contents • Understanding the macro context • SA context • SA Banks vs. Global Banks • Impact of global banking crisis on Nedbank • Nedbank outlook • Nedbank’s approach to the current environment • How are we doing? • Investment case 2
Slide 3: Understanding the macro context
Understanding the macro context
Slide 4: What is a bank?
What is a bank? Macro- Fees & Bank = economic hedge fund + services business 5
Slide 5: Global & local environment
Global & local environment Global environment Local environment Inflation Pending Stronger Banking Political Skills Outlook Historic US / UK Middle East, crisis uncertainty shortage recession East & Africa More volatile & A more uncertain SA, uncertain international but not as hard hit as environmen
Slide 6: Therefore Nedbank's focus
Therefore Nedbank’s focus … Macro- Fees & Bank = economic hedge fund + services business • Differentiate culture • Grow deposits • Grow transactional businesses • Staff retention • Grow assets selectively • Pricing for risk • Focus on primary clients • Cost control • Proactive risk • Cross sell • Co
Slide 7: SA context
®) NEDBANK GROUP
Slide 8: SA context
SA context Short-term Outlook • Consumer under pressure • Inflation peaked? • Business banking growth slowing • Interest rates peaked? • Corporate sector still growing • Longer term effects of global • Capacity constraints may limit crisis? growth • Capacity constraints being • Fixed investment spen
Slide 9: SA GDP growth
SA GDP growth • SA experienced one of its strongest economic upswings since 2004 • GDP growth remains behind economies such as BRIC, but has held up well to date despite changed global & domestic conditions • Highest GDP per capita of major economies in Africa Economic outlook Y-o-y % change GDP • H
Slide 10: Inflation peaking?
Inflation peaking? Drivers of high inflation Inflation expectation 11
Slide 11: Interest rates at a peak?
Interest rates at a peak? Policy rates Prime interest rate % 22 18 14 10 6 2 01 02 03 04 05 06 07 08 SA LatAm CEEMEA Asia Global Source: SARB, JPMorgan estimates Source: Nedbank Group Economic Unit Forecast average prime 2008: 15,5% 2009: 13,5% … SA tight economic policy 12 2010: 12,5% leaves more r
Slide 12: Infrastructure investment underpin
Infrastructure investment underpin Comment & potential impact • Capacity utilisation levels in private sector & public sector high • Significant fixed investment required over next 5 years to ease constraints • Will continue to see high levels of infrastructure spend - opportunity for corporate & in
Slide 13: SA consumer under pressure
SA consumer under pressure Comment & potential impact • Rising inflation & higher interest rates have resulted in sharp slowdown in retail sales - starting to impact on credit growth • Lower retail sales also impact transactional volume & will eventually flow through to slower commercial & corporate
Slide 14: Investment banking environment
Investment banking environment • SA market partially insulated from global investment banking trends • Equity markets & private equity valuations have suffered • M&A environment slowdown • Postponement or abandonment of some deals • Foreign private equity interest continues in <$1bn market (locally
Slide 15: SA Banks vs. Global Banks
®) NEDBANK GROUP SA Banks vs. Global Banks
Slide 16: SA Banks
SA Banks SA banking sector less exposed to global credit market woes • Exchange controls - effectively keep local funds captive in SA • Strong deposit franchises of SA banks • Low offshore funding • Low level of securitised assets • Good loan-to-deposit ratios • +80% of banking assets controlled by
Slide 17: Bank's gearing
Bank’s gearing Bank Assets : Equity Equity : Assets Bank Assets : Equity Equity : Assets Barclays (UK) 61.3 1.6% ANZ (Aus) 19.6 5.1% Dexia (Fra) 57.5 1.7% Standard Chartered (UK) 19.5 5.1% Deutsche Bank (Ger) 52.5 1.9% Citigroup (US) 15.4 6.5% UBS (Swi) 46.9 2.1% C W Bank (Aus) 19.0 5.3% Freddie Mac
Slide 18: Stages of a banking cycle
Stages of a banking cycle 1 2 Banking crisis Regulator takes begins action 8 3 Overheating economy of Banks become concern to regulators more prudent 7 4 Excess liquidity, Economy & stock investment & investment market takes off optimism 6 5 New competitors & Loan growth banking mergers & skyrockets
Slide 19: Impact of global banking crisis on Nedbank
Impact of global banking crisis on Nedbank
Slide 20: Indirect effects of global credit crunch
Indirect effects of global credit crunch • Conduit (Synthesis R8 bn) – Funding profile has shortened (shift towards 1 month vs. 3 months) – Notes issued at 20 - 25 basis points higher • Securitised programmes – Reduction in market appetite – Increased pricing for new programmes • New tier 1 & tier 2
Slide 21: Indirect effects of global credit crunch (Continued)
Indirect effects of global credit crunch (Continued) • Positive aspects & opportunities – No contagion into SA money markets in which most of bank’s funding is raised & rolled – May positively impact Big 4 banks market share – Will facilitate improved asset pricing 22
Slide 22: Conduit pricing
Conduit pricing … and R62 billion rolled over since July 2007 23
Slide 23: Cost of sub-debt
Cost of sub-debt • Nedbank last issue was a Tier 2 10NC5 in 2007 at an effective 0,70% above JIBAR • Hybrid issued R1,2 bn in H12008 at an effective 475 bps above JIBAR • Debt Capital markets are thin & credit spreads wider • Nedbank has no short-term maturities 24
Slide 24: Subordinated debt & hybrid maturity profile
Subordinated debt & hybrid maturity profile Rm 2 500 NED 7 NED 10 NED9 2 000 NED 12 NED6 NED8 NED5 1 500 NED H1 NED11 1 000 No maturities 500 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 25
Slide 25: Credit exposure to global banks
Credit exposure to global banks • Small money market exposure to Lehmans of USD1m − all trading positions closed out at no loss & operational processes tested • Uncommitted lines primarily extended to systemically important banks in investment grade sovereigns • Continue to reassess uncommitted line
Slide 26: Nedbank outlook
®) NEDBANK GROUP Nedbank outlook
Slide 27: Implications for Nedbank 2009 - 2011
Implications for Nedbank 2009 - 2011 • Asset growth starting to slow − particularly in Retail & Business Banking − Corporate Banking still strong • Liability growth becoming increasingly important • Margin pressure – benefits from repricing new deals will not offset margin deterioration from cost of
Slide 28: Current sector outlook for 2009
Current sector outlook for 2009 Wholesale Retail Business Home loans Bearish Banking Mild bearish Corporate VAF Bearish Mild bullish Banking Issuing: Bearish Card Transaction: Neutral Property Finance Mild bearish Acquiring: Bullish Personal Loans Bullish Nedbank Africa Neutral SBS Short term bearis
Slide 29: Nedbank's approach to current environment
Nedbank’s approach to current environment
Slide 30: Grow our share of market EP
Grow our share of market EP • Focus on liability growth & our strong depositor franchise • Slowing advances growth & focus on value • Increasing capital levels to top end of targets • Pricing for risk & increased cost of funding • Credit & risk parameter refinement • Transactional income & primary c
Slide 31: Positioning for long-term value creation
Positioning for long-term value creation Nedbank Retail Nedbank Corporate Nedbank Capital Mass M Affluent SB BB CB PF Africa IB Trading Work value skews X-Border selective Cautious product push Asset asset X-Sell growth Liability innovation Liability (capital & funding engine) Services Transaction e
Slide 32: How are we doing?
®) NEDBANK GROUP How are we doing?
Slide 33: NII
NII • Expanding margins on new assets • Internal funds transfer pricing increased • Focus on high EP businesses, slowing growth in lower EP businesses • Growing deposits & building liquidity buffers • Above the line marketing focused on deposit growth R2,8bn raised from launch in mid August 34 … NIM
Slide 34: Focus on growing NIR
Focus on growing NIR • Distribution channel growth – revert to organic vs “step change” (699 manned outlets in 2005 grow to 777 by end 2008) • 11% growth in retail primary clients (H1 2008) • Progress made in gaining public sector transactional banking clients • Large high volume client wins in Corp
Slide 35: Impairments
Impairments % of average June Rm – six months ended advances 2008 As % of average advances (%) 100,0 0,96 > through the cycle Nedbank Capital 14,5 0,12 = through the cycle Nedbank Corporate 40,4 0,15 < through the cycle Nedbank Retail 35,4 2,00 > through the cycle Personal loans 1,6 9,10 = through t
Slide 36: Retail credit – default rates
Retail credit – default rates ... recovery in unsecured products secured products a challenge 37
Slide 37: Controlling cost growth
Controlling cost growth Efficiency ratio Nedbank Capital 19.7% 15.3% Nedbank Corporate 11.3% 8.7% 5 4 .7 % 5 1 .5 % Nedbank Retail 15.8% 12.2% Total Group 16.9% 10.1% % Revenue increase % Expense increase Jun ‘07 Jun ‘08 Note: excluding Bond Choice 38
Slide 38: Increasing capital ratios
Increasing capital ratios BASEL II CAR 12% Total 30 June 2008 9.75% 9.75% 9.75% 10% • R6,9bn economic capital surplus Tier 1 8% 7% 7% 7% 7% after a 10% buffer built in 11.7% 11.2% 6% • R6,9bn regulatory capital buffer 9.75% 7.00% 8.7% 8.0% 9.75% 7.4% • Strong Tier 1 ratio 6.9% 4% 2% By December 2008
Slide 39: Funding & liquidity risk management
Funding & liquidity risk management • No exposure to US sub-prime or related asset classes • Small conduit business at approximately 2% of liabilities • Limited access made of securitisation market – <1% of total liabilities • Limited access made of foreign markets – <3% of total liabilities Liquidi
Slide 40: Investment case
®) NEDBANK GROUP Investment case
Slide 41: Our vision
Our vision To become Southern Africa’s most highly rated and respected bank… Vision …by our staff, clients, shareholders, regulators and communities. = DEEP GREEN Great place to work ‘Deep Green’ Great place to bank Great place to invest aspirations Unleashing synergies Worldclass at managing risk C
Slide 42: Growth potential in SA & SADC
Growth potential in SA & SADC Managing for value - market growth • SA = 60% of economic profit pool in Africa (SADC has 65% – 75%) • SADC - opportunity - likely to show higher growth than local SA market • Benefit from boutique investment banking strategy in Africa & Rest of World The sum of South A
Slide 43: Growth potential in SA & SADC (continued)
Growth potential in SA & SADC (continued) Managing for value - market share growth • Nedbank has only an estimated 12% - 14% share of SA banking EP pool today • We can gain EP market share across various segments & products • Continuously focus on winning EP game in SA & selectively expand in Africa
Slide 44: Smart with Heart
Smart with Heart Best place to bank & invest Agility Differentiate on service Execution speed Customised products Managing differently for different points in Expand existing risk management cycle reputation Value not volume Attract & retain best & Pursue value, not volume brightest Data enhancement
Slide 45: Current outlook vs medium-to-long term targets
Current outlook vs medium-to-long term targets Medium to long-term targets 2008 2009 2010 2011 ROE (excl goodwill): 10% > monthly weighted average cost of ordinary shareholders’ equity Efficiency ratio: < 55% Diluted HEPS: at least CPIX + GDP growth + 5% Impairment charge: between 0,55% & 0,85% of a
Slide 46: Thank you
®) NEDBANK GROUP
Slide 47: Disclaimer
Disclaimer Nedbank Group has acted in good faith & has made every reasonable effort to ensure the accuracy & 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 legisl
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