Nedbank Group · JSE:NED

Nedbank — 16th UBS Annual Financial Services Conference 2013

35 slides from Nedbank's conference presentation, October 2013

  1. Slide 1: Managing a Bank in Testing Times

    NEDBANK GROUP MANAGING A BANK IN TESTING TIMES 16th UBS Annual Financial Services conference, October 2013

  2. Slide 2: Ben promised me the debt ceiling was the least of my problems

    “Ben promised me the debt ceiling was the least of my problems” 2

  3. Slide 3: Agenda: Testing Times

    Agenda: Testing Times  What is our current macro outlook?  The state of the environment  What does ‘Testing Times’ mean for banks?  The Cs of uncertain & ‘Testing Times’ in banking 3

  4. Slide 4: How testing are the times? Low GDP growth

    How testing are the times? SA GDP (Q-o-q % - SAAR) 10 Low GDP growth & 8 outlook muted: 6 2013: 2,0% 4 2014: 2,9% 2 0 -2 -4 -6 -8 -10 80 85 90 95 00 05 10 4

  5. Slide 5: How testing are the times? Interest rates at 40-year lows

    How testing are the times? Prime interest rate (%) 27 25 23 21 Interest rates at 19 40-year lows: 17 Increase 50bps 15 in Q3 2014 13 11 9 7 80 85 90 95 00 05 10 5

  6. Slide 6: How testing are the times? Consumers remain highly indebted

    How testing are the times? Consumer indebtedness (%) Personal debt as a % Interest service costs as of disposable income % of PDI (ISR) Consumers remain 90 18 highly indebted 80 16 70 14 Nedbank adjusted ISR reflects: 60 12  Mix changes 50 10  Pricing changes 40 8 30 6 2013-2015: Debt levels remai

  7. Slide 7: How testing are the times? Muted credit growth

    How testing are the times? Private sector credit extension (% growth) 40 35 30 25 Muted credit growth, 20 particularly retail 15 2013: mid to upper single digit growth 10 5 0 -5 80 85 90 95 00 05 10 7

  8. Slide 8: How testing are the times? Capital project schedule

    How testing are the times? Large SA capital project schedule (R billion - constant 2012 prices) 800 Despite R3 trillion 600 potential by 2030, announced projects at multi-year lows post the Soccer World Cup 400 200 0 93 95 97 99 01 03 05 07 09 11 13 * Private Sector Public Sector *The 2013 figure is

  9. Slide 9: Index reflecting the state of the SA environment

    Looking at all the macro data, we can create an index reflecting the state of the SA environment  Modelling of systemic credit risk Macroeconomic factors incorporating macro-economic state utilised in stress testing (Mc):  Multiple macro-economic factors used  Real GDP growth  Incorporates sensi

  10. Slide 10: The index shows how testing the times are

    The index, relevant for banks, shows how testing the times are Macroeconomic state of SA for systemic credit risk (Probability of 1-in-N year event) 25 Mild stress + 20 or Probability of 1-in-N year event 15 1987 Black Monday 1997 SE Asia Global Market crisis Financial crisis The new normal? 10 5 •

  11. Slide 11: So what are some of the implications for banks?

    So what are some of the implications for banks? More Lower capital, liquidity & growth provisions Increased Changing regulatory client needs & burden behaviours Need for agility Increased & competition Understanding different outcomes 11

  12. Slide 12: Implications for banks: Bank ROEs

    So what are some of the implications for banks? European & US Global Bank ROEs (%) SA Bank ROEs (%) Pre‐crisis Recession Recovery New normal 30 19,3% 25 17,9% 20 15,0% 15 9,2% 9,8% 10 8,3% 7,6% 5,0% 5 1,2% 0 05 06 07 08 09 10 11 12 H1 05 06 07 08 09 10 11 12 13 '13 Nedbank excl GW ABSA (BGA) Standar

  13. Slide 13: The Cs of uncertain & testing times in banking

    The Cs of uncertain & testing times in banking Capital Clients Cash Culture Costs Credit Collectively all of these create… Credibility 13

  14. Slide 14: Capital – SA banks well positioned

    Capital Capital – SA banks well positioned Clients Cash Culture Costs Credit Average risk weight vs Basel III CET1 ratio (%, as at 31 Dec 2012) 80% Median: 9.4% Low capital ratios Well Capitalised & & high risk weights high risk weights 70% Standard Bank RBI FirstRand RBS UBI Banca 60% NBG HSBC Inve

  15. Slide 15: Capital – NAV growth the key focus

    Capital Capital – NAV growth the key focus Clients Cash Culture Costs Credit Nedbank NAV per share & growth Dividend cover ratio (Rbn, %) (x) 2,25 – 2,75x 9,3% 9,7% 9,4% 12180 2,30 2,30 2,29 11721 8,0% 2,26 2,25 6,8% 10753 1,75 – 2,25x 13,4% 9831 2,18 2,18 9100 8522 7513 2007 2008 2009 2010 2011 201

  16. Slide 16: Capital – Nedbank well positioned under Basel III

    Capital Capital – Nedbank well positioned Clients Culture Cash under Basel III Costs Credit Common equity tier 1 (%) Contribution (%) Strong capital position B III target range: 10,5 – 12,5%  CET 1 above mid-point of target range B II target range: 7,5 – 9,0% enabling  Lower dividend cover 11,8% 1

  17. Slide 17: Capital – Stress & scenario testing becomes very important

    Capital Capital - Stress & scenario testing Clients Culture Cash becomes very important Costs Credit Scenarios* Purpose & outcome of stress testing Positive (1-in-4) Mild stress (1-in-4) 2013 2014 2015 2013 2014 2015  Tests capital adequacy under various stress scenarios CPI inflation rate 5.4% 5.1

  18. Slide 18: Capital – Stress & scenario testing: home loan market share

    Capital Capital - Stress & scenario testing Clients Culture Cash becomes very important Costs Credit Nedbank Home loan market share & cyclical triggers 18.0 HL market share growth at wrong time 17.5 in cycle 17.0 • Strategic decision to shrink property 16.5 concentration risk 16.0 • Prefer CPF over

  19. Slide 19: Cash – Nedbank's liquidity sound

    Capital Clients Cash Cash – Nedbank’s liquidity sound Costs Culture Credit Nedbank LT funding ratio (%) Contribution (%) Surplus liquid assets (Rbn) Sound liquidity Rbn % 35 28,0% 30%  Closed SA funding system 26,0% 30 25,0% 24,0% 25%  Pro-forma LCR compliant 24,4 25,0 25 23,7 21,0% 20%  LT fundi

  20. Slide 20: Credit – impairments under IFRS most volatile driver of profits

    Capital Credit – impairments under IFRS most Clients Culture Cash volatile driver of profits Costs Credit SA Bank impairments / NII (%) 50% 39,0% 33,5% 27,8% 26,4% 25,3% 25% 22,1% 17,6% 14,0% 0% SA Banks SA Banks’ key income statement drivers (indexed to 2006) 2006 - H1 2013: 500 400 Total R175bn 38

  21. Slide 21: Credit – prudent provisioning, ahead of the curve

    Capital Credit – prudent provisioning, ahead of Clients Culture Cash the curve Costs Credit Nedbank Group total & specific coverage (%) Nedbank Group post write-off recoveries (Rm) 428 412 58,8% 52,9% 45,4% 290 38,6% 249 35,9% 198 31,6% 35,8% 39,0% 40,9% 28,0% H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 2009 2010

  22. Slide 22: Credit – selective retail growth & better pricing

    Capital Credit – selective retail growth & Clients Culture Cash better pricing Costs Credit Retail asset pay-outs YTD book Client premium relative to Rbn growth1 Prime2 % % 27,1 25,4 24,8 Personal (5,8) 11,2 13,0 14,9 7,5 4,0 Loans 8,0 14,0 14,7 10,6 MFC 2,42 2,49 2,36 12,1 Home 4,7 4,9 5,3 (1,8) 0,

  23. Slide 23: Credit – selective wholesale growth with good risk metrics

    Capital Credit – selective wholesale growth Clients Culture Cash with good risk metrics Costs Credit Wholesale asset pay-outs YTD book Credit loss ratio Rbn growth1 % % 51,5 0,37 0,38 0,24 45,6 (1,0) 9,9 39,3 8,8 CPF 5,4 0,59 0,42 0,31 Corporate 30,3 22,4 & Capital 26,7 banking 24,9 book 1,02 First

  24. Slide 24: Costs – investing through cycles

    Capital Clients Cash Costs – investing though cycles Costs Culture Credit Operating expenses excl incentives (Rm) GDP (%) 20 000 6.0% 15 000 4.0% 10 000 2.0% 5 000 0.0% ‐ ‐2.0% 2006 2007 2008 2009 2010 2011 2012 Expenses (excl incentive costs) GDP Training spend % of payroll 2,7% 2,0% 4,1% 4,3% 3,6%

  25. Slide 25: Costs – positive delta between NIR & cost growth

    Capital Costs – positive delta between NIR Clients Culture Cash & cost growth Costs Credit Nedbank NIR & expenses growth (%) NIR & expenses growth 20% (2007 to 2012 CAGR %) CAGR (2009 to H1 2013*) 16% 12,5% 10,6% 12% 12,3% 8,8% 8,3% 8% 9,2% 5,7% 4% 0% 2009 2010 2011 2012 H1 Nedbank Peer average 2013

  26. Slide 26: Clients – investing for the long-term

    Capital Clients Cash Clients – investing for the long-term Costs Culture Credit Growth in distribution… … to the branch of the future 40% Video wall Branches & Outlets1 (#) increase 758 762 543 190 190 Alternate 75 outlets 468 568 572 Sales pods Branches Intelligent 2009 2012 H1 2013 depositor 72% A

  27. Slide 27: Clients – innovation that makes a difference

    Capital Clients – innovation that makes Clients Culture Cash a difference Costs Credit The rate of Nedbank’s commercial innovation has increased strongly since early 2012 Best Consumer Android App 2013 MTN Awards Nedbank & Ecobank Alliance Innovations 2010 Most Innovative Bank of the Year African Ba

  28. Slide 28: Clients – more clients, increased cross sell

    Capital Clients – more clients, increased Clients Culture Cash cross sell Costs Credit Client growth Clients with 2+ Products (‘000) (‘000) 12,1% 628 585 15,8% 571 2701,3 15,0% 1 554 88 7,1% 1 386 182 1 197 358 1 041 854 792 95 384 720 202 299 Middle/ 609 Middle/ RRB3 RRB3 39 161 552 105 466 ELB ELB

  29. Slide 29: Culture – a key differentiator

    Capital Clients Cash Culture – a key differentiator Costs Culture Credit Key take-outs  “The problems… are to some extent industry issues”  “Trust takes decades to build… yet can be destroyed quickly”  “Culture… if left to its own devices shapes itself, with inherent risk… and not be those desire

  30. Slide 30: Culture – a key differentiator

    Capital Clients Cash Culture – a key differentiator Costs Culture Credit Nedbank Group’s top 10 current Nedbank Group cultural entropy (%) culture values Accountability 25% Client satisfaction Client-driven 19% 17% Brand reputation World‐class = 10% 14% Teamwork 13% 13% 11% 11% 10% Environmental awa

  31. Slide 31: Compensation – focus on the long-term

    Capital Clients Cash Compensation – focus on the long-term Costs Culture Credit Fixed remuneration increases skewed to non-management (2-3% higher ASR) Growth in short-term incentives (%) Long-term incentive (Rm) 40% 500 400 20% 300 0% 200 -20% 100 -40% 0 2006 2007 2008 2009 2010 2011 2012 2006 2007

  32. Slide 32: Credibility – no surprises

    Capital Clients Cash Credibility – no surprises Costs Culture Credit Reality >1 Expectation  Collectively created by all the Cs  Continuity of management  Clear & credible strategy  Consistent quality disclosure/ transparency  Clear market guidance 32

  33. Slide 33: A last thought… Common sense

    A last thought… Common sense 33

  34. Slide 34: Conclusion

    Conclusion  “Testing times” - the new normal  Nedbank continues to be well positioned - prudent with good growth prospects  Prudence: − Capital: strongly capitalised, able to exploit opportunities − Cash: sound liquidity − Credit: selective growth while prudently provided − Costs: well managed wh

  35. Slide 35: 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

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