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OVERVIEW OF 2013

We celebrated our 10th anniversary as Nedbank Corporate in its current form and with it, some unique successes and achievements:

  • Our headline earnings grew by 23,6% to R2 245m from R1 817m. Corporate Banking contributed 53,3% of these earnings and Property Finance 42,1%.
  • We contributed 26% of the group’s headline earnings in 2013.
  • Economic profit grew by a very pleasing 50,1% to R1 138m.
  • Our NIR : expense ratio surpassed the Nedbank internal target of 85% at 89,7%, with core NIR growing by 21,3%.
  • Our efficiency ratio improved by 1,5% to 39,6% (2012: 41,1%).
  • We maintained a superior credit risk management profile: our high-quality portfolio recorded an impairment ratio of 23bps,within our target range of 20bps to 35bps.
  • We continued to retain key primary banking relationships both within the public and private sectors.
  • Concluded two of the largest deals ever funded by the Property Finance team: namely Bay West Mall in Port Elizabeth (R1,8bn) and the Mall of Africa in Midrand (R3,3bn). In both cases, Nedbank was the sole debt provider and we retained our position as the largest property financier in SA measured by advances (31,7% of the market per the BA900 December 2013).
  • During 2013 the Affordable Housing unit disbursed more than R1bn towards new affordable housing developments across SA, with more than 12 000 new home opportunities created in 2013 and cumulatively over 25 000 homes over the past five years. This business has grown from a start-up basis with breakeven profitability to a unit that made R8,3m headline earnings in 2013. The strategic imperative for the Affordable Housing Development Finance business is to ensure that Nedbank can credibly demonstrate its participation to the Financial Sector Code and in a sustainable way. To build on this momentum we have increased the headcount for this unit to take advantage of the increase in business, which also reflects the increasing demand in SA for housing to the lower income sector.
  • Nedbank Investor Services (NIS) has continued to win the Global Finance best subcustodian award in SA since 2008. Assets under custody of R2 trillion in value are administrated by NIS on behalf of institutional investors.
  • We enhanced our position in the global trade market through client enablement and new product development. Transactional Banking continued to innovate whilst still focusing on compliance projects related to product enhancements.

The year was, however, a slow one, confirming the bearish market in SA at present with its sub 2% growth rate. The sluggish macroeconomic environment continued to play a key role in determining the pace of expansionary activity. We expect these conditions to persist during 2014.

Internally, leadership succession and maintaining the high levels of management expertise as well as securing scarce skills, continued to be a challenge.

Our responses to these challenges included the following:

  1. Client-centricity: overall this constitutes 25% of senior management scorecards. The alignment of our Employee Value Proposition (EVP) to the Client Value Proposition (CVP) has reaped positive outcomes in both staff and client feedback.
  2. Seeing risk as an enabler: we ensured that our risk management process maintained the correct balance between optimally servicing clients and acquisition, and risk appetite.
  3. Effective and agile leadership: we continued developing and building the strength of our leadership pipeline. Our staff surveys continue to return positive feedback. The Leading for Deep Green initiatives have also gained strong momentum and are developing personal mastery, leadership and team effectiveness capability.
  4. Building future talent: our continued investment in specialised Nedbank Corporate academies, learnerships and management development programmes will continue to provide a sustained pipeline of talent.

Corporate Banking

The slow deal flow in a very competitive market resulted in a modest average advances growth of 4,2% to R81,4bn. Average deposits grew by 10,5% to R162bn. Furthermore, advanced preparations for certain aspects of Basel III, as well as funding and liquidity management requirements, have placed additional costs onto the business. These factors have reduced our pricing competitiveness, resulting in an estimated 30bps drop in margin on our investment-grade lending products.

Notwithstanding, headline earnings growth in 2013 was 13,2%, due to the increased contribution from deposit-taking activities and continued growth in core-NIR. Revenue growth was driven off a diverse portfolio of clients, highlighting the sector and industry expertise in the business. The resilience and agility of the business has enabled us to extend a 0% fee increase for 2014. We understand that for many of our clients the current economic conditions present an array of challenges and we believe this gesture sends a positive message.

‘We have a solid partnership with our clients and we believe in a relationship that is sustained for the long term. The value we place on the benefits of the relationships we have with our clients far outweigh the opportunity cost of the extra revenue that we might have earned had we increased fees.’ Mfundo Nkuhlu, Managing Executive:Nedbank Corporate.

We have extended our collaboration with Nedbank Capital to increase client-centricity, which enhanced our ability to offer more integrated lending solutions.

CASE STUDY

Rest of Africa – Barloworld fleet contract in Ghana

Corporate Banking was approached by Avis Fleet Services (SA), who requested general purpose funding for their planned start-up operations in Ghana. Avis Southern Africa, in a JV collaboration arrangement with local licence holder, U-Save Car Rental Ghana, was able to acquire a majority stake in this start-up operation under the name Fleet Services Ghana Limited. This opportunity allowed them to bring to Ghana a comprehensive fleet management services solution for local corporates and multinational companies.

The deal yielded a number of useful considerations:

  • Insight into the local market and risks.
  • Need to collaborate in order to be quick to market.
  • Understanding and managing legal compliance and processes in-country.
  • Working relationship with a reputable legal firm which aligns with Nedbank’s operational risk profile requirements.

Although it was a challenge to limit our transaction turnover time, we were successful in managing the client expectations and driving collaboration with our vendors.

Ecobank provided in-country ksnowledge of key legal frameworks in Ghana within which we had to operate. This local expertise was an important requirement for Nedbank and Avis Fleet Services Limited (Ghana) to implement the transaction.

‘Funding from Nedbank provided us with a distinct advantage over the high cost of local funding.’ Avis Fleet Services

Property Finance

2013 was an excellent year for Property Finance, growing average advances to R84,4bn and generating earnings growth of 32,0%.The medium-term prospects are also looking promising, with a good pipeline. Our average impairment ratio dropped to 27bps,from 53bps in 2010.

During 2013, this division’s activities earned Nedbank the accolade of being voted the best property finance bank in SA in the PricewaterhouseCoopers South African Banking survey which is conducted every two years, measuring performance, presence and momentum across a variety of different markets as rated by CEOs and executives in the banking industry.

A core strength has been our ability to nurture and build relationships and as part of our offering, provide clients with complementary skills and high levels of specialised sector expertise. This is evidenced in the Consulta Research Client Satisfaction survey, which also noted a 15,4% increase in Nedbank Corporate Property Finance as first choice property financier. There was a 24,2% increase in clients confirming that they will continue to do business with this division.

While there has been a stable long-standing management team in place, succession planning remains one of our challenges, and we are cognisant of our Property Finance Managing Executive’s planned retirement in 2016.

Transactional Banking

Electronic banking, cash and global trade remain our strong client offerings, underpinned by excellent results in surveys. Further development in current accounts and mobile banking remains to be achieved this year. As part of our offering we continue to manage the relationship with international financial institutions.

Product innovation projects worth R191m were executed in 2013,on time and within budget. Principally, these products focused on cross-border reporting, global trade and a regular updating of our internet banking functionality. An increased focus on antimoney-laundering, terrorist financing and compliance matters such as ‘know your client’, resulted in increased systems investment costs across the cluster.

We continue to engage with our clients regarding their product experience and to pre-empt newer requirements, through selected focus groups.

The risk of disintermediation by non-banking service providers remains an increasing threat to our transactional revenue streams, which we seek to counter through constant innovation.

We see innovation through technology as a key area in generating efficiencies through for example, cashless banking, mobile and internet banking.

CASE STUDY

Consolidating our position as the market leader in property finance in SA

Property Finance won our largest deal to date of R3,3bn, which is a new development known as The Mall of Africa. We provided the total funding for the development. The mall is envisaged as a unique retail experience that will form the key development in what is to become the most sought-after urban framework in Waterfall City, Midrand. It is the largest mall to be constructed in the country in a single phase. The development will act as the central hub for a range of future mixed uses including retail, offices, conference and recreational amenities, residential and town centre parking and will consist of more than 300 shops.

Our success in securing the tender was based on the following:

  • flexibility in the debt structuring of the transaction was key and required a strong understanding of the client’s funding requirements and future plans;
  • collaboration and involvement across the Nedbank Group;
  • ability to meet a tight deadline;
  • competitive interest rates; and
  • strength of our relationship with Atterbury.

The eBilling solution was deployed into production during the course of 2013. Since its launch, the Ekurhuleni and Tshwane Metro Councils have provided their billing data via the solution. We are currently testing a number of other billers, who are also interested in the solution.


Corporate Shared Services

2013 was challenging for Corporate Shared Services (CSS),brought on by a significant increase in governance and regulatory requirements. Despite the increase in these requirements, the division maintained high levels of client service and efficiency.Most pleasing was the continued focus on operational risk management, and CSS recorded an outstanding overall performance. Tight internal controls, a focus on continual business process improvement and the delivery of some key IT system enhancements, all contributed to this performance.

Our Corporate Contact Centre was again highly rated for the support they offer to our clients, particularly in the area of electronic banking. The centre achieved a 97% first call resolution and frequently achieved a 100% SLA performance, thereby ensuring high levels of client satisfaction. This was evidenced by the Business Electronic Banking survey ranking the Contact Centre first amongst our competitors.

Focus continues to be placed on the division’s people and their development, with CSS scoring extremely well in both the Barrett and staff surveys, as well as meeting transformation targets.

Outlook

Looking ahead, we remain very well positioned in the market. Nedbank Corporate has adopted the group’s growth drivers for the 2014–2016 planning period given the synergy between our previous growth drivers and the group’s current focus areas. In particular, in order to further strengthen our business and deliver sustainable returns, we will continue to serve client needs holistically while seeking to enhance operating efficiencies. As part of our key offering to clients, we will continue to innovate around client needs in order to meet their servicing requirements.

We will also focus on our Rest of Africa strategy to grow market share. Growth opportunities on the continent will have to be considered within a number of carefully considered constraints.We will support our activities by providing cross-border and global trade facilities and through introducing our SA clients to Ecobank to facilitate in-country transactional requirements.

To ensure the sustained transformation of our business, we will continue to build on our client-centric approach as well as invest and develop our people.

The above strategies will be pursued in our drive for an optimal mix in revenue, through continued diversification of our revenue streams and building on the growth momentum in the business.

CASE STUDY

Innovation in highly competitive corporate market

As most of our corporate clients are multibanked, it is important that we contribute to the overall effectiveness of the banking sector in SA. As a result, we have developed the first to market non-proprietary electronic billing system on an open market basis.

Our electronic (or ‘eBilling’) solution was created in response to reducing our carbon footprint, while simultaneously providing our corporate clients with a cross-bank solution for sending, viewing and paying bills on a single platform.

  • The solution facilitates the efficient collection of bill payments and improves the reconciliation process for billers
  • Clients can receive a consolidated view of bills and pay these via Nedbank’s secure online and mobile banking channels.
   
   
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