Comment on results
The group again achieved excellent results with attributable
income for the six months increasing by 28% to R969 million (1998
- R759 million). Earnings per share increased by 26%, resulting
in a three-year compound annual growth rate of 25%.
Average total assets showed satisfactory growth of
18% while net interest income increased by 19%. Interest margins
improved slightly to 3,72% (1998 - 3,69%), reflecting improved money
market conditions. These margins were, however, negatively affected
by a doubling of interest reserved, which further reflects the concerning
credit environment. While the level of real interest rates remains
high, margins are lower than those of international peers.
Non-interest revenue to total income is better than
forecast at 43% (1998 - 46%) and is in line with the long-term target.
Exchange and securities dealing profits continued to grow well.
Total non-interest revenue reduced due to income from deconsolidated
operations now being equity accounted and the sale of NedTravel,
which realised a capital profit of R193 million. The opportunity
was taken to use this gain to prudently supplement the general provision.
The aftermath of the high interest rates prevailing
during the last 12 months continues to be in evidence and the charge
for bad and doubtful debts increased by 33% to R501 million. Including
interest reserved, the income statement charge for the 6 months
amounts to R652 million, 44% higher than the comparative 6 months
last year. Provisioning is appropriately conservative under current
circumstances and stands at 2,2% (1998 - 2,0%) of advances, and
at 2,5% including the special supplement to the general provision.
Effective cost control efficiencies resulted in a
4,8% increase in expenses and the expense to income ratio reducing
to 54,1% (1998 - 58,4%). Should this trend continue, this ratio
will be in the low 50's by year end, which positions Nedcor favourably
against international bench marks.
The effective tax rate decreased from 29,2% to 26,6%
as a result of the 5% decrease in the corporate tax rate, partly
offset by the release in 1998 of certain non-recurring tax credits.
Shareholders funds now total R9,9 billion with a capital
adequacy ratio of 11,0 (1998 - 10,5). Return on equity increased
to 20,6% (1998 - 20,1%) on an equity base which grew 23% over the
period. Return on assets is 1,60% (1998 - 1,48%).