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NEDBANK GROUP ANNUAL REPORT 2009

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER

11

Credit analysis of other short-term securities, and government and other securities
    Investment grade Subinvestment grade Not rated Total
    2009 2008 2009 2008 2009 2008 2009 2008
  Credit ratings Rm Rm Rm Rm Rm Rm Rm Rm
  Other short-term securities 18 478 18 054 71 530 1 5 18 550 18 589
    Negotiable certificates of deposit 11 907 14 002         11 907 14 002
    Treasury bills and other 6 571 4 052 71 530 1 5 6 643 4 587
  Government and other securities 35 892 42 057 91 81 – – 35 983 42 138
    Government and government-guaranteed 24 359 30 933         24 359 30 933
    Other dated securities 11 533 11 124 91 81     11 624 11 205
                   
    54 370 60 111 162 611 1 5 54 533 60 727
  All debt securities that are purchased by the group are rated using an internal rating system, being the Nedbank Group Rating (NGR) scale. The group requires that all investments be rated using the NGR scale to ensure that credit risk is measured consistently and accurately across the group.This ensures compliance with the group’s policy surrounding the rating of investments. The NGR scale has been mapped to the Standard & Poor’s credit rating system. According to the NGR scale, investment grade can be equated to a Standard & Poor’s rating of above BBB-. All government and other short-term securities are current and not impaired. Investment grade includes credit ratings from NGR 1 to NGR 11 and subinvestment grade includes credit ratings from NGR 12 to NGR 25.
                   

12

Interest and similar income

        
      2009 2008  
      Rm Rm  
  Home loans (including properties in possession)   14 873 17 798  
  Commercial mortgages   7 913 8 857  
  Finance lease and instalment debtors   7 655 8 301  
  Credit cards   1 188 1 332  
  Bills and acceptances   41 67  
  Overdrafts   1 577 2 271  
  Term loans   7 616 7 119  
  Personal loans   2 133 2 172  
  Other term loans   5 483 4 947  
  Government and other securities   3 442 3 210  
  Short-term funds and trading securities   808 1 558  
  Other loans   5 424 7 473  
      50 537 57 986  
  Interest and similar income may be analysed as follows:        
    Interest and similar income from financial instruments not at fair value through profit or loss   44 594 53 357  
    Interest and similar income from financial instruments at fair value through profit or loss   5 943 4 629  
      50 537 57 986  
           

13

Interest expense and similar charges

        
  Deposit and loan accounts   19 585 25 941  
  Current and savings accounts   1 188 2 027  
  Negotiable certificates of deposit   9 656 8 413  
  Other interest-bearing liabilities   2 161 3 906  
  Long-term debt instruments   1 641 1 529  
      34 231 41 816  
  Interest expense and similar charges may be analysed as follows:        
  Interest expense and similar charges from financial instruments not at fair value through profit or loss   26 838 31 930  
  Interest expense and similar charges from financial instruments at fair value through profit or loss   7 393 9 886  
      34 231 41 816  
           

14

Non-interest revenue

        
  Commission and fee income**   8 888 7 910  
    Administration fees   345 267  
    Cash-handling fees   530 464  
    Insurance commission   503 548  
    Exchange commission   302 358  
    Fees   1 139 990  
    Guarantees   118 108  
    Card income   1 937 1 846  
    Service charges   2 350 1 972  
    Other commission   1 664 1 357  
  Securities dealing and fair-value adjustments   298 498  
    Securities dealing***   254 130  
    Fair-value adjustments (note 14.1)   44 368  
  Net trading income***   1 841 1 553  
    Foreign exchange   1 167 1 156  
    Debt securities   764 557  
    Equities   (108) (194)  
    Commodities   18 34  
  Rental income   52 51  
    Rents received   50 49  
    Rental income from properties in possession   2 2  
  Investment income   64 242  
    Long-term asset sales   14 8  
    Dividends received   50 234  
  Listed investments   3    
  Unlisted investments   47 234  
           
  Sundry income****   764 475  
    Income from non-banking subsidiaries   204 226  
    Other sundry income   117 249  
    Nedgroup Life Assurance Company net insurance income (note 14.2)   443    
  Foreign currency translation loss   (1) *  
      11 906 10 729  
  Refer here for a breakdown of non-interest revenue by operating segment.
 
* Represents amounts less than R1 million.
** Commission and fee income includes an amount of R776 million (2008: R695 million) received for trust and fiduciary fees.
*** These amounts relate to gains and losses on financial assets and liabilities held for trading.
**** Includes revenue relating to certain investments in associates presented as designated as fair value through profit and loss in terms of IFRS 7 Financial Instruments, and its disclosure amendments in respect of fair-value hierarchy (refer to note 6).
           
  14.1 Analysis of fair-value adjustments        
        2009 2008  
        Rm Rm  
    Fair-value adjustments can be analysed as follows:        
    Held for trading   464 (928)  
    Designated at fair value through profit or loss   (420) 1 296  
        44 368  
             
  14.2 Nedgroup Life Assurance Company net insurance income
          2009  
          Rm  
    Net insurance premiums received can be analysed as follows:    
    Individual – single premiums – risk products 172  
    Individual – recurring premiums – risk products 625  
    Group – recurring premiums     3  
    Net reinsurance premiums     (74)  
    Net premiums received     726  
    Individual policyholders’ benefits     (283)  
    Annuities     (24)  
    Death, disability and retrenchment     (119)  
    Maturities     (117)  
    Surrenders and withdrawals     (23)  
             
          443  
    No comparative information is provided for net insurance premiums received as Nedgroup Life Assurance Company Limited was consolidated only from 5 June 2009 (refer to note 37)
             
  14.3 Government grants
    The group advances home loans from its Retail cluster for affordable housing. The group receives various grants from the SA government and foreign governments. The government grants take a variety of forms, including interest rate subsidies on loans advanced to the group and payment in respect of previously written-off advances in respect of qualifying deceased estates. The government grants that are received by the group in respect of affordable housing are recognised when the conditions of the government grant have been fulfilled and the grant is due to the group.

Certain government assistance is directed directly towards the client, including grants made to clients as first-time homeowners. Although the group may assist the client in obtaining the grant, these do not qualify as government grants envisaged by the accounting standard.

The group receives certain SA government grants in the form of refunds for skills development levies and they pertain to prior training that has been facilitated by the group on behalf of its employees.

No assistance has been received by the group from any government or government organisation in respect of any troubled asset or financial-crisis-related programme.
           
  14.4 Segmental analysis
   
Click to enlarge
           

15

Operating expenses

        
      2009 2008  
      Rm Rm  
  Staff costs   7 898 7 040  
    Salaries and wages   7 067 6 426  
    Short-term incentives   833 787  
    Long-term employee benefits*   (15) (259)  
    Share-based payments expense – employees**   13 86  
  Computer processing   1 993 1 841  
    Depreciation for computer equipment   340 331  
    Amortisation of computer software   459 414  
    Operating lease charges for computer equipment   137 146  
    Other computer processing expenses   1 057 950  
  Communication and travel   633 636  
    Depreciation for vehicles   4 3  
    Other communication and travel   629 633  
  Occupation and accommodation   1 262 1 122  
    Depreciation for owner-occupied land and buildings   81 71  
    Operating lease charges for land and buildings   527 469  
    Other occupation and accommodation expenses   654 582  
  Marketing and public relations   889 877  
  Fees and insurances   1 407 1 326  
    Auditors’ remuneration   104 94  
      Statutory audit – current year   76 70  
        – prior year   2 4  
      Non-audit services – interim reviews   6 5  
        – other services   20 15  
    Other fees and insurance costs   1 303 1 232  
  Furniture, office equipment and consumables   340 326  
    Depreciation for furniture and other equipment   207 211  
    Operating lease charge for furniture and other equipment   26 31  
    Other office equipment and consumables   107 84  
  Other operating expenses   552 379  
    Amortisation of intangible assets   38    
    Other sundries   514 379  
           
      14 974 13 547  
  Included in staff costs are the following:        
  – Executive directors’ remuneration***   27 16  
  – Non-executive directors’ remuneration***   10 10  
      37 26  
   
  15.1 Black economic empowerment (BEE) transaction expenses
    BEE share-based payments expenses   110 181  
    Fees   16 13  
        126 194  
    Refer to note 51 for a description of the BEE schemes.

Certain expenses incurred by the company on behalf of subsidiary companies are recovered from subsidiary companies. Refer here for a breakdown of total expenses by operating segment.
   
           
  15.2 Segmental analysis
   
Click to enlarge
           

16

Indirect taxation

        
      2009 2008  
      Rm Rm  
  Value-added taxation   377 317  
  Revenue stamps   4 3  
  Other transaction taxes   57 54  
      438 374  
  Value-added taxation comprises the portion that is irrecoverable as a result of the interest earned in the banking sector.        
           

17

Non-trading and capital items

        
  Profit on sale of subsidiaries and investments   2 769  
  Revaluation on acquisition of joint ventures   615    
  Profit/(Loss) on sale of property and equipment   18 (2)  
  Impairment of investments     *  
  Impairment of property and equipment, and capitalised development costs   (11) (11)  
      624 756  
  * Represents amounts less than R1 million.        
           

18

Direct taxation

        
  18.1 Charge for the year        
    SA normal taxation:        
    – Current charge   1 413 1 554  
    – Capital gains taxation – current     (3)  
      – deferred   35 (25)  
    – Deferred taxation   (404) (7)  
    Foreign taxation   149 77  
    Current and deferred taxation on income   1 193 1 596  
    Prior-year overprovision – current taxation   112 (315)  
    Prior-year underprovision – deferred taxation   (139) 353  
    Total taxation on income   1 166 1 634  
    Secondary tax on companies (STC)   66 123  
    Taxation on non-trading and capital items   75 111  
        1 307 1 868  
           
  18.2 Taxation rate reconciliation        
        2009 2008  
        % %  
    Standard rate of SA normal taxation   28 28  
    Reduction in taxation rate     (2)  
    Non-taxable dividend income   (6) (5)  
    Capital items   (1) (1)  
    Differences between foreign taxation rates and SA taxation rate     (1)  
    Structured deals   (2) (1)  
    Secondary tax on companies   1 1  
    Other     3  
    Effective taxation rate   20 22  
             
  18.3 Future taxation relief        
    The group has estimated taxation losses of R445 million (2008: R1 285 million) that can be set off against future taxable income, of which R386 million (2008: R1 267 million) has been applied to the deferred taxation balance. Furthermore, the group has accumulated STC credits amounting to R542 million at the year-end (2008: R617 million), which have arisen as a result of dividends received exceeding dividends paid. A deferred taxation asset of R54 million (2008: R62 million) has been raised on these STC credits.
             

19

Earnings

        
  19.1 Earnings per share        
    Basic earnings and headline earnings per share are calculated by dividing the relevant earnings amount by the weighted average number of shares in issue. Diluted earnings and diluted headline earnings per share are calculated by dividing the relevant earnings by the weighted average number of shares in issue after taking into account the dilutive impact of potential ordinary shares to be issued.
             
      Basic Headline
    Rm Basic Diluted Basic Diluted
    2009        
    Profit attributable to equity holders of the parent 4 826 4 826 4 826 4 826
    Adjusted for:        
      – Non-trading and capital items (note 17)     (624) (624)
      – Taxation on non-trading and capital items (note 18)     75 75
    Adjusted profit attributable to equity holders of the parent 4 826 4 826 4 277 4 277
    Weighted average number of ordinary shares 423 428 547 423 428 547 423 428 547 423 428 547
    Adjusted for:        
      – Share schemes that have a dilutive effect   11 642 035   11 642 035
    Adjusted weighted average number of ordinary shares 423 428 547 435 070 582 423 428 547 435 070 582
    Earnings per share (cents) 1 140 1 109 1 010 983
    2008        
    Profit attributable to equity holders of the parent 6 410 6 410 6 410 6 410
    Adjusted for:        
      – Non-trading and capital items (note 17)     (756) (756)
      – Taxation on non-trading and capital items (note 18)     111 111
    Adjusted profit attributable to equity holders of the parent 6 410 6 410 5 765 5 765
    Weighted average number of ordinary shares 405 412 483 405 412 483 405 412 483 405 412 483
    Adjusted for:        
      – Share schemes that have a dilutive effect   6 122 316   6 122 316
    Adjusted weighted average number of ordinary shares 405 412 483 411 534 799 405 412 483 411 534 799
    Earnings per share (cents) 1 581 1 558 1 422 1 401
   

The diluted earnings per share calculations are based on the group’s daily average share price of 10 161 cents (2008: 10 276 cents) and exclude the effect of certain share options granted under certain share option schemes as they would be antidilutive. The number of share options not included in the weighted average number of shares (as they would have been antidilutive) is 13 million (2008: 33 million).

             
  19.2 Headline earnings reconciliation
      2009 2008
      Gross Net of taxation Gross Net of taxation
    Profit attributable to equity holders of the parent   4 826   6 410
    Less: non-trading and capital items 624 549 756 645
    Profit on sale of subsidiaries, investments and property and equipment 20 13 767 656
    Revaluation on acquisition of joint ventures 615 547    
    Impairment of investments, property and equipment and capitalised development costs (11) (11) (11) (11)
             
    Headline earnings   4 277   5 765
             

20

Dividends
  20.1 Ordinary shares
      s Millions
of shares		 Cents
per
share		 Rm
    2009        
    Final declared for 2008 – paid 2009 2 April 2009 425 310 1 316
    Interim declared for 2009 4 September 2009 446 210* 937
    Ordinary dividends paid 2009     520 2 253
    Final ordinary dividend declared for 2009     230*  
    2008        
    Final declared for 2007 – paid 2008 4 April 2008 411 350 1 440
    Interim declared for 2008 5 September 2008 418 310** 1 296
    Ordinary dividends paid 2008     660 2 736
    Final ordinary dividend declared for 2008     310**  
    STC on dividends equals 10% of the amount declared, which will be partially offredits.
   
* Total dividend declared for 2009 = 440 cents per share.
** Total dividend declared for 2008 = 620 cents per share.
             
  20.2 Non-controlling interest – preference shareholders
        Days Rate % Rm
    2009        
    Dividends paid:      
    Nedbank Limited 365   335,3
    1 July 2008 – 31 December 2008 184   182,1
      1 July 2008 – 14 December 2008 167 11,625 165,8
      15 December 2008 – 31 December 2008 17 11,250 16,3
    1 January 2009 – 30 June 2009 181   153,2
      1 January 2009 – 8 February 2009 39 11,250 37,6
      9 February 2009 – 24 March 2009 44 10,500 39,6
      25 March 2009 – 3 May 2009 40 9,750 33,4
      4 May 2009 – 28 May 2009 25 9,000 19,3
      29 May 2009 – 30 June 2009 33 8,250 23,3
    Imperial Bank Limited 365   30,0
    1 July 2008 – 31 December 2008 184   16,3
      1 July 2008 – 14 December 2008 167 10,850 14,8
      15 December 2008 – 31 December 2008 17 10,500 1,5
    1 January 2009 – 30 June 2009 181   13,7
      1 January 2009 – 8 February 2009 39 10,500 3,4
      9 February 2009 – 24 March 2009 44 9,800 3,6
      25 March 2009 – 3 May 2009 40 9,100 3,0
      4 May 2009 – 28 May 2009 25 8,400 1,7
      29 May 2009 – 30 June 2009 33 7,700 2,0
             
    Total dividend paid     365,3
    Dividend paid to group entities     (12,0)
    Non-controlling ordinary shareholders’ share of dividend paid     (8,9)
            344,4
        Number of shares Cents
per
share		 Rm
    Dividends declared:      
    Nedbank Limited      
    Final declared for 2008 – paid March 2009 312 781 032 58,26844 182
    Interim declared for 2009 – paid September 2009 312 781 032 48,98630 153
    Imperial Bank Limited      
    Final declared for 2008 – paid March 2009 3 000 000 545,32877 16
    Interim declared for 2009 – paid September 2009 3 000 000 457,20548 14
            365
    Final declared for 2009 – payable March 2010 (Nedbank Limited) 349 082 721 40,15068 140
    Final declared for 2009 – payable March 2010 (Imperial Bank Limited) 3 000 000 374,73973 11
             
        Days Rate % Rm
    2008      
    Dividends paid:      
    Nedbank Limited 366   333,4
    1 July 2007 – 31 December 2007 184   161,3
      1 July 2007 – 19 August 2007 50 9,750 41,8
      20 August 2007 – 14 October 2007 56 10,125 48,6
      15 October 2007 – 9 December 2007 56 10,500 50,4
      10 December 2007 – 31 December 2007 22 10,875 20,5
    1 January 2008 – 30 June 2008 182   172,1
      1 January 2008 – 13 April 2008 104 10,875 96,7
      14 April 2008 – 16 June 2008 64 11,250 61,5
      17 June 2008 – 30 June 2008 14 11,625 13,9
    Imperial Bank Limited 366   29,9
    1 July 2007 – 31 December 2007 184   14,4
      1 July 2007 – 19 August 2007 50 9,100 3,8
      20 August 2007 – 14 October 2007 56 9,450 4,3
      15 October 2007 – 9 December 2007 56 9,800 4,5
      10 December 2007 – 31 December 2007 22 10,150 1,8
    1 January 2008 – 30 June 2008 182   15,5
      1 January 2008 – 14 April 2008 104 10,150 8,7
      15 April 2008 – 13 June 2008 60 10,500 5,2
      14 June 2008 – 30 June 2008 18 10,850 1,6
             
    Total dividend paid     363,3
    Cumulative dividend paid     (22,1)
    Non-controlling ordinary shareholders’ share of dividend paid     (3,9)
            337,3
        Number Cents  
        of shares per share Rm
    Dividends declared:      
    Nedbank Limited      
    Final declared for 2007 – paid March 2008 312 781 032 51,55479 161
    Interim declared for 2008 – paid September 2008 312 781 032 55,02049 172
    Imperial Bank Limited      
    Final declared for 2007 – paid March 2008 3 000 000 481,17808 14
    Interim declared for 2008 – paid September 2008 3 000 000 515,31507 16
          363
    Final declared for 2008 – payable March 2009 (Nedbank Limited) 312 781 032 58,26844 182
    Final declared for 2008 – payable March 2009 (Imperial Bank Limited) 3 000 000 545,32877 16