The risk that the integrity of the financial statements and related information cannot be upheld.
Advanced Internal Ratings-based Approach (AIRB)
Subject to Supervisory approval, a bank may use its internally developed credit risk measurement systems to calculate the capital requirements for credit risk.
Assets under management
Assets managed by Nedbank Group, which are beneficially owned by clients and are therefore not reported on the consolidated balance sheet. The service provided in respect of these assets is discretionary portfolio management on behalf of clients.
The failure to reinsure with other acceptable quality insurers, beyond the level of risk appetite (excessive risk) mandated by the board of directors, risks underwritten by the short-term insurance and/or life assurance activities of the group, including catastrophe insurance (ie more than one insurance claim on the group arising from the same event), leading to disproportionate losses to the group.
Automated teller machine (ATM)
A cash machine or free-standing device dispensing cash, which may also provide other information or services to clients who have a card and a personal identification number, password or other personal identification.
This asset class covers all exposures to counterparties treated as banks.
|Corporate exposures are defined as debt obligations of a corporation, partnership or proprietorship. Banks are permitted to distinguish between exposures to small- and medium-sized entities.|
|Specialised lending – high-volatility commercial real estate (property development)|
|High-volatility commercial real estate (HVCRE) lending is the financing of commercial real estate that exhibits higher loss rate volatility compared with other types of specialised lending.|
|Specialised lending – income-producing real estate|
|Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as office buildings to let, retail space, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cashflows generated by the asset. The primary source of these cashflows would generally be lease or rental payments or the sale of the asset.|
|Specialised lending – object finance|
|Object finance (OF) refers to a method of funding the acquisition of physical assets (eg ships, aircraft, satellites, railcars and fleets) where the repayment of the exposure is dependent on the cashflows generated by the specific assets that have been financed and pledged.|
|Specialised lending – commodities finance|
|Commodities finance (CF) refers to structured short-term lending to finance reserves, inventories or receivables of exchange-traded commodities (eg crude oil, metals or crops) where the exposure will be repaid from the proceeds of the sale of the commodity.|
|Specialised lending – project finance|
|Project finance (PF) is a method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations (eg power plants, chemical processing plants and mines).|
|This asset class covers all exposures to small and medium enterprises that are classified as corporate, based on criteria prescribed by the Banking Regulator.|
|Purchased receivables – corporate|
|This asset class covers all receivables classified as corporate exposures, which are purchased for inclusion in assetbacked securitisation structures. However, banks may also use this approach, with the approval of national supervisors, for appropriate on-balance-sheet exposures that share the same features.|
The new Basel Capital Accord (Basel II) of the Bank for International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.
Nedbank Group’s BEE transaction, which focused primarily on the issuing of shares to BEE partners for the purposes of BEE, equating to approximately 9,3% (43 618 748 shares) of total share capital and equating to black ownership of 11,5% of the value of Nedbank Group’s South African businesses in 2005. Nedbank Namibia’s BEE transaction, which focused primarily on the issuing of shares to BEE partners and affinity groups for the purposes of BEE in Namibia, equating to approximately 0,14% (665 680 shares) of total share capital of Nedbank Group Limited and equating to black ownership of 11,13% of the value of NedNamibia Holdings Limited, Nedbank Group’s Namibian business in 2006.
BEE is defined in the Financial Sector Charter and means the economic empowerment of all black people (Africans, coloureds and Indians who are SA citizens), including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socioeconomic strategies.
A group of clients and their underlying loans and advances according to the ‘per person’ definition of the ‘Regulations Related to Banks’.
This is a cost-effective, quick-deployment, relocatable, prefabricated bank branch. It uses modern, broadband satellite technology for communication, which makes it effective for speedy access and hence client convenience. It is also used to test new markets, especially in areas with limited infrastructure such as urban townships and deep rural areas where banking services are not readily available. A branch-in-a-box provides full transaction facilities to clients, including cash withdrawals and deposits, sales and service.
The capital adequacy of SA banks is measured in terms of the SA Banks Act requirements. The ratio is calculated by dividing the primary (Tier 1), secondary (Tier 2) and tertiary (Tier 3) capital by the risk-weighted assets.
|Group capital adequacy ratio|
|Group capital adequacy is the ratio of group net qualifying capital and reserve funds to total group risk-weighted assets as calculated in accordance with the SA Banks Act requirements.|
|Primary (Tier 1) capital|
|Primary capital consists of issued ordinary share capital and perpetual preference share capital, qualifying perpetual callable hybrid capital, retained earnings and reserves, less regulatory deductions.|
|Core Tier 1 capital|
|Core Tier 1 capital is primary capital less any amount on noncore Tier 1 capital, being perpetual preference share capital and qualifying perpetual callable hybrid capital.|
|Secondary (Tier 2) capital|
|Secondary capital is made up of subordinated dated debt and certain types of perpetual callable debt, the excess amount in respect of eligible provisions and 50% of any revaluation surplus, less regulatory deductions.|
|Tertiary (Tier 3) capital|
|Tertiary capital consists of capital obtained by way of unsecured subordinated loans, subject to such conditions as may be prescribed.|
The risk that the group will become unable to absorb losses, maintain public confidence and support the competitive growth of the business. This entails ensuring that opportunities can be acted on timeously, while solvency is never threatened.
|Activities that result in changes to the capital structure of the group.|
|Activities relating to the acquisition, holding and disposal of property and equipment and long-term investments.|
|Activities that are not financing or investing activities and arise from the operations conducted by the group.|
The closing share price on JSE Limited at year-end divided by the tangible net asset value per share.
A formal inquiry that was conducted by the Competition Commission of South Africa into competition in the banking sector. A detailed report outlining the recommendations of the banking inquiry panel to the Competition Commission was published in December 2008. The National Treasury with the Department of Trade and Industry has considered the recommendations made in the report and shared proposals with key stakeholders impacted by the recommendations, including the banking sector. The National Treasury has communicated an intent to finalise the next steps concerning recommendations during the second quarter of 2010.
The risk to earnings and capital arising from violations of or noncompliance with laws, rules and regulations, as well as internal group policies and authority levels, prescribed practices and ethical standards.
The year-on-year growth rate of an amount over a specified period of time.
Credit loss ratio is the impairments charge as a percentage of average advances.
The risk to earnings and capital arising from the probability of borrowers and counterparties failing to meet their repayment commitments (including accrued interest). Credit concentration risk arises on a portfolio basis where the bank has significant aggregated exposures to particular credit segments, sectors of industry or other portfolios.
The risk to earnings or capital arising from the conversion of the group’s offshore banking book assets or liabilities or commitments or earnings from foreign currency to local or functional currency.
At a minimum, a default is deemed to have occurred where a material obligation is overdue for more than 90 days or an obligor exceeds an advised limit for more than 90 days.
Any advance or group of advances that has triggered relevant ‘definition of default’ criteria for that portfolio, which is in line with the amended regulations relating to banks. For retail portfolios it is transaction-centric and therefore a default would be specific to an account (specific advance). For wholesale portfolios it is client- or borrower-centric, meaning that, should any transaction within a borrowing group default, then all transactions within the borrowing group would be defaulted.
Deferred taxation assets are the amounts of income taxation recoverable in future periods in respect of:
Deferred taxation liabilities are the amounts of income taxation payable in future periods due to differences between the taxation and accounting treatment of transactions.
Direct taxation includes normal taxation on income, capital gains tax (CGT) and secondary tax on companies (STC).
Headline earnings per share divided by the dividend/distribution declared per share.
Dividend/Distribution declared per share is the actual interim dividend paid/capitalisation award issued and the final dividend declared/capitalisation award declared for the period under consideration, expressed in cents.
Dividend/Distribution paid/capitalised per share is the actual final dividend paid/capitalisation award issued for the previous year and the interim dividend paid/capitalisation award issued for the year under consideration, expressed in cents.
Dividend/Capitalisation award declared per ordinary share as a percentage of the closing share price of ordinary shares.
A stress-tested value for expected loss under downturn economic conditions that could have unfavourable effects on a bank’s credit exposures.
The Codes of Good Practice, as promulgated on 9 February 2007 under section 9(1) of the Broad-based Black Economic Empowerment Act, 2003 (53 of 2003), establish the rules, targets and stipulations for the measurement of broad-based black economic empowerment within South Africa based on three scorecard classifications for organisations: emerging microenterprise (EME), qualifying small enterprise (QSE) and generic enterprise. Nedbank is scored as a generic enterprise.
|Basic earnings basis|
|Income attributable to equity holders for the period divided by the weighted average number of ordinary shares in issue (net of shares held by group entities) during the period.|
|Headline earnings basis|
|Headline earnings divided by the weighted average number of shares in issue (net of shares held by group entities) during the period.|
|Fully diluted basis|
|The relevant earnings figure is adjusted for the assumed adjustments to income that would have been earned on the issue of shares issued from dilutive instruments. The resultant earnings are divided by the weighted average number of ordinary shares and other dilutive instruments (ie potential ordinary shares) outstanding at the period-end, assuming they had been in issue for the period.|
Headline earnings per share as a percentage of the closing price of ordinary shares.
Economic capital is the quantification of risk and an internal assessment of the amount of capital required to protect the group against economic losses with a desired level of confidence (solvency standard or default probability) over a one-year time horizon. In other words, it is the magnitude of economic losses the group could withstand while remaining solvent.
The taxation charge in the income statement, excluding taxation relating to non-trading and capital items, as a percentage of profit before taxation.
Total operating expenses (excluding indirect taxation) as a percentage of income from normal operations (net interest income plus non-interest revenue).
All risk types and categories across all business lines, functions, geographical locations and legal entities of the group, collectively known as its ‘risk universe’.
The risk framework developed by Nedbank Group and applied to all of its divisions to monitor and manage risk. Further details are included in the risk management section of this annual report.
EL is the expected value of portfolio losses due to default over a specified time horizon.
Operating expenses for the year divided by the number of employees at year-end.
Operating expenses for the year divided by average total assets.
EAD is an estimation of the extent to which a bank may be exposed to a counterparty in the event and at the time of that counterparty’s default.
Eyethu means ‘ours’ in the Nguni languages and epitomises the inclusive and uniquely SA identity of the black economic empowerment transaction.
FAIS aims to regulate a wide range of financial advisory and intermediary services to clients. All financial advisers who are authorised to operate under a FAIS licence have to adhere to certain standards and processes.
FICA is aimed at combating money laundering in South Africa. The group’s compliance function has developed processes and procedures across the business to ensure that clients are properly identified, suspicious transactions are reported, adequate records are maintained and employees are trained in respect of FICA.
A transformation charter, as contemplated in the broad-based BEE legislation, that was voluntarily developed by the financial sector and constitutes a framework and establishes the principles on which BEE will be implemented in the financial sector.
The results and assets/liabilities of all foreign entities controlled by the group that have a rand-functional currency are translated at the closing exchange rate and the differences arising are recognised in the income statement as foreign exchange translation gains/losses.
This comprises the top 99% of eligible listed companies on JSE Limited ranked by full market capitalisation.
This comprises all companies that are constituents of both the FTSE/JSE Africa All-share Index and the banking sector.
The total market value of the goods and services produced by a country’s economy during a specific period of time.
Headline earnings is not a measure of maintainable earnings. For purposes of the definition and calculation the guidance given on headline earnings, as issued by the SA Institute of Chartered Accountants in circular 07/02 of December 2002, has been used. Headline earnings consist of the earnings attributable to ordinary shareholders, excluding non-trading and capital items.
Headline earnings divided by the number of employees in service at year-end.
A risk management technique used to insulate financial results from market, interest rate or foreign currency exchange risk (exposure) arising from normal banking operations. The elimination or reduction of such exposure is accomplished by establishing offsetting positions. For example, assets denominated in foreign currencies can be offset against liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options or foreign exchange contracts.
Impairment of loans and advances arises where there is objective evidence that the group will not be able to collect an amount due. The impairment is the difference between the carrying amount and the estimated recoverable amount.
Impairments charge on loans and advances for the year divided by average advances. Also known as the credit loss ratio or impairment ratio.
Value-added tax (VAT) and other taxes, levies and duties paid to government, excluding direct taxation.
The risk resulting from system malfunction and unavailability, security breaches and inadequate systems investment, development, implementation, support and capacity (refer to the definition of ‘Operational risk’).
The risk of no insurance cover or inadequate/failed insurance cover for insurable business risks.
Interest rate risk in the banking book is the risk that a bank’s earnings or economic value will decline as a result of changes in interest rates. The sources of interest rate risk in the banking book are:
The standards, as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB. Nedbank Group’s consolidated financial results are prepared in accordance with IFRS.
The risk of a decline in the net realisable value of investment assets arising from adverse movements in market prices or factors specific to an investment itself (eg reputation and quality of management). Market prices are independent variables, which include interest rates, property values, exchange rates, equity and commodity prices.
The difference between the rate of growth in total income from normal operations and the rate of total expense growth.
The rate that SA banks charge each other for wholesale money.
Previously JSE Securities Exchange South Africa.
The King Report on Corporate Governance 2002, which sets out principles of good corporate governance for SA companies and organisations.
There are two types of liquidity risk: market liquidity risk and funding liquidity risk. Market liquidity risk is the risk that the bank cannot easily offset or eliminate a position without significantly affecting the market price because of inadequate market depth or market disruption. It differs from funding liquidity risk, which is the risk that the bank will not be able efficiently to meet both expected and unexpected current and future cashflow and collateral needs without affecting either daily operations or the financial condition of the bank. However, in many cases, the same factors may trigger both types of liquidity risk.
This asset class covers all exposures to enterprises that are wholly or majority-owned by the central government (eg Eskom and Transnet).
The rate that banks participating in the London money market offer each other for short-term deposits.
Estimate of the amount of the exposure at default that will be lost (ie not recovered). Also includes other economic costs, eg legal costs.
The group’s closing share price multiplied by the number of shares in issue, including shares held by group entities.
Market risk is the potential impact on earnings of unfavourable changes in foreign exchange rates, interest rates, prices, market volatilities and liquidity. Market risk includes trading risk and, in terms of the banking book, derivative instruments used for hedging risk in non-trading portfolios, investment risk, translation risk and interest rate risk. Investment risk arises from changes in the fair value of investments and includes private equity and property as well as strategic investments.
Valuation of financial instruments using prevailing market prices or fair value as of the balance sheet date.
These are mobile sales and service kits that are easily transportable and can be quickly deployed in areas without traditional branch infrastructure.
The Mzansi Account is a card-based, entry-level savings/ transmission product with a basic set of features and simplified pricing structure. The major banks worked collectively to provide a standard for new bank accounts that offer affordable and accessible products to previously unbanked individuals. Each bank sets its own pricing, but collaboration between the banks allows holders of Mzansi Accounts to make use of any of the participating banks’ ATMs at no additional cost.
The National Credit Act, 34 of 2005, that became effective in stages commencing on 1 June 2006, 1 September 2006 and 1 June 2007. The NCA sets a framework for every type of credit transaction and replaces the Usury Act of 1968 (governing moneylending transactions) and the Credit Agreements Act of 1980 (governing instalment sale or hire purchase agreements).
Total equity attributable to equity holders of the parent divided by the number of shares in issue, excluding shares held by group entities.
Net interest income expressed as a percentage of average net interest-earning banking assets. Net interest-earning banking assets are used, as these closely resemble the quantum of assets earning income that is included in net margin.
Development of new products and business that reach the client distribution channel without the appropriate signoff for compliance with the requirements for managing regulatory, legal, tax, accounting, pricing, strategic and any other relevant risks. Also the risk that new products and business do not generate anticipated revenue or cost savings to the group.
Income from normal operations, excluding net interest, as a percentage of total income from normal operations.
Total number of ordinary shares traded on JSE Limited during the year.
Number of shares traded for the year as a percentage of the weighted average number of shares in issue during the year.
Assets managed on behalf of third parties on a fully discretionary basis.
Advances that have either been fully or partially utilised by a borrower.
The risk of loss resulting from inadequate or failed internal processes and systems, incompetent people or external events. This definition includes legal risk.
Total equity attributable to equity holders of the parent.
People risk is defined as possible inadequacies in human capital and inadequate management of human resource practices, policies and processes resulting in the inability to attract, manage, develop and retain competent resources. This may stem from inadequate skills or knowledge, no clear consequences of not meeting performance standards, lack of alignment with strategy or a reward system that fails to motivate properly.
The closing price of ordinary shares divided by headline earnings (for the previous 12 months) per share.
The group’s closing share price relative to the net asset value.
In the case of an individual, a client is classified as a primary client where a form of salary, wage, annuity or pension is paid into either a current account or a savings account.
Quantification of the likelihood of a borrower being unable to repay.
Properties acquired through payment defaults on loans secured by properties.
This asset class covers all exposures to enterprises that are wholly or majority-owned by the central government (eg Eskom and Transnet).
The risk of impairment of the group’s image in the community or the long-term trust placed in the group by its stakeholders as a result of a variety of factors, such as the group’s performance, strategy execution, ability to create shareholder value, or an activity, action or stance taken by the group. This may result in loss of business and/or legal action.
|Retail mortgages (including home equity line of credit)|
|This asset class covers all mortgage advances or credit lines to individuals that are fully secured by a mortgage over residential property.|
|Retail revolving credit|
|Exposures to individuals that are revolving, unsecured, and uncommitted (both contractually and in practice). In this context revolving exposures are defined as those where clients’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the bank.|
|Retail – other|
|This asset class covers all non-revolving exposures (excluding mortgage advances) to individuals.|
|This asset class covers all exposures to small and medium enterprises that are classified as corporate, based on criteria prescribed by the Banking Regulator.|
|Purchased receivables – retail|
|This asset class covers all receivables classified as retail exposures, which are purchased for inclusion in asset-backed securitisation structures. However, banks may also use this approach, with the approval of national supervisors, for appropriate on-balance-sheet exposures that share the same features.|
Headline earnings expressed as a percentage of average total assets.
Headline earnings expressed as a percentage of average equity attributable to equity holders of the parent.
Headline earnings expressed as a percentage of average equity attributable to equity holders of the parent less goodwill.
Headline earnings expressed as a percentage of economic capital.
Headline earnings for the year divided by the average riskweighted assets.
Risk appetite is a tool to express the group’s risk tolerance quantitatively and an articulation of the level of risk Nedbank Group is willing to take in pursuit of its strategic goals.
Risk-weighted assets are determined by applying risk weights to balance sheet assets and off-balance-sheet financial instruments according to the relative credit risk of the counterparty. The risk weighting for each balance sheet asset and off-balancesheet financial instrument is regulated by the SA Banks Act or by regulations in the respective countries of the other banking licences.
The regulations relating to banks were amended with effect from 1 January 2008, based on the revised Basel Capital Accord (Basel II). The new Basel Capital Accord of the Bank of International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.
STC is a tax paid at company level on the net difference between dividends paid and dividends received. The current rate of STC is 10%. The government has announced that STC will be replaced by a withholding tax on shareholders, which is expected to take place towards the end of 2010.
This asset class covers all exposures to enterprises regulated by a recognised authority and trading in securities.
This asset class covers all exposures to tradeable, interestbearing commercial paper, which is secured by an underlying asset, eg mortgage loans.
|A distinguishable component of the group that is engaged in providing services within a particular economic environment and is subject to risks and returns that are different from those of components operating in other economic environments.|
|A distinguishable component of the group, based on the market on which each business area focuses, which is subject to risks and returns that are different from those of other operating segments.|
Similar to an ATM, but designed for non-cash transactions.
Transfers of a company’s equity instruments by its shareholders to parties that have supplied goods or services to the company (including employees).
Ordinary shares in Nedbank Group Limited acquired/held by group companies, including ordinary shares held in share trusts as part of the BEE transaction.
The risks related to non-achievement of a balanced and integrated financial, social and environmental performance (referred to as the ‘triple bottomline’), resulting in reputational impairment to the group and ultimately loss of business and profitability.
This asset class covers all exposures to counterparties treated as central government.
A standard approach (foundation approach) to calculate capital requirements for banks, prescribed by the supervisor, used in lieu of the AIRB Approach.
Strategic risk relates to the consequences that arise when the environment in which decisions that are hard to implement quickly and to reverse has an unattractive or adverse impact. Strategic risk ultimately has two elements: doing the right thing at the right time; and doing it well.
Total equity attributable to equity holders of the parent, less goodwill, computer software and capitalised development costs, divided by the number of shares in issue, excluding shares held by group entities.
Taxation risk is the risk of loss (financial or otherwise) as a result of:
Total monetary value of all collateral held by a bank as security for an advance(s), limited to exposure.
Total of all advances extended by a bank, including unutilised facilities.
Ordinary share capital, share premium and reserves.
Net interest income plus non-interest revenue plus foreign currency translation gains/losses.
The last traded price on JSE Limited on the last business day of the year, also referred to as 'closing price'.
Trading market risk exists within the group’s proprietary trading activities (trading on the group’s own account). It is defined as the risk of loss occurring as a result of unfavourable changes in market prices such as foreign exchange rates, interest rates, equity prices and commodity prices.
A generally accepted risk measurement concept that uses statistical models to estimate the distribution of possible returns on a portfolio at a given level of confidence.
Total value of ordinary shares traded on JSE Limited during the year.
Value of shares traded as a percentage of market capitalisation at year-end.
The number of shares in issue increased by shares issued during the period, weighted on a time basis for the period during which they participated in the income of the group, less shares held by group entities, weighted on a time basis for the period during which the entities held these shares.
These definitions should be read in conjunction with the group’s accounting policies, which also clarify certain terms used.
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 legislation.
Forward-looking statements may be identified by words such as ‘believe’, ‘anticipate’, ‘expect’, ‘plan’, ‘estimate’, ‘intend’, ‘project’, ‘target’, ‘predict’ and ‘hope’.
Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance.
No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements.
The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to International Financial Reporting Standard, and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation.
Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings or profits, or consequential loss or damage.