Operational review

Graham joined the group in 1980 in the Corporate Finance Division of UAL Merchant Bank.
He was promoted to General Manager of the division in 1987, and was appointed as Joint Head of the Special Finance Division in 1989. In 1992 he moved to Nedcor Bank, initially in a general management role on strategy, and was appointed as Head of the International Division in 1998. He assumed responsibility for the Corporate Banking Division in 1999 and Nedbank Corporate in late 2003.

Management team

Paul Baloyi (48)

Frank Berkeley (48)

Adriaan du Plessis (45)

Keith Hutchinson (46)

Ingrid Johnson (38)

Mfundo Nkuhlu (38)

Anton Redelinghuis (55)

Murray Stocks (38)

Ashley Sutton-Pryce (51)

Heinz Weilert (41)

Overview

Nedbank Corporate’s strengths lie in its strong corporate, business and property finance franchises and their regional presence, particularly in Gauteng, KwaZulu-Natal and the Western Cape. While all of its businesses have significant presences in the urban areas of each of these regions, the Business Banking operations cover many of the country’s rural and semirural areas. Nedbank Corporate also benefits from strong client relationships, which provide an excellent opportunity to cross-sell the products and services offered by Nedbank Corporate’s divisions as well as by Nedbank Capital and Nedbank Retail.

The decentralised model, industry specialisation skills and client-centric approach ensure excellent business banking relationships. Client-focused structures, such as dedicated bankers, have resulted in strong relationships with the larger corporates and Business Banking clients alike. Nedbank is the leader in commercial and industrial property finance.

Strategy/Objectives

In line with group objectives Nedbank Corporate is focusing on driving client acquisition and retention by improved client satisfaction and service standards, reducing problem incidence and improving problem resolution. The focus is on proactively offering client solutions, leveraging off the extensive regional presence and industry specialisation and enhancing client-focused structures. Strategies are now also in place for optimising both client and product mix.

Nedbank Corporate aims to go beyond the regulatory transformation targets to leverage its black economic empowerment (BEE) financing strengths and is striving to become the custodian of empowerment initiatives in terms of BEE as well as small and medium enterprises’ financing.

Financial highlights and statistics

		2004	2003
Average assets
Rbn
Cash and short-term funds		1
Other short-term securities		1	1
Government and public sector securities		2	2
Derivative instruments
Mortgage loans		37	32
Leases and instalment debtors		11	10
Loans and overdrafts		49	62
Other assets		17	1
Total assets		118	108
Total interest-earning assets		117	107
Current and savings accounts		17	13
Deposit and loan accounts		92	85
Allocated capital		9	10
Total liabilities		118	108
Income statement
Rm
Net interest income		4 061	4 001
Non-interest revenue		2 168	1 714
Gross operating income		6 229	5 715
Impairment of advances		266	564
Income after impairment of advances		5 963	5 151
Operating expenses		2 944	2 704
Merger expenses		31	7
Recovery programme expenses		114
Profit from operations		2 874	2 440
Attributable earnings of associates and joint ventures		33	5
Profit before taxation		2 907	2 445
Taxation		768	603
Profit after taxation		2 139	1 842
Minority interest income attributable
to ordinary shareholders		27	1
Headline earnings		2 112	1 841
Selected ratios
Return on average assets	%	1,79	1,70
Return on average equity	%	23,43	18,96
Interest margin	%	3,47	3,73
Impairments to net interest income	%	6,6	14,1
Non-interest revenue to gross income	%	34,8	30,0
Efficiency ratio	%	49,6	47,4
Effective tax rate	%	26,4	24,7
Number of employees		4 074	4 651

Target market and activities

Business Banking, which targets companies with annual turnovers ranging up to R400 million, differentiates itself by its decentralised and client-centric approach. It has a market share of approximately 23% and offers the full spectrum of commercial banking products and related services.

Property Finance specialises in commercial and industrial property finance in the middle to large corporate market. With its significant regional footprint, it is the largest financier in the commercial property market in the country, with an approximate market share of 35%. The division also participates on an equity basis in large property developments in partnership with selected clients.

Nedbank Africa has banking operations in Lesotho, Malawi, Namibia, Swaziland and Zimbabwe. Nedbank Africa’s operations aim to offer both retail and wholesale products in each region. Where possible, the regional operations leverage off the South African divisions for skills and systems platforms.

Review of the year

Nedbank Corporate’s key strategic thrust is to be the primary banker of its clients, providing a full range of banking services supporting the universal bank strategy. In line with this objective a dedicated Transactional Banking Unit (responsible for the full suite of transactional banking products, including current accounts, payments and electronic banking) was established to enable the business units to complement the strong market shares in lending and deposit-taking with similar market shares in transactional banking services.

A comprehensive electronic banking channel convergence project is in place to consolidate channels and payment platforms with increased functionality and ease of use.

In line with the goal of creating more-client-driven business segments Asset-based Finance was moved from the Property Finance Division into Business Banking. This will aid in cross-sell initiatives, given the large client overlap. The Corporate Banking Division operates collaboratively with many specialist product units in the bank, and an enhanced working relationship with the investment banking units has been introduced to facilitate greater market penetration and a deeper understanding of the total services provided by the bank to clients as well as client profitability. This integrated approach leads to innovative client solutions and is a key market differentiator.

As part of the broader group reorganisation, and to ensure that centres of excellence and core competencies are maintained and duplication eliminated, an Integrated Operations and Shared Services Unit (including groupwide responsibility for payments, trade finance processing activity and key electronic banking platform product developments) was consolidated into Nedbank Corporate.This unit will work closely with the current Transactional Banking Sales and Sales Support Unit.

Operational review

To improve accountability, remove duplication and reduce costs, the average staff complement was reduced by approximately 400 during the year, predominantly through a voluntary retrenchment exercise. Incentive reward schemes are in place and management has conducted a number of detailed strategy briefings with staff to create a performance-driven culture and ensure a common vision. In line with our commitment to transformation, challenging employment equity targets have been established.

The 115 000 BoE Business Banking client accounts were successfully transferred onto Nedbank systems by April 2004, with low client losses, as well as the remaining R8 billion worth of Property Finance clients onto the Property Finance SAP system. The focus is now on delivering, measuring and improving client service.

Despite lower interest rates, the corporate debt appetite was muted, as companies were largely cash flush and entering the bond market directly. Business Banking has benefited from continued growth of small and medium enterprises, driven by a good economic environment and growth of BEE.The more favourable economic environment has also led to an improvement in credit growth, which is expected to remain strong.

Financial review

• growth in business volumes;
• improvement in the funding margin;
• price increases in non-interest revenues;
• first-time full-year consolidations of Nedbank Namibia and Fasic;
• improvement in credit impairments, driven by healthy recoveries, effective credit management and the benign interest rate environment;
• property investment listed loan stock valuation; and
• containment of operating expenses (after excluding the impact of the mortgage origination fees and Fasic businesses).
  

A focus on asset quality, both in terms of credit quality and return on equity, gave rise to a proactive reduction in the loan book of approximately R6,2 billion, primarily in Corporate Banking. Nedbank Corporate has reduced its exposure to potentially higher-risk books in the low-interest rate environment, leading to a reduction in the level of risk and bad-debt experiences in 2004.

Strategic recovery and merger programme expenses of R145 million (prior year R7 million) impacted on Nedbank Corporate’s results.

Prospects

Other initiatives for 2005 include a focus on improved integrated client service, leveraging the cluster’s BEE and public sector expertise, improving the product and client mix and growing the Africa business. In addition, further streamlining of internal processes will continue.

Although infrastructure spending appears to be on the increase, the corporate debt appetite is expected to remain muted in 2005, as companies are generally cash flush and are increasingly raising debt in the bond markets. Relatively strong growth in the business banking arena is expected, driven by favourable economic factors and growth in BEE companies.