Investment case

The Nedbank investment proposition remains compelling. We offer an attractive growth strategy, supported by a strong balance sheet, and competitive value-creating franchises. Our longer-term risk-mitigated strategy in the rest of Africa is supported by an unmatched Pan-African footprint.

SOUND BANKING SYSTEM in SA Through economic cycles SA banks have delivered sustainable returns on equity (ROEs) well above the much larger international banks in the US and EU, with growth driven by continued increases in banking penetration in the retail market, business investment in the SA infrastructure programmes and expansion into the rest of Africa. SA banks are well capitalised, operate in a predominantly closed funding system, are very well regulated as evidenced by being rated second globally in soundness of banks by the World Economic Forum, and currently delivering dividend yields above the JSE all-share index benchmarks.

 

OPTIMISING RETURNS TO ALL STAKEHOLDERS		Our objective of building an organisation that optimises returns to all stakeholders and creates a sustainable future is enabled by an integrated approach to the economics of the business, environmental preservation, involvement in society and organisational culture. Incorporating this approach, the investment case for Nedbank Group is built around:
		competitive franchises creating value and enhancing brand value;         continued delivery on the growth-oriented strategy;         being well positioned for a cyclical economic upturn, underpinned by operational and financial gearing;         defensive investment given the stable banking sector in SA; and         leadership in integrated sustainability.

 

Our historical strength in wholesale banking is evident in the underlying businesses consistently delivering ROEs above 20%, which is a key driver of value creation, while the high-ROE Nedbank Wealth business is growing faster than industry trends and Nedbank Retail is building a sustainable retail banking business targeting returns ahead of the cost of equity in 2013.

Leader in corporate banking and commercial property finance

• Excellent client relationship and ratings.
• Strong market shares, particularly in commercial property finance as well as public sector loans.
• Opportunity to increase transactional banking market share.

Integrated, lower-risk-taking, investment banking

• Leadership and expertise in mining and resources, infrastructure, energy, telecommunications and oil and gas sectors, providing good growth opportunities in SA and rest of Africa.
• Integrated full-service investment banking model, combined with an ability to leverage client relationships in collaboration with other wholesale clusters.

Strong differentiated and decentralised business banking

• Globally best-in-class customer management practices.
• Excellent client-centred risk management capabilities.
• Strong deposit-generating franchise.
• Sustainably good returns despite low interest rates.

Innovative client-centred retail banking

• Strong growth drivers in place – evident in significant new-client gains, investment in new outlets, ATMs, new products leading to strong MR gains.
• Building a more client-centred integrated business with strong product lines, eg vehicle finance and card acquiring.
• Effective risk management practices embedded, removing excessive credit loss ratio volatility of past cycles.

Longer-term risk-mitigated capital-efficient strategy in rest of Africa, with unmatched Pan-African geographic footprint

• Providing clients with access to 36 countries across Africa.
• Rights to acquire up to 20% in Ecobank Transnational Incorporated.
• Exploring expansion into the Southern African Development Community and East Africa, where gross domestic product is expected to grow much faster than in SA, even though economic returns in financial services are still below cost of capital in the medium term.

 

Our key strategic initiatives of repositioning Nedbank Retail, growing non-interest revenue (NIR), implementing the portfolio tilt strategy and expanding into the rest of Africa will continue to drive growth

 

• Operational and financial gearing benefits should enable us to deliver
  improved profitability ratios.
• Endowment income upside will be unlocked when interest rates increase
  (a 1% parallel change in interest rates increases pretax earnings through endowment by approximately R813m).

 

• We have a strong, sustained cost management culture, with the existing strategy favouring an investment-for-growth focus while we remain cautious in the current uncertain economic environment;
• Risk and capital management are embedded in our culture, aimed at creating a strong, stable and economically sustainable organisation. Credit impairment coverage ratios are among the highest in the industry;
• We have a strong common equity tier 1 capital adequacy ratio at 11,6% on a Basel III basis, with sound funding and liquidity ratios that are in line with those of domestic peers;
• Earnings streams are well diversified, with no cluster contributing more than 34% for headline earnings to the group; and
• Attractive revised lower dividend cover range of 1,75 – 2,25 times.

 

Companies that have integrated sustainability into their strategies and operations have been proven to yield superior returns over the longer term. With this in mind, we focus on entrenching and integrating economic, environmental, social and cultural sustainability across the group to enhance our long-term investment appeal.

 

Economic
		Growth is expected to continue in 2013, despite a challenging macro environment, building on the earnings momentum created in 2012 and the focus and success of the delivery on our strategic growth initiatives.
Environmental
		We remain committed to reducing our direct and indirect impact on the environment, and assisting our clients, suppliers and business partners to do the same, while simultaneously delivering economic benefits in the form of long-term cost savings.
Cultural
		In 2012 we demonstrated a proven organisational capability to succeed in challenging economic times. A culture of governance, compliance and sustainability is evident in the comprehensive controls and processes integrated throughout the business. Since 2004 positive shifts in staff morale as well as a strong positive move towards a resilient high-performance culture have been evident. Our stable and skilled management team remains among the most experienced and transformed in the SA banking sector. Group Executive Committee members have an average tenure of 13 years with Nedbank Group and on average more than 22 years’ industry and functional experience. The average tenure for the cluster executive members is 11,75 years for the 110 members.
Social
		Our continued contribution to socioeconomic growth and development remains a key focus for the group. This includes skills development; responsible access to finance and financial literacy; lending to enable healthcare, housing and education, enterprise development; community upliftment; economic empowerment and preferential procurement.