Nedbank: Banking

THE COMPANY: Nedbank is the fourth-largest bank in South Africa by asset size, and provides wholesale and retail banking services, insurance and asset management services. Nedbank’s headquarters are in Sandton, Johannesburg and it has branches and representative offices in other Southern African countries and certain global financial centres. The firm has been listed on the Johannesburg Stock Exchange since 1969 and on the Namibian Stock Exchange since 2007.

Nedbank is one of the largest banks in South Africa; however, it is one of the newest banks to be incorporated in South Africa. Nedbank was originally founded in 1888 in Amsterdam as the Dutch Bank and Credit Union for South Africa. In 1903 the company was renamed to the Dutch Bank for South Africa. In 1906, the bank expanded and opened an office in London. It later moved into South Africa in 1951, incorporating as the Netherlands Bank of South Africa Limited and in 1969 the company was 100% South African. In 1992, the name of the bank was changed to Nedcor Bank Limited, of which Nedbank became the largest division. Old Mutual, Nedcor’s holding company, was demutualised and listed on the London Stock Exchange in 1999. It became a constituent of the FTSE 100 Index. Nedbank acquired the Isle of Man and Jersey private banking business of Robert Fleming & Co. in 2001. The new Nedcor Group was formed on January 1, 2003, combining Nedcor, BoE, Nedcor Investment Bank and Cape of Good Hope Bank into one legal entity. The Nedcor Group was renamed the Nedbank Group on May 6, 2005. In August 2009, Nedbank bought the remaining 49.9% of Imperial Bank South Africa, so Imperial Bank South Africa is now fully owned by Nedbank.

Nedbank Group showed strong performance for the most recent year end, December 2011. Headline earnings increased by 26.2% to R6.2bn ($758.8m) and diluted headline earnings per share grew 25.4% to R13.40 ($1.64). The return on ordinary shareholders’ equity (ROE) is above the group’s cost of equity of 13%, resulting in economic profit to R924m ($113.1m), although 2010 saw an economic loss of R289m ($35.4m). Tangible net asset value per share increased by 10. 8%. The group declared dividends totalling R6.05 ($0.74) per share for the year, in line with revenue growth and at a dividend cover of 2.26 times. The group is well capitalised with the core Tier 1 capital adequacy ratio at 11% and its funding and liquidity levels remain sound.

DEVELOPMENT STRATEGY: The South African banking industry has become increasingly competitive, especially in the retail space where banks have begun to scramble for market share mostly due to the introduction of a new entrant into the South African banking industry, Capitec Bank. Nedbank Group has developed a growth-orientated strategy to better position itself and strengthen its franchise for not only survival but also success; Nedbank focuses on four key areas.

The first of these is the reposition Nedbank Retail. Excellent progress has been made in the last 24 months, executing on the 12-step change initiatives while also embedding effective risk practice such that the Nedbank Retail balance sheet is the strongest it has been in a number of years. While rebuilding the primary banked client franchise will take time, Nedbank Retail is expected to deliver growth and a shareholder return above its cost of equity by 2013.

Second, Nedbank Group aims to grow non-interest revenue. Delivery of quality transactional banking income growth above industry averages is assisting the group in making strong progress towards its medium-to long-term net interest revenue target of 85%.

Third, the company aims to adopt a portfolio tilt strategy, introduced in 2010. Its plan of action focuses on strategically important EP-rich, lower-capital and liquidity-consuming activities, and at the same time drives the efficient allocation of the group’s resources while positioning the group strategically for Basel III.

Finally, Nedbank Group continues its focus on a low-risk expansion strategy into the rest of Africa. The strategy leverages the group’s strengths throughout the continent and deepens the Ecobank–Nedbank Alliance.