Nedbank: Banking

The Company

Nedbank is the fourth-largest bank in South Africa, by asset size, providing wholesale and retail banking services, insurance and asset management. Nedbank’s headquarters are in Sandton, Johannesburg and it has branches and representative offices in other Southern African countries and certain global financial centres. Nedbank 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 the country. Nedbank was originally founded in Amsterdam in 1888 as the Dutch Bank and Credit Union for South Africa. The bank expanded to South Africa some time later in 1951, incorporating as the Netherlands Bank of South Africa and in 1969 the company was 100% South African. In 1992, the name of the bank was changed to Nedcor Bank, 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 2012; headline earnings increased by 21% to R7.5bn ($914m) and diluted headline earnings per share grew 19% to R15.95 ($1.94). The tangible return on ordinary shareholders’ equity (return on equity excluding goodwill) of 16.4% for 2012 (15.4% at June 30, 2012) is above the group’s cost of equity of 13%, resulting in economic profit of R1.51bn ($182m) for 2012. Tangible net asset value per share increased by 13.3%. The group declared dividends totalling R7.52 ($0.92) per share for the full year 2012 and R3.40 ($0.41) per share for the six months to June 2012, in line with revenue growth and at a dividend cover of 2.19 times. The group is well capitalised, with a core Tier 1 capital adequacy ratio at 11.6%, and the group’s funding and liquidity levels remain sound.

Development Strategy

The South African banking industry has become increasingly competitive specifically in the retail space, where banks have begun to scramble for market share and customer attraction as well as retention. Nedbank Group has developed a growth-orientated strategy to better position itself and strengthen its franchise for survival as well as success.

Nedbank focuses on four key areas: First, 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 banked client franchise will take time, Nedbank Retail is expected to deliver growth and a shareholder return above the cost of equity by 2013.

Second, grow non-interest revenue: Delivery of quality transactional banking income growth above industry averages is assisting the group in making good progress towards its medium- to long-term NIR expenses target of 85% (currently 84%).

Third, portfolio tilt: The portfolio tilt strategy focuses on strategically important lower-capital and liquidity-consuming activities, and at the same time driving the efficient allocation of the group’s resources while positioning the group strategically for Basel III.

Fourth, Africa expansion: Nedbank Group continues its low-risk expansion strategy into the rest of Africa, leveraging its natural strengths and deepening the Ecobank-Nedbank alliance. Nedbank provided Ecobank with a $285m loan facility in the fourth quarter of 2011, a deal which included rights to acquire up to 20% equity stake in Ecobank within 18 months (by 2014).