Chairman's report

SA is a young vibrant democracy

As a country we have progressed in many areas since 1994. Gross domestic product per capita (in constant prices) has increased 31% to R36 908 and domestic fixed-capital formation from 16% to 19,3% of GDP, after reaching 24,5% just before the advent of the global economic recession. Access to services has improved, with 75,8% (1994: 58,2%) of the population having access to electricity, 94,5% (1994: 62%) to water and 82% (1994: 51%) to sanitation, while 11m people have been accommodated in formal housing.

We are blessed with a wealth of natural resources and have the most developed infrastructure and economy in the whole of Africa.

SA has good prospects for strong economic growth. It is important to have an environment enabling large and small business to flourish, to leverage our positioning in Africa to the full and to benefit further from a global economic upturn given our positioning in the agriculture, mining and manufacturing spheres.

Across the world 2012 was yet another difficult year for the global economy. Eurozone woes continued well into the year, with the region slipping back into recession, China’s economy slowing and the US’s fiscal problems hitting the headlines once again with the approaching ‘fiscal cliff’. However, the year ended on a better note as some calm returned to bond markets in peripheral Europe, the US housing and labour markets showed promising signs of recovery and Chinese indicators started improving.

The SA economy grew slowly partly due to the subdued climate for exports but also due to various domestic constraints, including the infrastructure deficit, worsening labour relations, policy uncertainty and weak business confidence.

The recent sovereign bond rating downgrade by three of the international rating agencies – attributed to deteriorating global and local economic growth prospects and sociopolitical stresses leading to a weaker business and investment climate – is a stark reminder of the importance of sound, consistent policies to address the challenges within our economy and society.

It is in this context that we welcome the formal endorsement of the National Development Plan (NDP) as the key platform from which to tackle unemployment, eradicate poverty and reduce inequality, and to provide the policy certainty that is so important. The NDP provides a powerful beckoning vision and a compelling blueprint for national action. In the NDP the nation has a rallying point, an impeccable forward driving force around which to align.

We fully embrace the NDP and encourage all stakeholders, and particularly business and labour, to work constructively with government in support of the NDP’s objectives in our collective drive to deliver a better life for all, especially for the poor, youth and working class in our country.

The NDP must be undergirded by the public and private sector driving implementation in a manner that is imbued with compunction and probity and with an unrelenting bias for action and dedication to serve the national interest.

I strongly believe that, if leadership in the public and private sectors work together constructively, it can make a positive contribution towards creating a better life for all.

The role of banks in society

The significant impact of unsound banking practices on the economic health of many countries around the world is a salutary reminder of the profound responsibilities banks have as custodians of nations’ savings and as enablers of the efficient deployment of capital to lay the foundation for economic growth and job creation.

Our group has been growing the strength of its banking franchise by investing significantly in our own infrastructure, and by increasing the number of people we employ and the amounts we lend to our clients to better their lives at a personal and business level.

Since 2009, the pinnacle of the global crisis, we have increased the number of our staffed outlets by 48% to 1 071 and ATMs by 74% to 3 048, creating 1 700 new jobs in the process. We disbursed R144bn in additional loans in 2012 and the entry-level banking and youth markets gained 1,1m net new clients in the past three years, most of them new to formal banking.

We assist our clients in growing their businesses and create jobs through initiatives such as Small Business Friday^TM, in association with the National Small Business Chamber, through which we promote doing business with SMEs, while sponsoring entrepreneur market days and learner materials at schools, which in 2012 involved 29 000 learners in 44 junior schools.

Our commitment to substantive transformation is inextricably linked to our desire to be a bank for all, serving all communities, as demonstrated by our having been acknowledged independently as the third most transformed company on the JSE and the most transformed large company measured on all seven elements of the dti scorecard.

We continued to invest in our people through our management development programmes, skills training, mentoring and coaching. Since 2009 close to 6 500 staff have enhanced their leadership and business skills by participating in our various development programmes.

We are advocates of responsible banking and lending practices in the unsecured- lending market, where our focus is on ensuring that credit is made available to enable people to improve their circumstances. In November 2012 the banking industry developed a policy framework, together with the National Treasury, The Banking Association SA (BASA), the South African Reserve Bank (SARB) and the Financial Services Board (FSB), to ensure responsible lending practices and prevent households from being caught in a debt spiral. We call on all participants in the financial services sector to join the banking industry in adopting these practices.

We have been reducing our own carbon footprint consistently over time and we were Africa’s first and only carbon-neutral bank – we had to walk the road ourselves, at the same time helping our clients to fund a large share of SA’s renewable-energy programme.

Nedbank is committed to contributing proactively to shaping a sustainable future for SA for the benefit of all its citizens through our growth strategies, and we have adopted a concept called the Fair Share 2030 initiatives. These initiatives align closely with the NDP, which describes a prosperous SA that has successfully addressed a series of critical socioeconomic challenges by 2030, having attained an optimal level of employment and savings and investment rates sufficient to meet its development objectives and having met a range of vitally important social and environmental objectives.

Strong foundations in place

The World Economic Forum 2012/13 Competitiveness Report has once again confirmed the high standards that SA firms demonstrate in the efficacy of corporate boards and the strength of auditing and reporting standards (rated first in the world) as well as the protection of minority shareholders’ interests and the soundness of banks (rated second).

The SA banking industry has further enhanced its historically strong reputation by weathering the global credit crisis, which can be attributed to the long-established sound and traditional banking practices adopted within a well-managed and well-regulated environment.

Strong governance and ethics are at the heart of our organisation and whose ‘Vision led Values based’ approach is fundamental to our strategy, as reflected in our vision to build Africa’s most admired bank by our staff, clients, shareholders, regulators and communities. A commitment to sound governance and ethical behaviour behove our strategy and our business’s leadership actions to be predicated on principles of morality.

It is incumbent on leadership to behave in a manner that is beyond reproach and to hold itself accountable to stakeholders.

Our Nedbank Group Ethics and Corporate Accountability Framework shapes our board’s and management’s approach to business in line with best-practice levels of governance. I refer you to our Governance and Ethics Review of the 2012 Nedbank Group Integrated Report.

BOARD CHANGES

Alan Knott-Craig resigned as a non-executive director with effect from 24 February 2012. Professor Brian Figaji retired as a non-executive director of Nedbank Group and Nedbank Ltd during May 2012, following many years of playing a valuable role on the board and its various subcommittees. Wendy Lucas-Bull resigned as a non-executive director with effect from 5 November 2012.

I wish to express my and the board of directors’ appreciation for the dedication, passion and expertise of Alan, Brian and Wendy in their directorship roles.

Ian Gladman, Strategy Director at our parent company Old Mutual plc, was appointed a non-executive director of Nedbank Group and Nedbank Ltd with effect from June 2012.

Gawie Nienaber retired as Group Company Secretary on 30 June 2012 on reaching the mandatory retirement age in terms of our normal retirement policy after a very distinguished career in the group. We wish Gawie well in the future and thank him for his outstanding contribution in this important role in the organisation. Thabani Jali was appointed to succeed Gawie as Group Company Secretary and Jackie Katzin was appointed Deputy Group Company Secretary of Nedbank Group and Nedbank Ltd.

Following these changes, the board comprises 15 directors – 12 of them non-executive and five of these classified as independent in terms of King lll.

We have a rigorous succession process in place for boardmember appointments to ensure that the group is well positioned as regards the capacity of the board to be equipped with the necessary range of leadership and technical skills that are essential for them to lead our organisation.

Old Mutual relationship

Nedbank Group is a material part of the Old Mutual Group and works constructively with all parts of the group to create value and unlock synergies.

An attractive investment case

The year 2012 has been a rewarding one for shareholders, with Nedbank Group delivering a total shareholder return of 34,3%. In a challenging environment we continue to offer qualities that we believe are attractive to investors and should support continued earnings growth. Key considerations include:

• continued delivery of our long-term growth-oriented strategy by expanding our footprint, growing our client base, launching innovative products and exploring growth opportunities in the rest of Africa;
• competitive franchises creating value and enhancing brand value:
• a strong wholesale banking franchise generating high returns on equity
• strong differentiated and decentralised business banking
• innovative client-centred retail banking
• a fast-growing wealth business with high returns on equity;
• a longer-term, risk-mitigated, capital-efficient strategy in the rest of Africa, with an unmatched Pan-African geographic footprint;
• a growth investment with protection on the downside, given the stable, sound banking sector in SA, the sustained cost-management culture, the sound risk management practices, a strong, well-capitalised balance sheet with a prudent funding structure, sound liquidity and well-diversified income streams;
• leadership in integrated sustainability, as companies that have integrated sustainability built into their strategies and operations have been proved to yield superior returns over the longer term;
• a stable and experienced management team; and
• high levels of staff morale and a values-based culture.

Appreciation

Thank you to my fellow directors for their contributions, insights and commitment to the affairs of the group. I am extremely pleased that we delivered strongly to all stakeholders in 2012 and congratulate Mike Brown and the Group Executive Committee.

We thank our staff for their contribution towards making 2012 a year of record earnings for Nedbank Group as they continually strive to exceed the expectations of our stakeholders.

To our clients who have chosen Nedbank as their bank of choice, we thank you for your support on our journey towards making Nedbank a great place to bank.

Dr Reuel J Khoza
Chairman