Chief Operating Officer's Report

 

OVERVIEW

The objective of delivering the best possible client experience across all our market segments is ultimately dependent on whether our organisation operates in an aligned manner, enhancing our clients’ ability to conduct business with the bank efficiently, and in a way that provides for a positive banking experience that meets and exceeds client’s needs and expectations.

We are driven to provide the highest level of service to our clients, and recognise that the central specialist functions housed within the Chief Operating Officer’s portfolio have a critical role to play in operating at worldclass levels in a coordinated way that enables the frontline clusters to operate effectively.

STRATEGIC PLANNING

The group has a well-formulated strategic planning that which incorporates broad participation across the organisation. The process commences with the identification of high-level strategic drivers through in-depth group executive planning sessions, incorporating internal and external contributions, that are thoroughly evaluated and debated both at board level and deep within the organisation. This informs our strategic choices for the organisation, are agreed at board level and act as the framework for detailed three-year planning processes to be undertaken, culminating in the board approving theses plans in the fourth quarter of the year. This year the professionalism of the process and collaboration across the organisation resulted in plans of a very high quality, which is fundamental for the disciplined execution of our strategic intent.

PORTFOLIO TILT – BASEL III

Through the bank’s specialist skills in balance sheet management, the cluster has ensured that the bank is at the forefront of global thinking in relation to Basel III and the significant advantages that can be derived from leading and incorporating the principles of active balance sheet management in our strategies across the bank. This has enabled the bank to be positioned extremely well from a Basel III capital position and liquidity coverage ratio perspective at the end of 2012. In addition, good traction was maintained on ensuring that our valuable capital and liquidity resources are deployed in line with our strategic intent to build sustainable businesses that generates economic profits, a concept we term ‘portfolio tilt’.

IT SYSTEMS

Group Technology has continued to make good progress in rationalising and simplifying our systems from a total of 220 to 60 over the medium term, with 40 systems rationalised to date, reducing the number of systems to 180. In addition, significant developments took place in the digital and electronic field with the establishment of the secure digital highway, which is essential to being able to roll out Apps on a regular basis that are innovative and provide exceptional security for transaction purposes.

The external benchmarking exercise conducted by a global IT expert consultancy last year was vital in guiding our focus on continuing to invest in our IT platforms to close the slight gap and attain a worldclass level in our efficiency.

On a strategic level, approval was granted for an integrated ERP system, incorporating finance, procurement and human resources, to one system in line with our drive to enhance efficiency. In addition, in line with our key strategic focus of growing in the rest of Africa the principle of developing a model bank operating off a common core banking platform with standardised products, policies, processes and procedures has been endorsed, and this is essential to ensuring that the bank is in a position of strength to be able to expand the number of countries in which it operates in a well-managed environment that offers the ability to be efficient, to manage risk appropriately and to provide clients with a consistent, higher level of client experience.

NEDBANK BRAND

We have invested significantly in formulating attractive client propositions in all market segments and our brand awareness and appeal continue to strengthen. During the year the Brand Committee made the decision to appoint a new agency with the brief to create an integrated brand positioning for the entire group in a drive to continue to enhance and accelerate the perceptual step change that the bank wants to achieve in its brand strength.

LEADERSHIP DEVELOPMENT

Last year we reported indepth on our major long-term commitment to investing in the development of our leadership capabilities across all levels of the organisation. We believe that our unique corporate culture, developed through the processes of encouraging personal mastery and team effectiveness, is our ultimate competitive advantage in a people-intensive skills business and that it is vital in building a vision-led, values-driven organisation. We seek feedback from our people through our Barrett corporate culture survey and our staff survey, and the year-on-year improvements were material off an already high base. Particularly pleasing was that our entropy level is now at 10%, indicative of an organisation operating at healthy, worldclass levels.

REST OF AFRICA

At the beginning of 2012, following the deepening of the strategic alliance with Ecobank through the grant of a $285m term loan and subscription rights for Nedbank to acquire a 20% stake in Ecobank, the Rest of Africa subsidiaries were incorporated into a single division, focused exclusively on the bank’s existing operations, investments and expansion activities in the rest of Africa.

 

OVERVIEW

In 2012 the next step in building our Pan-African franchise was taken through the consolidation of our banking activities on the continent into the Rest of Africa Division by restructuring the Nedbank banking subsidiaries and the Ecobank-Nedbank Alliance into a single unit within the Chief Operating Officer’s portfolio. This realignment is in line with growth in the rest of Africa, being one of the four key strategic focus areas of the group.

STRATEGY

Nedbank is expanding its activities on the continent from a position of strength in its SA business, building partnerships and following a longer-term, capital-efficient, risk-mitigated expansion strategy, which is based on following our clients as they expand and grow in the faster economic growth areas in the rest of Africa.

A comprehensive strategy for our expansion on the continent and the detailed operating model have been developed to enable Nedbank to position itself as an African champion bank over the longer term. The plan covers the broadening of activities in the existing subsidiaries, the upgrading of policies and processes and the installation of a standardised model bank core banking platform to enhance quality of client service and cost-efficiencies to be deployed in all businesses, current and future.

The Ecobank-Nedbank Alliance was established in 2008 between Ecobank and Nedbank across both banks’ footprints, covering 36 countries across sub-Saharan Africa. This is the largest geographic banking network on the continent. The alliance aims to provide clients with a one-bank client experience, offering banking services and access to local knowledge across the footprint, thereby partnering with and supporting clients as they grow their businesses on the continent.

The term loan and the subscription rights arrangement with Ecobank is value creating, providing resources for Ecobank’s expansion and giving Nedbank and its shareholders a significant investment opportunity in the faster growing markets in the continent with a geographically diversified spread of earnings.

Nedbank has banking operations in five countries in SADC and we will continue to strengthen our position in the region:

• We will be investing in our existing subsidiaries in order to increase our presence and improve profitability and efficiency. We are broadening our physical presence and expanding our product offering to appeal to the broader market as well as having a focus on client service and cost-effectiveness.
• A continual process of evaluating opportunities to enter new markets within SADC and East Africa is under way in line with the intent to have a larger country presence in the region.

OPERATIONAL REVIEW

The Rest of Africa banking subsidiaries provide universal banking in five Southern African Development Community (SADC) countries, namely Lesotho, Malawi, Namibia, Swaziland and Zimbabwe. The subsidiaries offer retail and wholesale banking. The Kenya representative office, based in Nairobi, focuses on trade finance opportunities in East Africa. The Rest of Africa Division produced headline earnings of R168m up 35% on 2011.

Regulators of a number of countries are taking steps to strengthen their banking systems and regulatory environments to provide the foundation for stronger economic growth and to attract investment. These steps include higher minimum capital levels, local equity participation and skills transfer.

This provides opportunities for the group to act as a participant in consolidating and strengthening the banking industry as well as our own competitiveness. Careful evaluation of the size of a banking market relative to the gross domestic product of the country is essential in assessing whether the objectives of strengthening the banking system are structured in a way that also enables individual banks to generate appropriate returns on the enlarged investment requirement.

Following the deepening of the alliance through the $285m loan facility and rights to acquire an equity stake of up to 20% in Ecobank Transnational Incorporated (ETI), the number of SA corporates utilising the Ecobank–Nedbank Alliance footprint to achieve their own African growth aspirations has increased substantially. Both Nedbank and Ecobank are leveraging the alliance so they may jointly serve multinationals across its combined footprint. We expect this trend to continue as corporates seek the value of access to banking and advisory services in more countries across the subcontinent.

In 2012 Nedbank and Ecobank jointly hosted two major events on the African events calendar:

• The African Banker Awards held at the African Development Bank meetings in Arusha, Tanzania, in May.
• The African Investment Conference held at the Nedbank Headoffice in Sandton, SA, in October. The Honourable President Joyce Banda of Malawi was the keynote speaker at this event.