Group targets and objectives

During 2007 the group successfully delivered on the financial targets of a 20% ROE and 55% efficiency ratio set back in 2004 by achieving an ROE of 21,4% and an efficiency ratio of 54,9%. In 2006 the group set medium-term targets, and the group's performance against these targets in 2007 is reflected below.

	Performance in 2007	Medium to long-term financial targets	Target achieved
Return on ordinary shareholders' equity (ROE) (excluding goodwill)	24,8%	ROE (excluding goodwill) 10% above the group's monthly weighted average cost of ordinary shareholders' equity
Efficiency ratio	54,9%	Maintain an efficiency ratio of less than 55%
Diluted HEPS growth	32,8%	Growth in diluted HEPS of at least average CPIX plus GDP growth plus 5%
Credit loss ratio	0,62%	An impairments charge of between 0,55% and 0,85% of average advances
Capital adequacy ratios (Basel II)	8,0%	Tier 1: 8,0% to 9,0%
Capital adequacy ratios (Basel II)	11,2%	Total: 11,0% to 12,0%
Economic capital adequacy	A-	Adequately capitalised to a 99,9% (A-) confidence level on an economic capital basis plus 15% buffer
Dividend cover	2,25 times	2,25 to 2,75 times cover

These targets were set by the group to maximise shareholder value and minimise earnings volatility. Employee incentives, covered in more detail in the Chief Financial Officer's review on pages 64 to 75, have been designed to align with these targets.

Economic capital metrics have been included to ensure the integration of risk and capital optimisation into the overall financial objectives. Nedbank's Risk Appetite Framework and methodology are disclosed in the Risk and Capital Management Report.

The rationale for the targets is as follows:

ROE: All the group's major peers have ROE targets. ROE is a key ratio used by shareholders and analysts to evaluate the group's performance. The exclusion of goodwill allows for an easier comparison with the ROEs as reported by our peers [as Nedbank has goodwill that cannot be written off now that the group reports under International Financial Reporting Standards (IFRS), whereas peer banks have historically written off goodwill balances].
Efficiency ratio and credit loss ratio: By setting targets for the efficiency ratio [the margin and the ratio of noninterest- revenue (NIR) to net interest income (NII) are covered by the efficiency ratio] and impairments we are providing the market with two key components, which drive the return on assets.
Growth in diluted headline earnings per share (HEPS): The group adopts diluted HEPS as a performance measurement, as it encapsulates both earnings and elements of the group's capital management activities. Diluted HEPS growth is also the key indicator used by shareholders and analysts when evaluating earnings growth. Using average consumer price index (CPIX) growth plus gross domestic product (GDP) growth plus 5% is in line with the group's parent Old Mutual plc and in effect very similar to the group's peers in South Africa. By having a GDP growth element this measure is directly sensitive to macroeconomic growth rates.
Capital adequacy ratios (under Basel II): These are set as critical targets to ensure that adequate capital is maintained by the bank. The capital adequacy ratios are above the regulatory minimum ratios to include an appropriate regulatory solvency buffer required in terms of Basel II and in terms of Nedbank's Risk Appetite Framework.
Economic capital adequacy: A target for economic capital has been set to enable the group to maintain adequate debt ratings and to ensure that it has sufficient capital to satisfy depositors, including subordinated debt holders. The current target international debt rating is A-, which translates into a 99,9% confidence level.
Dividend cover: Nedbank Group needs to ensure that the dividend cover policy allows sufficient scope to ensure that its Tier 1 regulatory capital growth, together with associated Tier 2 incremental issues, is sufficient to cover anticipated risk-weighted asset growth.

Review of 2007

What we said	What we achieved
Financial
Achieve ROE of 20% and efficiency ratio of 55%	•	ROE: 21,4% (2006: 18,6%)
Achieve ROE of 20% and efficiency ratio of 55%	•	Efficiency ratio: 54,9% (2006: 58,2%)
Market share
Gain market share in key retail product areas and penetrate the mass market	•	Increased year-on-year market share in card (+0,8%) and instalment credit (+1,1%). Home loans maintained market share during 2007.
	•	Gained 470 000 clients and 88 000 primary clients.
	•	Significant developments in the mass market with 13 new branches and 33 new mobile sales teams. Nedbank is now the most affordable of the big four banks in the lower-income and mass markets (19% fee reductions over last two years). Net acquisition of 268 520 Mzansi clients.

Retain our leading positions in key wholesale market segments and grow our business banking franchise	•	Retained market-leading positions in property finance (#1) and domestic corporate lending (#1).
	•	Gained more than 2 200 new business banking and 20 new major corporate transactional banking clients.
	•	Nedbank Capital improved rankings by Risk magazine in eight categories.
	•	Won The Banker's Deal of the Year 2007 award (for the Exxaro Resources Limited deal).
	•	Corporate Finance maintained its top-three placing in the M&A rankings.
	•	Maintained six placings in the Bond Spire Awards.
Client service
Improve service levels ultimately to achieve world- class service over time	•	Ranked number one among SA banks in the Ask Afrika Orange Index (Client Service).
	•	Implemented 'AskOnce' service promise.
	•	Implemented various initiatives that have started to impact client experience positively, eg channel and product projects and Nedbank's Great Service Award that acknowledges and rewards staff, and launched a World-class Service newsletter and intranet site.

	•	The Business Banking service model was reviewed and a client satisfaction tracking mechanism implemented.
	•	Provided various integrated solutions to clients in the wholesale market.
Distribution
Expand our distribution footprint through investment and innovation	•	Added 411 new ATMs, 25 branches, 46 outlets and kiosks, 33 mobile sales teams.
	•	Replaced our voice networks and data networks with new technologies bankwide for improved speed and quality to the branch network.
	•	Integrated Old Mutual Bank into Nedbank.
	•	Continued to drive alternative distribution channel development, adding Score and Boxer stores to the Nedbank instore banking footprint.
Bank fees
Provide value-for-money products Gain public sector clients	•	Reduced retail bank fees by 19% over two years, making Nedbank the most affordable of the big four banks, particularly in the lower-income and mass markets.
	•	Maintained competitive pricing in wholesale banking products.
	•	Gained Western Cape provincial government and five municipalities.
	•	Won the mandate to establish a DMTN programme and bond issue of R2bn for ACSA as well as dealers on the DBSA, Land Bank, Transnet and Telkom programmes.
Build the Nedbank brand
Become a bank for all South Africans	•	Significantly increased brand presence, especially in the mass market.
	•	46% of the banked market now perceives Nedbank as a bank for all South Africans (2005: 27%).
	•	Concluded soccer mass-market sponsorship deal (Nedbank Cup from 2008 onwards).
Accelerate transformation	•	Achieved an FSC score of 96,2 (out of a potential 98) and rated level-four BEE contributor measured against dti scorecard.
	•	Significant progress across the board with all areas exceeding FSC targets - including employment equity, where we are on target to meet or exceed the 2008 targets.
	•	Mzansi market share exceeding 16% (up from 12% in 2003). Various opportunities have been identified and significant progress has been made through leveraging the relationships between our black business partners, the Brimstone and Wiphold Consortia, and through our business development partner, AKA Capital.

	•	Initial alignment between EE, FSC and dti done. Final alignment of the FSC with the codes delayed. Developed initial plans to achieve our targeted dti level.
Become the best place to work	•	Employee satisfaction up 5,2% on 2006, based on the Nedbank Employee Survey.
	•	Limiting values eliminated from the Nedbank Culture Survey top 10.
	•	Lower staff attrition rates compared with those of the past four years.
	•	Significant amount of work across all aspects of human resources, including the rollout of the Management Development Programme and Leading for Deep Green leadership transformation initiative.

Deliver worldclass risk practices	•	Basel II ready, including Advanced Internal Ratings Based (AIRB) approval from the SARB for credit risk for all of Nedbank Limited.
	•	Risk-based capital allocation (including a comprehensive economic capital system) now driving business performance measurement and incentives.
	•	NCA and FICA implemented on time.
Optimise capital	•	Capital levels managed to be well-placed for Basel II target ranges (Tier 1: 8,0 - 9,0%, Total 11,0 - 12,0%).
	•	Completed refinancing of Tier 2 debt (R4 billion NED02) and completed composition of long-term debt capital curve, which can now be built on.
	•	Issued first big four bank Tier 2 bond (R2 billion NED09) to IFC and ADB in July 2007.
Collaborate with Old Mutual	•	Significantly exceeding planned benefits in specifically retail joint ventures and technology with over R650 million in benefits already realised.
	•	Joint technology purchasing agreements for hardware and software across the Old Mutual group.
Deliver on three-tiered Africa	•	Improved performance from existing operations. Bought out minorities in NedNamibia.
strategy	•	Setting up regional offices in selected African countries.
Lead in sustainability matters	•	Winner Financial Times Emerging Markets Sustainable Bank of the Year for Middle East and Africa.
	•	Included in the JSE SRI index (fourth consecutive year).
	•	Dow Jones Sustainability Index membership (fourth consecutive year).
	•	Ernst & Young Excellence in Sustainability Reporting - best placed bank (third overall).
	•	Launched social responsibility programme for clients (Local Heroes).
	•	First SA signatory to the United Nations Environmental Programme Finance Initiative.


This page was updated on 21 August, 2008	Return to top