Nedbank Corporate

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Target market and activities

Business Banking services companies with annual turnovers of up to R400 million and is differentiated by its decentralised, empowered, accountable business model and client-centric approach.

Corporate Banking services companies with an annual turnover in excess of R400 million and generates business through lending, transactional banking, structuring and advisory fee income opportunities, significant wholesale funding, treasury execution, custodial services and global trade activities.

Property Finance specialises in commercial and industrial property finance in the middle to large corporate market. The division also invests in property equities and in large property developments in partnership with selected clients.

Nedbank Africa has banking operations in Lesotho, Malawi, Namibia, Swaziland and Zimbabwe. Nedbank Africa operates in the retail and wholesale banking segments in each country.

Transactional Banking provides product development and support, and specialist transactional banking solutions and services to Business Banking and Corporate Banking clients, working closely with the relationship banking teams.

Corporate Shared Services provides transaction execution services for local and foreign payment and trade activities, client service centres and client onboarding project migration teams.

Nedbank Investor Services provides custodial services to entities trading on the JSE Limited and facilitates share-lending activities.

Overview

Nedbank Corporate comprises the client-focused businesses of Business Banking, Corporate Banking, Property Finance, Nedbank Africa and the specialist businesses of Transactional Banking and Shared Services. These businesses focus mainly on providing lending, deposit-taking and transactional banking solutions and execution services to the wholesale banking client base of Nedbank.

Nedbank Corporate is well-placed to grow and optimise business opportunities in the private and public sector markets, leveraging its strong and valued client base and by providing innovative solutions through skilled and dynamic teams.

Strategy

Nedbank Corporate's core strength is to offer a personalised relationship-based banking service by understanding clients' needs and delivering banking solutions to wholesale banking clients through our teams of highly qualified, experienced professionals who are dedicated to providing the highest quality service to clients.

We seek to achieve our strategy by ensuring that we attract the best quality people in the market, invest in developing leadership and management skills, develop a full suite of banking products and services, and support this through outstanding service delivery. To execute this strategy we seek to be a significant market share player in each of our market segments.

Focus areas

Nedbank Corporate adopts a consistent set of principles in terms of efficient deployment of capital, risk propensity and decisionmaking, pricing, marketing and rewards to enhance its returns on economic capital employed. This approach is based on the similarities of the market segments in which it operates, specifically the specialist relationship management philosophy, service standards and decentralised credit decisionmaking, which relies on intimate, personalised knowledge of our clients and their business.

We continue to be committed to focusing on client acquisition and retention through best-practice client satisfaction and service standards, innovative solutions, reducing problem incidence and improving problem resolution.

Our focus is on transforming the businesses in line with the objective of being a truly South African bank in terms of culture and employment equity in all respects, and aspirational targets have been set in this regard.We also seek to leverage our BEE financing strengths, striving to become the custodian of empowerment initiatives in terms of BEE financing and enterprise development, underpinned by the Nedbank Group's Eyethu Corporate BEE Scheme, which was implemented in 2005.

Review of the year

The development of staff and management throughout Nedbank Corporate was accelerated in 2007 with high-level personal growth and team effectiveness processes being embedded in all the businesses. This has led to greater understanding and effectiveness of our leadership groups regarding their roles and impact on leading their teams.

Nedbank Corporate has made significant progress with transformation by exceeding all its employment equity and BEE lending targets. The management headcount increased by over 300 people and incremental black management appointments represented more than 90% of this total.

There was a significant improvement in staff morale, reflected by the 6% increase in the mean in the Nedbank Employee Survey. The increase in the Barrett cultural alignment for the third consecutive year also highlights the positive shift in attitudes and perceptions of our people, who are key to client service and ultimately market growth.

On an individual note, Ingrid Johnson, the Managing Director of Business Banking, received the prestigious CEO Award in 2007, which is the highest level of internal recognition awarded to an employee who is consistently doing what is right and exceptional, while achieving success both at work and in his or her private life. This is a fitting acknowledgement of the contribution Ingrid has made at executive level over a period of 14 years with the bank.

Our colleague, Heinz Weilert, was seconded at the request of the Development Bank of Southern Africa (DBSA) as the Chief Operating Officer to support the objectives of building the region for the benefit of all.

Nedbank Corporate is benefiting from the image and repositioning of the Nedbank brand and continues to contribute to the strengthening of the brand through various media campaigns, including deal tombstones advertisements.

The wholesale lending activity in South Africa has remained strong, with all businesses generating good increases in lending and in the number of primary banked transactional banking clients.

Building on the successes of the previous year the public sector clients increased further during the current year. In the early part of the year the Western Cape Provincial Government as well as the municipalities of Uthungulu, Merafong, Mossel Bay, Drakenstein and Knysna were migrated successfully onto the Nedbank platform.

Excellent progress has been made in migrating Business Banking clients onto NetBank Business, the new electronic banking channel platform. This has assisted with new-client acquisitions and improved client retention. By year-end over 8 000 clients were migrated onto the new system, with a substantial volume increase in the utilisation of the system. The focus for 2008 will be on enhancing the functionality required for Corporate Banking clients and migrating the corporate clients onto the new platform.

In line with market experience, electronic banking volumes in the wholesale market have continued to grow strongly as processing switches to electronic and card platforms, while a further decline in revenue and volumes from cheque processing has occurred.

Business Banking experienced good average advances growth of 23,6% for the year, demonstrating the benefits of decentralising accountability to the regions and the improvements in client service and delivery. Increased accountability has assisted with significantly improving staff morale and client service, and improved client value propositions to different client segments have led to client acquisition gaining good traction. The execution of the strategy to establish Business Banking as the leader in the market is showing strong momentum, with most of the key elements in place to deliver on the strategy. The sales force was increased by 16% and our presence expanded into new areas, such as Soweto, Khayelitsha, Mitchells Plain, Umtata and Midrand.

Average advances in Corporate Banking grew strongly at 31,5%, driven by substantial advances in the last quarter of 2006. Joint client acquisition/retention strategies with Retail and Nedbank Capital resulted in benefits within Corporate Banking and across the organisation. Our independently commissioned annual client survey confirmed that the corporate bankers are regarded as the top-performing team in the market.

Property Finance has maintained its leading market share position in advances, which grew at 19,1%. Commercial property prices continued to increase partly as a result of the lack of construction capacity and higher building costs. Net interest income (NII) growth has been impacted by continued disintermediation and intense competition creating margin pressure.

Property investment gains were stronger than anticipated, but were marginally down on the high levels of 2006. The 82% investment held in Lion Match was sold with effect from 1 July. The 80% interest held in Bond Choice, the mortgage originator, was reduced to 62% by introducing management shareholders. A transaction to introduce empowerment shareholders, which will further reduce the interest in Bond Choice, was completed. On a combined basis the sale proceeds yielded R322 million.

Transactional Banking had a productive year with further enhancements to the electronic banking platform and the unit was integrally involved in the migration of clients by the Corporate Shared Services teams. This is an important differentiating quality with the onboarding of large complex clients as part of our approach of being closer to, and understanding client needs.

Shared Services had another good year in delivering accurate and efficient processing, and with the onboarding project management processes of migrating new and existing clients onto the bank's systems, with very positive client feedback.

Nedbank Investor Services received the top rating as Crossborder and Domestic Custodian by Global Custodian for the second year running. It was also rated the Best Subcustodian Bank - Africa and South Africa by Global Finance.

Increased growth in Nedbank Africa resulted mainly from higher revenue off a higher asset base and lower impairments. Significant progress was made in governance and risk frameworks, information technology, employee skills, senior executive appointments and the streamlining of operations.

Due to the complexity of the situation in Zimbabwe, the investment in MBCA was written off in 2003. However, the business risks and the inherent risks continue to be managed actively.

In the risk management sphere Nedbank Corporate had an active year with the introduction of the National Credit Act and the finalisation of the Basel II preparation, culminating in the Registrar of Banks granting the bank approval to adopt the Advanced Internal Rating-based approach for credit, which confirms the quality of the risk management processes. The proactive hands-on approach to risk has resulted in a low level of impairments, strong recoveries and enablement of business generation.

Financial review

Nedbank Corporate increased headline earnings by 22% to R3 063 million. The return on equity (ROE) on Basel I capital at 21,4% was in line with the ROE of 2006 (21,6%). Lion Match was disposed of effective 1 July 2007 and the shareholding in Bond Choice declined from 80% to 62% in July, reducing the combined earnings contributions from these entities in 2007.

The core banking activities generated headline earnings growth of 27,9% over 2006, with the major businesses all performing well, reflecting the inherent strength of the core banking franchise. Revenue grew strongly, impairments were wellmanaged and expense growth was controlled significantly below the level of income growth.

The property investment activities generated earnings of R313 million, down marginally by 4,2% on the record levels achieved in 2006, and exceeded expectations.

NII and net interest revenue (NIR) grew 19,6% and 9,9% respectively through strong growth in average advances and good progress made in gaining primary banking clients in both the public and private sector in all the businesses, supported by the significant improvement in the electronic banking offering. Average advances have increased by 25,8% and core transactional fee income by 10,0%, despite the continued impact of disintermediation on the cheque business as clients switch to cheaper electronic platforms and credit cards. Electronic banking volumes grew by 31% owing to successful client conversions and acquisitions.

The credit loss ratio of 0,11% is low in the current economic cycle and is attributable to the quality of the portfolio and bad-debt recoveries through effective credit management.

After investing in electronic banking and risk management systems, increasing frontline sales headcount and incurring further regulatory compliance costs, expenses were wellmanaged and increased by 12,6%.

Business Banking increased headline earnings strongly by 30,7% and the compound growth rate in earnings of 36,0% over the three-year period 2005 to 2007 shows the inherent strength and momentum of the business.

Corporate Banking had an excellent year with headline earnings up 40,1% as the focus on performance and providing clients with integrated lending and transactional banking solutions increased.

The lending business in Property Finance increased headline earnings by 16,3%, notwithstanding the disintermediation of lending and pressure on credit margins, as this asset class increased in attractiveness and size.

Nedbank Africa increased headline earnings by 63,5% off a low base, with good performances from all the underlying businesses.

Nedbank Corporate segmental report

FOR THE YEAR ENDED 31 DECEMBER


	Corporate Banking		Business Banking		Property Finance
	2007	2006	2007	2006	2007	2006
Headline earnings (Rm)	674	481	1 227	939	1 007	924
Return on average equity (%)	13,5	12,1	28,9	27,2	22,7	28,1
Return on average assets (%)	0,56	0,56	1,71	1,50	2,11	2,17
Impairment ratio (%)	(0,01)	0,04	0,32	0,41	(0,01)	(0,06)
Efficiency ratio (%)	47,4	49,3	50,6	52,9	42,4	23,8
Number of employees	268	268	2 301	2 187	855	810

Number of clients - advances	523	759	22 842	29 329	5 542	6 265

Total assets (Rm)	128 760	109 005	79 496	67 405	56 362	45 905
Average total assets (Rm)	119 926	85 091	71 900	62 728	50 516	42 478
Total advances (Rm)	47 943	45 803	51 801	43 641	46 675	38 292
Average total advances (Rm)	46 276	35 192	47 571	38 495	41 065	34 469
Total deposits (Rm)	114 683	90 199	69 477	59 210	90	123
Average total deposits (Rm)	97 730	73 223	64 050	54 445	161	408
Allocated capital (Rm)	4 996	3 962	4 241	3 454	4 515	3 288

	Africa		Other**		Total
	2007	2006	2007	2006	2007	2006
Headline earnings (Rm)	90	55	65	116	3 063	2 515
Return on average equity (%)	18,7	12,9			21,4	21,6
Return on average assets (%)	1,21	0,84			1,61	1,70
Impairment ratio (%)	0,33	0,41			0,11	0,15
Efficiency ratio (%)	69,5	76,9			49,7	51,2
Number of employees	1 582	1 370	1 137	1 042	6 143	5 677

Number of clients - advances	160 829	175 920

Total assets (Rm)	8 008	7 158	(59 870)	(54 746)	212 756	174 727
Average total assets (Rm)	7 414	6 503	(59 018)	(45 704)	190 738	151 096
Total advances (Rm)	5 366	4 614	1 933	904	153 718	133 254
Average total advances (Rm)	4 879	4 415	2 446	463	142 237	113 034
Total deposits (Rm)	6 990	5 941	3 118	2 477	194 358	157 949
Average total deposits (Rm)	6 317	5 137	3 788	1 943	172 046	135 156
Allocated capital (Rm)	479	426	114	524	14 345	11 654

** Includes Bondchoice, Lion Match, Centralised Credit, Risk, Finance and Eliminations.

Prospects

Higher interest rates and inflation, increasing asset price volatility and a more cautious approach due to uncertainty about the economic and political environment are likely to impact the market. Nevertheless, clients are in a relatively sound position, with the infrastructure development needs of the country providing an underpin for growth.

Property investment activities generated approximately 10% of headline earnings in 2007, and this is likely to decline in the environment of higher interest rates.

Risk management in this challenging environment will be of vital importance in the period ahead.

Each business in Nedbank Corporate has clear strategies and plans for the future and the leadership teams are wellpositioned to respond to the challenges ahead.

Nedbank Africa has, through strategic plans, laid the groundwork to expand further into the continent.

The focus is on continually developing the quality leadership and management capabilities of all our people, products and services to provide the highest level of service and delivery to our clients. This drive positions Nedbank Corporate to compete effectively in the market place.


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