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OPERATIONAL OVERVIEW
NEDBANK RETAIL AND NEDBANK BUSINESS BANKING
| THE YEAR 2010 WAS SIGNIFICANT, WITH MULTIFACETED BUSINESS CHALLENGES AND A TOUGH ECONOMIC CLIMATE IN WHICH CONTINUED HIGH CONSUMER INDEBTEDNESS AND MUTED BUSINESS DEMAND RESULTED
IN INTEREST RATES BEING DECREASED TO THEIR LOWEST IN 36 :YEARS. SIGNIFICANT PROGRESS WAS MADE IN BRINGING THE NEDBANK RETAIL
AND NEDBANK BUSINESS BANKING LEADERSHIP AND FRONTLINE TEAMS CLOSER TOGETHER AND UNDERSTANDING THE STRENGTHS AND OPPORTUNITIES FOR
UNLOCKING VALUE CREATION AND GROWTH FOR NEDBANK GROUP'S CLIENTS AND COMMUNITIES ACROSS SOUTH AFRICA. |
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NEDBANK BUSINESS BANKINGSTRATEGYThe primary strategic thrust for Nedbank Business Banking is to continue its journey of business transformation and growth en route to becoming the leader in business banking for South Africa as measured across the key dimensions of staff, clients (including primary-banked market share) and financial performance. Emphasis is on the word ‘for’ South Africa, in recognition of the importance of Nedbank Business Banking’s contribution towards enterprise development, job creation and community upliftment in the broader context of sustainable development. Over the six years to 2010 Nedbank Business Banking has delivered consistently high returns to shareholders (> 25%) and cumulative economic profit of R3 billion, while at the same time investing in the business in line with its strategic intent and strategy roadmap. This investment occurred into people leadership and diversity, the compelling holistic client offering with distinctive differentiators, organisational design, disciplined risk management capabilities, pricing tools, client value propositions for selected industries and overall market positioning. REVIEW OF THE YEAR The sixth year of Nedbank Business Banking’s business transformation was characterised by the continued quality of the business with strong performance across the areas of client, staff and financial growth. |
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The positive results of a consistent and cohesive focus were evidenced in the
results of the cluster’s first-ever independent Customer Management Assessment
Tool (CMAT™) global benchmarking – a rigorous evaluation of an organisation’s
client management capabilities. Nedbank Business Banking achieved the highest ever
score of any fully business-to-business organisation and the fifth best score
out of all 900 businesses surveyed globally in the history of the assessment. This
places Nedbank Business Banking in the top decile of global client management
competences, demonstrating the successful translation of client-centred principles
into practice. The year 2010 saw a strong shift in both new client acquisitions (up 35% year-on-year) and cross-sell to existing clients, with vastly enhanced reporting tools and management processes put in place. At the same time the business retained its focus on effective client retention. The R12 billion in new asset payouts also confirmed that Nedbank Business Banking remained open for business and provided support to businesses even in these challenging economic times. 
Nedbank Business Banking services medium-sized businesses with an average annual turnover of R7,5 million to R400 million. Typically these businesses tend to be family-owned and geographically dispersed. As such, Nedbank Business Banking operates through a well-entrenched, decentralised, accountable business service model, which uniquely positions the business to deliver personalised relationship banking based on local knowledge and a deep understanding of clients’ businesses. Client service teams, comprising sales, service and credit specialists, are located in offices around the country, ensuring quick responses to client requests and early identification of risks and service opportunities. The client service teams are supported by product specialists who facilitate more complex client needs, including specialist finance, invoice discounting, transactional banking, card acquiring and asset management. 
Nedbank Retail serves the financial needs of all individuals (excluding high-net-worth clients) and small businesses with a turnover of up to R7,5 million to whom it offers a full spectrum of banking and assurance products and services. The Nedbank Retail product portfolio includes transactional accounts, home loans, motor finance [including Motor Finance Corporation (MFC)], card (both card-issuing and merchant-acquiring services), personal loans and investments. 
Nedbank Business Banking approved just under R6 million in enterprise development assistance to emerging black small and medium enterprises comprising training, business mentorship, entrepreneurial incubators and flexible lending structures. This supported the creation of 95 jobs with 310 entrepreneurs benefiting from easier access to finance and other developmental interventions. Nedbank Business Banking’s empowerment financing performance exceeded its targets in both primary categories of loans extended to black small and medium enterprises and emerging enterprises operating in the agricultural sector. |
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Service levels remained a top priority for the business. An extensive
internal campaign to raise awareness of the importance of service
excellence and to create accountability for service delivery with
every employee resulted in client service ratings, including client
loyalty, reaching the best levels in six years. This demonstrates
Nedbank Business Banking’s understanding of its clients and its
ability to build enduring relationships through the lifecycle of clients’ businesses. | |||||||||||||||||||||||||||||||||||||||||||||||||
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In recognition of the vital role that its people play in its continued
success, Nedbank Business Banking continued to refine and embed
worldclass people practices – from recruitment and onboarding to
ongoing talent management – all intended to enhance the business’ cultural sustainability by empowering and equipping employees
to perform at their best. Focus was placed on the coaching and
mentoring aspects of people development with a large proportion
of managers undergoing training aimed at equipping them to coach
those who report to them effectively. The continued improvement in
the results of Nedbank Group staff surveys showed that these efforts
are contributing towards a positive shift in staff satisfaction and a
more cohesive, empowered and high-performance organisational
culture.
In an effort to help overcome the ongoing shortage of skills within the SA banking industry and contribute to social sustainability Nedbank Business Banking launched its talent academy with the aim of building a continuous pipeline of sales- and credit-ready employees. This formally registered sales and credit learnership programme is an industry first and will see the ongoing deployment of qualified training academy ‘graduates’ into the business. FINANCIAL REVIEW
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Nedbank Business Banking continued to generate a high ROE of
26,4% (2009: 26,6%) and strong economic profit of R382 million
(2009: R563 million), delivering consistently high returns for the
sixth successive year. This was achieved despite the R247 million
post-tax lower endowment earnings in 2010, both from the
environment of lower interest rates and the balance sheet efficiency
exercise undertaken during 2009 and 2010 that reduced capital
utilisation by R1,1 billion in the cluster for 2010, but strengthened
Nedbank Group ratios. Headline earnings, when aligning the
capital base and interest rates to the 2009 capital ratio and rates
respectively, declined by 4,4%. The cluster’s focus on deepening its product cross-sell of transactional products has yielded good results with fees and commission earnings up 10,8%. Following two years of cost growth below 3,0%, costs in 2010 grew by 10,3% as a result of investments to unlock growth plans. Actual advances growth, at 1,3%, remained muted despite R12 billion in asset payouts as clients deferred expansion plans and moderated inventory levels. The decentralised, accountable business model and localised client service teams contributed to net new primary-client acquisition, which was up 35% on 2009, as well as to the improvement in the credit loss ratio to 0,40% (December 2009: 0,52%). The improvement in the credit loss ratio is once again evidence of the continued effectiveness of risk management practices within the cluster over the past six years. The sustainability of Nedbank Business Banking is demonstrated by the R3 billion in cumulative economic profit generated between 2005 and 2010 on R3,7 billion of average capital while continuing to invest in staff, clients and communities. NEDBANK RETAILOver the past 15 years Nedbank Group has not continuously invested in building a client franchise for the long term with a consistent, cohesive strategy aligned with demographic trends. This is evidenced by the low share of mass market clients (1,1 million versus the more than 4 million of competitors) and lower primary-banked client profile with, consequently, lower participation in this attractive economic profit pool.Nedbank Group is also behind other banks in client experience and infrastructure, which are the most important factors in a client’s choice of bank. During the same period, however, Nedbank Retail strengthened its position in terms of client service, sustained and grew its presence in the personal loans, motor finance, card-acquiring and deposit businesses, and improved client service, and was able to increase its footprint by means of alternative outlets. The investment in people and culture is also an area of strength and source of distinctiveness for the business. STRATEGY A thorough strategic review of the market segments confirmed that retail is a growing market with another five million new entrants likely to enter the formal banking market in the next 10 years. It also showed that the middle class in South Africa is rising strongly, and the senior market remains attractive with another 1,4 million people entering this market in the next 10 years. The overall retail market economic profits are attractive and growing in the medium term. Taking into account the competitive landscape, technology trends, and its own internal context and core strengths, Nedbank Retail has defined its vision to ‘understand clients’ financial aspirations and provide clients with a choice of distinctive, client-centred banking experiences that strengthen the value of their relationship with Nedbank’. This aspiration is strongly underpinned by worldclass risk management practices. Recognising the powerful ‘virtuous circle’ of the individual who becomes an entrepreneur, builds a business, and is then also an employer, means more of the client’s banking activities can be captured as well as those of the client’s employees due to interacting with the key influencer. The ease and simplicity of banking for the client will be enhanced by servicing the individual and business as one. In Nedbank Retail the influencers in households, their needs, and how they wish to be banked will all be considered – whether they are at an entry level or in a more affluent position – with offerings that service the needs of the client and can be easily concluded by the influencer, eg a pension plan for a domestic worker or first savings account for a child. At the same time Nedbank Retail will leverage its existing strong product lines to have relevant bundled offerings that are integrated into the way clients wish to shop. This will mean offering a choice of opening hours and channels (ie branches, outlets, contact centres and mobile and online channels). In particular, Nedbank Retail will focus on extending its presence within attractive growth segments, namely youth, entry-level banking and small business, while rebuilding its historic strength in the middle market. The strong wholesale franchise will be harnessed to access employees of companies through a differentiated Nedbank@Work offering. This strategy has been translated into a comprehensive blueprint plan, comprising 12 step change initiatives to be implemented over and above the ‘business as usual’ activities. These initiatives include developing distinctive value propositions with the entire organisation aligned to delivering these as well as repositioning the home loans business, winning in the cellphone sphere, capturing cost efficiencies and simplifying the information technology platforms and processes. |
| This is a shift from the previous product focus to a client-centred
and integrated business with relevant offerings to distinctive
markets. As a consequence of this new strategic direction,
Nedbank Retail has been reorganised into four complementary line
businesses, namely Consumer Banking, Retail Relationship Banking
(a combination of small-business services and private banking),
Card and Secured Lending, with strong shared functional lines of
accountability, including risk, compliance, finance, strategy and technology. Nedbank Wealth will be the singular offering for high-net-
worth clients. The cohesive strategy and three fundamental imperatives of worldclass risk management practices; consistent investment in clients through their life stages; and strong alignment of product, channel and client insights to deliver a choice of distinctive, client-centred experiences, should deliver the desired results. Importantly, the fundamental, sustainable transformation of Nedbank Retail’s client franchise is a medium- to long-term journey, requiring consistent, aligned execution of the identified strategic initiatives, while also seeking to deliver growth and a shareholder return above the cost of capital in four years based on the current economic outlook. While it represents a significant opportunity, the sustainable turnaround of Nedbank Retail remains challenging in the short term, as R16,6 billion of Nedbank Group’s capital is allocated to the cluster and in the five years to 2010 this cluster has generated R1,6 billion of cumulative economic losses. This is a challenging situation that will take time to overcome. REVIEW OF THE YEAR Nedbank Retail has been stabilised through the rebuilding and strengthening of the leadership team and addressing the secured-lending impairment challenges. The business is now well positioned for a sustainable turnaround following a comprehensive strategic review and initial investments into strengthening the clients’ experience and access to banking. Focus has been on growing client numbers across the full spectrum and deepening relationships with them through their life stages. In 2010 Nedbank Retail was able to attract almost 100 000 new primary clients, 7,4% more than in the previous year, with higher average revenue per client. |
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The innovative M-PESA cellphone offering, launched jointly with
Vodacom in September 2010, complements the Mzansi offering and
has already attracted over 65 000 registered users. The Nedbank Savvy offering is another example of a distinctive client-centred innovation, primarily for the youth market and based on deep client insights. Since its launch in September 2010 some 30 000 Savvy Accounts have been opened. The Nedbank Savvy campaign was supported by a total realignment of internal processes, product and pricing to develop a bundled, multichannel offering that ensures real client benefits and an enhanced purchasing experience. The Savvy marketing campaign has been very successful in repositioning the Nedbank brand and is one that Nedbank Retail can build on in future years. Significant investment was made to expand the group’s distribution footprint with an additional 409 ATMs, 17 branches, 13 personal loans branches and 70 kiosks as well as 69 outlets in retailers. Altogether 35% of personal loans branches now offer transactional banking and 37% have ATMs, emphasising a more integrated offering within the existing footprint. The extended opening hours piloted during December 2010 received positive feedback from both staff and clients. This is an opportunity to support the way Nedbank clients live, work and play in their respective communities. With enhanced investments of R330 million in 2010, resulting in 20% more outlets, extended branch hours and cellphone innovations as well as 650 more frontline staffmembers, clients will find it increasingly convenient, easy and affordable to bank through their channel and at a time of their choice. The positive effect of ongoing efforts in enhancing service levels are demonstrated by the improved ratings received by Nedbank Retail in the Ask Africa Orange Index, the CMAT ™ assessment and a recent independent banking industry study of key client experience scores. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nedbank Retail’s employees remain key to the realisation of the
business’ vision and objectives, and the cluster’s investment in its
people has continued over the past year. A number of initiatives have
helped to strengthen the talent pool and enable the development
of individuals and teams that have the skills and knowledge to take
the business forward. Staff satisfaction scores, while still high at
77,8%, dropped by 1,5% on 2009, and the focus is now on ensuring
that all staffmembers have the necessary context and insights to
appreciate the strategic direction of the journey ahead. More than
2 700 Nedbank Retail employees have already been exposed to the
detailed turnaround strategy and understand what it means for them.
Feedback has been overwhelmingly positive, with staff displaying great
enthusiasm and appreciation for the part they can play as Nedbank
Retail charts a new path to sustainable, profitable growth. With impairments representing the primary impact on Nedbank Retail’s overall performance, particular focus has been placed on addressing this challenge. A combination of low client numbers and transaction volumes, high levels of consumer indebtedness, and the slow recovery in the property market has meant that the transactional banking side of the business has not been able to counterbalance these high levels of impairments through non-interest-revenue (NIR) generation and higher funding spread from savings accounts. That said, efforts at addressing the impairment challenge have gained traction, particularly given the recent improvements in the card receivables book profile, improvements in home loans early arrears, and gradual reduction in the defaulted book in the second half of 2010 (June 2009: 12,0%/December 2009: 12,7%/June 2010: 12,4%/December 2010: 10,5%). Through appropriate restructures, Nedbank Retail has kept over 6 900 distressed households in their homes and provided debt counselling to 46 000 individuals, while conducting free seminars for small and medium enterprises to help them with basic business skills. To reduce the defaulted advances, particularly in home loans, proactively Nedbank Retail undertook a number of actions in 2010 aimed at addressing the elevated levels of impairments, particularly in home loans. These included:
FINANCIAL REVIEW
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Rather than viewing sustainability as a destination, Nedbank Group sees it as an ongoing journey; one that involves a demonstrable commitment to empowering others to undertake their own journey towards a better future. This philosophy lies at the heart of the group’s ‘Caring for our Communities and Saving our World’ initiative – a comprehensive community education programme that packages the many sustainability lessons learned by the bank and presents them to community members in a way that allows them to harness the power of sustainable thinking and action for their own benefit. WHAT IS CARING FOR COMMUNITIES? More than merely a consumer education programme, the initiative seeks to entrench sustainable thinking by demonstrating the value and interdependence of environmental, social, cultural and economic sustainability. The programme follows a two-pronged approach, engaging with adult community members via a two-day intensive workshop, and educating grade 6 and 7 learners from the same community about the basics of sustainability via a fun four-hour workshop. BRINGING SUSTAINABILITY TO LIFE The knowledge provided to both groups is brought to life at the end of the programme by involving all attendees in an Eco-School project build day. These projects are a collaboration between Nedbank and the Wildlife and Environmental Society of South Africa and allow Nedbank volunteers, community members, learners, and educators to work together to construct a vegetable tunnel, solar cooker, rainwater harvesting tank, or indigenous garden, depending on the identified community need. DELIVERING LASTING RESULTS To date Nedbank Group has undertaken Eco-School projects in 23 schools, nine of which also participated in the consumer education programme, which translates into 600 learners and 200 adults who have learned the value of environmental, economic, cultural and social sustainability. In 2010 altogether 625 Nedbank staffmembers volunteered on these projects, and their efforts helped community members to construct:
Eco-School projects – vegetable tunnel. 
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