Definitions

ACCOUNTING AND TAXATION RISK

The risk that the integrity of the financial statements and related information cannot be upheld.

ASSETS UNDER MANAGEMENT

Assets managed by Nedbank Group, which are beneficially owned by clients and are therefore not reported on the consolidated balance sheet. The service provided in respect of these assets is discretionary portfolio management on behalf of clients.

ASSURANCE RISK

The failure to reinsure with other acceptable quality insurers, beyond the level of risk appetite (excessive risk) mandated by the board of directors, risks underwritten by the short-term insurance and/or life assurance activities of the group, including catastrophe insurance (ie more than one insurance claim on the group arising from the same event), leading to disproportionate losses to the group.

ATM

Automated teller machine. A cash machine or free-standing device dispensing cash, which may also provide other information or services to clients who have a card and a personal identification number, password or other personal identification.

BASEL CAPITAL ACCORD (BASEL II)

The new Basel Capital Accord (Basel II) of the Bank for International Settlements is an improved capital adequacy framework accomplished by closely aligning banks’ capital requirements with improved modern risk management practices and sophisticated risk assessment capabilities. It further ensures the risk sensitivity of the minimum capital requirements by including supervisory reviews and market discipline through enhanced disclosure.

BEE

Black economic empowerment, as defined in the Financial Sector Charter. It means the economic empowerment of all black people (Africans, coloureds and Indians who are South African citizens), including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies.

BEE TRANSACTIONS

Nedbank Group’s BEE transaction, implemented in August 2005, which focused primarily on the issuing of shares to BEE partners for the purposes of BEE, equating to approximately 9,33% (41 268 130 shares) of total share capital and equating to black ownership of 11,5% of the value of the Nedbank Group’s South African businesses; and

Nedbank Namibia’s BEE transaction, announced in September 2006, which focused primarily on the issuing of shares to BEE partners and affinity groups for the purpose of BEE in Namibia, equating to approximately 0,15% (665 442 shares) of the total share capital of Nedbank Group Limited and equating to black ownership of 11,13% of the value of NedNamibia Holdings Limited, Nedbank Group’s Namibian business.

BRANCH-IN-A-BOX

This is a cost-effective, quick-deployment, relocatable, prefabricated bank branch. It uses modern, broadband satellite technology for communication. This makes it effective for speedy access and hence client convenience, testing new markets, especially in areas with limited infrastructure such as urban townships and deep rural areas where banking services are not readily available. A branch-in-a-box provides full transaction facilities to clients, including cash withdrawals and deposits, sales and service.

CAPITAL ADEQUACY RATIO (CAR)

The capital adequacy of South African banks is measured in terms of the South African Banks Act requirements. The ratio is calculated by dividing the primary (Tier 1), secondary (Tier 2) and tertiary
(Tier 3) capital by the risk-weighted assets. The minimum South African total capital adequacy ratio for banks is currently 10% of risk-weighted assets. Non-South African banks within the group have similar requirements.

Group capital adequacy
Group capital adequacy is the ratio of group net qualifying capital and reserve funds to total group risk-weighted assets as calculated in accordance with the regulations relating to banks.

Primary (Tier 1) capital
Primary capital consists of issued ordinary share capital and perpetual preference share capital, retained earnings and reserves. This amount is then reduced by the portion of capital that is allocated to trading activities.

Secondary (Tier 2) capital
Secondary capital is made up of subordinated debt, portfolio impairments and 50% of any revaluation reserves.

Tertiary (Tier 3) capital
Tertiary capital means:

accrued current-year uncapitalised net profits derived from trading activities; and
capital obtained by way of unsecured subordinated loans, subject to such conditions as may be prescribed.

Regulatory capital
The total of primary, secondary and tertiary capital.

CAPITAL RISK

The risk that the group will become unable to absorb losses, maintain public confidence and support the competitive growth of the business. This entails ensuring that opportunities can be acted on timeously while solvency is never threatened.

CASH FLOW

Financing activities
Activities that result in changes to the capital structure of the group.

Investment activities
Activities relating to the acquisition, holding and disposal of property and equipment and long-term investments.

Operating activities
Activities that are not financing or investing activities and arise from the operations conducted by the group.

CLOSING PRICE/TANGIBLE NET ASSET VALUE PER SHARE

The closing share price on the JSE at year-end divided by the tangible net asset value per share.

COMPETITION COMMISSION INQUIRY

This is a process conducted by the Competition Commission of South Africa to inquire into competition in the banking sector, in consequence of the findings in a 2004 report by a task group chaired by Dr Hans Falkena and a research report prepared for the commission in 2006 by FEASibility (Pty) Limited, and due to continued public concern regarding the level of charges made by banks and other providers of payment services to consumers.The inquiry will enable the commission to decide an appropriate course of action, which may include a formal investigation and/or recommendations for legislation and policy. Hearings took place in November 2006, and a second set of public hearings are due to be held in March and April 2007, with the final recommendations expected to be made by the commission in June 2007.

COMPLIANCE RISK
The risk to earnings and capital arising from violations of, or non-compliance with, laws, rules, regulations, internal group policies and authority levels, prescribed practices and ethical standards.

COMPOUND ANNUAL GROWTH RATE (CAGR)

The year-on-year growth rate of an amount over a specified period of time.

CREDIT RISK

The risk arising from the failure of borrowers and counterparties to meet their repayment commitments (including accumulated interest). Credit concentration risk arises on a portfolio basis where the bank has significant aggregated exposures to particular credit segments or portfolios.

CURRENCY TRANSLATION RISK

A potential negative impact on earnings and/or equity of the rand-denominated value of offshore investments and their earnings due to adverse changes in exchange rates.

DEFERRED TAXATION ASSETS

Deferred taxation assets are the amounts of income taxation recoverable in future years in respect of:

deductible temporary differences arising due to differences between the taxation and accounting treatment of transactions; and
the carry-forward of unused taxation losses.

DEFERRED TAXATION LIABILITIES

Deferred taxation liabilities are the amounts of income taxation payable in future years due to differences between the taxation and accounting treatment of transactions.

DIRECT TAXATION

Direct taxation includes normal taxation on income, capital gains tax (CGT) and secondary tax on companies (STC).

DIVIDEND/DISTRIBUTION COVER

Headline earnings per share divided by dividends/distribution declared per share.

DIVIDEND/DISTRIBUTION DECLARED PER SHARE

Dividend/Distribution per share is the actual interim dividend paid/capitalisation award issued and the final dividend/capitalisation award declared for the year under consideration, expressed in cents.

DIVIDEND/DISTRIBUTION PAID/CAPITALISED PER SHARE

Dividend/Distribution paid/capitalised per share is the actual final dividend paid/capitalisation award issued for the prior year and the interim dividend paid/capitalisation award issued for the year under consideration, expressed in cents.

DIVIDEND YIELD

Dividend/Capitalisation award declared per ordinary share as a percentage of the closing share price of ordinary shares.

EARNINGS PER SHARE (EPS)

Basic earnings basis
Income attributable to equity holders for the year divided by the weighted average number of ordinary shares in issue (net of shares held by group entities) during the year.

Headline earnings basis
Headline earnings divided by the weighted average number of shares in issue (net of shares held by group entities) during the year.

Fully diluted basis
The relevant earnings figure is adjusted for the assumed adjustments to income that would have been earned on shares issued through dilutive instruments. The resultant earnings are divided by the weighted average number of ordinary shares and other dilutive instruments (ie potential ordinary shares) outstanding at the year-end, assuming they had been in issue for the year.

EARNINGS YIELD

Headline earnings per share as a percentage of the closing price of ordinary shares.

ECONOMIC CAPITAL (ECAP)

Economic capital is the quantification of risk and an internal assessment of the amount of capital required to protect the group against economic losses with a desired level of confidence (solvency standard or default probability) over a one-year time horizon. In other words, it is the magnitude of economic losses the group could withstand while remaining solvent.

ECONOMIC PROFIT (EP)

Economic profit is an absolute measure of shareholder value creation, adjusting profit by the risks associated with the specific business.

EFFECTIVE TAXATION RATE

The direct taxation charge in the income statement, excluding taxation relating to non-trading and capital items, as a percentage of profit before taxation.

EFFICIENCY RATIO (COST-TO-INCOME RATIO)

Total operating expenses (excluding indirect taxation) as a percentage of total income from normal operations (net interest income plus non-interest revenue).

ENTERPRISE-WIDE RISK

All risk types and categories across all business lines, functions, geographical locations and legal entities of the group, collectively known as its risk universe.

ENTERPRISE-WIDE RISK MANAGEMENT FRAMEWORK (ERMF)

The risk framework developed by Nedbank Group and applied to all of its divisions to monitor and manage risk. Further details are included in the risk management section of this annual report.

EXPENSES PER EMPLOYEE

Operating expenses for the year divided by the number of employees at the year-end.

EXPENSES TO AVERAGE ASSETS

Operating expenses for the year divided by average total assets.

EXPOSURE AT DEFAULT (EAD)

Quantification of the exposure at risk in case of default.

EYETHU

Eyethu means ‘ours’ in the Nguni languages, and epitomises the inclusive and uniquely South African identity of the BEE transaction.

FAIS

The Financial Advisory and Intermediary Services Act, 37 of 2002. FAIS aims to regulate a wide range of financial advisory and intermediary services to clients. All financial advisers who are authorised to operate under a FAIS licence have to adhere to certain standards and processes.

FICA

The Financial Intelligence Centre Act, 38 of 2001. FICA is aimed at combating money laundering in South Africa. The group’s compliance function has developed processes and procedures across the business to ensure that clients are properly identified, suspicious transactions are reported, adequate records are maintained and employees are trained in respect of FICA.

FINANCIAL SECTOR CHARTER (FSC)

A transformation charter, as contemplated in the broad-based BEE legislation, that was voluntarily developed by the financial sector and constitutes a framework and establishes the principles on which BEE will be implemented in the financial sector.

FOREIGN CURRENCY TRANSLATION GAINS/LOSSES

The results and assets/liabilities of all foreign entities controlled by the group that have a rand-functional currency are translated at the closing exchange rate and the differences arising are recognised in the income statement as foreign exchange translation gains/losses.

FTSE/JSE AFRICA ALL-SHARE INDEX

This comprises the top 99% of eligible listed companies on the JSE ranked by full market capitalisation.

FTSE/JSE AFRICA BANKS INDEX

This comprises all companies that are constituents of both the FTSE/JSE Africa All-share Index and the banking sector.

GROSS DOMESTIC PRODUCT (GDP)

The total market value of the goods and services produced by a country’s economy during a specific period of time.

HEADLINE EARNINGS

Headline earnings do not measure maintainable earnings. For purposes of definition and calculation the guidance given on headline earnings, as issued by the South African Institute of Chartered Accountants in circular 07/02 of December 2002, has been used. Headline earnings consist of the earnings attributable to ordinary shareholders, excluding non-trading and capital items.

HEADLINE EARNINGS PER EMPLOYEE

Headline earnings divided by the number of employees in service at the year-end.

HEDGE

A risk management technique used to insulate financial results from market, interest rate or foreign currency exchange risk (exposure) arising from normal banking operations. The elimination or reduction of such exposure is accomplished by establishing offsetting positions. For example, assets denominated in foreign currencies can be offset against liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options or foreign exchange contracts.

IFRS

International Financial Reporting Standards, as adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Reporting Interpretations Committee (IFRIC) of the IASB. Nedbank Group’s consolidated financial statements are prepared in accordance with IFRS.

IMPAIRMENTS CHARGE TO AVERAGE ADVANCES

Impairments charge on loans and advances for the year divided by average loans and advances. Also known as the credit loss ratio or impairment ratio.

IMPAIRMENT OF LOANS AND ADVANCES

Impairment of loans and advances arises where there is objective evidence that the group will not be able to collect an amount due. The impairment is the difference between the carrying amount and the estimated recoverable amount.

INDIRECT TAXATION

Value-added tax (VAT) and other taxes, levies and duties paid to government, excluding direct taxation.

INSURANCE RISK

The risk of no or inadequate insurance cover for insurable business risks.

INFORMATION TECHNOLOGY RISK

The risk resulting from system malfunction and unavailability, security breaches and inadequate systems investment, development, implementation, support and capacity (refer to the ‘Operational risk’ definition).

INTEREST RATE RISK

The potential negative impact on interest income due to adverse changes in interest rates caused by different repricing behaviour, client behaviour and/or repricing bases of the banking book assets and liabilities.

INVESTMENT RISK

The risk of a decline in the net realisable value of investment assets arising from adverse movements in market prices or factors specific to an investment itself (eg reputation and quality of management). Market prices are independent variables, which include interest rates, property values, exchange rates, equity and commodity prices.

JAWS’ RATIO

The difference between the rate of growth in total income from normal operations and the rate of total expense growth.

JIBAR

Johannesburg Interbank Agreement Rate, which is the rate that South African banks charge each other for wholesale money.

JSE

JSE Limited (previously JSE Securities Exchange South Africa).

KING II (THE CODE)

The King Report on Corporate Governance 2002, which sets out principles of good corporate governance for South African companies and organisations.

LIBOR

London Interbank Offered Rate, which is the rate that banks participating in the London money market offer each other for short-term deposits.

LIQUIDITY RISK

The risk arising from the inability of a bank to accommodate decreases in liabilities or to fund increases in assets in full, in the right currency and at the right time and place. If a bank is seen to be illiquid, it cannot obtain sufficient funds either by increasing liabilities or by converting assets promptly and at a reasonable cost.

LOSS GIVEN DEFAULT (LGD)

Estimate of the amount of the exposure at default that will be lost (ie not recovered). Also includes other economic costs, eg legal costs.

MARKET CAPITALISATION

The group’s closing share price multiplied by the number of shares in issue, including shares held by group entities.

MARKET RISK

Market risk is the potential impact on earnings of unfavourable changes in foreign exchange rates, interest rates, prices, market volatilities and liquidity. Market risk includes trading risk and, in terms of the banking book, derivative instruments used for hedging risk in non-trading portfolios, investment risk, translation risk and interest rate risk. Investment risk arises from changes in the fair value of investments, and includes private equity and property as well as strategic investments.

MARK-TO-MARKET

Valuation of financial instruments using prevailing market prices or fair value as of the balance sheet date.

MOBILE BOOTKITS

These are mobile sales and service kits that are easily transportable and can be quickly deployed in areas without traditional branch infrastructure.

MZANSI ACCOUNTS

The Mzansi Account is a card-based, entry-level savings/transmission product with a basic set of features and simplified pricing structure. The major banks worked collectively to provide a standard for new bank accounts that offer affordable and accessible products to previously unbanked individuals. Each bank sets its own pricing, but collaboration between the banks allows holders of Mzansi Accounts to make use of any of the participating banks’ ATMs at no additional cost.

NATIONAL CREDIT ACT (NCA)

The National Credit Act, 34 of 2005, that became effective on 1 June 2006, although the provisions of the act are implemented in stages commencing on 1 June 2006, 1 September 2006 and 1 June 2007. The NCA sets a framework for every type of credit transaction and replaces the Usury Act, 1968 (governing moneylending transactions) and the Credit Agreements Act,1980 (governing instalment sale or hire purchase agreements).

NCDs

Negotiable certificates of deposit.

NET ASSET VALUE PER SHARE

Total equity attributable to equity holders of the parent divided by the number of shares in issue, excluding shares held by group entities.

NET INTEREST INCOME TO AVERAGE INTEREST-EARNING BANKING ASSETS (NET INTEREST MARGIN)

Net interest income expressed as a percentage of average net interest-earning banking assets. Net interest-earning banking assets are used, as these closely resemble the quantum of assets earning income that is included in net margin.

NEW BUSINESS RISK

New product and business development that reaches the client distribution channel without the appropriate signoff for compliance with regulatory, legal, tax, accounting, pricing, strategic and any other relevant risk management requirements.

NON-INTEREST REVENUE TO TOTAL INCOME

Income from normal operations, excluding net interest, as a percentage of total income from normal operations.

NON-PERFORMING ADVANCES (NPAS)

Loans and advances are classified as non-performing when:

they are categorised as ‘doubtful’ and ‘loss’ in accordance with the bank regulatory credit risk classification system;
a counterparty is under judicial management or declared insolvent; or
management is doubtful about the collection of future cash flows.

NON-TRADING AND CAPITAL ITEMS

These comprise the following:

surpluses and losses on disposal of long-term investments, subsidiaries, joint ventures and associates;
impairment of goodwill arising on acquisition of subsidiaries, joint ventures and associates;
surpluses and losses on the sale or termination of an operation;
capital cost of fundamental reorganisation or restructuring that has a material effect on the nature and focus of the operations of the reporting entities;
impairment of investments, property and equipment, computer software and capitalised development costs; and
other items of a capital nature.

NUMBER OF SHARES TRADED

Total number of ordinary shares traded on the JSE during the year.

NUMBER OF SHARES TRADED TO WEIGHTED AVERAGE NUMBER OF SHARES

Number of shares traded for the year as a percentage of the weighted average number of shares in issue during the year.

OFF-BALANCE-SHEET ASSETS

Assets managed on behalf of third parties on a fully discretionary basis.

OPERATIONAL RISK

The risk of loss resulting from inadequate or failed internal processes and systems, incompetent, people or from external events. This definition includes legal risk.

ORDINARY SHAREHOLDERS’ FUNDS

Total equity attributable to equity holders of the parent.

PEOPLE RISK

People risk is defined as possible inadequacies in human capital. This may stem from inadequate skills or knowledge, no clear consequences of not meeting performance standards, lack of alignment with strategy or a reward system that fails to motivate properly.

PERFORMING ADVANCES

Loans and advances on which all instalments have been paid to date.

PRICE/EARNINGS RATIO

The closing price of ordinary shares divided by headline earnings per share.

PRICE TO BOOK

The group’s closing share price relative to the net asset value.

PRIMARY CLIENT

In the case of an individual, a client is classified as a primary client where a form of salary, wage, annuity or pension is paid into either a current account or a savings account.

PROBABILITY OF DEFAULT (PD)

Quantification of the likelihood of a borrower being unable to repay.

PROPERTIES IN POSSESSION (PIPS)

Properties acquired through payment defaults on loans secured by properties.

REPUTATIONAL RISK

The risk that an activity, action or stance taken by Nedbank Group or its officials will impair its image in the community or the long-term trust placed in the organisation by its stakeholders, and that this will result in the loss of business and/or legal action.

RETURN ON ORDINARY SHAREHOLDERS’ EQUITY (ROE)

Headline earnings expressed as a percentage of average equity attributable to equity holders of the parent.

RETURN ON RISK-WEIGHTED ASSETS

Headline earnings for the year divided by the average risk-weighted assets.

RETURN ON TOTAL ASSETS

Headline earnings expressed as a percentage of average total assets.

REVENUE PER EMPLOYEE

Headline earnings divided by the number of employees at year-end.

RISK-ADJUSTED PERFORMANCE MEASUREMENT (RAPM)

There are two main measures implemented through Nedbank Group’s RAPM framework: risk-adjusted return on capital (RAROC), which expresses the risk-adjusted profit with respect to the capital necessary to generate the revenue, giving a relative measure of performance; and economic profit (EP), an absolute measure of shareholder value creation.

RISK-ADJUSTED RETURN ON CAPITAL (RAROC)

Profit adjusted for the risk associated with the particular business, expressed as a percentage of the capital necessary to generate the revenue, giving a relative measure of performance.

RISK APPETITE

Risk appetite is a tool to express the group’s risk tolerance quantitatively and an articulation of the level of risk Nedbank Group is willing to take in pursuit of its strategic goals.

RISK-WEIGHTED ASSETS

Risk-weighted assets are determined by applying risk weights to balance sheet assets and off-balance-sheet financial instruments according to the relative credit risk of the counterparty. The risk-weighting for each balance sheet asset and off-balance-sheet financial instrument is regulated by the South African Banks Act, 94 of 1990 (as amended), or by regulations in the respective countries of the other banking licences.

SEGMENTAL REPORTING

Operational segment
A distinguishable component of the group, based on the market on which each business area focuses, that is subject to risks and returns that are different from those of other operating segments.

Geographical segment
A distinguishable component of the group that is engaged in providing services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments.

SHARE-BASED PAYMENTS

Transfers of a company’s equity instruments by its shareholders to parties that have supplied goods or services to the company (including employees).

SHARES HELD BY GROUP ENTITIES (TREASURY SHARES)

Ordinary shares in Nedbank Group Limited acquired/held by group companies, including ordinary shares held in share trusts as part of the BEE transactions.

SOCIAL AND ENVIRONMENTAL RISKS

The risks related to non-achievement of a balanced and integrated financial, social and environmental performance (referred to as the ’triple bottom line’), resulting in reputational impairment to the group and ultimately loss of business and profitability

SST

Self-service terminal, similar to an ATM, but designed for non-cash transactions.

STRATEGIC RISK

Strategic risk relates to the consequences that occur when the environment, in which decisions that are hard to implement quickly and reverse, has an unattractive or adverse impact. Strategic risk ultimately has two elements: doing the right thing at the right time; and doing it well. Strategic risk includes the risk that the group’s strategy may be inappropriate to support sustainable future growth.

TANGIBLE NET ASSET VALUE PER SHARE

Total equity attributable to equity holders, less goodwill, computer software and capitalised development costs divided by the number of shares in issue, excluding shares held by group entities.

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

Ordinary share capital, share premium and reserves.

TOTAL INCOME FROM NORMAL OPERATIONS

Net interest income plus non-interest revenue plus foreign currency translation gains/losses.

TRADED PRICE

The last traded price on the JSE on the last business day of the year, also referred to as the closing price.

VALUE-AT-RISK (VAR)

A generally accepted risk measurement concept that uses statistical models to estimate the distribution of possible returns on a portfolio at a given level of confidence.

VALUE OF SHARES TRADED

Total value of ordinary shares traded on the JSE during the year.

VALUE TRADED TO MARKET CAPITALISATION

Value of shares traded as a percentage of market capitalisation at the end of the year.

WEIGHTED AVERAGE NUMBER OF SHARES

The number of shares in issue increased by shares issued during the year, weighted on a time basis for the period during which they participated in the income of the group, less shares held by group entities, weighted on a time basis for the period during which the entities held these shares. These definitions should be read in conjunction with the group’s accounting policies, which also clarify certain terms used.

Term used in this annual report		International (UK or US) equivalent or brief description
Advances		Lendings
Capital allowances		Taxation term equivalent to US taxation depreciation allowances
Depreciation		Amortisation
Distributable reserve		Profit and loss account reserve
Fair value (if listed security)		Market value
Financial statements		Accounts
Finance lease		Capital lease
Freehold		Ownership with absolute rights in perpetuity
Gain		Surplus or profit
Impairment of advances		Allowances
Income		Profit
Income statement		Profit and loss account
Interest-bearing borrowings		Long-term debt or loan capital
Interest expense		Interest payable
Interest income		Interest receivable
Issued		Allotted
Net asset value		Book value
Ordinary shares, issued and fully paid		Called-up share capital
Profit for the year		Attributable profit
Property and equipment		Fixed assets
Retained earnings		Profit and loss account reserve
Secondary tax on companies		No direct international equivalent. Tax paid on net difference between dividends received and paid.
Share capital		Ordinary shares, capital stock or common stock, issued and fully paid.
Share premium		Additional paidup capital or paid-in surplus
Shares in issue		Shares outstanding
Writeoffs		Chargeoffs


This page was updated on 19 August, 2008	Return to top