Introduction

The performance of Nedbank Group over the past year should be evaluated in the context of one of the toughest periods experienced by the banking sector locally and globally in many decades.

While the performance is down on 2008, the results are in line with management’s expectations and the guidance provided to the market in the third quarter trading update. It is therefore pleasing to report that Nedbank Group has remained solidly profitable, strengthened its capital position and, importantly, continued to increase tangible net asset value.

The global and domestic banking conditions, as well as Nedbank Group’s response to the challenges over the past year, have been outlined in the Chairman’s and Chief Executive’s Reports respectively.

Financial targets

The group achieved three of its seven medium-to-long-term financial targets, notably the capital adequacy ratio, economic capital and dividend cover levels.

The return on ordinary shareholders’ equity (ROE) decreased as a result of increasing retail impairment levels and the negative impact from lower endowment earnings that reduced the return on assets, together with strengthened capital levels as shareholders’ equity growth far exceeded growth in total assets.

Reporting changes

Nedbank Business Banking is a high-growth area for the group and because of its strategic importance was made a separate cluster in 2009, having historically been a division of Nedbank Corporate.

The acquisition of the remaining shares in Nedgroup Life Assurance Company (NedLife), BoE Private Clients and Fairbairn Private Bank (the previous joint ventures with Old Mutual) has been positive for the group. These assets, previously accounted for as associates, together with other insurance and wealth management businesses, led to the creation of a Bancassurance and Wealth business cluster in August 2009. This cluster will report separately from 2010, and its seven-month performance in 2009 is included in Nedbank Retail.

Imperial Bank is reported on separately for the last time in the current period, as the remaining 49,9% shareholding was acquired by the group and the transaction approved in February 2010. This business will be fully consolidated and integrated into the Nedbank Retail, Nedbank Business Banking, Nedbank Corporate and Nedbank Bancassurance and Wealth clusters respectively.

During the year the group commenced a project known as the Financial Control Initiative (FCI), which forms part of the group initiatives of Old Mutual plc. FCI aims to promote a sound financial reporting culture through an effectively managed financial risk and control environment. FCI enables risk management to become part of everyone’s role and purpose, with staff and managers able to explain and show on a consistent basis how they effectively use controls in their business to mitigate the risk of material misstatement of financial information. This initiative fulfils regulatory and governance requirements around financial reporting and controls as required by King III and the new Companies Act, among others.

Financial reporting

Nedbank Group continues to strive for best-practice communication with the investor community. This was acknowledged when the group was ranked as the overall winner and first in the banks/financial services category in the Investment Analysts Society Awards for best reporting and communication. The Nedbank Group Annual Report improved its ranking to third out of the top 100 companies listed on JSE Limited at Ernst & Young’s 2009 Excellence in Corporate Reporting Awards. This ranking is adjudicated by the accounting department of the University of Cape Town in conjunction with Ernst & Young.

Return on equity drivers
for the year ended 31 December
	2009		2008
Net interest income (NII)	16 306		16 170		NII/average interest-earning banking assets
Impairment of loans and advances	(6 634)		(4 822)		Impairments/average interest-earning banking assets
Non-interest revenue (NIR)	11 906		10 729		NIR/average interest-earning banking assets
Income from normal operations	21 578		22 077
Total operating expenses	(15 100)		(13 741)		Total expenses/average interest-earning banking assets
Share of profits of associates and joint	55		154		Associate income/average
ventures					interest-earning banking assets
Net profit before taxation	6 533		8 490
Indirect taxation	(438)		(374)
Direct taxation	(1 232)		(1 757)		1 – effective taxation rate
Net profit after taxation	4 863		6 359
Non-controlling interest	(586)		(594)		Income attributable to minorities
Headline earnings	4 277		5 765		Headline earnings
Daily average interest-earning  banking assets*	481 378		441 713
Daily average total assets*	522 234		483 419		Interest-earning banking assets/daily average total assets
Simple average total assets	568 863		527 940		Return on total assets
Simple average shareholders’ funds	37 281		32 553		Gearing
					ROE
					ROE (excluding goodwill)
* Average calculated on a 365/366-day basis.

Click to enlarge

Financial performance

Headline earnings decreased by 25,8% from R5 765 million to R4 277 million. Basic earnings declined by 24,7% to R4 826 million (2008: R6 410 million).

Diluted headline earnings per share (EPS) decreased by 29,8% from 1 401 cents to 983 cents. Diluted basic EPS declined by 28,8% from 1 558 cents to 1 109 cents. These results are in line with the guidance given in the third-quarter trading update.

A key feature of the year’s performance was the strengthening of the group’s capital ratios, which are now comfortably above our target ranges. The core Tier 1 capital adequacy ratio increased from 8,2% to 9,9%, the Tier 1 capital adequacy ratio from 9,6% to 11,5% and the total ratio from 12,4% to 14,9%.

The group’s ROE, excluding goodwill, decreased from 20,1% to 13,0%. ROE decreased from 17,7% to 11,5% for the year. These declines were driven primarily by increasing retail impairment levels and the negative impact from lower endowment earnings that reduced the return on assets, together with strengthened capital levels as shareholders’ equity growth far exceeded growth in total assets.

Strengthening the balance sheet remains a major focus and we continued to grow the net asset value (NAV) and tangible NAV per share.

An interim dividend of 210 cents per share and a final dividend of 230 cents per share were declared, maintaining the dividend cover at 2,29 times similar levels as last year.

The interest margin was compressed by 27 basis points to 3,39%, which was slightly better than the 30 to 35 basis points expected.

We saw the credit loss ratio peak in the first quarter at 167 basis points and decrease to 147 basis points for the year-end. Although interest rates decreased by 450 basis points during 2009, unemployment and the weak housing market exacerbated credit stress. Nedbank Retail’s credit quality deteriorated, with impairments worsening significantly, although the rate of new defaults slowed in the second half. Business banking and wholesale banking impairments ended the year at better levels than originally anticipated.

Preprovisioning operating profit, a measure that shows the underlying strength of the franchise before impairments, decreased by 1,6% to R12,1 billion. This shows the significance of the impact from the higher impairments and loss of endowment, but demonstrates the underlying strength of our business.

The NIR/expenses ratio is a new ratio we are tracking. A key focus for the group is to grow NIR as this is an important area where we lag our peers.

We have therefore set a medium-to-long-term target for NIR/expenses of greater than 85% and are using this target to ensure clusters focus on this measure.

The efficiency ratio deteriorated to 53,5%, mostly as a result of lower NII.

Assets under management grew by 11,0% to R93,6 billion, primarily through our domestic asset management business, which experienced strong net inflows of R7,2 billion on the back of good fund performance.

Strong growth in the value of new business supported growth of 40,5% in embedded value in Nedgroup Life, due to good growth in credit life and funeral products, as well as improved sales into the retail home loan base.

EP is a measure of earnings after deducting the cost of capital. The group has increased surplus capital through these challenging economic times even though it has been impacted by the higher impairments and lower interest rates. Overall this led to a small economic loss of R74 million.

The bank’s funding and liquidity levels have remained sound as a result of an ongoing focus on increasing and strengthening liquidity buffers, lengthening the funding profile, maintaining a low reliance on interbank, foreign and capital markets, as well as robust balance sheet management. A strong, broad-based deposit franchise also provides the group with diverse funding sources.

Key financial indicators
For the year ended 31 December	% change	2009	2008
Headline earnings (Rm)	(25,8)	4 277	5 765
Diluted headline EPS (cents)	(29,8)	983	1 401
Diluted basic EPS (cents)	(28,8)	1 109	1 558
Core Tier 1 capital adequacy* (%)		9,9	8,2
Tier 1 capital adequacy* (%)		11,5	9,6
Total Basel II capital adequacy* (%)		14,9	12,4
ROE (%)		11,5	17,7
ROE (excluding goodwill) (%)		13,0	20,1
Return on assets (ROA) (%)		0,75	1,09
NAV per share (cents)	6,8	9 100	8 522
Tangible NAV per share (cents)	3,1	7 398	7 179
Dividend per share (cents)	(29,0)	440	620
Margin (%)		3,39	3,66
Credit loss ratio (%)		1,47	1,17
Preprovisioning operating profit** (Rm)	(1,6)	12 143	12 344
NIR/expenses ratio (%)		78,8	78,1
Efficiency ratio (%)		53,5	51,1
Assets under management (Rm)	11,0	93 625	84 381
Life assurance embedded value*** (Rm)	40,5	795	566
Life assurance value of new business*** (Rm)	54,5	187	121
Headline economic (loss)/profit	(<100)	(74)	1 790

*	Including unappropriated profits.
**	Profit before taxation and impairments.
***	Prior to June 2009 still treated as associates.

Statement of comprehensive income

NII NII grew 0,8% to R16 306 million. With interest rate cuts of 450 basis points during 2009 and the resulting effect of lower endowment income, the group’s net interest margin decreased in line with expectations to 3,39% from 3,66% in 2008. The primary drivers of the change in margin were: Liability margin compression reflecting the higher cost of term funding. Lower endowment on capital and non-repricing transactional deposit accounts that are not of rate-sensitive. Quicker downward repricing of interest-earning assets, compared with interest-earning liabilities. These were partially offset by the repricing of asset margins in line with the group’s risk-based pricing policies.

NII – margin analysis             %   Rm           December 2008   3,66   16 170 Asset growth       1 452 Net endowment effect   (0,05)   (255) Liability price movement   (0,34)   (1 677) Current and savings accounts (endowment)   (0,21)   (1 029) Higher cost of general term funding   (0,05)   (248) Lag in repricing in term liabilities   (0,08)   (400) Asset price movement   0,10   450 Personal loans margin (lower risk assets)   (0,04)   (211) Increase due to risk-based pricing   0,14   661 Other   0,02   166 December 2009   3,39   16 306

Impairments charge on loans and advances

The credit loss ratio of 1,47% for 2009 (2008: 1,17%) showed signs of improvement after having peaked at 1,67% at 31 March 2009. This ratio is higher than the internal target range of 60 to 100 basis points. The wholesale ratios, although higher than in 2008, are within their through-the-cycle targets, while Retail remains challenging. The target ratio changed during the year, from the previous range of 55 – 85 basis points to 60 – 100 basis points. This is due to a reassessment of the ranges within each cluster and the projected change in mix between secured and unsecured products in Retail. Unsecured retail products tend to have higher credit loss ratios, resulting in an increase in Nedbank Group’s target credit loss ratio range.

The credit cycle has to date largely impacted consumers and smaller businesses, as reflected in the continued deterioration of retail credit loss ratios. High levels of unemployment, lower collateral values due to weak housing and vehicle markets, and delays in recoveries resulting from the debt counselling process have all played a part in the increase in defaulted advances in retail secured loans.

Credit loss ratio (%)	2009	2008
Nedbank Capital	0,26	0,06
Nedbank Corporate	0,24	0,12
Nedbank Business Banking	0,52	0,59
Nedbank Retail	3,08	2,47
Imperial Bank	1,97	1,71
Nedbank Group	1,47	1,17

Defaulted advances increased by 56,3% from R17 301 million to R27 045 million and represent 5,9% of total advances. Total impairment provisions increased by 24,7% from R7 859 million to R9 798 million. Although early arrears have improved for the last seven consecutive months of the year, defaulted advances have continued increasing, albeit at a slower rate.

NIR

NIR, including the consolidation of the Bancassurance and Wealth joint ventures, grew by 11,0% to R11 906 million (2008: R10 729 million). Like-for-like NIR increased by 6,1%, driven by good growth in commission and fee income and trading income, offset to an extent by fair-value gains, which dropped from R368 million in 2008 to R44 million. The drop in fair-value gains is mainly the result of the group reporting, in 2008, fair-value gains of R207 million from the mark-to-market of its own debt, which we mentioned were unlikely to be repeated and were highlighted as poor-quality income and not attributed to capital. In 2009 fair-value gains on the group’s debt amounted to R6 million.

Commission and fee income was 13,1% higher, largely from volume growth in retail transactional banking and increases in fees charged across the bank.

Trading income increased by 18,6% from R1 553 million in 2008 to R1 841 million in 2009, reflecting robust trading activity in treasury, investment banking and the global market businesses.

Private equity income remained broadly flat for the year. However, underlying contributions were mixed with the recovery in the Nedbank Capital private equity portfolio being offset by the Nedbank Corporate property private equity portfolio having a lower unrealised gain.

NIR from private equity (Rm)	2009		2008
Nedbank Capital	269		127
Nedbank Corporate property	35		176
Total NIR from private equity	304		303

Bancassurance and Wealth NIR increased by 61,7% to R1 518 million for the year, driven primarily from the consolidation of the joint ventures for seven months and with good performances from the asset management, financial planning and life insurance businesses. On a like-for-like basis NIR for Bancassurance and Wealth increased by 4,7%, with good growth in the SA businesses, but pressure on NIR in the international businesses due to the challenging economic environment.

NIR
		% change
		excl joint	%
		ventures	change	2009	2008
Commission and fees		8,9	13,1	8 583	7 588
Trading income		18,6	18,6	1 841	1 553
Private equity income		0,1	0,1	304	303
Insurance income		27,6	91,0	615	322
Fair-value adjustment on bonds/swaps		(44,3)	(44,3)	162	291
	Credit spread			6	207
	Basis			156	84
Other fair-value adjustments		(>100)	(>100)	(118)	77
Other investment income		(82,6)	(81,2)	13	69
Rental income		5,3	2,0	52	51
Sundry income		(4,4)	(4,4)	454	475
	Tando			204	227
	Other			250	248
Total NIR		6,1	11,0	11 906	10 729

Expenses

Nedbank Group continued to maintain tight control over discretionary spending, while investing in strategic areas of the business. Expenses increased by 9,9% to R15 100 million (2008: R13 741 million). This increase was impacted by the consolidation of the Bancassurance and Wealth joint-venture acquisitions with effect from June 2009.

On a like-for-like basis, excluding the joint-venture acquisitions, expenses increased by 7,7%.

Staff expenses grew by 12,2%, driven by an average salary increase of 10,2% in April 2009 (comprising higher increases to lower-paid staff) and the inclusion of the abovementioned joint-venture acquisitions from 1 June 2009. Staff headcount and temporary staff decreased by 1,9% and 12,3% respectively.

• Marketing costs were restricted to an increase of 1,4%.
  
• Information technology costs increased by 8,3% and related mainly to project-based software development and processing costs.
  
• Occupation and accommodation costs increased by 12,5% as a result of branch and office rent increases, renovations, lease cancellation costs and office relocations.
  
• Other expenses have increased due to the amortisation of intangible assets arising from the joint-venture acquisitions, higher property-in-possession costs and fraud-related costs.
  

	%
	change	%
	excl JVs	change	2009	2008
Staff costs	9,9	12,2	7 898	7 040
Computer processing	6,5	8,3	1 993	1 841
Communication and travel	(1,9)	(0,5)	633	636
Accommodation	11,0	12,5	1 262	1 122
Marketing and public
relations	0,7	1,4	889	877
Fees and insurance	4,3	6,1	1 407	1 326
Other	19,2	26,5	892	705
Operating expenses	8,3	10,5	14 974	13 547
Black economic
empowerment	(34,9)	(35,1)	126	194
Total expenses	7,7	9,9	15 100	13 741

Associate income

Associate income decreased to R55 million in 2009 (2008: R154 million) as a result of the BoE Private Clients and NedLife joint-venture acquisitions previously being accounted for as associates and now being consolidated for the last seven months of the current period.

Taxation

The taxation charge (excluding taxation on non-trading and capital items) decreased by 29,9% from R1 757 million in 2008 to R1 232 million. The effective tax rate decreased from 21,6% in 2008 to 20,2% as a result of the following factors:

• A reduced secondary tax on companies charge due to lower dividend declarations in 2009 compared with 2008 and, additionally, the interim dividend in 2008 being a full cash dividend with no scrip offer.
• AC102 adjustments as well as the release of tax risk provisions no longer required at December 2009.
  

Non-trading and capital items

Income after taxation from non-trading and capital items decreased to R549 million for the year (2008: R645 million). The main contribution in 2009 came from the accounting revaluation of the joint ventures immediately prior to their acquisition, while in the previous year the main contributor was R622 million after-tax profit from the sale of Visa shares.

Statement of financial position

Total assets

Total assets increased by 0,6% to R571 billion (2008: R567 billion). During the year:

• cash and securities declined by 8,2% mainly from the maturing of R10 billion of additional liquid assets. This was offset by the purchase of replacement government bonds of R4 billion to hedge long-term debt instruments; and
  
• the group showed lower trading and derivative balances mainly arising from foreign exchange movements.
  

This was balanced by:

• growth in intangible assets related to the Bancassurance and Wealth joint-venture acquisitions;
  
• growth in investments from the first-time consolidation of NedLife; and
  
• a 3,7% increase in advances.
  

With effect from December 2009 we have reconsolidated the Zimbabwean subsidiary, MBCA, following a capital injection and the dollarisation of the currency. This had a small positive impact on the 2009 numbers, but no effect on income.

Advances

Advances increased by 3,7% to R450 billion, reflecting:

• ongoing growth in Nedbank Capital and Imperial Bank;
  
• slower growth in Nedbank Corporate and Nedbank Retail; and
  
• reduced advances in Nedbank Business Banking due to a slowdown in client demand for credit and a reduction of single-product loans in line with the drive to reduce higher risk exposures and focus on primary clients.
  

Growth in advances took place across a number of categories, including personal loans, mortgage loans, preference shares, deposits placed under reverse repurchase agreements and other loans, offset by a decrease in low-margin overnight loans. Overall market share increased by 1,4%.

	(%)
Advances (Rm)	change	2009	2008
Nedbank Capital	16,0	55 315	47 686
Nedbank Corporate	0,7	137 173	136 222
Nedbank Business Banking	(9,4)	50 115	55 321
Nedbank Retail	4,9	157 500	150 107
Imperial Bank	12,8	50 451	44 734
Other	(>100,0)	(253)	163
Total	3,7	450 301	434 233

Consolidated statement of financial position – banking/trading categorisation
at 31 December
	2009				2008
			Elimi-				Elimi-
Rm	Banking	Trading	nations	Total	Banking	Trading	nations	Total
Assets
Cash and cash equivalents	7 860	7		7 867	8 598	11		8 609
Other short-term securities	9 151	14 411	(5 012)	18 550	11 867	14 549	(7 827)	18 589
Derivative financial instruments	250	13 796	(1 336)	12 710	363	23 650	(1 692)	22 321
Government and other securities	35 448	4 594	(4 059)	35 983	40 977	4 603	(3 442)	42 138
Loans and advances	436 536	13 765		450 301	423 822	10 411		434 233
Other assets	4 406	1 049		5 455	4 826	1 258		6 084
Customers’ indebtedness for acceptances	2 031			2 031	3 024			3 024
Current taxation receivable	602			602	346			346
Investment securities	10 748	277		11 025	8 167	288		8 455
Non-current assets held for sale	12			12	10			10
Investments in associate companies and joint ventures	924			924	1 167			1 167
Deferred taxation asset	82	200		282	47	153		200
Property and equipment	5 163	15		5 178	4 526	14		4 540
Long-term employee benefit assets	1 860			1 860	1 741			1 741
Mandatory reserve deposits with central banks	10 508			10 508	10 065			10 065
Intangible assets	7 415			7 415	5 501			5 501
Interdivisional assets		10 087	(10 087)	–		5 596	(5 596)	–
Total assets	532 996	58 201	(20 494)	570 703	525 047	60 533	(18 557)	567 023
Total equity and liabilities
Allocated capital	37 298	2 351		39 649	33 015	1 898		34 913
Non-controlling interest attributable
to:
– ordinary shareholders	1 849			1 849	1 881			1 881
– preference shareholders	3 486			3 486	3 279			3 279
Total equity	42 633	2 351	–	44 984	38 175	1 898	–	40 073
Derivative financial instruments	1 502	11 385	(1 336)	11 551	1 960	23 469	(1 692)	23 737
Amounts owed to depositors	439 536	34 839	(5 020)	469 355	447 287	27 430	(7 827)	466 890
Other liabilities	5 735	9 568	(4 051)	11 252	5 602	7 669	(3 442)	9 829
Liabilities under acceptances	2 031			2 031	3 024			3 024
Current taxation liabilities	315			315	226	9		235
Deferred taxation liabilities	1 887	58		1 945	2 042	58		2 100
Long-term employee benefit liabilities	1 304			1 304	1 231			1 231
Investment contract liabilities	6 749			6 749	5 843			5 843
Insurance contract liabilities	1 133			1 133				–
Long-term debt instruments	20 084			20 084	14 061			14 061
Interdivisional liabilities	10 087		(10 087)	–	5 596		(5 596)	–
Total liabilities	490 363	55 850	(20 494)	525 719	486 872	58 635	(18 557)	526 950
Total equity and liabilities	532 996	58 201	(20 494)	570 703	525 047	60 533	(18 557)	567 023

Deposits

The group retained a strong ratio of advances to deposits of 95,9%. Deposits grew in line with the requirement to fund the growth in balance sheet assets, with deposits increasing by 0,5% to R469,4 billion (2008: R466,9 billion). In the retail deposit market, current and savings account balances remain at low levels as consumers continue to reduce debt levels. In the wholesale deposit market current and savings accounts as well as fixed deposits have increased, partially offset by a reduction in other term deposits.

Optimising and diversifying the funding mix and lengthening the profile continued to be a key management focus. Despite intense competition in the local deposit market, the group has maintained its strong deposit franchise and continues to hold the second largest share of household deposits at 24,2%. During the year a number of innovative retail deposit products were successfully introduced, including Nedbank’s Equity-linked Deposit, EasyAccess Deposit and Platinum Park-It.

Capital

Nedbank Group remains focused on optimising and strengthening its capital ratios. During 2009 these ratios have increased significantly and continue to be maintained above the group’s target ratios. The group holds a surplus of R13,5 billion above its minimum total regulatory capital adequacy requirements.

 

	2009	2008	Target	Regulatory
Capital adequacy*	ratio	ratio	range	minimum
			7,5%
Core Tier 1 ratio	9,9%	8,2%	to 9,0%	5,25%
			8,5%
Tier 1 ratio	11,5%	9,6%	to 10,0%	7,00%
Total			11,5%
capital ratio	14,9%	12,4%	to 13,0%	9,75%

*	Capital adequacy ratios include unappropriated profit at the year-end.

Regulatory capital adequacy ratios increased mainly due to the retention of earnings and a key focus on the optimisation of capital and risk-weighted assets, enabled by enhancing data quality and more selective asset growth using our economic-profit-based managing for value philosophy. This resulted in risk-weighted assets decreasing by 8,1%, which is well below overall balance sheet growth of 0,6%. The group was also able to maintain its dividend cover at 2,30 times while increasing capital.

To increase conservatism the group increased its target debt rating (solvency standard) from A- to A for internal economic capital requirements in line with the higher target ratios for regulatory capital announced early in 2009. A more conservative definition of available financial resources to cover the economic capital requirements was also introduced.

The group currently holds a surplus of R11,8 billion against its economic capital requirements. This is calibrated to the new A debt rating including a 10% buffer, which is assessed against comprehensive stress and scenario testing.

The group’s leverage ratio (total assets to ordinary shareholders’ equity) at 14,4 times (2008: 16,2 times) is conservative by international standards and in line with the local peer group.

In response to the global financial crisis the Basel Committee on Banking Supervision has released far-reaching new requirements and proposals related to capital, liquidity, risk management and accounting provisioning aimed at creating a more resilient global banking sector. Currently these have a targeted implementation date of the end of 2012. The impact on capital is, at this early stage, anticipated to be moderate for the major SA banks, but remains subject to a comprehensive quantitative impact study in the first half of 2010 and finalisation of the proposals by the end of 2010. The impact of the liquidity proposals would be significant on SA banks if implemented as is, but we anticipate modifications and changes appropriate for South Africa. No liquidity issues were experienced in South Africa during the global financial crisis.

Funding and liquidity

The group’s liquidity position remains sound, with a loan-to-deposit ratio of 95,9%. Management continues to focus on diversifying the funding base, lengthening the funding profile and further strengthening and increasing the liquidity buffers.

In addition to the strong deposit franchise across Nedbank Retail, Nedbank Business Banking and Nedbank Corporate providing a diverse funding mix, the bank successfully increased the size of its liquidity buffer in 2009 and lengthened the overall funding profile in order to achieve improved asset-to-liability matching. Increased focus on capital market issuance under the domestic medium-term note programme, the introduction of innovative fixed-deposit products for retail clients and a broader offering of money market products were the primary drivers behind the lengthening of the funding profile.

During the year the following programmes were undertaken to diversify the funding base and lengthen the bank’s existing funding profile:

• the issuing of R5,6 billion of senior unsecured debt, which was five times oversubscribed;
  
• the raising of R153 million in perpetual preference shares;
  
• obtaining a $100 million credit line from a foreign development bank; and
  
• focusing on the retail deposit base through innovative products.
  

Nedbank Group maintains a low reliance on interbank, capital market and foreign funding. The group’s small proportion of foreign funding at just over 1,0% is driven by the group’s regional focus where 91,4% of the group’s asset base is in South Africa. Low historic reliance in the abovementioned markets creates diversification opportunities subject to pricing.

Nedbank Group continues to adopt a strategy of applying best international practice, with the Basel principles on sound liquidity management having been further embedded during this financial period.

Six-year review

In summary, if one reflects on a six-year history of ROE and NAV, it is evident that, while the challenging market conditions have impacted ROEs in recent years, the underlying NAV of the group has continued a steady upward trend, albeit lately at slower growth rates.

While ROE metrics peaked in 2007, ahead of the challenging economic times, before falling again the group sustained a compound average growth in NAV of over 14%.

Outlook

The economic environment remains fragile, presenting forecast risk.

Nedbank Group’s performance in 2010 is likely to reflect the following:

• Advances growth in the mid single digits.
• Pressure on interest margins remaining as a result of a continued negative endowment effect and anticipated to be compressed by a further 10 to 20 basis points.
• Continued improvement of the group credit loss ratio, but remaining above our target range.
• Mid double-digit NIR growth, the increase being impacted by the consolidation of the Bancassurance andWealth joint-venture acquisitions for the full period in 2010, compared with seven months in 2009.
• Lower double-digit expense growth, the increase being impacted by the consolidation of the Bancassurance and Wealth joint-venture acquisitions.
• A further strengthening of capital adequacy ratios and focus on funding and liquidity.
• A focus on extracting value from acquisitions made in 2009.

Acknowledgements

I would like to thank my predecessor, Mike Brown, and Graham Dempster, the Chief Operating Officer, for their support and guidance following my appointment during the financial year. The finance teams within Nedbank have again shown outstanding commitment to enhancing the standard of financial reporting and producing timeous, quality financial information. The investment community locally and internationally is a critical stakeholder of Nedbank Group and we acknowledge the support and interaction during this most difficult period in the banking sector.

Raisibe Morathi
Chief Financial Officer

24 February 2010