Nedbank, one South Africa’s top four commercial banks, has reported a 44,5% rise in its headline earnings per share for the six months to the end of June to 354 cents, from 245 cents a year earlier. The group declared an interim dividend of 105 cents per share, representing a 139% increase on the 44 cents declared at the halfway stage last year.
The results are in line with the company’s revised forecast published in July.
Announcing its interim results on Thursday, Nedbank said the benefits of its recovery programme are gaining momentum. Income is rising at a faster rate than expenses, with the efficiency ratio improving from 77,9% to 68,6% and the return on equity rising to 14,6% from 11,7%.
Looking ahead, for the full year to the end of December, the bank said that as a result of the improved performance to date and expected earnings for the balance of the year — and assuming that exchange rates remain constant — it is forecasting headline earnings of between 58% and 78% higher than the R1,742-billion restated results under IFRS for 2004.
Headline earnings per share for the year are estimated to be between 44% and 62% greater than the IFRS-restated 483 cents per share reported for December 2004. Basic earnings per share for the full year will be between 65% and 85% higher than the IFRS-restated 423 cents per share reported for December 2004.
Nedbank also said it reaffirms its targets of achieving a return on average ordinary shareholders’ equity of 20%, and an efficiency ratio of 55% for 2007.
For the six months to the end of June, headline earnings rose by 74,3% to R1,4-billion, from R802-million the previous year, while basic earnings grew by 73,3% to R1,4-billion from R810-million.
While overall interest and similar income totalled R10,8-billion, down from a restated R11,4-billion the previous year, interest expenses were also lower at R6,8-billion versus R8-billion.
As a result, net interest income reached R4,02-billion, up 21% from R3,3-billion, while the group’s net interest margin was 3,45%, up from 2,99% for the period to June 2004 and from 3,18% for the year to December 2004.
Total operating income rose to R7,29-billion, from R6,58-billion the previous year.
Nedbank said the improved margin is attributable to the uplift created from a full six months of the proceeds of its rights offer received in May last year; reduced funding drag resulting from lower levels of interest rate risk in the banking book following its new hedging strategy; income on the proceeds from the sale of non-core investments; the repatriation of certain foreign capital in 2004; and the settlement of the expensive empowerment funding for Peoples Bank in April.
However, its margin was negatively impacted by the 1% reduction in the corporate tax rate, which resulted in a R54-million reduction in margin due to the treatment of structured finance details. Margins were also compressed by the lower interest-rate environment.
Non-performing loans and properties in possession improved, with non-performing loans falling by 13,5% over the six months to R5,8-billion, from R6,7-billion at the end of 2004, while properties in possession dropped by 30,6% to R528-million. Total non-performing advances stood at R6,35-billion, down 15,2% from R7,5-billion at the end of 2004, and representing 2,7% of gross advances (versus 3,3% in December).
Total expenses fell by 3,9% to R5,3-billion, with the group saying they were well controlled. The decline was due mainly to sales of group subsidiaries, a reduction in one-off merger and recovery costs, and lower fees due to the buy-out of alliance partners over the period. Excluding the one-off merger and recovery expenses from 2004, base expense growth was held at 1,2%, the company said.
Combined recovery programme and merger expenses for the full year were expected to total approximately R150-million, Nedbank revealed, with R48-million in expenses having been deferred from the first to the second half of the year.
Nedbank’s Tier-1 capital adequacy ratio improved to 8,5% in June this year from 8,1% in December 2004. The total group capital adequacy ration improved slightly to 12,2% from 12,1%.
The group acknowledged that, although its asset growth rates were behind those of the rest of the market, advances rose by 5,9% to R228-billion on an annualised basis from December 2004. Residential home loans rose by 22,3%, with home loans in Nedbank Retail growing at 19%, narrowing the gap between Nedbank’s growth and that of its competitors in this sector.
Net asset value per share (with investments at market value) improved to 5 067 cents per share from 4 499 cents a year earlier and 4 692 cents at the end of December. Tangible net asset value per share, meanwhile, rose to 3 803 cents from 3 162 cents the previous year and 3 400 cents at the end of December. — I-Net Bridge