Nedbank is putting its money where its mouth is — delivering on the commitments it made to shareholders as part of its turnaround strategy two years ago.
Monday saw the group report a massive 50,5% growth in headline earnings to R2,1-billion for the six months to the end of June with CEO Tom Boardman indicating that headline earnings for the full year are likely to be between 22% and 42% higher than the R3,167-billion reported for the previous year.
The group’s return on average ordinary shareholders’ equity improved from 14,8% to 18,3% for the first six months of the current financial year, with the group targeting an ROE of 20% and an efficiency ratio of 55% in 2007.
Boardman said the performance for the last half-year reflected the benefits of an increasing focus on client service and organic growth, coupled with the operating efficiencies achieved over the last two years.
“The increasingly outward focus of the Nedbank Group continues to impact positively on our financial performance. Revenue growth is ahead of our original expectations and expense growth remains well-managed. This positive momentum has led to improving staff morale and supports a strategy of investing R1-billion in upgrading and expanding our distribution footprint over the next three years. By constantly improving client service and investing for the future we are confident of delivering on the commitments we have made to our shareholders, clients and staff,” Boardman said.
But he said strong revenue growth, disciplined expense and credit management, together with active management of excess capital would be required to achieve these targets.
The group’s interim results demonstrated good progress towards reaching the targets from both a revenue and cost perspective, while a share buyback programme and reduced dividend cover showed progress in managing capital to a more optimal level, he said.
But while the group was unwavering in its commitment to meet the 20% ROE target, the planned investment in distribution would make the 55% efficiency ratio target more challenging.
Nedbank Retail managing director Rob Shuter nevertheless believes the R1-billion investment on upgrading and expanding the group’s distribution infrastructure over the next two and a half years will strongly position the bank for growth.
The Nedbank Retail strategy will see a variety of distribution channels being deployed to significantly strengthen the bank’s retail footprint in areas where it is currently under-represented.
Between 2006 and 2008, a further 400 staffed outlets will be opened, including at least 80 full-service branches and 30 personal lending branches. In addition all existing ATMs and Self Service Terminals (SSTs) are either being upgraded or replaced.
“Besides extending our traditional branch network, we are looking at opening a number of Nedbank staffed outlets in leading retailers and will also be extending the Old Mutual Bank footprint by opening outlets in Old Mutual Service Centres,” said Shuter.
Nedbank’s cellphone banking channel is also benefiting from the investment with the introduction of WAP based cellphone banking earlier this year, and with SMS cellphone banking to follow soon.
Shuter referred to a change in Nedbank’s approach to its distribution capabilities in the retail market.
“This investment will enable us to substantially improve our sales and service delivery and help us to meet the banking needs of a broader community.”
The group remains well-capitalised, with the Tier One group capital adequacy ratio increasing from 8,5% in June 2005 to 9,1% in June 2006 through the capital profits from the disposal of non-core assets and higher than expected acceptance of the scrip alternative in respect of dividends and increased earnings. The total group capital adequacy ratio has increased from 12,2% in June 2005 to 13,3% in June 2006.
While the group is targeting a 20% ROE for 2007, it is currently not expecting to sustain its present ROE of 18,3% for this year. It says performance in the second half of 2006 is likely to be influenced by growth in retail advances remaining robust, but slowing from current high levels as well as ongoing growth in business banking and corporate advances and increasing market reliance on wholesale funding. – I-Net Bridge