Nedbank — once regarded by many as the doyen of South Africa’s so-called “big four” banks before losing some of its sheen — continues to make major strides in its turnaround strategy.
For the year to the end of December, the group — a subsidiary of United Kingdom-based international savings and wealth management company Old Mutual — improved headline earnings by 40%, posting a R4,435-billion headline profit.
Return on equity improved from 15,5% to 18,6%, while the group’s efficiency ratio improved from 64,8% to 58,2%.
Says Nedbank CEO Tom Boardman: “2006 has been a year of growth for Nedbank Group. This is reflected in improved financial performance and in the growth of our distribution network, client base and market share. We have created a strong platform for sustainable growth.
“The Old Mutual Group’s vision is to provide all South Africans with access to high-quality financial products and services. Nedbank Group is committed to playing its part in the realisation of this vision,” he adds.
Market gains
According to Boardman, Nedbank has started to show some early signs of market-share gains, which he attributes to a number of factors, including improved staff morale, faster turnaround times in a number of areas, reductions in several retail banking charges, and improvements in service levels for both clients and external distribution channels, particularly mortgage originators.
Increased brand awareness following the repositioning of Nedbank as a bank for all Southern Africans and the launch of a number of new retail products have also contributed, he says.
This has been enhanced by a sound performance from Nedbank Capital as it continues to benefit from its integrated investment banking strategy; pleasing growth from Nedbank Corporate, with key transactional banking client gains, including new public-sector clients; and enhanced credit risk management and pricing technologies across the group’s business clusters.
“The relationship between the three Old Mutual Group companies in South Africa — Old Mutual (South Africa), Nedbank Group and Mutual & Federal — has strengthened over the past year, with revenue-generating and cost-saving opportunities starting to be a growth driver for all three businesses,” he adds.
Capital
Moreover, the group remains well capitalised, with a Tier 1 group capital adequacy of 8,3% and total group capital adequacy ratio of 11,8%, following the share buybacks that took place in 2006 and strong advances growth. Advances at R309-billion are ahead of original expectations and average interest-earning banking assets grew by 16,5% to R280-billion in the past year, Boardman says.
He adds that the group achieved good momentum across the 12 short- and medium-term strategic objectives set out in the 2005 annual report. Progress has been made in returning the group closer to benchmark financial performance and meeting the short-term 2007 financial targets of a return on equity of 20% and an efficiency ratio of 55%.
But he cautions: “While the return on equity of 18,6% and the efficiency ratio of 58,2% were both ahead of the internal 2006 targets, the increased investment in distribution and sales capacity makes the 55% efficiency ratio target more challenging in 2007.”
While the group has been unwavering in its commitment to achieve the 2007 targets, it has also been cognisant not to adopt an overly short-term focus, he says.
“We have developed medium- to long-term financial targets to be achieved after 2007 … These are supported by strategic business plans that build on the solid foundations laid during the turnaround over the past three years.”
Primary clients
Net new primary clients increased for the first time in three years. The group has created focused transactional banking teams and is implementing a range of initiatives to improve cross-selling, upselling, client service, client retention, pricing and bancassurance.
“Nedbank Corporate launched the first phase of its integrated electronic banking offering in the third quarter of 2006 and this is rapidly being rolled out to commercial clients. This new offering has enabled Nedbank to acquire a number of new clients, including clients in sectors where it has not been competitive in the past such as the provincial governments, where it recently won the tender for the Western Cape.
“Nedbank Retail’s expanding branch and outlet footprint has improved accessibility and reach, which, together with a more outward focus, positions the group to grow transactional revenue. The group’s bancassurance revenue continued to grow, with new business premiums increasing by 13% in 2006.”
With the introduction of a new brand expression, “Make things happen”, early in the year, the group intensified and increased its national advertising campaigns to position the Nedbank brand in a more relevant and approachable manner — as a bank that demonstrates a deeper understanding of financial needs and cares about communities and the country.
“Brand measures have shown significant improvements in Nedbank’s positioning in the market in both awareness and acceptance, and steady progress has been made towards the group’s stated aspiration of being the most respected and admired banking brand,” Boardman says. — I-Net Bridge