Nedbank Group, South Africa’s fourth-largest bank, said on Wednesday 2007 headline earnings per share rose 33,8% despite rising household debt, but it warned of increasing default rates.
Nedbank, majority-owned by insurer Old Mutual, said 2007 headline earnings rose 33,5% to R5,921-billion as its retail and corporate units grew on higher investment in infrastructure by the government and the corporate market.
Nedbank said its South African banks were mostly unaffected by volatility in global markets, but felt the pinch of interest rate hikes, rising household debt and pressure on margins.
The group’s return on equity improved to 21,4% from 18,6%, beating a 20% target it set in 2004 when it began a recovery programme. Its efficiency ratio for the year improved to 54,9% from 58,2% the previous year.
Nedbank launched a three-year recovery programme in 2004 to turn its business around after a string of problems, including slashed profits. It set 2007 targets including a 20% return on equity and an efficiency ratio of 55%.
Gryphon Asset Management portfolio manager Jan Meintjes said Nedbank had performed well compared with its peers, but that was coming off a low base. ”I expect it will start performing in line with the others,” he said.
Earlier this month Absa, South Africa’s largest retail bank, posted a 19% rise in 2007 profits and an 18,6% rise in headline EPS.
Headline earnings is the key profit measure for South African companies and excludes non-trading, capital and certain extraordinary items.
Nedbank’s shares rose 2,4% to R129 at 8.04am GMT, just outperforming a 2,1% rise in the Johannesburg banks index. Absa was up about 1,7%.
Nedbank highlighted rising inflation, high individual debt and a series of interest rate hikes that had slowed spending and increased consumer default rates.
”This trend is expected to broaden in 2008,” it said, adding it expects the year ahead to be significantly more challenging for the South African economy and banking sector. – Reuters