/ 1 August 2011

Nedbank’s first-half profit jumps on higher fees

Nedbank Group — South Africa’s fourth-largest bank — reported a 26% rise in first-half profit on Monday, helped by a drop in bad debts and its push to boost revenue from fees.

Nedbank — majority owned by insurer Old Mutual — was hit hard by bad debts after a 2009 recession took more than a million jobs out of the economy, squeezed corporate earnings and left many borrowers with ballooning household debts.

Like its rivals in Africa’s biggest economy, Nedbank’s recovery has been slow as costs continue to rise and loan growth remains weak. It has turned its focus to increasing the money it makes on transactions to offset the slack demand for credit.

Nedbank — the first of South Africa’s top four banks to report earnings this season — said non-interest revenue jumped 16% in the first half, adding it expected that double-digit growth to continue for the rest of the year.

“Nedbank was the one of the big four that was falling behind in terms of non-interest revenue,” said Constantinos Kypreos, a credit analyst at ratings agency Moody’s.

“It has been an important strategic initiative to grow that revenue stream, especially when you compare it with non-interest expenses.”

Non-interest revenue, which includes revenue from fees and commissions, rose to R7.14-billion from R6.16-billion a year earlier.

Higher earnings
Credit growth has been in positive territory since May last year, but companies and individuals remain hesitant to borrow given the uncertain outlook.

Nedbank’s diluted headline earnings per share was 600 cents in the six months to end-June — up from 475 cents a year earlier.

Nedbank had already said last week it expected earnings to increase by 23% to 28%.

Net interest income — a measure of earnings from lending — increased to R8.68-billion from R8.08-billion a year earlier.

HSBC, Europe’s largest bank, last year ended talks to pay $8-billion for Old Mutual’s majority share in Nedbank. Old Mutual had been looking to sell the stake as part of a simplification strategy.

Old Mutual chief executive Julian Roberts has since said the insurer is focused on improving Nedbank’s performance but has declined to comment on whether it still intended to sell the stake.

Shares of Nedbank are up 8% so far this year, making it the best performer among the five stocks in Johannesburg’s index of bank shares.

At 7.14am GMT, Nedbank shares were trading 1.8% stronger at R142.99. — Reuters