Nedbank reported strong earnings and a robust capital position for the six months to June 30 and lifted its dividend 81 percent to 783 cents per share.
Headline earnings increased by 27 percent to R6.7 billion, driven by strong revenue growth, a flat credit loss ratio, an improved performance from associate ETI, and “a well-managed” expense base, the bank said in a statement.
Return on equity (ROE) increased to 13.6 percent and the cost to income ratio improved to 56.2 percent from 58.5 percent in the first half of the 2021 financial year.
Nitrogen Fund Manager chief investment officer Rowan Williams said Nedbank had reported a “positive set of results,” that also reflected a banking sector that had recovered well from the effects of the Covid pandemic, with strong balance sheets.
He said Nedbank’s attractive share price valuation was underpinned by relatively strong short term earnings growth.
Nedbank’s share price traded 0.79 percent lower to R215.88 yesterday afternoon, which brought the price rise to about 19 percent over a 12 month period.
Capital Sigma said on Twitter: “Good results from Nedbank for H1. HEPS up 26 percent (headline earnings up 27 percent), revenues up 11 percent although costs also climbed 7 percent in the 6 months comparable. Better (+81 percent) interim dividend this time … They withheld some last year.”
Nedbank chief executive Mike Brown said the first half reflected improvements across all key metrics in a complex and difficult operating environment. All front line business units generated ROEs above the group’s cost of equity, he said.
The balance sheet remained very strong. Capital adequacy ratios had increased from December 31 levels and were well above minimum regulatory requirements.
He said the South African economy held up relatively well into the first half of 2022 as global economic conditions deteriorated significantly.
Russia’s invasion of Ukraine, hard lockdowns in China and supply chain constraints resulted in a surge in global inflationary pressures, particularly in energy and food prices, and faster-than-expected monetary policy tightening. These conditions dampened global demand and triggered fears of recession in both advanced and developing countries.
However, the second quarter was more challenging as local economic activity was disrupted by the floods in KwaZulu-Natal, load-shedding, weaker global demand, escalating inflation and the faster-than-expected rise in interest rates.
“Electricity supply is a binding constraint on economic growth and job creation, and urgent implementation of the Energy Action Plan is needed,” Brown said.
Growth trends across net interest income (NII) (+9 percent), non-interest revenue (NIR) (+13 percent) and gross advances (+7%) improved from the Covid-19 pandemic lows, supported by main-banked client gains across business clusters and strong growth in digital activity.
Nedbank’s Managed Evolution technology strategy had reached 89 percent completion of the IT build, enabling continuing double-digit growth in client digital metrics. These initiatives helped to increase the number of digitally active retail clients in SA by 10 percent to 2.4 million and by 60 percent since the first half of 2019.
This now represented 67 percent of main-banked clients, versus 47 percent in 2019.
The Nedbank Money app was actively used by 1.8 million clients, and was up by 13 percent year on year and 167 percent since the first half of 2019.
“SA’s economy is likely to return to growth in the second half of the year as activity normalises from the floods and extreme power outages of the second quarter. The recovery is likely to be muted, contained by softer growth in consumer spending, government expenditure and fixed investment.
While fixed investment will be propped up by an increase in renewable-energy projects, the upside for consumer spending will be capped by the acceleration in inflation and the faster rise in interest rates. At the same time, exports are likely to be stunted by weaker global growth, some easing in export prices, persistent load- shedding and logistical constraints,” Brown said
He said they intended to continue to deliver on strategy and operations, which “should support ongoing earnings growth for Nedbank in the full-year 2022 and a year- on-year increase in ROE and a reduction in the cost to income ratio.”
He said the bank remained on track to meet its medium-term targets by exceeding 2019 diluted headline earnings per share level of 2 565 cents by the end of 2022.
edward.west@inl.co.za
BUSINESS REPORT