Nedbank reports 7% drop in headline earnings

Nedbank on Tuesday (3 March), reported a 7% drop in headline earnings for the year ended December 2019, citing difficult domestic conditions.

In 2019, economic growth in South Africa was much slower than expected as recessionary-like conditions prevailed, the bank said.

This was mainly due to severe and frequent power outages, the unsustainable fiscal trajectory and ongoing policy uncertainty, combined with a deteriorating global outlook, said Mike Brown, Nedbank chief executive.

“Under these difficult domestic conditions, company profits and household finances deteriorated during the year, resulting in subdued credit demand, lower transactional volume growth and rising defaults in the SA banking industry,” he said.

Financial items

  • Headline earnings down 7.3% to R12 506m;
  • Revenue up 2.5% to R56.2 billion;
  • Credit loss ratio 82 bps (2018: 53 bps);
  • Expenses up 1.7% to R32 179m, (2018: R31 632m);
  • Cost-to-income ratio 56.5% (2018: 57.2%);
  • Diluted headline earnings per share down 6.3% to R25.65 cents;
  • Final dividend per share down 3.5% to 695 cents;
  • Full year dividend per share R14.15, flat on the prior year.

“We continued to make good strategic and operational progress throughout the year and produced solid balance sheet growth with advances up 7.2% and deposits growing 9.5%,” Brown said.

He said that the key focus was the operational rollout of Nedbank’s digital onboarding capability for individuals visiting branches and using
the Money app and online banking.

“In addition, we launched our refreshed loyalty and rewards programme together with various market-leading digital innovations,” said Brown.

The chief executive said that the country’s economic growth prospects remain subdued, undermined by persistent energy constraints, weak government finances and slow progress on structural reforms combined with a weaker outlook for global growth.

“In this difficult SA macroeconomic environment, where we currently forecast GDP growth in 2020 to be only 0.7%, and given our 2019 base, our guidance for growth in diluted headline earnings per share for 2020 is to be around nominal GDP growth.”

Brown said that the bank has revised the timelines for achieving its medium- to long-term financial targets to be more reflective of the current weaker economic environment, “which we expect to persist,” he said.

“For ROE (now including goodwill), our medium-term target (two to three years) is now greater than 17% and our long-term target (five or more years) is greater than cost of equity plus 4%.

“For the cost-to-income ratio we are now targeting less than 53% in the medium term and less than 50% in the long term as our digital journey matures and enables ongoing efficiencies,” Brown said.


Read: Nedbank’s new banking fees for 2020

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Nedbank reports 7% drop in headline earnings