Nedbank customers take a hit

Nedbank has upped its dividend amid higher profits despite a challenging economic environment and a depressed consumer sentiment.

In the group’s interim results for the six months of 2024, new Nedbank CEO Jason Quinn said that the operating environment was challenging and economic activity remained weak.

This was due to geopolitical uncertainty, high interest rates, persistent inflation and uncertainty around the South African elections.

Household finances were under pressure as real incomes contracted and job prospects were muted.

Corporate activity was also poor due to the uncertain political and economic environment.

“The financial implications of these difficult macroeconomic outcomes were evident in continued elevated levels of consumer strain and slow lending and transactional revenue growth across both wholesale and retail clients,” said Quinn.

“A peaceful and fair election outcome and the swift formation of a government of national unity (GNU) spurred cautious optimism in financial markets resulting in lower bond yields, stronger equity markets and a stronger rand.”

“Spreads on credit default swaps improved markedly, trending towards levels seen when the country’s sovereign credit ratings were at investment grade.”

Nedbank produced a strong financial performance, with headline earnings increasing by 8% year-on-year to R7.9 billion.

This was underpinned by good non-interest revenue growth, a lower impairment charge and tight cost control.

The group’s return on equity (ROE) also improved to 15,0% from 14,2% in the prior period.

The group’s technology platform, delivered through its Managed Evolution (ME) programme, has also reached 95% completion.

Moreover, the group’s credit loss ratio improved from 121 basis points in H1 2023 to H1 2024. Amidst high interest rates, many banks have had to tighten their lending conditions as clients struggle to pay back their loans.

The group’s overall revenue increased from R33 billion in H1 2023 to R35 billion in H1 2024.

With headline earnings per share increasing by 11% to 1,699 cents, the group also upped its interim dividend by 11% to 971 cents per share.

The group’s financial results can be found below:

Future prospects

Looking ahead, Quinn said that the group is optimistic over the potential benefits associated with South Africa’s new Government of National Unity (GNU) and improved macroeconomic conditions in the second half of 2024 and into the medium-to-long term.

The group expects GDP to increase by 0.9% in 2024 – broadly in line with most expectations.

Inflation is also expected to decline, resulting in the prime lending rate being cut by 50 bps in 2024 to end the year at 11.25%.

“On the back of an improving operating environment, we continue to aspire to deliver ongoing improvements in ROE to increase shareholder value,” said Quinn.

“Our strong financial performance in H1 2024, together with the progress made in executing our strategy and better economic prospects, gives us confidence in making progress towards our medium-term targets, particularly our aim to increase our ROE to 17% by 2025 and above 18% in the long term.”

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