2024 ending with a whimper: Nedbank

Nedbank has lowered its GDP expectations following a worse-than-expected for Q3 2024.

In a trading update for the first 10 months of 2024, Nedbank said that the operating environment in the second half of the year continued to be challenging, even if it was gradually improving, given lower levels of inflation and recent cuts in interest rates.

Economic activity in Q3 2024 SA GDP was quite weak, which declined by 0,3% (quarter on quarter, seasonally adjusted) – far below the widely expected 0.5% growth expected for the quarter.

Nedbank now expects SA GDP growth of 0.5% in 2024. This is far below the prior expectations of economists, who expected roughly 1.0% growth for 2024.

Nedbank said that growth could improve to 1.5% in 2025.

However, in positive news, headline inflation (CPI) also dropped below the SARB’s 3% to 6% range in October 2024, the lowest level since the Covid-19 pandemic.

The SARB’s Monetary Policy Committee (MPC) cut the SA repo rate by 25 bps in September and November 2024, and Nedbank expects a further 75 bps of cuts in 2025, with the prime interest rate bottoming out at 10.5%.

“However, the risk to the interest rate outlook is on the upside given the potential impact of the incoming US administration’s economic policies,” said Nedbank.

“Private sector credit growth remained muted at 4,4% yoy (October 2024).”

“Within this, household credit growth slowed to 3,2%, which is likely the bottom of the current cycle, improving from here as lower inflation boosts real disposable income, easing interest rates reduce debt service costs and the two-pot system gives households access to a portion of their retirement funds.”

“Corporate credit growth increased by 5,6% yoy but remains relatively volatile and not yet reflective of a material improvement in fixed investment activity, which will likely materialise in 2025 as business confidence improves on the back of the outcomes of the Government of National Unity.”

Financial performance

Nedbank’s financial performance in the period reflected headline earnings growth above mid-single digits, which was driven by a drop in the impairment charge, strong non-interest revenue (NIR) growth and good expense management, partially offset by soft net interest income (NII) growth.

NII saw flat to low single-digit growth when compared to the prior period and below management’s expectations.

“NII was negatively impacted by slower-than-expected average interest-earning banking asset (AIEBA) growth and a decline in the group’s net interest margin (NIM). AIEBA grew below mid-single digits, reflecting low-single digit CIB average loans and advances growth and below mid-single digit RBB (Retail and Business Banking) average loans and advances growth”

“The slower-than-expected loan growth was primarily driven by slow industry-level household credit growth and delayed, although improving corporate loan growth.”

“RBB’s CLR declined period on period and is currently within its TTC target range of 120 to 175 bps, while the CLRs for CIB, Nedbank Wealth and Nedbank Africa Regions (NAR) are below or within the lower half of their respective TTC target ranges.

“Our CLR guidance for 2024 remains unchanged – that is to return to within the top half of the group’s TTC target range.”

NIR growth was in the early double digits, which was better than what management expected.

Commission and fees growth was robust in the mid-to-upper single digits remained robust, driven by arranging fees on deal closures in CIB and Nedbank’s ongoing focus on cross-selling, main-banked client gains and value-added services in RBB.

“Our NIR growth guidance for 2024 remains unchanged – that is to grow at upper- single digits, requiring the closure of various corporate transactions and resilient client transactional activity over the holiday period, off a high 2023 base.”

“As a result of the slow NII growth due to muted credit demand and selective origination, the group’s cost-to-income ratio increased period on period. Basic earnings per share, headline earnings per share, and diluted headline earnings per share all grew by mid-to-upper single digits.”

“The group’s ROE for 10M 2024 increased on the prior period and is expected to continue to increase further above the group’s cost of equity.”

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