Nedbank Group Limited Final Results 2015

RNS Number : 7076Q

Old Mutual PLC

02 March 2016

 

Old Mutual plc

Ref 147/16

2 March 2016

NEDBANK GROUP limited audited final RESULTS 2015

Nedbank Group Limited ("Nedbank Group"), the majority-owned South African banking subsidiary of Old Mutual plc, released its audited summarised financial results for the year ended 31 December 2015 today, 2 March 2016. 

The following is the full text of Nedbank Group's announcement:

"Preliminary audited results for the 12 months ended 31 December 2015

·    Headline earnings increased 9,6% to R10 831m¹

·    Diluted headline earnings per share up 8,5% to 2 242 cents¹

·    Growth in tangible net asset value per share of 9,9%¹

·    Return on equity (excluding goodwill) at 17,0%

·    Common-equity tier 1 ratio:11,3%

·    Full-year dividend per share up 7,7% to 1 107 cents

'Nedbank Group produced a resilient performance in an environment of difficult macroeconomic conditions, volatile markets and an escalating regulatory agenda.

We delivered growth in diluted headline earnings per share of 8,5% - ahead of the guidance we gave  during the year. Earnings growth was driven by ongoing momentum in NIR and disciplined cost management, combined with the benefit of equity-accounted earnings from our investment in ETI based on our 20% share of their 12 months of publicly reported results to September 2015.

NIR growth was underpinned by an 8,5% growth in retail main banked clients and from our integrated CIB model that successfully unlocked additional revenue growth and cross-sell opportunities. In response to increasing macroeconomic headwinds, we focused on reducing cost growth, maintaining conservative provisioning levels and increasing liquidity buffers.

Nedbank is committed to long-term value creation for all our stakeholders and we were honoured to win The Financial Times and The Banker Magazine awards for Bank of the Year in both SA and Africa in 2015.

Nedbank Group is in excellent shape to deal with the challenging macroeconomic environment that we expect in both SA and in the rest of Africa. Forecast risk has increased and as a result our guidance for performance in the year ahead is harder than usual to formulate. Against this context we currently forecast that growth in diluted headline earnings per share for 2016 will be lower than the growth we achieved in 2015 and below our medium-to-long-term target of consumer price index + GDP growth + 5%. Given the increased forecast risk we will update this guidance with our June 2016 results.'

Mike Brown

Chief Executive

Banking and economic environment

Globally the economic climate remained challenging, with improved growth in developed markets insufficient to offset the effects on emerging markets of depressed oil and commodity prices and the broader impact of the slowdown in China. Additionally the tightening of US monetary policy has placed further pressure on emerging markets as capital flows are diverted towards developed markets.

Economic conditions in SA have also deteriorated as reflected by our 2015 gross domestic product (GDP) growth forecast of 1,3%. This is considerably less than the 2015 GDP growth of 2,5% we had forecast in February 2015. Various factors, including inadequate infrastructure, economic policy uncertainty, concerns around government debt levels and the drought-related contraction in the agricultural sector, resulted in the USD/ZAR exchange rate depreciating significantly in 2015, notwithstanding interest rate increases of 50 basis points (bps) and inflation remaining below 6,0%.

These and other factors led to Fitch Ratings downgrading the sovereign ratings to one notch above investment grade at BBB- (from BBB) with a stable outlook. Moody's sovereign rating of Baa2/P-2 is currently two notches above investment grade and Standard & Poor's sovereign rating of BBB-/A-3 is one notch above investment grade. Both Moody's and Standard & Poor's revised the outlook on their ratings from stable to negative, indicating a likelihood of a possible downgrade in the next rating review, which could place Standard & Poor's sovereign rating of SA at subinvestment grade.

Against this challenging background wholesale credit demand has slowed, but remains ahead of retail demand, as consumers face increasing pressures from the risk of job losses, high levels of indebtedness, increasing administrative costs and higher interest rates. Wholesale credit demand continues to be supported by infrastructure-related projects.

Government, business and labour are working together to use the challenging economic environment as a catalyst for increased collaboration to accelerate the rate of economic growth and job creation and to strengthen public finances. The group has been and will continue to be an active participant in these discussions.

Review of results

Headline earnings grew 9,6%¹ to a record level of R10 831m¹ (2014: R9 880m)¹. This was largely achieved through growth in non-interest revenue (NIR), strong cost discipline and increased associate income from our investment in Ecobank Transnational Incorporated (ETI), partly offset by an increase in impairments. Preprovisioning operating profit (PPOP) increased 7,3% (2014: 3,5%). Earnings growth was stronger in the first half of the year, boosted by robust trading revenues and a weaker base in 2014. In the second half earnings growth slowed as NIR was impacted by, among others, reduced levels of card-related interchange and increased impairments in Corporate and Investment Banking (CIB)¹.

Other comprehensive income benefited from foreign currency translation gains and as a result total profit attributable to equity holders of the parent increased 22,9% to R12,8bn¹.

Diluted headline earnings per share (DHEPS) grew 8,5% to 2 242 cents¹ (2014: 2 066 cents)¹ and diluted basic earnings per share increased 8,3% to 2 219 cents¹ (2014: 2 049 cents)¹. Excluding associate income from our shareholding in ETI and the related funding costs, the group's DHEPS increased 4,8%.

Economic profit (EP) increased 19,6% to R2 525m (2014: R2 112m) relative to a cost of equity of 13,0% (2014: 13,5%). The cost of equity metric is set annually in advance and therefore the 2015 cost of equity of 13,0% is not reflective of the movements in long bond rates in December 2015. The cost of equity for 2016 is estimated at closer to 15,0% and, had this been used throughout 2015, EP would have decreased 41,0%. Return on average ordinary shareholders' equity (ROE) (excluding goodwill) and ROE declined slightly to 17,0% (2014: 17,2%) and 15,7% (2014: 15,8%), as a result of the lower return on assets (ROA) of 1,25% (2014: 1,27%), while gearing increased slightly to 12,5 times from 12,4 times.

The group's balance sheet remained strong. Our Basel III common-equity tier 1 (CET1) ratio of 11,3% (2014: 11,6%) continues to be well within our Basel III 2019 internal target range of 10,5% to 12,5%. The liquidity coverage ratio (LCR) increased to 88,5%, above the 60% requirement in 2015 and the 70% requirement in 2016. Our portfolio of LCR-compliant, high-quality liquid assets (HQLA) increased to a
fourth-quarter average of R118,0bn (2014: fourth-quarter average R91,4bn). The group's combined portfolio of LCR-compliant HQLA and other sources of quick liquidity amounted to R160,7bn (2014: R126,1bn), representing 17,4% (2014: 15,6%) of total assets.

Net asset value per share continued to increase, growing 9,0%¹ to 15 685 cents¹ (2014: 14 395 cents)¹.

Delivering sustainably to all our stakeholders

Nedbank Group is committed to long-term value creation for all our stakeholders. In line with our vision to be Africa's most admired bank by staff, clients, shareholders, regulators and communities, we are pleased to report that Nedbank Group was named 2015 Bank of the Year in both Africa and South Africa by The Financial Times and The Banker Magazine.

During the period we delivered on a number of initiatives as part of our commitments to our stakeholders:

For staff - creating 714 new permanent-employment opportunities, restructuring of CIB, integration of Retail and Business Banking (RBB) backoffices and reorganisation of our insurance businesses; investing R371m in training, with more than 20 000 staff participating in learning programmes; supporting 111 external bursars across 19 universities and 2 924 learners across our learnership programmes. Nedbank's achievement in staff transformation was recognised at the 14th Annual Oliver Empowerment Awards where we received the Top Empowered Business of the Year award, and were placed third overall for creating equal employment opportunities and limiting barriers to employment equity in Namibia by the Employment Equity Commission.

For clients - investing in client-centred innovation such as the Nedbank Instant Bond Indicator^TM, Market Edge^TM and 'Easy to do credit' in Business Banking. To improve client access through our distribution channels, we rolled out an additional 94 Intelligent Depositors, 8 195 new point-of-sale devices and 110 net new ATMs, as well as a further 84 branches in the 'branch of the future' format. Digitally enabled clients increased 40%, supporting 66% growth in the value of AppSuite™ transactions to R16bn. Group client numbers increased 3,0% to 7,4m, including the closure of 359 000 dormant accounts and retail main banked clients were up 8,5%. We advanced R185bn (2014: R167bn) of new loans to clients. Assets under management grew by 21,4% to R257bn (2014: R212bn) as Nedgroup Investments continued to produce excellent investment performance for our clients, including winning the Raging Bull Award for both the South African and Offshore Management Company of the Year, in addition to being ranked the top unit trust company in the October 2015 Plexcrown quarterly ratings.

For shareholders - growing net asset value per share by 9,0% to 15 685 cents¹ (2014: 14 395 cents)¹, delivering EP of R2 525m, increasing the total dividend by 7,7%, ahead of the 7,4% growth in headline earnings per share (HEPS) and creating R8,2bn in value for over 500 000 of our broad-based black economic empowerment (BBBEE) shareholders with the maturing of our BBBEE schemes in January 2015. Ensuring transparent, relevant and timeous reporting and disclosure to shareholders, as acknowledged by Nedbank's ranking among the top quartile of JSE-listed companies.

For regulators - maintaining full compliance with Basel III phase-in requirements, achieving an average long-term funding ratio of 28,7% and an average LCR ratio of 88,5% in the fourth quarter; making cash taxation contributions of R8,2bn relating to direct, indirect, PAYE and other taxation; ensuring we have a comprehensive recovery plan; maintaining transparent relationships and working closely with all regulators; establishing a Regulatory Change Programme Office focused on ensuring efficient delivery against the various regulatory programmes, including the Anti-money-laudering, Treating Clients Fairly, Protection of Personal Information, International Financial Reporting Standard 9, Risk Data Aggregation and Risk Reporting, Twin Peaks and Market Conduct Programmes.

For communities - advancing R57,6bn in new loans to retail clients; contributing R540m to socioeconomic development since 2011, including R125m in 2015; supporting local businesses and purchasing 75% of our procurement spend locally. Investing R100m over three years in conjunction with our black business partners in initiatives aligned with the Financial Sector Code and National Development Plan, including the first disbursement of R11m to the Centane Agricultural Development project in the Eastern Cape focused on creating sustainable, self-funding commercial farms from primarily communally owned land. We maintained our level 2 BBBEE contributor status for the seventh consecutive year. Our Fair Share 2030 initiative has enabled R1,8bn of new lending to support green affordable housing, student accommodation and embedded energy, particularly in the farming sector, and we introduced the Nedbank Insurance Green Property Plan, offering investment opportunities in green properties within a unit-linked fund. Nedbank also contributed towards the country's water and energy security by investing in the Water Balance Programme to release water back into the ecosystem and by committing R35,0bn towards renewable energy deals of which R11,0bn has been disbursed.

Cluster financial performance

Our business clusters delivered headline earnings growth of 13,2%¹ and an ROE of 19,3% (2014: 19,7%) on an increased average capital allocation of R59,6bn (2014: R51,4bn).

	% change	Headline earnings (Rm)¹				ROE (%)
		2015	2014			2015	2014
CIB	10,2	5 208	4 727			22,6	27,0
RBB	10,6	4 460	4 031			16,6	14,6
Wealth	8,8	1 134	1 042			41,5	36,8
Rest of Africa	93,6	691	357			10,2	10,1
Business clusters	13,2	11 493	10 157			19,3	19,7
Centre	> (100,0)	(662)	(277)
Total	9,6	10 831		9 880	15,7		15,8

Nedbank CIB's earnings growth of 10,2% was driven by good topline performance, demonstrating the strength of the underlying businesses and well managed expenses. This was partly offset by an increase in impairments largely relating to clients impacted by the downturn in the commodity cycle. PPOP increased 21,9%. The ROE decreased to 22,6% (2014: 27,0%) following a 32,0% increase in capital allocated. This increase was mainly due to ratings migration across certain portfolios, and the introduction of an industrywide regulatory capital charge for credit value adjustments (CVA) on over-the-counter (OTC) ZAR derivatives and OTC derivatives with local counterparties not cleared through a central counterparty.

Nedbank RBB grew earnings 10,6% and benefited from an ongoing reduction in impairments following a number of years of selective origination strategies across all asset classes, combined with proactive risk management and continued strengthening of balance sheet impairments. Topline growth improved, notwithstanding the deliberate slowdown in personal-loan advances, lower interchange fees, and the run rate effect of selected fee reductions implemented in the second half of 2014. We continued to invest in our distribution channels, marketing and client-centred innovation, while managing costs diligently and extracting efficiencies. The improvement in ROE from 14,6% to 16,6% was particularly pleasing, given the focus we have had on this metric.

Nedbank Wealth achieved headline earnings growth of 8,8% and ROE increased to 41,5%. The strong momentum experienced in the first half of 2015 continued both locally and internationally in our Wealth Management businesses. Nedbank Private Wealth benefited from strong advances and liabilities growth, while stockbroking and financial planning delivered a solid set of results. Asset Management had an outstanding year, with excellent fund performance and record net inflows. Insurance continues to be impacted by the historic slowdown in retail lending volumes.

Rest of Africa's performance was largely driven by associate income from our investment in ETI, while earnings from our African subsidiaries in the Southern African Development Community (SADC) and East Africa were affected by a single once-off impairment charge. We account for our share of ETI's earnings using its publicly disclosed results one quarter in arrears. This means that Nedbank's 2015 results contain our share of ETI's earnings for their 12-month period ended 30 September 2015.

The centre reported a loss of R662m mainly as a result of the R108m after-tax impact of the R150m increase in the central provision to R500m¹, prime/Johannesburg Interbank Agreed Rate (JIBAR) margin squeeze of R184m post tax as a result of short-term funding costs repricing faster than prime-linked assets and accounting mismatch on certain hedged portfolios of R155m post tax that will  reverse over time.

Detailed segmental information is available in the results booklet and under the 'Equity Investor Centre' section on the group's website at nedbankgroup.co.za.

Financial performance

Net interest income

Net interest income (NII) grew 4,0%¹ to R23 885m¹ (2014: R22 961m)¹, with growth in average interest-earning banking assets of 11,0%, including significantly higher levels of HQLA required for regulatory compliance with the LCR. Excluding HQLA, growth in average interest-earning banking assets was 9,6%.

As expected, margins remained under pressure with the net interest margin (NIM) narrowing to 3,30% (2014: 3,52%) as the 10 bps combined benefit of endowment income and asset and liability margin repricing was offset by:

·       asset margin compression of 17 bps reflecting,

- 12 bps from the asset mix change, including the slowdown, albeit at a reduced pace, of our personal-loans book;

- 5 bps from holding higher levels of lower-yielding HQLA for Basel III LCR requirements; and

·       liability margin compression of 15 bps including,

- 7 bps related to the increased cost of wholesale funding, including 4 bps of ETI funding costs;

- 6 bps from the relative prime JIBAR reset cost as prime rate changes lagged increases to JIBAR during 2015; and

- 2 bps linked to the cost of lengthening and diversifying the liquidity risk profile, through capital market and foreign funding sources in preparation for the transition to the Basel III net stable funding ratio in 2018.

Impairments charge on loans and advances

Impairments increased 6,3% to R4 789m (2014: R4 506m) and the credit loss ratio (CLR) improved slightly to 0,77% (2014: 0,79%). Continued improvements in retail impairments were offset by increased impairments in the wholesale clusters. Additional overlays were raised in RBB and at the centre as deteriorating economic conditions prompted further strengthening of provisioning levels in the second half of 2015.

Credit loss ratio (%)	Dec 2015	H2 2015	H1 2015	Dec 2014
Specific impairments	0,70	0,67	0,73	0,72
Portfolio impairments	0,07	0,10	0,04	0,07
Total credit loss ratio	0,77	0,77	0,77	0,79

The group's through-the-cycle target range for the CLR was changed to between 0,6% and 1,0%, from 0,8% and 1,2% of banking advances with effect from 1 January 2016. The lower range reflects the change in advances mix  towards a higher proportion of wholesale advances of the total book, as well as the change in mix within Nedbank Retail towards a lower proportion of personal loans. At its peak, personal loans was 4,2% of total gross advances and this has now reduced to 2,7%.

Improvements in retail impairments were driven by home loans, MFC and personal loans. Our strong collections focus led to further reductions in the CLR in personal loans to 7,48% (2014: 10,04%) and in home loans to 0,06% (2014: 0,13%). Postwriteoff recoveries increased 20,8% to R1 137m (2014: R941m), including recoveries in Retail of R1 015m (2014: R854m), largely comprising personal loans of R398m (2014: R343m) and MFC of R280m (2014: R193m). This quantum of postwriteoff recovery is indicative of ongoing conservative provisioning levels.

Lower oil and commodity prices resulted in higher impairments in CIB and the Rest of Africa. In addition, RBB's total impairment overlay increased to R699m (2014: R404m) and takes into consideration, inter alia, an estimate of the impairment impact that has been incurred in our agricultural book as a result of the drought and in our personal loans book due to job losses in the mining sector, but are not yet evident. Portfolio provisions in the centre were R350m at the start of 2015 and during the course of the year most of the items for which this provision was held were either satisfactorily resolved or appropriate provisions were raised in the clusters. In the second half of the year the central portfolio provision was further strengthened to R500m to take into account risks, particularly in commodities and in the Rest of Africa, that have been incurred but are only expected to emerge in 2016. Total balance sheet impairments increased to R11 411m¹ (2014: R11 095m)¹.

CLR (%)	% banking advances	Dec 2015	H2 2015	H1 2015	Dec 2014	Revised through-the-cycle range
CIB	47,6	0,40	0,42	0,38	0,19	0,15-0,45
RBB	45,5	1,14	1,06	1,22	1,39	1,30-1,80
Wealth	4,3	0,15	0,12	0,18	0,17	0,20-0,40
Rest of Africa	2,6	1,25	1,58	0,86	0,23	0,75-1,00
Group	100	0,77	0,77	0,77	0,79	0,60-1,00

The group's total coverage ratio of 65,0% (2014: 70,0%) was driven by a lower specific coverage ratio of 38,0% (2014: 43,1%), largely due to the implementation of the SARB directive 7/2015 on restructured accounts which reduced specific coverage by 3,5%, improved impairments in retail and the change in mix of retail and wholesale defaulted advances. Wholesale advances are assessed individually and are predominantly secured with collateral resulting in relatively lower loss expectations in the event of default and, accordingly, lower specific impairments and coverage levels. The portfolio coverage ratio for impairments remained stable at 0,70% (2014: 0,70%).

Total defaulted advances to total advances also remained stable at 2,53% (2014: 2,54%) as total defaulted advances increased 10,8% to R17 559m (2014: R15 846m) in line with the growth in advances.

Non-interest revenue

NIR increased 7,1%¹ to R21 748m¹ (2014: R20 312m)¹, underpinned by:

·    Commission and fee income growth of 7,3%¹ to R15 627m¹ (2014: R14 570m)¹, supported by continued client acquisitions, cross-sell and annual inflation-related fee increases. Growth was, however, negatively impacted by lower card-related interchange rates amounting to R261m, the slowdown in personal loans and the run rate effect of pricing reductions in the second half of 2014 in Small Business Services and Business Banking.

·    Trading income growth of 19,6%¹ to R3 167m¹ (2014: R2 648m)¹ following improved cross-sell and a strong performance from our client-led Markets business.

·    Insurance income reduced 7,9%¹ to R1 830m¹ (2014: R1 986m)¹ owing to the historic slowdown in retail unsecured lending volumes, partially offset by a good weather-related claims experience.

·    Private-equity income, being of a less predictable nature, increasing 16,3%¹ to R886m¹ (2014: R762m)¹, mostly from realisations.

Expenses

Expenses were well managed and grew at 6,4%¹ to R26 110m¹ (2014: R24 534m)¹, including continued investment in our RBB and Rest of Africa Clusters and the ongoing cost of compliance with increasing regulatory demands. Excluding the Rest of Africa Cluster, expenses grew at 5,6%. The main drivers were:

·      Staff-related costs rising 3,3%¹ (2014: 9,6%¹), reflecting an increase in remuneration of 6,5% (2014: 8,8%), additional staff employed in regulatory compliance support functions, and 2,4% lower variable performance-related incentives.

·      Computer processing costs growing 14,4%¹ to R3 543m¹, including amortisation costs increasing 9,6% to R718m¹.

·      Fees and insurance costs increasing 23,9% to R2 801m¹ (2014: R2 260m)¹ due to increased costs associated with cash handling, compliance and higher volumes of card issuing and acquiring.

Our strong cost discipline and focus on efficiency through our 'Optimise and invest' strategy led to cost efficiencies of R915m, supporting ongoing investment for the future and contributing to a positive jaws ratio of 0,6% (2014: -2,5%).

Associate income

Associate income, largely from our share of approximately 20% of ETI's attributable income, increased to R871m¹ (2014: R161m).¹ Associate income is equity-accounted one quarter in arrears using ETI's publicly disclosed results. The related funding costs of R370m (2014: R79m) are included in NII.

Statement of financial position

Capital

The group maintained a well-capitalised balance sheet. Our CET1 ratio of 11,3% (2014: 11,6%) remains around the mid-point of our Basel III 2019 internal target range. The tier 1 and total capital ratios continue to be affected by the Basel III transitional requirements. Consequently, the tier 1 ratio decreased following the redemption of R1,8bn of old-style hybrid debt, and the total capital ratio decreased with the redemption of NED11, representing R1bn of old-style tier 2 subordinated debt, on its call date in September 2015. This was partially offset by the issuance of R2,3bn of new-style Basel III-compliant tier 2 subordinated-debt instruments.

Basel III²	Dec 2015	Jun 2015	Dec 2014	Internal target range	Regulatory minimum²
CET1 ratio	11,3%	11,4%	11,6%	10,5%-12,5%	6,5%
Tier 1 ratio	12,0%	12,1%	12,5%	11,5%-13,0%	8,0%
Total capital ratio	14,1%	14,5%	14,6%	14,0%-15,0%	10,0%

(Ratios calculated include unappropriated profits.)

² The Basel III regulatory requirements (excluding unappropriated profits) are being phased in between 2013 and 2019 and exclude the Pillar 2b addon.

The CET 1 ratio was impacted by risk-weighted assets (RWA) growing 13,7% to R501,2bn (2014: R440,7bn) largely as a result of an increase in credit RWA due to:

·      ratings migration across certain wholesale portfolios in line with the deteriorating economic environment;

·      an industrywide CVA capital charge by the South African Reserve Bank for
over-the-counter (OTC) ZAR derivatives and OTC derivatives with local counterparties not cleared through a central counterparty, which increased RWA by R6,5bn; and

·      growth in loans and advances.

Overall capital adequacy was further impacted by investments in Rest of Africa resulting in a higher capital impairment.

Funding and liquidity

Our funding profile and liquidity position remains strong and well-diversified as reflected by the group's average long-term funding ratio for the fourth quarter of 28,7% (2014: fourth-quarter average 25,4%).

The group's average LCR for the fourth quarter increased to 88,5% (2014:
fourth-quarter average 66,4%), exceeding the minimum regulatory requirement, which increased from 60% in 2015 to 70% from 1 January 2016. Our portfolio of LCR-compliant, HQLA increased to a fourth-quarter average of R118,0bn (2014: fourth-quarter average R91,4bn). In addition to LCR-qualifying HQLA, Nedbank also holds other sources of quick liquidity, including corporate bonds, listed equities and other marketable securities, that can be accessed in times of stress. Nedbank's combined portfolio of LCR-compliant HQLA and other sources of quick liquidity amounted to a fourth-quarter average of R160,7bn at December 2015, representing 17,4% of total assets.

Nedbank Group Limited liquidity coverage ratio	Dec 2015	Jun 2015	Dec 2014
HQLA (Rm)	117 997	109 060	91 423
Net cash outflows (Rm)	133 272	143 029	137 725
Liquidity coverage ratio (%)³	88,5	76,3	66,4
Regulatory minimum (%)	60,0	60,0	N/A

³ Average for the quarter.

Further details on the LCR are available in the table section of the Securities Exchange News Service (SENS) announcement.

Further information on risk and capital management is available in the 'Risk and Balance Sheet Management Review' section of the group's results booklet and will be available in the Pillar 3 Report to be published on the website at nedbankgroup.co.za in March 2016.

Loans and advances

Loans and advances grew 11,2%¹ to R681,6bn¹ (2014: R613,0bn)¹. Excluding lower‑yielding trading advances, banking advances growth was 10,5% following gross new payouts of R184,7bn (2014: R166,8bn).

Loans and advances by cluster are as follows:

Rm	% change	2015	2014
CIB	16,6	355 784¹	305 158¹
Banking activities	15,7	321 699	278 153
Trading activities	26,2	34 085	27 005
RBB	4,1	279 929¹	268 882¹
Wealth	13,6	28 206¹	24 819¹
Rest of Africa	17,4	16 515¹	14 073¹
Centre	> 100	1 198¹	89¹
Group	11,2	681 632	613 021

Banking advances growth was primarily driven by CIB advances increasing 15,7% mainly as a result of drawdowns in credit extended to clients in the renewable-energy and commercial property sectors, as well as stronger growth in Rest of Africa and Wealth.

RBB grew advances by 4,1%, comprised of MFC (vehicle finance) increasing 7,6%, Home Loans by 1,2%, Card by 3,3% and Relationship Banking by 24,7%. Excluding R4,9bn of advances transferred from Business Banking to Retail Relationship Banking in the first half of the year, Relationship Banking's advances grew 4,5%, while Personal Loans decreased 4,5%.

Advances growth in the Rest of Africa Cluster was driven by growth in the African subsidiaries as a result of footprint expansion, new products and client value propositions.

Deposits

The group's strategy of building its deposit franchise through innovative products and competitive pricing led to deposit growth of 11,1% to R725,9bn¹ (2014: R653,5bn)¹ resulting in a loan-to-deposit ratio of 93,9%¹ (2014: 93,8%)¹, which has remained  consistently below 100%.

We continued to focus on growing Basel III-friendly deposits, emphasising retail and commercial deposits and reducing reliance on wholesale funding. Retail deposit growth was 15,9% and commercial and wholesale deposits grew at 9,7%.

Current accounts increased 8,6%, in line with the 8,5% growth in main banked clients. Our savings accounts grew 20,3%, with good takeup of our tax-free savings product, GoalSave, and foreign currency savings deposits in Nedbank Wealth reflecting higher values as a result of a weaker rand. Growth in fixed deposits of 14,0% and in negotiable certificates of deposit of 16,7% was driven by demand for longer-term deposits on the back of increased interest rate expectations. Call and term deposits increased 7,2%. Nedbank also successfully increased foreign currency funding by 50,8% to support foreign denominated lending and to diversify the funding base.

Total funding-related liabilities grew 11,9% to R770,8bn (2014: R689,1bn), including R15,5bn of long-term debt capital market funding issued as part of our strategy to lengthen the funding profile.

Group strategic focus

We made good progress with our five key strategic focus areas, namely:

·      Client-centred innovation: We continued to innovate with products such as Market Edge™ - winner of the big data and analytics category at the
Efma-Accenture Global Banking Innovation Awards. We deployed WebTickets in the Nedbank App Suite™, implemented Tshwane Prepaid Electricity on WAP, APP and USSD, launched our tax-free savings account - GoalSave - and our
32Day Notice Account and, for wholesale clients, our worldclass Plug and Transact™ token. To date we have converted 255 outlets in the 'branch of the future' format and we currently plan to have converted 77% of all outlets by 2017. Digitally enabled clients increased 40% and the value of Nedbank App Suite™ transactions by 66% to R16bn. As part of our digital experience management programme, we launched the new Nedbank.co.za website, which leverages worldclass technology to enhance the client experience, integrate product applications and render seamlessly across all mobile devices. Our progress in innovation was acknowledged with Nedbank receiving The Banker Magazine's Technology Projects of the Year award and being recognised as The Asian Banker's Best Retail Bank in South Africa and Best Mortgage and Home Loans Product in Africa for 2015. We also received recognition at the 2015 iCMG Enterprise & IT Architecture Excellence Awards for our Managed Evolution architecture.

·    Growing our transactional banking franchise: Our retail franchise continued to strengthen, with main banked clients increasing 8,5% to 2,7m and the number of clients with two or more products up 5,5%. Significant progress was made in our brand value and client relationships as reflected in the Nedbank Brand Tracker results, the Consulta annual retail reputational Net Promotor Score (NPS), which improved to 21% from 15%, and our SA client satisfaction index score increasing to 74,3%. In addition, exceptionally high levels of full-service recovery was recorded, as evidenced by Nedbank being ranked first among the banks in respect of the HelloPeter client feedback ratio. CIB successfully acquired the transactional accounts of the eThekwini and Ekurhuleni metropolitan municipalities, demonstrating our strong client relationships, deep skills base and innovative transactional banking solutions.

·    Optimise and invest: Our expense optimisation programme unlocked R915m of cost savings in 2015 through initiatives such as the rationalisation of RBB backoffice operations, the CIB integration and our strategy to decrease our core systems from 250 to 60, of which eight were decommissioned in 2015 and 84 to date. In response to the evolving regulatory landscape and increasing cost of compliance, we centralised our regulatory change office to ensure economies of scale in terms of efficient delivery and cost management. Across the greater Old Mutual group in SA, Nedbank achieved R112m of synergies across costs and revenues. Old Mutual Emerging Markets incorporating Mutual & Federal outsourced their IT support to Nedbank on a commercial arm's length basis and this is projected to deliver a combined saving of more than R150m over a
three-year period. We remain on track for delivery of the full R1bn of pretax run rate synergies in 2017, of which just under 30% should accrue to Nedbank.

·    Strategic portfolio tilt: Our focus on growing activities that generate EP, such as transactional deposits, transactional banking and investment in the rest of Africa, generated EP growth of 19,6% to R2 525m, a loan-to-deposit ratio of 93,9%, and earnings growth of 93,6% in our Rest of Africa Cluster. All this was achieved while maintaining strong balance sheet metrics, keeping impairments below our through-the-cycle range, and delivering dividend growth ahead of HEPS growth.

·    Pan-African banking network: 

−        In Central and West Africa our partnership approach through our strategic alliance and approximately 20% shareholding in ETI provides our clients with a pan-African transactional banking network across 39 countries and our shareholders with the opportunity to participate in the higher growth in the rest of Africa. Our close working relationship with Ecobank, supported by Ecobank's Johannesburg team colocating into Nedbank's offices, resulted in the partnership's conclusion of three joint financing deals in 2015, and 74 of our wholesale clients now banking with Ecobank.

−        In SADC and East Africa we continued to invest in our subsidiaries by implementing the Flexcube core banking system, launching new products and rolling out new distribution channels, including the 'branch of the future' format. In terms of our existing contractual agreements we will increase our stake in Banco Único to 50% plus one share at an estimated cost of R178,4m in the first half of 2016.

Economic outlook

Economic conditions are unlikely to improve in 2016. The group's current forecast for 2016 GDP growth is 0,2%. Interest rates are expected to increase by a cumulative 125 bps for 2016, having already increased by 50 bps in January in response to a higher inflation outlook caused by administered price increases, higher food prices and the weaker rand.

Rising interest rates will increase borrowing costs and dampen consumer credit demand. Credit defaults are also expected to increase as a result of rising rates as consumer debt levels remain high, with the job market unlikely to grow meaningfully in the short term. Transactional banking activity is anticipated to grow modestly in line with consumer spending.

Growth in wholesale banking will continue to be limited by infrastructure constraints in SA, poor global demand and low international oil and commodity prices. There remain pockets of growth in infrastructure as well as in renewable-energy projects. Sub-Saharan Africa will still represent an area of growth for many SA corporates as indicated by the International Monetary Fund (IMF) in its 2016 GDP growth forecast of 4,0% for the region.

Prospects

Our guidance on financial performance for the full 2016 year is as follows:

·    Advances to grow at mid-to-upper single digits.

·    NIM to be in line with the 2015 level of 3,30%.

·    CLR to be within the revised through-the-cycle target range of 60 to 100 bps.

·    NIR (excluding fair-value adjustments) to grow above mid-single digits, prior to the consolidation of Banco Único.

·    Expenses to increase by mid to upper-single digits, prior to the consolidation of Banco Único.

In the current environment forecast risk remains elevated and as a result our guidance for performance in the year ahead is harder to formulate. In this context we currently forecast that growth in DHEPS for 2016 will be lower than the growth we achieved in 2015 and below our medium-to-long-term target of consumer price index + GDP growth + 5%. Given the increased forecast risk, we will update this guidance at the time of our June 2016 results.

Our medium-to-long-term targets remain unchanged, with the exception of the CLR through-the-cycle target range, which changed to between 0,6% and 1,0% from 0,8% and 1,2% of banking advances. The lower range reflects the change in advances mix towards a higher proportion of wholesale advances, as well as the change in mix within Nedbank Retail towards a lower proportion of personal loans. At its peak, personal loans was 4,2% of total gross advances and this has now reduced to 2,7%.The group's cost of equity for 2016 has been increased from 13,0% to 15,0% to capture the higher cost of capital imputed by the increase in the SA long-bond yield during late 2015. We will take cognisance of this significant change in the cost of equity and during 2016 we will review our medium-to-long-term target for ROE (excluding goodwill), being cost of equity + 5%.

Our medium-to-long-term targets and our current performance outlook for 2016 for these are as follows:

Metric	2015 performance	Medium-to-long-term targets	2016 full-year outlook
ROE (excluding goodwill)	17,0%	5% above cost of ordinary shareholders' equity (to be reviewed during 2016)	Below target
Growth in DHEPS	8,5%	≥ consumer price index + GDP growth + 5%	Below 2015 growth and below target
CLR	0,77%	Revised to between 0,6% and 1,0% of average banking advances	Within target range
NIR-to-expense ratio	83,3%	> 85%	Below target
Efficiency ratio⁴	56,1%	50,0% to 53,0%	Above target
CET1 capital adequacy ratio (Basel III)	11,3%	10,5% to 12,5%	Within target range
Economic capital	Internal Capital Adequacy Assessment Process (ICAAP): A debt rating (including 10% capital buffer)
Dividend cover	2,06 times	1,75 to 2,25 times	Within target range

⁴ Includes associate income in line with industry accounting practices.

Shareholders are advised that these forecasts are based on our latest macroeconomic outlook and have not been reviewed or reported on by the group's auditors.

Board changes

During the period the boards of Nedbank Group Limted and Nedbank Limited ("the companies") announced the appointment of:

·      Vassi Naidoo as Non-executive Director with effect from 1 May 2015, and Non-executive Chairman from 11 May 2015;

·      Stanley Subramoney as independent Non-executive Director with effect from 23 September 2015; and

·      Bruce Hemphill as Non-executive Director with effect from 25 November 2015 following his appointment as CEO of Old Mutual plc.

The following board directors retired at the annual general meeting on 11 May 2015, either having served on the board as a non-executive for nine years or having retired from executive service:

·      Dr Reuel Khoza, Non-executive Chairman;

·      Mustaq Enus-Brey, Non-executive Director;

·      Gloria Serobe, Non-executive Director; and

·      Graham Dempster, Executive Director.

On 31 October 2015, subsequent to his retirement from Old Mutual plc, Julian Roberts retired as Non-executive Director from the boards of the companies.

Following the announcement by Old Mutual plc regarding the stepping down of Mr Paul Hanratty as Chief Operating Officer, the boards of the companies advise that Mr Paul Hanratty will end his term as a Non-executive Director of the companies on 12 March 2016.

Group Executive changes

The group's executive leadership team is key to the delivery of our strategic focus areas, and during the period we announced the following appointments:

·      With effect from 1 January 2015

−        Mfundo Nkuhlu succeeded Graham Dempster (who retired) as Chief Operating Officer and was appointed to the board as an executive director,

−        Brian Kennedy was appointed as Managing Executive of Nedbank Corporate and Investment Banking, which was formed through the integration of our Nedbank Capital and Nedbank Corporate Clusters, and

−        Mike Davis was appointed as Group Executive of Balance Sheet Management;

·      Iolanda Ruggiero was appointed as Managing Executive of Nedbank Wealth with effect from 1 May 2015, having replaced Dave Macready, and

·      Priya Naidoo was appointed as Group Executive for Strategic Planning and Economics with effect from 1 June 2015,

§ Mike Davis, Iolanda Ruggiero and Priya Naidoo were appointed to our Group Executive Committee. 

Philip Wessels, Group Managing Executive Nedbank Retail and Business Banking, has requested to take early retirement from Nedbank for personal reasons, which request has been supported by the Board. This will be effective from 31 March 2016, some 2 years ahead of his normal retirement age of 60. Philip has had a long and successful career at Nedbank spanning more than 20 years across various businesses in the group. We thank Philip for his contribution to the group and wish him well in his retirement.

In line with our succession planning, Nedbank is pleased to announce the appointment of Ciko Thomas, to succeed Philip with effect from 1 April 2016, subject to regulatory approval. Ciko is currently Managing Executive of Consumer Banking and has been a part of the RBB leadership team and the Group Executive Committee for six years. He has wide-ranging banking and leadership experience across the group. Ciko's appointment ensures continuity in RBB's leadership and strategy, and he inherits a strong RBB cluster with an experienced management team. Ciko completed the Harvard AMP in 2015, and holds BSc and MBA degrees.

Accounting policies¹

Nedbank Group Limited is a company domiciled in South Africa. The audited summary consolidated financial statements of the group at and for the year ended 31 December 2015 comprises the company and its subsidiaries (the 'group') and the group's interests in associates and joint arrangements.

The summary consolidated financial statements contained in the SENS announcement has been extracted from the audited summary consolidated financial statements, which have been prepared in accordance with the provisions of the JSE Limited Listings Requirements for preliminary reports and the Companies Act applicable to summary financial statements. The JSE Limited Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the South African Institute of Chartered Accountants (SAICA) Financial Reporting Guides as issued by the Accounting Practices Committee, and Financial Pronouncements as issued by the Financial Reporting Standards Council and also, as a minimum, to contain the disclosure required by International Accounting Standard 34: Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summary consolidated financial statements results were derived, are in terms of the IFRS and are consistent with the accounting policies that were applied in the preparation of the previous consolidated annual financial results.

The summary consolidated financial results have been prepared under the supervision of Raisibe Morathi CA(SA), the Chief Financial Officer.

EVENTS AFTER THE REPORTING PERIOD¹

There are no material events after the reporting period to report on.

AUDITED SUMMARY CONSOLIDATED FINANCIAL STATEMENTS - INDEPENDENT AUDITORS' OPINION

The summary consolidated financial statements comprise the summary consolidated statement of financial position at 31 December 2015, summary consolidated statement of comprehensive income, summary consolidated statement of changes in equity and summary consolidated statement of cashflows for the year then ended and selected explanatory notes, which are indicated by the following symbol ¹.

These summary consolidated financial statements for the year ended 31 December 2015 have been audited by KPMG Inc and Deloitte & Touche, who expressed an unmodified opinion thereon. The auditors also expressed an unmodified opinion on the consolidated financial statements from which these summary consolidated financial statements were derived.

A copy of the auditors' report on the summary consolidated financial statements and of the auditors' report on the consolidated financial statements are available for inspection at the company's registered office, together with the consolidated financial statements identified in the respective auditors' reports.

The auditors' report does not necessarily report on all of the information contained in the financial results. Shareholders are therefore advised that, in order to obtain a full understanding of the nature of the auditors' engagement, they should obtain a copy of the auditors' report together with the accompanying financial information from Nedbank Group's registered office.

Forward-looking statements

This announcement contains certain forward-looking statements with respect to the financial condition and results of operations of Nedbank Group and its group companies, which by their nature involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include global, national and regional economic conditions; levels of securities markets; interest rates; credit or other risks of lending and investment activities; as well as competitive and regulatory factors. By consequence, all forward-looking statements have not been reviewed, audited or reported on by the group's auditors.

Final-dividend declaration

Notice is hereby given that a gross final dividend of 570 cents per ordinary share has been declared, payable to shareholders for the year ended 31 December 2015. The dividend has been declared out of income reserves.

The dividend will be subject to a dividend withholding tax rate of 15% (applicable in SA) or 85,50000 cents per ordinary share, resulting in a net dividend of 484,50000 cents per ordinary share, unless the shareholder is exempt from paying dividend tax or is entitled to a reduced rate in terms of an applicable double-tax agreement.

Nedbank Group Limited's tax reference number is 9375/082/71/7 and the number of ordinary shares in issue at the date of declaration is 494 411 956.

In accordance with the provisions of Strate, the electronic settlement and custody system used by JSE Limited, the relevant dates for the dividend are as follows:

Event	Date
Last day to trade (cum dividend)	Friday, 8 April 2016
Shares commence trading (ex dividend)	Monday, 11 April 2016
Record date (date shareholders recorded in books)	Friday, 15 April 2016
Payment date	Monday, 18 April 2016

Share certificates may not be dematerialised or rematerialised between Monday, 11 April 2016, and Friday, 15 April 2016, both days inclusive.

On Monday, 18 April 2016, the dividend will be electronically transferred to the bank accounts of shareholders. Holders of dematerialised shares will have their accounts credited at their participant or broker on Monday, 18 April 2016.

For and on behalf of the board

Vassi Naidoo                                                   Mike Brown

Chairman                                                         Chief Executive

2 March 2016

Registered office

Nedbank Group Limited, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, 2196.

PO Box 1144, Johannesburg, 2000.

Transfer secretaries in SA

Computershare Investor Services (Pty) Ltd, 70 Marshall Street, Johannesburg, 2001, SA.

PO Box 61051, Marshalltown, 2107, SA.

Transfer secretaries in Namibia

Transfer Secretaries (Pty) Ltd, Robert Mugabe Avenue No 4, Windhoek, Namibia.

PO Box 2401, Windhoek, Namibia.

Directors

V Naidoo (Chairman), MWT Brown* (Chief Executive), DKT Adomakoh (Ghanaian), TA Boardman, BA Dames, ID Gladman (British), PB Hanratty (Irish), JB Hemphill, PM Makwana, Dr MA Matooane, NP Mnxasana, RK Morathi* (Chief Financial Officer), JK Netshitenzhe, MC Nkuhlu* (Chief Operating Officer), S Subramoney, MI Wyman** (British).

* Executive ** Senior independent non-executive director

Company Secretary:                   TSB Jali

Reg no:                                       1966/010630/06

JSE share code:                          NED

NSX share code:                         NBK

ISIN:                                            ZAE000004875

Sponsors in SA:                          Merrill Lynch SA (Pty) Ltd

                                                   Nedbank CIB

Sponsor in Namibia:                   Old Mutual Investment Services (Namibia) (Pty) Ltd

This announcement is available on the group's website at nedbankgroup.co.za, together with the following additional information:

·    Detailed financial information in HTML and PDF formats.

·    Financial results presentation to analysts.

·    Link to a webcast of the presentation to analysts.

For further information please contact Nedbank Group Investor Relations at [e-mail]"

Enquiries

External communications

Patrick Bowes                                      UK          [phone]

Investor relations

Dominic Lagan                                    UK          [phone]

Sizwe Ndlovu                                        SA           [phone]

Media

William Baldwin-Charles                                   [phone]

                                                                                [phone]

Notes to Editors

Old Mutual provides investment, savings, insurance and banking services to more than 17 million customers in Africa, the Americas, Asia and Europe. Originating in South Africa in 1845, Old Mutual has been listed on the London and Johannesburg Stock Exchanges, among others, since 1999.

In the year ended 31 December 2014, the Group reported adjusted operating profit before tax of £1.6 billion (on an IFRS basis) and had £319 billion of funds under management from core operations.

For further information on Old Mutual plc, please visit the corporate website at www.oldmutual.com 

 

END

 

 

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