Nedbank resumed paying dividends after its annual profit almost tripled, thanks to lower impairments, a recovery in its non-interest revenue growth and a strong focus on lowering costs by reducing headcount and streamlining its physical presence.
The bank, which has been largely unbundled from Old Mutual, said profit surged more than 178% to R12.39bn in the year to end-December 2021, up from a restated R4.45bn the previous year. Basic earnings per share saw a more than threefold increase to 2,317c a share, up from 717c in the previous fiscal year.
That allowed Nedbank’s board to declare a final dividend of 758c a share, taking the full-year dividend to 1,191c. Nedbank did not pay dividends in 2020 in line with guidance from the Prudential Authority (PA) that banks should retain capital as a buffer against the financial effect of Covid-19.
Nedbank CEO Mike Brown said that while the past two years had been “extraordinarily difficult” for the bank and its clients, the operating environment in its 2021 fiscal year had been “more supportive”. The bank’s share's rose 4.3% to R217.06 as of 1.27pm, giving it a market value of R105.96bn, the fifth largest among its peers.
“The SA economy bounced back faster than most forecasters expected from the low base of 2020,” said Brown. “In the third quarter the negative impacts of a prolonged third wave of Covid-19 infections, tighter lockdown restrictions, the July civil unrest in parts of the country and frequent power outages weighed heavily on economic activity but trading conditions improved in the last quarter of 2021.”
Stats SA announced on Tuesday that SA’s economy grew 1.2% in the final three months of 2021 compared with the previous quarter, repairing some of the damage from a 1.7% contraction that occurred between June and September. The third-quarter contraction was largely driven by the unprecedented riots and looting that erupted in July in the wake of former president Jacob Zuma’s imprisonment for contempt of court.
Though the economy grew 4.9% for the whole of 2021, the biggest increase since 2007, unemployment rose to record levels of close to 35% as businesses hurt by the pandemic and associated lockdowns either closed down or shed workers to contain costs. Nevertheless, Nedbank said comparatively low interest rates supported credit demand from retail consumers while transaction activity increased as lockdown measures eased.
Even so, demand for credit from larger corporates remained subdued in the first half of 2021 as businesses held back on investment due to economic uncertainty and instead used their excess cash to pay down debt. The bank said corporate credit demand began recovering in the second half despite the July unrest, power outages and the arrival of the Omicron Covid-19 variant.
Nedbank continued to focus on cost reduction and efficiency during the 2021 financial year, trimming staff numbers by 5% to 26,861 and reducing its SA branch network from 549 to 538. It also reduced the corporate real estate floor space it occupies from 313,000m² in 2020 to 265,000m² in 2021.
“As clients transact more and more digitally you should expect us to respond in shaping our physical infrastructure to match clients’ transactional behaviour,” said Brown.
The drive towards greater efficiency and a reduced physical presence forms part of what Nedbank calls its “managed evolution” towards creating a more modern, digital banking operation. As part of that journey, Brown says Nedbank has invested almost R10bn since 2015 to build a “modern, modular, agile and digitally focused tech stack,” a process that is 85% complete.
“We very definitely want to compete and compete strongly in the digital financial services space in our retail business,” said Brown. “We want to become the market leading digital franchise.”
In the wake of Covid-19, Nedbank is moving to a more flexible working arrangement that it expects will see 50% of its workforce employed full-time at its own premises with another 20% full-time employees working permanently off-site. The remaining 30% will be a hybrid of permanent work-from-home and on-premises employees.
Nedbank’s corporate and investment banking (CIB) unit added 35 new primary clients during 2021 and was the star contributor to its headline earnings of R11.69bn for the fiscal year. CIB contributed more than R5.6bn of that amount followed by the retail and business banking (RBB) division, which brought in R4.53bn. The bank’s wealth and rest of Africa divisions contributed R962m and R594m, respectively.
Though Nedbank said it expects SA’s economy to expand by a more sedate 1.7% in 2022 it said it now expects to meet its diluted headline earnings per share (HEPS) target of more than 2,565c per share in 2022. That is a year ahead of its initial expectation to achieve the earnings target in its 2023 fiscal year.
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