Since Liberty Holdings delisted in March 2022, Nedbank has the honour of opening the midyear results season. Briefly at the turn of the century it was the largest bank by market capitalisation, and it even went through a phase where it wanted to be seen as a technology company, with its strategic holding in Dimension Data. Now it is the smallest bank by market cap, at R116bn.
But Nedbank is still a large employer. The personal and private banking segment has 14,500 employees, with a further 2,400 in its corporate and investment bank (CIB) (the largest contributor to profit), 2,000 in the newly formed business & commercial banking sector and 2,200 in Nedbank Africa Regions.
It’s worth keeping a close eye on the bank’s earnings, as it is an almost perfect proxy for SA Inc. And CFO Mike Davis is happy to admit that the results look unexciting — excluding some accounting noise, earnings were up just 2.6% for the first half — with some modest improvement expected in the second half.
Nedbank isn’t going to be one of the high octane shares in a portfolio, but it’s low risk with a strong balance sheet. Consider the key metrics: it has a capital adequacy ratio (technically a CET1 ratio) of 13.1%, comfortably above the target range of 11%-12%. Even in a dismal economic climate its capital loss ratio (bad debts) is 0.81%, right in the middle of its target range of 0.6%-1%, so shareholders can sleep comfortably at night.
Pedestrian earnings growth can be considered satisfactory for a mature full service universal bank in this environment. After all, in the first quarter SA’s GDP was up 0.1%, so as good as flat. And the new(ish) CEO, Jason Quinn, said credit extension and transactional activity for corporates and consumers remained subdued. Household credit growth nationally remains pedestrian at 3.1%.
This is perhaps not too surprising as the rate of interest rate cuts remains frustratingly slow, with incremental cuts of 25 basis points, the most recent a week ago, to a 10.5% prime rate.
Nedbank operates in an environment of slowing global growth, uncertainty around the international tariff regime, driven from the US. And there have been own goals locally, with multiple delays to the SA budget, concerns about the future of the government of national unity and continued structural efficiencies in the country, notably around electricity, water and logistics.
It will be even more of a perfect SA Inc proxy once it has disposed of its 20%-odd shareholding in the West African multinational banking group Ecobank, which was formally announced with the results. Quinn, who has been in the saddle for barely a year, has no sentimental attachment to the deal, which was supposed to be Nedbank’s springboard into the rest of Africa without building its own infrastructure organically.
Unfortunately, Nedbank overestimated the potential of the Nigerian economy and a number of its SA clients pulled out of that country. Cross-selling and other synergies did not materialise. The R6.8bn the bank received in associate income from Ecobank looks interesting on paper, but Nedbank only got R400m in dividend income from the investment.
Africa has a highly fragmented and uncertain regulatory environment and the bank might have been required to inject capital into Ecobank to prevent shareholding dilution.
Nedbank has an outsize market share in two areas, one being commercial (non-residential) mortgages, which was trimmed back marginally from 35.9% to 35.6% according to the BA900 data. The other is retail vehicle finance under the MFC brand, which increased from 35.9% to 36.2%. It has also trimmed back its already modest market share in unsecured loans, with personal loans down from 10.1% to 10% and credit cards down from 9.2% to 9%.
To avoid becoming an anachronistic legacy bank, Nedbank has had to invest in digital options for clients. This is helping to drive faster growth in capital lite non-interest revenue than in net interest income. The switch to digital has been fast, though all of the banks have benefited from this tailwind. But the growth compared with the first half of 2024 has been significant, with PayShap volumes up 250%, value-added services revenues up 39% and Money app payment volumes up 16%.
The main number analysts follow is the group return on equity (ROE). Fortunately, Nedbank’s ROE of 15.2% marginally exceeds its 14.8% cost of capital. Yet the price:earnings ratio of 7.6 is below its 10 year average of 8.8. Nedbank certainly hopes its cross-selling will improve now that its insurance and private wealth businesses have been moved from the defunct Nedbank Wealth cluster to Personal & Private Banking. One of its jewels is the Nedgroup asset management business, which moves to the CIB cluster.
Nedbank has over the years presided over the failure of some of SA’s most iconic fund managers — UAL, Syfrets and BOE. These were all disbanded as commercial banking and fund management cultures proved incompatible. But imitation is the sincerest form of flattery, and Nedgroup’s best-of-breed model — which outsources each fund to a different manager — has been shamelessly copied by Sanlam through the Amplify brand, Momentum through Curate, and most recently Nedbank’s former parent Old Mutual, which is launching its Symmetry Best in Class products.
• Cranston is a former associate editor of the Financial Mail.
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