Revolution at 138-year-old South African bank

Nedbank is undergoing a quiet revolution, drastically restructuring its business units and fundamentally changing its approach to expansion in Africa. 

These changes have all occurred in the past year, and the bank is already beginning to reap the rewards of taking strong action. 

The overhaul of its business units aims to revive Nedbank’s core offerings and put the bank on the front foot in South Africa once again. 

In recent years, the bank, alongside Absa, with its well-documented leadership instability, has lagged the performance of its Big Four peers in Standard Bank and FirstRand. 

Nedbank’s return on equity remains the second lowest among the Big Four, and its growth has been somewhat flat despite its substantial balance sheet. 

Some pointed to the bank’s relatively small African exposure as the reason for this, with Nedbank seen as a bellwether for the local economy due to its heavy exposure to South Africa. 

This limited its growth somewhat, as its Big Four peers benefited immensely from much faster economic expansion elsewhere on the continent. 

Now that South Africa appears to have turned the corner regarding its economic fundamentals, Nedbank is well-positioned to benefit. 

To ensure it benefits to the best of its ability, the bank has drastically restructured its operating divisions, which CFO Mike Davis told Daily Investor were ill-equipped to meet client demand. 

“Historically, the big organisational restructure at Nedbank was bringing together the Wealth cluster and the Retail and Business Banking (RBB) cluster,” Davis explained. 

“Within the RBB cluster, we had the retail business and the commercial banking business, while within the wealth business, we had high-net-worth clients, asset management, and insurance.”

This meant the bank was serving high-net-worth clients in two separate operating units – RBB and the Wealth business. 

“We recognised that it was difficult to sell products into the RBB client base, given the fact that it sat across clusters. The other thing was that our private banking business was split across RBB and Wealth,” Davis said. 

This was a structure that many of South Africa’s largest banks had due to the fact that most business banking clients were also private banking clients. 

However, in recent years, this has become unwieldy, with banks unable to adequately meet the demands of private banking clients and business banking clients from within one operating unit. 

Breaking apart and bringing back together

Nedbank has been relatively late to the party in splitting out its personal and business banking units, with many of the Big Four doing so towards the end of the 2010s. 

It is notable that both the laggards within the Big Four, Nedbank and Absa, have been slow to change their retail businesses to better serve clients. 

Nedbank began addressing this problem at the start of 2025, and Davis explained how the changes are already bearing fruit for the bank. 

“Step one was to put business and commercial banking (BCB) together by stripping out business banking from RBB and commercial banking from the Wealth division,” Davis explained. 

“From this, we immediately created BCB and Personal and Private Banking (PPB). PPB is now 100% focused on individuals, and BCB is focused purely on businesses outside of large corporates.” 

“So now, you have all product segments relating to individuals in one cluster and all offerings from SMEs to commercial banking clients in another cluster.” 

This has brought some synergies in the form of being able to meet high-net-worth client demands from one cluster and service businesses from one unit. 

However, the main benefit is not the cost-cutting potential or the streamlining of operations, but the ability to offer full-service banking to all clients within the clusters much more effectively. 

“The big uplift is obviously in being able to sell insurance products and other offerings directly to our 7.5 million individual clients in PPB,” Davis said. 

“So you now have the insurance value proposition growing strongly. We are seeing good traction here, with early double-digit growth year-on-year in the insurance business.” 

Nedbank revealed that its cross-sell ratio has now crossed two, meaning each client has at least two products with the bank. In time, Davis wants to get this ratio above three. 

“This is coupled with the elevation of BCB as its own cluster, with Andiswa Bata coming across from FNB to head the business,” Davis said. 

“You are beginning to see the benefit of having a very clear value proposition. You can now serve SME clients differently to commercial banking clients and midcorp clients.”

“By lifting it as a cluster and giving it its own head, you can see the momentum shift in the second half of the year from August onwards. It is certainly starting to pay dividends.” 

This has also been combined with the acquisition of iKhokha, which gives the BCB unit access to another 54,000 point-of-sale devices. Crucially, this opens up significant lending opportunities for the unit. 

African adventure 2.0

The second part of Nedbank’s reinvention is the overhaul of the bank’s African strategy, with it completely shifting its focus on the continent. 

Last year, the bank disposed of its 21.2% stake in West African lender Ecobank (ETI), with it saying the business case did not play out as expected. 

This was coupled with an offer to buy 66% of NCBA, an East African lender which has over 60 million clients, for nearly R14 billion. 

“If you think about it, when we did the ETI transaction, we effectively bought a 21.2% stake in a business in 2014 that generated a third of its income from Nigeria,” Davis explained. 

“At that stage, Nigeria was doing very well. However, in the following years, the oil price fell to $30 per barrel. Nigeria has had significant issues since then.”

As a result of this, ETI’s Nigerian unit required continued recapitalisation, draining cash flows and preventing dividends from being paid to shareholders. 

“If you look at where that was going, we were concerned that it would require further recapitalisation and that would mean we would either need to invest more capital into ETI or be diluted,” Davis said. 

“As a result, we decided to exit ETI, and that decision was taken on its own because of the concern regarding future capital injections.” 

On the other hand, NCBA is a tier-one bank in the Kenyan market, with limited exposure to Tanzania, Rwanda, and Uganda. 

“It is a Kenyan-based business in a market that we understand well. It is a market that is well-regulated and a business that is extremely well run with a great management team,” Davis said. 

“If you look at the offer, it will make NCBA a subsidiary of Nedbank. It is not an associate as ETI was. It will be a fully-fledged subsidiary under Nedbank’s control.” 

Davis said this makes the difference between ETI and NCBA chalk and cheese. 

Nedbank expects to primarily benefit from NCBA’s strong position in East Africa, leveraging its regional presence to benefit from increased capital flows into the region. 

In particular, the bank’s CIB division is expected to benefit, with it gaining a substantial foothold in a fast-growing region of Africa. 

Under the deal, NCBA will retain its brand, retain its leadership team, and remain listed on the Nairobi Stock Exchange.