Nedbank earnings jump 10%, ups dividend

Nedbank’s headline earnings increased by 10% in the first half of this year. However, this was partially offset by increases in the bank’s retail impairments.

Nedbank released its interim financial results for the six months ended 30 June 2023 today, which revealed strong earnings growth.

The bank saw the following year-on-year changes in its earnings in the period:

  • Headline earnings – increased by 10%
  • Headline earnings per share – increased by 11%
  • Basic earnings per share – increased by 8%

Nedbank said its earnings growth was underpinned by strong revenue growth, including associate income of 14% and good expense management, enabling pre-provisioning operating profit (PPOP) growth of 22%.

The company also saw a 9% increase in its profit for the period compared to the previous year, growing from R7.41 billion in H1 2022 to R8.10 billion.

Nedbank’s return on equity (ROE) also increased to 14.2% (H1 2022: 13.6%), which the company said reflects “the diversification benefits of our portfolio of businesses, with higher levels of growth in the Nedbank Africa Regions and Nedbank Wealth”. 

The bank said its productivity levels improved in the period, evident in its cost-to-income ratio declining to 52.9% from 56.1% in H1 2022. 

Nedbank’s capital and liquidity ratios also remained high, with a common equity tier 1 ratio of 13.3% (H1 2022: 13.5%), an average second-quarter liquidity coverage ratio of 143% (H1 2022: 143.5%) and a net stable funding ratio of 119% (H1 2022: 120.3%).

The bank said these are all well above board targets and regulatory minimums. 

The group’s total expected credit loss coverage increased to an all-time high of 3.67% as it remains “conservatively provided in a difficult macroeconomic environment”.

Nedbank’s net asset value per share of 22,548 cents also grew by 8% (H1 2022: 20,964 cents).

However, the company said its revenue growth in the period was partially offset by a 57% increase in the impairment charge. 

This was due to the impact of higher interest rates, higher inflation levels and record levels of load-shedding on clients, particularly in the retail Consumer Banking segment.

Looking forward, Nedbank expects the local economic environment to remain “very challenging, particularly given the high levels of electricity shortages and increased levels of pressure on consumers’ disposable income”, said CEO Mike Brown.

The Nedbank Group Economic Unit forecasts South Africa’s GDP to increase by only 0.3% in 2023 and interest rates to remain at elevated levels, with the repo rate at 8.25% and the prime lending rate at 11.75% for the remainder of the year.

“The solid financial performance in H1 2023 supports our ambition to achieve our published 2023 targets of an ROE greater than the 2019 ROE level of 15% and a cost-to-income ratio of below 54%,” he said.

However, Brown said the deteriorating macroeconomic environment has made achieving these and the bank’s medium-term targets for 2025 more difficult. 

The group declared an interim dividend of 871 cents per share (H1 2022: 783 cents).