Nedbank Group said consumer strain and slowing credit and transactional revenue growth across both wholesale and retail portfolios was the result of a weak economy in the first four months of 2024.
Headline earnings grew by around mid-single digits in the four months to April 30, compared with the same time last year, supported by strong growth in Retail and Business Banking (RBB), albeit off a low base, and solid growth in Corporate and Investment Banking (CIB), partially offset by a decline in headline earnings in Nedbank Wealth and Nedbank African Regions (NAR).
The lender said in a trading update on Friday the economy had been weak, despite lower levels of load shedding and the easing of some transport bottlenecks.
Economic activity had been impacted by geopolitical uncertainty, high interest rates and high inflation. Household finances remained under pressure as real incomes contracted and job prospects remained muted. Corporate activity was also weak, impacted by the uncertain political and economic environment.
The bank did not expect the situation to change much into the second half, as inflation started to reduce further, potentially enabling interest rate cuts.
The Nedbank Group Economic Unit had consequently revised its SA GDP growth forecast for 2024, downwards to 0.9% from the 1% that it had forecast in February 2024.
The bank said it expected inflation to end 2024 at around 4.7% and it forecast rate cuts of 25 bps each in the final four months of 2024, with the prime interest rate at 11.25% at the end of the year.
Headline earnings growth was driven by softer net interest income (NII) and non-interest revenue (NIR) growth when compared to the 2024 full year guidance, a decline in the impairments charge and good expense management, the bank said.
Headline earnings per share also benefited from the R5bn capital optimisation initiative completed in 2023.
NII growth was just below mid-single digits, driven by moderate growth in average interest earning banking assets and a slight period-on-period increase in the NIM as a result of the run-rate benefit of interest rate increases in the prior period.
Average interest earning banking assets increased by low-to-mid single digits, reflecting slow growth in CIB average gross banking loans and advances, and solid, although slowing growth, in RBB average gross banking loans and advances.
“We expect stronger advances growth in H2 2024 when compared to H1 2024, as lower interest rates and inflation start benefiting retail credit growth and as wholesale clients start drawing down on approved and committed renewable energy deals.”
Deposit growth was slightly ahead of advances growth, supported by various initiatives to grow retail deposits faster than the market.
The group’s NIM fell slightly from 4.21% in 2023, largely as a result of negative asset mix changes due to slower growth in high-yielding assets owing to its continued cautious approach in unsecured lending in the current environment.
Impairments for the four months decreased when compared to the prior period and the group’s credit loss ratio (CLR) declined, but remained above the top end of the group’s board-approved through the cycle (TTC) target range (60 bps to 100 bps).
Expense growth was above mid-single digits and slightly better than management expectations, partly as a result of slower than expected variable costs in line with revenue growth. Guidance for expense growth of mid-to-upper single digits remained in place.
Conditions on the acquisition of Eqstra Investment Holdings had been fulfilled, and Eqstra would likely be consolidated into the group’s financials from June 1.
Mediation between Nedbank and Transnet, in respect of interest rate swap transactions between the parties that took place in December 2015 and March 2016, and which had been widely reported in the media for many years, had ended after it became apparent there was no likelihood of resolving the matter amicably despite extensive engagements.
The board and management said they were satisfied there was no evidence of any Nedbank staff dishonesty, corruption or collusion, and Nedbank would defend itself in any litigation proceedings.
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