Johannesburg - Nedbank’s activities in the rest of Africa, including its strategic partnership with West Africa’s Ecobank Transnational Incorporated (ETI), came through for South Africa’s fourth largest lender, which grew headline earnings by 15.7 percent for the six months to June.
The bank said it would place bigger focus on the continent as the South African growth story wobbled on the possibility of higher interest rates, weak commodity demand and supply constraints, including the erratic supply of electricity that had dampened corporate sector appetite for credit.
Strategy
In its interim results for the half year to June, Nedbank said it was boosted by associate income of R436 million, up from R11m in the comparable period in 2014, and driven by Nedbank’s 20 percent shareholding in ETI. It purchased the stake in the second half of 2014 for R6 billion.
In a teleconference with Business Report, Nedbank executives said the bank had done well in a challenging local environment that was characterised by slow gross domestic product growth, electricity supply constraints, as well as a weak global environment.
“A lot of South African companies are already doing business in those environments, (and) part of our strategy is to support our clients… bearing in mind that economic growth in most of the African countries is a lot stronger than it is in South Africa, although coming from a low base for some of them,” chief financial officer Raisibe Morathi said.
Nedbank made inroads into Mozambique in the second half of 2014 with the acquisition of a 37 percent stake in Banco Unico, with the possibility of increasing its shareholding to more than 50 percent in the near future.
Apart from Mozambique and South Africa, the subsidiary of Old Mutual has a presence in Namibia, Swaziland, Lesotho and Malawi.
However, chief operating officer Mfundo Nkuhlu said the strategic partnership with Ecobank had increased Nedbank’s coverage across 39 countries. While it was still early days, “the price of entry into the rest of the continent was below one times net asset value, which ensures that we are able to get returns on investment very quickly. As we are talking, the return on investment on an annualised basis is 14-and-a-half of net asset value, which means it was a prudent strategy.”
On the local economy, the officials said the interest rate hikes last week came at a time the economy was not growing, which was further affected by the exchange rate.
“Interest rates are dynamic; it is concerning but can also create small opportunities for banks in terms of increasing the endowment income. But at the same time we are concerned about the consumers who are already indebted; they can find their financial circumstances tighter,” Morathi said.
Results
For the six months to June, Nedbank reported a climb in headline earnings to R5.3bn from R4.59bn in the six months to June 2014. Meanwhile, return on equity (ROE), excluding goodwill, increased to 17.3 percent.
Nedbank’s business clusters, which have been reviewed to improve efficiency and include retail and business banking and corporate and investment banking, reported headline earnings growth of 19.9 percent to R5.5bn, and a ROE of 19.7 percent compared with 18.7 percent in the previous comparable period.
Nedbank’s shares jumped 5.08 percent on the JSE yesterday to close at R271.02. The banks index was up 3.2 percent.
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