By Roxanne Henderson, Annmarie Hordern and Manus Cranny
(Bloomberg) – Nedbank Group Ltd. expects to resume dividends this year after joining rival Absa Group Ltd. in scrapping payouts for 2020, with the South African bank likely to enjoy a profit boost this year.
The Johannesburg-based lender also set a target to improve return on equity in the medium term to levels better than the 15% achieved in 2019, and sees earnings growth of more than 20% in the first half of 2021, according to a statement Wednesday.
The company opted to “retain capital for both potential growth opportunities but also for potential further risks in the virus,” Chief Executive Officer Mike Brown said in an interview with Bloomberg TV. If the backdrop turns more sour, “we always retain the opportunity to return that capital to shareholders at a later stage,” he said.
Headline earnings for the year to December fell 57% to 5.4 billion rand ($307 million) after raising impairments to navigate the weak operating environment caused by the Covid-19 pandemic. Revenue was down 3.5% to 54.2 billion rand.
Nedbank and Absa are opting to preserve capital even after a South African regulator relaxed guidance on dividends and bonuses and other banks declared payouts. While the country has recovered from a fierce resurgence in the coronavirus outbreak late last year, the regulator still warned lenders to spend capital prudently as the country is likely to face further spikes in infections.
Nedbank and its rivals are also contending with a record-high unemployment rate of 32.5% in their home market, curbing the capacity of some clients to service their debts and spend. Lenders have extended payment holidays to keep customers afloat as lockdown measures to contain the Covid-19 outbreak pushed South Africa’s economy into the deepest contraction in 100 years.
The outlook for South Africa’s “economy is nevertheless more promising, with the recovery supported by firmer consumer spending, the rebuilding of domestic inventories and stronger commodity prices and export growth, particularly during the second half of the year,” Brown said.
Nedbank shares have performed the worst among South African peers over the last 12 months, rising almost 6% compared with gains of 15% on the six-member FTSE/JSE Africa Banks Index. They declined 0.6% in early trade in Johannesburg.
(Updates with CEO comment in third paragraph)
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