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The banking group is hopeful that impairments will decline and client activity will continue to improve as the year progresses.
Nedbank believes the worst may be behind it after suffering a large decline in first-half earnings due to what is has billed as the Great Lockdown Crisis (GLC).
The banking group has attributed its performance to a significant increase in its impairment charge, which includes R2.9bn in provisions for anticipated credit losses in the period ahead. Cumulative interest rate cuts this year impacted its net interest income while non-interest revenue came under pressure due to fewer transactions by its clients and negative revaluations to unrealised private-equity investments.
Nedbank’s return on equity (ROE), a key measure of its financial performance, declined to 4.8% and was below its estimated cost of equity of 14.6% for the first time since the global financial crisis. Its Retail and Business Banking business was worst hit, with its ROE declining to 1.5% as impairment charges resulted in a 91% decline in headline earnings to R228m. Corporate and Investment Banking reported a 57% fall in headline earnings to R1.42bn while its Wealth cluster reported a 21% drop to R362m.
Group revenue declined by 1.8% to R27.2bn for the six months to end-June but it kept a lid on expenses, which fell 1.1% to R15.4bn. Headline earnings plunged 69% to R2.1bn as its credit loss ratio rose to 194 basis points from 70 previously. Headline earnings per share came in 69.5% lower at 438c. Basic earnings, which include a R750m impairment of its investment in pan-African lender Ecobank Transnational Incorporated (ETI) were down 81% at 270c per share. It hasn’t declared an interim dividend in line with advice from the Reserve Bank’s Prudential Authority although its liquidity and capital positions remained strong.
Nedbank said its full-year earnings and headline earnings per share were likely to be more than 20% lower than last year. In April, it withdrew its guidance for the year and said it was reviewing its medium and long-term targets due to the material change in market conditions and the economic outlook in the countries where it operates, particularly SA.
Forecasting in the current environment is complex and estimates are subject to a much higher level of forecast risk than usual, but we are hopeful that the worst impacts of Covid-19 and the GLC are behind us and that impairments in the second half will be lower than in the first half and client activity will continue to increase off a low base,” CEO Mike Brown said.
Nedbank closed 5.7% down at R105.75 yesterday.
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