After two trading statements relating to the six months to June 2021, Nedbank has released its full interim results. Net interest income climbed 7% and impairments dropped by 59%, so the net impact on its income from lending activities was obviously highly positive. The bank’s core lending business grew its income (net of impairments) by 85%.
Nedbank notes that demand for retail credit (borrowings by individuals) was strong in this ultra-low interest rate environment, while demand for corporate loans was muted. Companies used excess cash to repay debt, thereby deleveraging their balance sheets and reducing risk.
Interestingly, non-interest revenue (referred to as NIR – a key driver of shareholder returns) dropped by 8%. This encompasses all the non-lending income in the group, like trading income or advisory fees. As these services are typically capital-light and don’t carry significant risk of impairments, they have been key to banking returns throughout the pandemic.
The drop in NIR was driven by a sharp decrease in net trading income, down from R2.7bn to nearly R1.9bn. There were some positive impacts on other NIR lines, but not enough to offset the drop in trading income. This has been a common theme in banks worldwide, as the base last year includes a period of extreme market volatility and heightened trading activity, which is great news for trading operations in banks.
The net effect is that 43% of Nedbank’s operating income for the period was contributed by NIR, with the rest coming from the lending business. Operating income grew 29% overall.
Operating expenses only grew by 6%, so the net impact on profit from operations was a massive jump from R2bn to R5.8bn for the six months. This allowed Nedbank to declare an interim dividend of 433 cents per share, an annualised yield of 4.8% based on yesterday’s closing price.
Nedbank’s interim headline earnings remain 24% below the levels achieved in the comparable period in 2019. There’s still a long recovery road to travel for the green bank.
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