Nedbank posts impressive results

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THE Nedbank Africa Region (NAR) posted an impressive performance in the year ending December 2021 driven by a good performance from its Ecobank Transactional Incorporated (ETI) investment and rebound from the Southern African Development Community (SADC) operations.

Headline Earnings (HE) increased by greater than 100 percent to R594m, which is significantly higher than the R12m reported in 2020, with ROE (return on investment) improving to 9, 3 percent from 0,2 percent in 2020.

The performance reflects the impact of significantly lower impairments, an increase in Net Interest Income (NII) of 14 percent to R1 448m and a strong recovery in associate income from ETI with related HE increasing to R523m (2020: R153m). Dr Terence Sibiya, NAR managing executive and Nedbank Lesotho Managing Director, Nkau Matete, recently spoke to Lesotho Times (LT) deputy editor, Silence Charumbira about the performance. Below are the excerpts of the interview:

LT: Give us an overview of your performance in the just ended year. 

Dr Sibiya:  We were able to deliver a dividend of 758 cents per share, which brought the full year dividend to 1191 cents per share, a pleasing result indeed, particularly if we compare to 2020, where were unable to deliver a dividend.

So, all in all, the overall earnings and the strong financial performance of the year ended 2021, were excellent. And while we saw that there were significant significantly lower impairments. There was also a higher net interest margin recovery, noninterest revenue growth, disciplined expense management and a stronger financial performance from our associate investment in ETI.

Turning now to ETI, which is housed under the net Nedbank Africa region’s business, which I look after, the Nedbank Africa Region’s business performance is also up by greater than 100 percent and delivered headline earnings of M594 million and returns of 9, 3 percent and you will recall colleagues that our business is twofold, on the one hand we’ve got our static operations which would include Lesotho assets in Namibia, Zimbabwe and Mozambique.

We’ve got an investment in Ecobank Transnational Incorporated in short, known as ETI, and that is our associate investment and that performance in our associated investment was remarkable.

And it was a big rebound from what we saw in 2020.

We saw that the headline earnings were up R523 million, and this was also attributed to a strong performance from their key three core regions, which is mostly central in West Africa and improvement in non-performing loans and their liquidity and then also a good improvement from their big operation in in Nigeria.

Even though that is still suboptimal, we saw some improvement there. So, given all of that, they are board was also able to declare a dividend or US$40 million, of which Nedbank will receive its share being a 21 percent shareholder of roughly US$8 million, subject of course to the approval by their upcoming annual general meeting (AGM) in a few weeks. So, overall, a very strong performance from a static region of good rebound.

LT: Congratulations on the impressive performance. You have mentioned a few indicators that influenced your good performance, would you break them down. What was the major attribute for your impressive headline earnings? 

Dr Sibiya: The impairment charge declined by 62 percent to roughly M168 million, obviously different by improved economic conditions during 2021 and this also improved our collections and recoveries.

So, our CLR, (credit loss ratio) as you can imagine, decreased by 72 basis points down speaking to the Africa region’s business in particular, which also is now below 2019 numbers. So, overall, in the impairment, where the non-performing loans live, for NAR we saw a decline of 62 percent, M268 million at the group level.

The credit loss ratio the CLR was down from 161 basis points to 83 basis points which shows you that there was a much more significant improvement in non-performing loans. People are now able to service their debt and being able to pay on time and within the agreed upon contracts.

So those are the high-level figures with respect to non-performing loans and obviously the impairment charge as per the group and the entire space.

Mr Matete: I can also add to that. Even though I said I would not be discussing figures, we saw a good improvement from the previous year. We were more than 20 percent better than what we were the year before. So, there was a good improvement there as well.

LT: You have been operating in a Covid-19 environment and it seems to be on a resurgence in other jurisdictions where cases are increasing. The trend in the last two years has been that after such an increase in cases elsewhere, we start recording such increases here at home when winter set in. Is the group ready for another bout of Covid-19?

Dr Sibiya: My view, or the group’s general view is that we are probably better prepared to live alongside Covid-19. We have been in the pandemic in the past two years, even though we see across many African countries, South Africa, Lesotho included, that the vaccination penetration rate remains relatively low. We do not foresee major lockdowns back to levels we saw in 2020 or 2021. So, economic activity will be probably impacted and it’s difficult for us to predict how

because we don’t know what kind of Covid variants are likely to hit us and what the extent of those might be. But I think through the past two years in our ability to respond to changing customer behaviour and client needs in particular now; primarily transacting in or, in a much larger way, transacting through our digital channels, we are better prepared than we might have been in previous times.

For instance, if you look at what we’ve put out to the market today, up to 53, close to 53 percent of our clients are now digitally active through our channels, that’s the app, the mobile applications that we have and then also the internet and USSD.

So, we have significantly improved the stability and the product offering through digital channels, which invariably puts us in a much better position to respond to whatever the change of customer needs might be as driven by whatever variant of Covid or variant of lockdowns that we may or may not experience in the near term.

LT: You mention smart banking and in Lesotho, we always experience long queues particularly at the end of the month. You see thousands queuing for different services and it takes hours for clients to be assisted if you want a bank statement for instance. How can this be changed?

Mr Matete: This phenomenon that you talk about is it’s prevalent in this county. Thankfully, you don’t see them in front of the green bank. So, then we are doing well in that in that regard. So, in line with the specific example you are making around statements, our digital journey has been about encouraging people not come to the bank unless it’s necessary. We have the mobile application; we have internet banking which provides that ability for our clients to download the statement or view their balances without having to come into the bank.

So, it’s a behavioural change issue and we are engaging and educating our clients and we have seen a significant or encouraging at trend for that matter in terms of our clients are now interacting with us through our digital channels instead of coming to the bank. So, you will, you will certainly note that going forward, we are making good strides in that regard.

Dr Sibiya:  You wouldn’t necessarily see those long queues at the Nedbank branch or Nedbank ATM (automated teller machine) because we have slowly but surely and seen a migration onto our digital channels and he’s (Mr Matete) quite correct in saying it’s a behavioural thing, but it takes time.

But perhaps what I would add is that thankfully, we’re also introducing more products as the year rolls on, onto our digital platforms that will make it easier for people to also transact with us in terms of some of the value-added services, electricity transfers of money transfers as well as your airtime etc.

As we roll out more of those products, the less it becomes necessary to either visit the bank and or transact with a teller because all those services will now be available in the palm of your hand or on your desktop, iPad, digital device.

So, we are accelerating the implementation of our digital strategy and the more we do that, the less so it will be necessary for people to visit our branches and obviously the better it will be for the overall health care of the system and social distancing remains a key component or key protocol Covid-19.

LT: Coming to the 2022 financial year, what are the key focus areas?

Dr Sibiya: From an Africa regions perspective, the business that I run, we’re obviously going to be accelerating our digital growth strategy which I’ve spoken to right now. In other words, we will be leveraging our overall group capabilities around what we call a digital marketplace, mobi-money and some cross-border remittances which are also quite critical to the economy of Lesotho.

And then obviously we will be improving. We need to focus on our quality of earnings. In other words, we need to make sure that this business is poised for growth. We’ve got a massive opportunity in Mozambique, which we’re focusing on. You will all appreciate Mozambique is about to go through a massive LNG (liquified natural gas) boom. In other words, the discovery of liquefied natural gas will change that economy. So, we’ve rebranded the bank we bought there to Nedbank Mozambique and will be focusing on that.

And then looking at also the structure of our own business in terms of transforming our operating model and efficiencies, we would be focusing on that.

And then we do have this component called ETI, which we will also be spending a lot more time on, focusing on fixing the challenges that face their Nigerian operations. While it’s shown some signs of improvement in the year under review, it does still require more focus from the shareholders in order to fix some of the challenges that they’re facing in their Nigerian business.

So overall, and better Silence, this bank is poised for growth and Nedbank Africa Regions is poised for growth. I’ll end by saying and reminding us all that from a Nedbank perspective, our long-term sustainability and success are contingent on the degree to which we deliver value to society.

So, our relevance to society and being many people who do good and using our financial expertise to do good will be at the core of our purpose and you will see us emphasising that more and more in terms of partnerships in the community to make sure that the challenges that we still face as the Covid pandemic is still prevalent. We work on together would be their environmental social.

And governance matters, or ESG, and also around cleaner energy and climate change. We are keenly focused on that, and you will see a whole lot more from Nedbank coming out in that regard.

LT: Nedbank Lesotho has been big on corporate banking. Is there any chance of you upscaling retail banking?

Dr Sibiya: Which is really the industry leader. They see it, it speaks to how we want to improve our client experience and how we are making ourselves relevant as far as the retail or individual headlines are concerned.

We have beefed up our interaction with their mobile network operators. If you think that we are now able to do, we can pay your electricity and through your mobile application, you can send money to people who do not have a bank account just having their mobile.

That’s really how we want to make ourselves relevant in that space to answer to the needs and move with the times as far as the retail environment is concerned.

And going forward into 2022, again we are going to be increasing the focus that we’ve had on the digital journey. Banking can be done anywhere without needing to visit the banking hall

for you to interact with the bank. So, you’ll see more of those products. You’ll soon hear about a product called Mobi Money. Again, building up on our send money solution but also still speaking to the to the retail and retail clients. So, the future looks bright for our clients.

Mr Matete: You will remember that a little earlier this year we opened a specific division where our clients for home loans and vehicle asset financing are served. It is a brand-new interaction centre that has been well received by our clients.

And I think it’s going to do a lot in terms of diversifying our product offering. The market is dominated by personal loans, but we are saying while we want to play in that space, for retail clients we want to diversify and grow those asset classes around home loans and vehicle asset financing. 

Dr Sibiya: The last word I would just like to say from our perspective is that we’re pleased with the results that Nedbank Group has delivered and highlighting the fact that of course we wouldn’t be able to do it without our clients. Covid is still with us, and we will continuously adjust our financial services to do good.

In an environment that might remain tough, obviously we’re seeing we’re keeping an eye on global events that that we see we see in Europe and our prayers and thoughts are those with those in Ukraine affected by the atrocities that are happening there right now.

But from an African perspective, we do see that still our forecast GDP growth of sub-Saharan Africa remains relatively positive at around 3, 7 percent. And of course, we expect that our economies will respond albeit at varying levels, in Lesotho.

You might be at varying levels as other economies, but we expect that as the GDP growth responds post the Covid scenario, we will respond accordingly to our changing environment and our client demands. Overall, we’re pleased with the results, and we hope to build in 2022 from the strong foundation that we’ve laid in 2021.

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