Picture: BLOOMBERG/NADINE HUTTON
Picture: BLOOMBERG/NADINE HUTTON

Nedbank Group expects a better year for lending growth at its corporate and investment banking unit after a surge in trading and commission income helped the division shrug off a sluggish South African economy.

     The business is “well positioned to start the year with a stronger advances pipeline,” Johannesburg-based Nedbank said in a presentation on its website. An improvement in the second half of 2018 helped contain a decline in annual lending growth at the division to 1 percent, which was further offset by a 19% jump in non-interest revenue.

     “The market did want to see something going right,” said Mergence Investment Managers equity analyst Nolwandle Mthombeni.

“That really was good strong growth in terms of their earnings and that was largely unexpected. The market will be pleased with that increased activity in the CIB business.”

     The improvement comes even after defaults in the construction and cement sectors increased, resulting in some debt being rescheduled under different terms,  CEO Mike Brown said by phone. Businesses are hesitant to invest as President Cyril Ramaphosa’s ability to implement growth-enhancing reforms hinges on overcoming factional battles within the ANC. 

 

               

 

  Lenders are also having to contend a slide in mergers and acquisitions and equity-linked deals to the lowest level since 2013, while bond issuance has tumbled to a four-year low, according to data compiled by Bloomberg. The CIB unit is the largest local funder of commercial property and renewable energy projects and accounts for half of Johannesburg-based Nedbank’s earnings.

     Nedbank, spun out of Old Mutual last year, is focusing on improving efficiencies through its investment in technology to keep costs low in anticipation of an economic recovery hindered by consumers struggling to cope with higher taxes, fuel and utility bills.

     The CEO has also reduced staff headcount through a process of natural attrition to counter a range of challenges threatening its target of reducing its cost-to-income ratio to less then 53% in 2020.

Financial services group Nedbank released its annual results on Tuesday reporting a near 15% rise in earnings which was largely driven by its West African partner's turnaround - Ecobank. CEO Mike Brown shares more insight on the numbers and what they suggest for the company's growth moving forward.

    

     “We would expect our cost-to-income ratio to improve again in 2019,” Brown said by phone. “We remain extremely diligent about managing our cost base.”

Nedbank’s headline earnings in the year to end-December rose 14.5% to R13.5bn thanks to the turnaround of its Togo-based associate company, Ecobank Transnational Incorporated (ETI).

“In 2018, Nedbank Group seamlessly concluded the process of managed separation from Old Mutual and delivered a resilient financial performance, boosted by the ongoing turnaround in our share of associate income from ETI,” said CEO Mike Brown.

ETI contributed a headline profit of R375m, from a loss of R975m in 2017. Nedbank bought a 20% stake in the pan-African lender in 2014.

Excluding that investment, Nedbank’s headline earnings grew at a more modest pace of 2.8%.

Bloomberg, with Nick Hedley