Nedbank delivers a strong financial performance to meet all 2023 targets, laying solid foundation to deliver on medium-term goals.

Nedbank Group delivered a strong financial performance for the 12 months to 31 December 2023 compared with the 12-month prior period as headline earnings (HE) increased 11% to R15,7bn. In a difficult economic environment, this growth in HE was enabled by a strong operational performance as preprovisioning operating profit increased by 15%, underpinned by 12% revenue growth including associate income and prudent expense management, partially offset by a 30% increase in the impairment charge, which reduced from the 57% increase in this charge reported in H1 2023. As a result, the group’s credit loss ratio (CLR) improved from 121 bps (H1 2023) to 96 bps (H2 2023) and
therefore 109 bps for the full year.

The diversification benefit across our portfolio of businesses was evident in very strong growth in HE from Nedbank Africa Regions (NAR), albeit off a low base, alongside solid performances with increases in both HE and return on equity (ROE) from Nedbank Corporate and Investment Banking, Nedbank Retail and Business Banking and Nedbank Wealth.

Nedbank CE Mike Brown said a highlight of the year was achieving all the group’s post-Covid targets for 2023 announced in March 2021. “Two of these targets were already achieved in 2022 – exceeding the 2019 diluted headline earnings per share (DHEPS) of 2 565 cents and
ranking #1 on Net Promoter Score (NPS).

“In 2023 we further increased DHEPS to 3 199 cents, up by 14% year on year (yoy), and we maintained our #1 NPS ranking among South African banks. Pleasingly, at the end of 2023, we also met the remaining 2 targets, by reporting an ROE of 15,1% ahead of the target level of 15,0% and a cost-to-income ratio of 53,9%, which is lower than our target of 54,0%.”

Dr Terence G. Sibiya, Group Managing Executive, Nedbank Africa Regions, said that “I am delighted that the group delivered a strong performance and I am of course incredibly pleased that the NAR business delivered a stellar performance because of improved performances
from the SADC managed operations & strong earnings from our Ecobank Transnational Incorporated (ETI) associate investment including the release of the R175m Ghana sovereign bond provision that Nedbank took in 2022.

The Nedbank Africa Regions (NAR) business has operations in Eswatini, Lesotho, Mozambique, Namibia, and Zimbabwe as well as representative offices in Ghana and Kenya.

Nedbank Group also has a 21,2% shareholding in Ecobank Transnational Incorporated (ETI), which is a leading private pan-African banking group present in thirty-five (35) sub-Saharan African countries in Francophone West Africa, Nigeria, Anglophone West Africa and Central,
Eastern and Southern Africa (CESA).

“As I reach the final stretch of my 14 years as CE of Nedbank Group, I look back with pride on our achievements and the challenges we have overcome together. When I retire at the annual general meeting in May 2024 and hand over to Jason Quinn, I know I leave behind a better
Nedbank than what I was entrusted with, and that Jason and the Nedbank team will inherit strong foundations from which to build an even better future for all our stakeholders.”

The group’s balance sheet remained very strong. CET1 and tier 1 capital ratios of 13,5% and 15,0% were well above board-approved target ranges and SARB minimum requirements. Following solid earnings growth and strong capital and liquidity positions, the group declared
a final dividend of 1 022 cents per share, up by 18% (December 2022: 866 cents per share), bringing the total dividend for 2023 to 1 893 cents per share, up by 15% (2022: 1 649 cents).

Nedbank Africa Regions

Dr Terence G. Sibiya, Group Managing Executive, Nedbank Africa Regions, said that “I am delighted that the group delivered a strong performance and I am of course incredibly pleased that the NAR business delivered a stellar performance because of improved performances
from the SADC managed operations & strong earnings from our Ecobank Transnational Incorporated (ETI) associate investment and the reversal of the R175m provision that Nedbank raised in 2022 in lieu of the Ghana sovereign debt situation.

Highlights of NAR performance include:

• HE in NAR is up by 94% to R1,9bn (2022: R977m) with ROE improving to 25,2% (2022: 13,8%) and above our cost of equity target.
• NAR increased its contribution in HE to the group at 12,0% from 6,9% in 2022.
• NAR cluster’s cost-to-income ratio declined to 53,6% from 67,2% in 2022, second only to CIB which is at 45,2% and lower than the group at 53,9%.
• Expenses increased by 7% to R2 928m, offset by proactive management actions taken to manage costs.
• Ecobank Transnational Incorporated (ETI), continued to perform well, reporting a higher HE of more than 100% to R1 229m (2022: R610m), benefiting from operational performance improvements. (Reversal of the R175m provision that Nedbank raised in 2022 due to the Ghana sovereign domestic debt restructure.) ETI investment maintained a return on investment of above 20% (2023: 22,0%).

Our SADC operations delivered HE of R662m, up by 80% (2022: R367m). This resulted in an improved ROE of 9,9% (2022: 5,9%), which remains lower than the group’s COE and our desired target of greater than 18%. The improved performance was largely driven by a 21%
increase in revenue to R4 290m, due to the higher-interest-rate environments and unrealised forex gains, offset by net monetary loss.
SADC’s improved performance is attributed to:

• Net interest income (NII) up by 33% to R1 084m (improved margins from the rise in interest rates) and foreign currency gains in Zimbabwe on US dollar capital. Foreign currency gains in Zimbabwe on US dollar capital because of currency devaluation were partially offset by a higher net monetary loss, resulting in a net gain in NIR of R501m.
• Non-interest revenue (NIR) up by 30% to R1 029m (driven largely by unrealised forex gains in Zimbabwe and partially offset by slower-than-anticipated business activity across the countries and a higher net monetary loss in Zimbabwe of R630m (H1 2022: R277m).
• NII increased by 25% to R2 433m, mainly driven by higher interest rates with the net interest margin (difference between interest paid and received) widening to 7,78% (2022: 6,49%), loans and advances growth across most of the markets, and significant growth in the US$ loan book in Zimbabwe, despite a marginal 2% decrease in average total loans and advances to R21bn (2022: R21,4bn).
• NIR increased by 17% to R1 857m, driven largely by unrealised forex gains in Zimbabwe and an increase in revenue from digital and channels. The unrealised forex gains of R1 560m were offset by the net monetary loss of R1 059m (2022: R419m).
• The impairment charge increased by 15% to R253m, offset mainly by an improvement in arrears management in Lesotho, better-than-expected recoveries and releases in Stage 1 and Stage 2 expected credit loss.
• Credit loss ratio for SADC improved to 100 bps from 102 bps and was within the cluster TTC target range of 85 bps and 120 bps.
• Nedbank Group subsidiaries are well capitalised for the environments in which they operate, with CARs well more than respective host regulators’ minimum requirements.

Digital wins

Nedbank’s world-class technology platform, delivered through our Managed Evolution (ME) programme which has reached 95% completion, supported continued double-digit growth in all digital-related metrics; client satisfaction scores remaining at the top-end of the South African banking peer group; higher levels of cross-sell; main-banked client gains across all segments; market share gains in key product categories; and improved efficiencies,” Brown said.

“Our focus currently across Nedbank’s SADC operations is to transform the business and converge our technology infrastructure, enabling closer alignment to the South Africa business so that a client in Maputo has the same experience as a client in Mbombela, or Maseru and
Bloemfontein. Our ‘harmonisation’ journey is under way and progressing well and will enable the business to unlocking greater efficiencies and provide a more consistent brand experience to clients across our markets.,” says Dr Sibiya.

These digital initiatives helped Nedbank increase the number of digitally active retail clients in SA by 11% yoy to 2,9 million, representing 69% of retail main-banked clients (2022: 68% and 2019: 49%).

Retail digital transaction volumes in SA increased by 12% and transaction values were up by 10%. Digitally active clients across the NAR business increased to 64% of its total active client base.

Active Nedbank Money app clients reached 2,3 million in 2023, up by 16% yoy. Transaction volumes on the Money app increased by 18% yoy and transaction values increased by 19%. The number of app users across NAR is up by 20% and value-added services (including airtime and electricity) purchases increased by 25% yoy and Nedbank SendMoney money transfer volumes have increased by 8% yoy. The Nedbank Money (Africa) app which is available in Eswatini, Lesotho and Namibia remains well-rated on the Apple and Google app stores, with a lifetime store client rating of 3,9 (out of five) for both stores better rated than many competitor apps. In Mozambique and Zimbabwe we have the Nedbank Mobile Bankingwhich are continuing to grow as well.

Since its launch in 2020, the Avo super app (SuperShop) has signed up 2,5 million customers (up by 26% yoy), with over 23 000 businesses registered to offer their products and services on this e-commerce platform. Avo continues to grow exponentially, with a more than 100%
yoy increase in gross merchandise value as all 3 Avo ecosystems (Avo solar, Avo Auto and Avo B2B) gain momentum. Avo Solar launched in August 2023, with over one hundred residential installations, of which 70% are being financed by Nedbank. The Avo SuperShop launch in Namibia in August 2023 is showing substantial progress with fifteen merchants, of which Apple is the top merchant. This is expected to continue to improve as more merchants are added to the platform.

Positive impacts and ESG leadership

Nedbank continued to create positive impacts through R145bn of exposures that support sustainable development finance aligned with the United Nations Sustainable Development Goals; maintained high levels of employee satisfaction; supported clients during difficult times;
retained our top-tier rankings on environmental, social and governance scores including MSCI – AAA (upgraded from AA and now within the top 5% of global banks); and maintained our level 1 broad-based black economic empowerment (BBBEE) status under the Amended
Financial Sector Code for the sixth year in a row.

In recognition of the value-add to our clients and our leadership position in key industries, segments and products, Nedbank won various awards in 2023, including Excellence in Mobile Banking in the Finnovex Southern Africa Awards 2023, Best Digital Bank Mozambique 2023
in the Global Banking & Finance Awards, Top Banking Institution Award at the Top Companies Survey Awards 2023 in Zimbabwe, Outstanding ESG/CSI Award for Inclusive Development of SDGs at the 7th Zimbabwe National ESG and Responsible Business Achievement Awards 2023, the Best Investment Bank in South Africa Award and Best Retail Bank South Africa Award at the 2023 Global Banking & Finance Awards, Best Private Bank Africa Award at the Global Private Banking Awards 2023, Sustainable Bank of the Year Award at the African Banker Awards 2023 and Nedbank Namibia was recognised as one of the most exciting, innovative, and promising businesses from around the world by the Next 100 Global Awards 2023 for Corporate Banking.

Outlook

The macroeconomic environment in sub-Saharan Africa continues to remain challenging, albeit improving. Forecasts suggest pedestrian economic growth, lower average inflation, a continuation of higher interest rates although improving in the second half of 2024 for an
extended period, resulting in limited availability of affordable capital to most sovereigns. The IMF forecasts that the region is projected to grow by an estimated 3,8% in 2024, up from 3,3% in 2023.

Dr Sibiya says, “We continue to monitor the impact of higher interest rates on our clients and the markets we operate in, as well as the progress of the liquefied-natural-gas (LNG) projects in Mozambique and the hyperinflationary and macroeconomic environment in Zimbabwe.

Although geopolitical uncertainties increase forecast risk, Nedbank currently expects the economic environment in SA to remain challenging into 2024 but improve off a low 2023 base.

The Nedbank Group Economic Unit forecasts SA’s gross domestic product (GDP) to increase by 1% in 2024 and inflation to continue to decline and average 5% over the year ahead. The South African prime lending rate is forecast to decline by a cumulative 75 bps in the second
half of 2024 to end the year at 11,0% and private sector credit growth is expected to be muted at around 5%.

“Growth levels in the South African economy will remain constrained by electricity shortages and deteriorating rail and port services putting increasing pressure on the fiscus. Loadshedding is expected to reduce in 2024 as Eskom eases unplanned outages and private power generation increases. In contrast, transport bottlenecks are expected to persist and intensify, while public service delivery will likely remain relatively poor. These structural constraints will continue to weigh on producers and exporters, undermining production, inflating operating costs, and squeezing company profitability,” Brown said.