Nedbank says more customers have become financially distressed under the weight of the flagging South African economy, even as it delivered a strong set of full year profits on Tuesday.
The green bank reported its full-year results for the period through December 2022, in which earnings soared 20% to R14 billion as it benefitted from the endowment effect of higher interest rates and higher loans issued to clients.
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During the period, the group’s impairment charges increased 13% to R7.3 billion, it said, largely due to a 7% rise in loans and advances, higher impairments in the home loans and vehicle financing divisions, and some clients in corporate portfolio migrating to Stage 3 loans, although provided for.
The bank defines Stage 3 loans as those where credit quality has declined.
Speaking in a post-results investor presentation, Nedbank CEO Mike Brown said distressed clients had clearly progressed, with the largest increases seen in the bank’s corporate lending business – Corporate and Investment Banking (CIB) – as well as the Retail and Business Banking (RBB) unit.
“Clearly, it’s those Stage 3 loans that would qualify as distressed, and you can see the progression of that. In 2019, it was around about 3.5%, 2020 [it was] 5.9%, 2021 it reduced to 5.1%, and it’s now sitting at just over 6%. And within that, the largest increase has been in CIB, that’s gone from just over 3% to just over 5%,” he said.
In the CIB unit, impairments decreased by 43% to R805 million, Nedbank said.
“The impairment charge includes appropriate provisioning for clients in the agriculture and commercial-property sectors that moved into business rescue,” it added.
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According to Nedbank group managing executive Anél Bosman, CIB saw net interest income growth of 10%, increasing to R8.8 billion for the year.
She added that non-interest revenue rose by 5% and was supported by the 13% growth in commission and fees.
Bosman said that despite the headwinds, banking advances in the unit accelerated in the second half of 2022, with investment banking increasing by 8%, “driven by the mining and resources as well as leveraged and diversified businesses”.
Loan impairments
In the RBB division, impairments increased by 28% to R6.6 billion, resulting from an increase in impairments of home loans and vehicle finance in the second half of the year as the effects of the South African Reserve Bank’s interest rate hiking cycle took effect.
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“From a personal-loans perspective, there was less direct exposure to interest rates due to the fixed-rate nature of the product, but clients continue to be vulnerable given inflationary pressures, although this has been somewhat offset by credit policy tightening in 2021 and 2022,” the bank noted.
Overall group interest income saw growth of 12% to R36.2 billion, as loan advances to clients grew 7% compared with that reported in its interim results.
Non-interest income also saw a double-digit increase, climbing 10% to R27.3 billion.
“Capital and liquidity ratios increased to multi-year highs, with a common equity tier 1 ratio of 14%, an average fourth-quarter liquidity coverage ratio of 161%,” the bank said.
Listen to Nedbank’s CEO speaking about the group’s full-year performance with Moneyweb editor Ryk van Niekerk (or read the transcript):
