Despite rising interest rates, Nedbank says credit demand has increased

Nedbank claims to have increased lending, and as interest rates rise, the green bank is reaping substantial net interest income. On Monday evening, the banking group issued a trading update for the ten months ending October 31, 2022.

Despite the fact that the South African economy lost momentum in the second half of the year as global and domestic headwinds intensified, it said its net interest income (NII) and non-interest revenue – which it generates from banking fees and commissions – remained strong. NII increased by the low double digits, as predicted by the company when it provided earnings guidance to shareholders earlier this year.

The bank said the sale of more loans increased its interest-earning assets by “mid-single digits” It reported solid loan and advance growth across its retail banking franchise as well as Nedbank Corporate and Investment Banking (CIB).

“The recovery in CIB loans and advances growth has been driven by stronger performances from the Investment Banking and Transactional Services businesses as demand for short-term and long-term credit has increased. In RBB, loans and advances continue to be driven by strong growth in our commercial banking and small business segments, as well as solid growth in home loans, vehicle finance and overdrafts,” wrote the bank in the trading update.

Nedbank’s net interest margin has increased further from the 385 basis points reported at the end of June, as this growth coincided with rapid interest rate increases. The exact figure will be disclosed when the bank releases its full-year financial results for 2022 in March of next year.

This means that Nedbank continued to expand its loan book even as other banks became concerned about the rising risk of bad debts as interest rates, food and fuel prices stretched many households’ budgets to breaking point.

In terms of non-interest income, Nedbank stated that the “high single digits” growth in the ten months to 31 October was due to solid fee and commission growth as a result of higher transactional activity by its clients and an acceleration in main-banked client growth in the retail banking division, among other things.

It also had a strong insurance performance as Covid-19-related death claims decreased, and it sold more of its other products to existing clients who hadn’t taken advantage of the full suite of Nedbank’s offerings. However, the bank has warned shareholders that non-interest income growth for the full 2020 fiscal year may not be as high as previously forecast. The bank predicted high single-digit growth.