Nedbank warns of elevated impairments

Nedbank says its credit loss ratio will remain above levels reached during the global financial crisis this year.

Nedbank will report a significant decline in first-half earnings after impairments surpassed levels reached during the global financial crisis more than a decade ago. And while it expects some improvement by the end of the year, its credit loss ratio is still likely to be elevated.

In a trading statement, the banking group warned that earnings per share (EPS) for the six months to end-June would be 79% to 84% lower than last year, while headline EPS would decline by 67% to 72%. The difference between the two ranges was due to an additional R750 million impairment raised against the carrying value of its investment in pan-African lender Ecobank Transnational Incorporated (ETI) to reflect the more difficult trading environment expected in the period ahead, particularly in Nigeria.

The bank said the biggest impact on its financial performance was the significant increase in the impairment or expected credit loss charge. Its annualised credit loss ratio, which measures losses as a percentage of total average advances, was just over 1.9% at the end of June. It reached 1.52% during the global financial crisis.

Net interest income for the period grew in low single digits and was impacted by this year’s interest rate cuts and a slowdown in loan growth since March. While non-interest revenue showed positive growth in the first quarter of the year, by the end of June it had decreased by mid-single digits from a year earlier. It attributed this to fewer transactions by clients during the lockdown and negative revaluations to unrealised private equity investments. These were partially offset by very strong growth in trading income due to increased market volatility.

With the gradual easing of lockdown restrictions, client transactional activity in May and June improved from the lows in April, but remained below March levels,” Nedbank said. “Expenses were tightly controlled with overall expenses slightly lower than H1 2019.”
While its balance sheet remained strong with capital and liquidity ratios above board-approved minimum targets and well above all regulatory requirements, Nedbank said it wouldn’t declare an interim dividend in line with Reserve Bank guidance.

Nedbank’s results are scheduled for release on 26 August. Its shares fell 4.3% to R100.68 yesterday. The trading statement was released at the close of trade.

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