Nedbank sees leaner 2014 on weak South Africa economy

Reuters

By Helen Nyambura-Mwaura

JOHANNESBURG (Reuters) - Weak economic activity is expected to depress earnings this year at Nedbank, South Africa's fourth-largest banking group, after it posted a better than expected 15 percent rise in 2013 profit.

The bank said it saw earnings growth equal to South Africa's gross domestic product (GDP) growth plus inflation. Its medium-term target is for profit to grow by 5 percentage points quicker than GDP plus inflation.

South Africa is one of several emerging markets that have been badly hit by uncertainties in the global economy. Their problems are compounded by a shift in investment flows to developed markets and rising global interest rates.

"One needs to be acutely aware of those conditions and recognise that growth may slow in terms of earnings performance, particularly off a strong base," Graham Dempster, Nedbank's chief operating officer, told Reuters.

The bank, majority owned by insurer Old Mutual, said 2013 earnings grew 15 percent after strong revenue growth and a slower pace in the growth of credit costs.

Its credit loss ratio, the proportion of bad debt costs to total loans, came in at 1.06 percent, in line with the previous year but much lower than 1.31 percent at the half-year mark, when it took a 183 million rand impairment and increased personal loan provisions.

Impairment charges were up 7 percent to 5.565 billion rand. Nedbank increased its coverage ratio for total impairments to 65.6 percent from 56.4 percent a year earlier.

"They seem to be making a statement that they see tough times ahead, but you can understand, with interest rates starting to rise," said Martin Lentsoane, managing director at brokerage Lehumo Capital.

STRONG REVENUE GROWTH

Dempster said Nedbank was still keen to exercise a right to acquire a 20 percent stake in Ecobank before November, after a $285 million loan to the pan-Africa lender.

The Togo-based lender's reputation has suffered in recent months after its suspended finance director said she had been pressured to mis-state 2012 financial results.

Last year, Nedbank increased its African footprint to seven countries after taking up a 36.4 percent share of Mozambique's sixth-largest lender Banco Unico for $24.4 million.

Nedbank said net interest income, a measure of earnings from lending, rose 7.8 percent to 21.22 billion rand partly due to strong loan growth in investment banking and other African operations.

A focus on boosting income from charges such as fees and commissions also paid off in 2013, sending non-interest revenue up nearly 12 percent to 19.36 billion rand.

Diluted headline earnings per share were 1,829 cents for the year, up from a restated 1,590 cents a year earlier. A Thomson Reuters SmartEstimate had forecast earnings of 1,783 cents per share.

The lender will pay a full-year dividend of 895 cents a share, up 19 percent from a year earlier and higher than analysts' expectations of 878 cents per share.

Bigger rival Barclays Africa Group has reported a 14 percent increase in full-year earnings after cutting bad debt costs sharply.

Nedbank shares had gained 3.8 percent by 1148 GMT. They are up 0.4 percent so far this year while Johannesburg's banking index is down more than 4 percent.

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