NEDBANK CAPITAl - Nedbank Group Limited

isk and BALANCE SHEET management reportEconomic capital adequacy (used for ICAAP)• In 2009 Nedbank Group increased (ie made moreconservative) the group’s target solvency standard fromA- (99,9%) to A (99,93%), while also introducing a moreconservative definition of available financial resources (AFR),which covers the economic capital requirement.• AFR surplus (after 10% capital buffer):– R16,1 billion for group; R13,5 billion for bank (based on old,less conservative basis).– R11,8 billion for group; R8,3 billion for bank (based on new,more conservative basis).Stress and scenario testing• Best-practice framework and process followed to stresstest and confirm the robustness of the group’s capitaladequacy, including the capital buffers. Recent internationaldevelopments incorporated.Leverage ratio is low at 14,4 times, compared withinternational levelsConcentration risk is well-contained• Large individual (single-name) credit exposure risk is low.– The credit economic capital of the top 20 exposures(excluding banks and SA government exposure) makes uponly 3,19% of total group economic capital.• Concerning geographic exposure, the significant focus onSouth Africa has been positive for Nedbank Group through theglobal financial crisis.• Industry/Sector exposure is appropriately well-diversified.• Property exposure is high but in line with our peer group andmost large banks internationally.– ‘Deep dive’ done of commercial property exposure andhome loans.• Counterparty credit risk is almost exclusively restricted to noncomplex,low-risk banking transactions.• Strong and well-diversified funding deposit base exists and lowreliance is placed on offshore funding.• Low level of securitisation exposure and off-balance-sheetactivities.• Low risk of assets and liabilities exposed to the volatility ofInternational Financial Reporting Standards (IFRS) fair-valuemark-to-market accounting.• Low equity (investment) risk exposure (0,7% of total assets),including private equity.• Non-core asset disposal strategy successfully executed by 2007.• Low foreign currency translation risk to the rand’s volatility.• Well-diversified earnings streams across five major businessclusters.• Well-diversified subordinated-debt profile.Liquidity risk• Overall remains sound and has been a major focus over pasttwo years through the global financial crisis.– Successfully lengthened the funding profile during 2009,including the successful (largest ever in South Africa) R5,4billion issue of senior unsecured debt in September 2009.• The R5,6 billion debt issue also positively contributed todiversify the funding base further.• Nedbank Group’s funding mix remains sound (ie retail vswholesale deposits reliance).• Nedbank Group continues to maintain a dominant marketshare in household deposits.• All liquidity risk measurement and management assumptions,principles and methodologies have been independentlyreviewed and align with best practice.• Key areas of focus for 2010 – 2012:– Continue to lengthen the funding profile.– Continue to diversify Nedbank Group’s funding base inorder to reduce reliance on wholesale funding.o Expanding domestic and international capital marketissuance programmes, subject to price and appetite.o Continuing aggressively to pursue strong growth in retailand commercial deposits.– Work with government, the SA Reserve Bank and thebanking industry to address the financial services structuralissues around funding and liquidity to facilitate positivelypositioning South Africa around the new Basel III liquidityproposals.Interest rate risk in the banking book (IRRBB)• Main components of IRRBB include endowment on equity andnon-repricing transactional deposits, offset by the fixed-rateliquid asset hedge and working capital plus reset (basis) risk.Reset risk is caused by advances pricing immediately for ratechanges, due to being prime-rate-linked, versus term depositsrepricing to three-month Johannesburg Interbank Agreed Rate(JIBAR), following hedging of IRRBB.• Banking book interest rate sensitivity is currently 1,30% oftotal equity or R584 million (for a 1% move in rates).• This is within the board-approved IRRBB limit of 2,5% ofcapital, with no limit breaches having been experienced in2009.• The strategic attention of the Group Asset and LiabilityCommittee has shifted to positioning the balance sheet forthe anticipated bottoming of the current interest rate cycle.168NEDBANK GROUP ANNUAL REPORT 2009