NEDBANK CAPITAl - Nedbank Group Limited

isk and BALANCE SHEET management reportNedbank Group’s capital adequacy ratios increased significantly over the past two years due to a strong focus on the optimisationof risk-weighted assets (capital), enabled by enhancing data quality and more selective asset growth using our economic-profitbasedphilosophy of managing for value, the retention of earnings, the profits made on the disposal of Visa shares in 2008 and theissuing of some non-core Tier 1 capital instruments.The group’s leverage ratio (total assets to ordinary shareholders’ equity, excluding off-balance-sheet items) at 14,4 times is alsoconservative by international standards and in line with the local peer group.Consolidation of entities for regulatory purposes is performed in accordance with the requirements of Basel II, the Banks Act andaccompanying regulations. Some differences exist in the basis of consolidation for accounting and regulatory purposes. Theseinclude the exclusion of certain accounting reserves [eg the foreign currency translation (FCT) reserve, share-based payments (SBP)reserve and available-for-sale (AFS) reserve], the deduction of insurance entities and the exclusion of trusts that are consolidated interms of IFRS but are not subject to regulatory consolidation.The FCT, SBP and AFS reserves that arise in the consolidation of entities in terms of IFRS amounted to R1,2 billion at year-end andare excluded from qualifying regulatory capital. Restrictions on the transfer of funds and regulatory capital within the group are nota material factor. These restrictions mainly relate to those entities that operate in countries other than South Africa where there areexchange control restrictions in place.Against the background of the group’s conservative risk appetite and sound risk management discussed earlier, the group believesthat its capital levels (both regulatory capital and its internal capital assessment, economic capital) and provisioning for creditimpairments are appropriate and conservative, and that the group and its subsidiaries are strongly capitalised relative to ourbusiness activities, strategy, risk appetite, risk profile and the external environment in which we operate. Additionally, the group iscurrently not holding excess capital for major acquisitions.Summary of risk-weighted assets (by risk type and business cluster)Credit risk 246 099 75,4 285 457 80,4Nedbank Corporate 67 427 20,7 75 887* 21,4Nedbank Business Banking 33 616 10,3 44 467 12,4Nedbank Capital 25 389 7,8 34 672* 9,8Nedbank Retail (including Bancassurance and Wealth) 78 958 24,2 94 138* 26,5Imperial Bank 39 914 12,2 35 377 10,0Central Management and Shared Services 795 0,2 916* 0,3Equity risk 13 396 4,1 13 035 3,7Market risk 5 718 1,8 7 049 2,0Operational risk 47 222 14,4 36 497 10,2Other assets 14 031 4,3 13 197 3,7Total risk-weighted assets 326 466 100 355 235 100* 2008 restated to include Africa and the United Kingdom in appropriate business clusters and to separate Nedbank Business Banking from the NedbankCorporate cluster.Total risk-weighted assets decreased by R28,8 billion during 2009. The decrease was largely due to credit risk, which decreased byR39,4 billion as a result of the optimisation of risk-weighted assets, enabled by data quality enhancements and the reduction ofexcess conservatism, and selective asset growth under the group’s managing for value strategic theme.2009RmMix%2008RmMix%176NEDBANK GROUP ANNUAL REPORT 2009