NEDBANK CAPITAl - Nedbank Group Limited

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OVERVIEWReview of 2009In the most challenging marketconditions Retail faced leadershipuncertainties, with the cluster havinga member of the Retail executiveteam acting in a caretaking capacityfrom April 2009 until Saks Ntombela’sappointment in August 2009.The immediate emphasis was onrebuilding the team at executive anddivisional levels, ensuring sufficientspan of control in the various roles tooptimise the new appointees’ ability todeliver on their responsibilities. Key inthe initial organisational redesign wasstrengthening the risk, client and peoplefunctions to support the turnaroundof Retail to a more client-centred andintegrated business, while enhancing thetransformation profile, managing themix of new appointees and continuingto hold existing leaders accountable fortheir business through the cycle.Nedbank Retail had a difficult year andreported a headline loss of R156 million(2008: R1 002 million profit) and aneconomic loss of R1 448 million for theperiod (2008: R291 million economicloss). These numbers include NedbankBancassurance and Wealth. The tougheconomic conditions experiencedthroughout 2009 and high levels ofconsumer indebtedness tested theeffectiveness of lending decisionsand risk-based pricing and collectionstrategies implemented prior to thecycle turning, and the results reflectthe consequences of these practices,especially in the Home Loans business.Net interest income was 6,4% lower,primarily as a result of reducedendowment income on capital and nonrate-sensitivedeposits, as well as thehigher cost of funding.Impairments increased by 35,7% toR4 925 million, with the credit lossratio (CLR) increasing to 3,08% (2008:2,47%), driven mainly by Home Loans,where the defaulted advances increasedby 58,5% on 2008. The slower propertymarket and debt counselling processesmake it more difficult to cure clientsin default. It is therefore taking longerthan initially anticipated to rehabilitateclients, notwithstanding the cashflowrelief from interest rate reductions.The CLR is substantially above Retail’sthrough-the-cycle target range of 0,95%to 1,50%.In response to the challengesexperienced in Home Loans a number ofsteps were taken to improve collectionefficiencies, differentiate sales inexecution based on value and ease ofsaleability, and improve the economicprofitability of new business written.Greater emphasis was placed on pricingfor risk, tightening the loan-to-value(LTV) ratios (which resulted in theweighted average LTV on new businessdropping from an average of 82,93%to 79,52% during the year), supportingour existing clients, increasing clientrates to reflect higher funding costs andreducing fees paid to originators. Assetmargins on new business have widenedand the underlying risk quality hasimproved; however, this will take sometime to be evidenced in the marginand advances risk profile, given the lowvolumes of new business currently beingwritten. New Home Loans businesswas also increased through Nedbank’sown channels (now at 55% from 45%previously) where the cost of originationis much less and the underlying riskexperience of better quality, a trendwhich is encouraged.Expense growth has been controlled at9,9% through curtailment of headcountgrowth in backoffice and support areas.The higher efficiency ratio of 64,9%(2008: 61,1%) arose mainly as a resultof lower endowment earnings.Retail’s segmental analysis highlightedthe impairment challenges with Homeloans generating a headline loss ofR1,16 billion on a R92 billion advancesportfolio.The vehicle and asset finance businessimproved its risk and operationalprocesses, which saw a rise in the qualityand quantum of new business written,leading to reduction in headline lossesto R117 million. The turnaround timesGROUP REPORTSOPERATIONAL REVIEWSManagement teamDavid Crewe-Brown (41)Executive Head: Finance, Projects andStrategy15 years’ service • BCom, BAcc, CA (SA)Anton de Wet (43)Managing Executive: Personal Banking andClient Value Management11 years’ service • BCom, MBA, AMP (InseadBusiness School)Brian Duguid (48)Managing Executive: Retail Banking Services28 years’ service • CAIB (SA), FIBSASydney Gericke (51)Managing Executive: Nedbank Card21 years’ service • BCom(Acc), BCom(Hons),MCom, CPA, SEP (Insead Business School)Millicent Lechaba (42)Executive Head: Human Resources4 years’ service (Imperial Bank) • BA(Hons),HRM, SAP – HRMSibongiseni Ngundze (40)Managing Executive: Small Business Services5 years’ service • BCom, SMDP, Credit Diploma,Global Executive Dev Prog (GIBS)Alfred Ramosedi (40)Managing Executive: Nedbank Private Bank15 years’ service • BCom, MBA, FCMAPhumla Ramphele (47)Executive Head: Retail Risk3 years’ service • CAIB (SA), BCom(Acc),Postgraduate Certificate in BusinessAdministrationSarel Rudd (54)Managing Executive: Nedbank PersonalLoans6 years’ service • BCom(Acc), BCompt(Hons),CA (SA)Clive van Horen (43)Managing Executive: Retail Secured Lending10 years’ service • CA (SA), PhD(Econ)69NEDBANK GROUP ANNUAL REPORT 2009GOVERNANCE
nedbank Retail ... continuedand service delivery are now comparablewith the best in the industry.The unsecured lending of Card andPersonal Loans fared well in 2009,generating headline earnings ofR362 million and R263 millionrespectively and growth on last year, atgood returns on risk-adjusted capital.The earnings reduction in PrivateBanking, Small Business Services andTransactional and Investment Productsis largely as a consequence of lowerendowment income of R412 millionfrom declining interest rates andR124 million from higher impairments,largely home loans.The network and product offering ofRetail is an important generator ofnew business for Bancassurance andWealth, and these important links willbe maintained.The profile of Nedbank Retail earningshighlights the challenge of havinginsufficient transactional income andclients to cushion the high level ofimpairments in a very sizeable advancesportfolio.Notwithstanding these challenges, itis important to remain relevant to ourclients’ needs and continually enhancetheir experience and access to Nedbank.Key investments in 2009 include:• 58 new staffed outlets coveringtraditional branches, personal loansand kiosks in retailers. Nedbank nowhas 109 non-cash outlets that canbe run at lower cost, given differentsecurity requirements.• 270 new automated teller machines(ATMs), with a net of 127 as lessprofitablesites were closed. Insupport of our bank-for-all strategy,65% of new ATMs were deployedin typical mass-market areas. Thiswas complemented by consumereducation projects.• A state-of-the-art client contactcentre opened in Sugar Mill, which isthe home of the great conversationswith Nedbank.• Extending our AskOnce servicepromise to help clients movetransactional accounts hassle-free.• Rolling out new NetBankfunctionality, with internet users/transactions growing at 15%. Highgrowth rates were also noted in ourcellphone banking channel.Our core activity levels evidenced a25% increase in sales of transactionalproducts, with our people being our keydifferentiator.Other key areas of focus are summarisedbelow.Client growthWe have made steady progress ingrowing our client base, attracting some108 000 net new primary clients for theyear (2008: 130 000). Primary clientsnow total 1,3 million, with about 15%being Mzansi clients.Client serviceNedbank Retail has made good stridesover the years in the journey towardsdelivering worldclass service, bothin our internal measure using theCustomer Management AssessmentTool and as evidenced in externalsurveys. During 2009 Nedbank achieveda rating of 66,19 in the Ask Afrika pollof service excellence, the Orange Index,registering an improvement of 0,55 overthe past 12 months. However, whileNedbank made modest improvementsin the latest survey, our competitorshave closed on the previous gaps,leaving us in the fourth position inthe banking industry. Although thecurrent differential between us and ourcompetitors is marginal, we will focus onimproving client experience, especially inrespect of promptness, products suitedto client needs and professionalism.Having held the position of top bank inservice delivery for the past two years,Nedbank Retail is even more focused onimproving its service-related attributesand building on the improvements noted,including its rating of best-in-class channelrating for cellphone banking and delightedclients. Nedbank Group was awarded atop accolade at the 2009 Ombudsmanfor Banking Services Awards for excellingahead of its peers on client disputemanagement and resolution.We are still fully committed to ourAskOnce promise campaign, which isour guarantee to clients that we willcontinuously enhance their bankingexperience with us. During 2009 wesaw the extension of the propositionto include a specific service promise forclients wishing to switch their currentaccounts to Nedbank, with Nedbankundertaking to move their debit ordersfree of charge and hassle-free.Enhanced productivity andexecutionProject Client Information System focusedon improving our data managementcapabilities. We aligned the entire dataplatform infrastructure and created aninterface with the rest of our key productsystems in 2009. We will continueenhancing our data platform with valueaddingservices to improve our datamanagement capabilities.Project Siyakha is focused on deliveringa step change in the systems with whichour sales and service staff interact withclients ultimately to improve service andstaff efficiency. Siyakha is a four-yearphased programme, which began in 2007.The result will be one frontend for sales, inaddition to streamlined and reengineeredprocesses to minimise the impact on bothclients and bankers.Project Hassle-free Move focused ondelivering an efficient solution forswitching clients from other banks toNedbank, which has translated into70NEDBANK GROUP ANNUAL REPORT 2009
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