NEDBANK CAPITAl - Nedbank Group Limited

isk and BALANCE SHEET management reportEXECUTIVE SUMMARYSA banking system and financial systemcontinues to remain structurally sound, liquid andstrongly capitalised• Financial soundness of banking system improved from 15th to 6thplace in World Economic Forum Global Competitiveness Report.Capital adequacyincreased significantly again in 2009Regulatory capital• Core Tier 1 – from 7,2% (2007) to 8,2% (2008) to 9,9% (2009).• Tier 1 – from 8,2% (2007) to 9,6% (2008) to 11,5% (2009).• Total – from 11,4% (2007) to 12,4% (2008) to 14,9% (2009).Economic capital• In 2009 the group’s internal target solvency standard increasedfrom A- (99,9%) to A (99,93%) while a more conservative definitionof available financial resources (AFR), which covers the economiccapital requirements, was also introduced.• AFR surplus (after 10% capital buffer)– increased from R9,6 billion (2008) to R16,1 billion (2009),based on the old basis; and– amounts to R11,8 billion (2009), based on the new, moreconservative basis.Leverage ratio• Low at 14,4 times (2008: 16,2 times), compared with internationallevels.Stress and scenario testing• Best-practice framework and process followed to confirmthe robustness of the group’s capital adequacy and to assistin derisking the bank in appropriate segments ahead of theglobal financial crisis.Liquidityremains sound• Lengthened funding profile, including successful R5,4 billion seniordebtissue in September 2009.• Strengthened liquidity buffers.• Well-diversified funding mix (ie retail vs wholesale deposit reliance).• Strong deposit franchise (across Retail, Business Banking andCorporate Banking businesses).• Low reliance on interbank, foreign and capital markets.Risk and capital management systemsprove consistently effective• Enterprisewide Risk Management Framework (ERMF) and CapitalManagement Framework remain effective and well-embeddedacross the group.• Sound risk governance prevails.• Prudent risk appetite followed.• Risk-based remuneration practices applied since 2008.• With the exception of the retail asset classes whereimpairments remain challenging, wholesale credit asset classesremained within target credit loss ratios throughout the globalfinancial crisis and local recession.Global regulatory developmentscomprehensive response to global financialcrisis is in progress• Significant new international regulatory requirements and proposals(‘Basel III’) related to capital, liquidity, risk management andaccounting provisioning, aimed at a more resilient global bankingsector, are currently due for implementation end 2012.• Comprehensive quantitative impact study and finalisation of theproposals are due end 2010.• Impact of the liquidity proposals would be pervasive if implementedas is, but we anticipate modifications and changes appropriate forSouth Africa and its various structural issues.• Impact on capital and all other proposals for Nedbank Group areinitially anticipated to be moderate, not significant.Balance sheet managementa new balance sheet management cluster wasestablished in 2009126NEDBANK GROUP ANNUAL REPORT 2009