NEDBANK CAPITAl - Nedbank Group Limited

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Summary of impairmentsRmNedbankBusinessBankingNedbankCorporateNedbankCapitalNedbankRetailImperialBankCentralManagement2009 2008Opening balance 1 377 774 433 4 465 812 (2) 7 859 6 078Specific impairments 791 191 381 3 614 565 5 542 4 063Specific impairments, excludingdiscounts 595 105 381 3 013 472 4 566 3 384Specific impairments fordiscounted cashflow losses 196 86 601 93 976 679Portfolio impairments 586 583 52 851 247 (2) 2 317 2 015Income statement impairmentscharge (net of recoveries) 284 327 141 4 925 957 – 6 634 4 822Specific impairments 398 289 113 5 054 944 6 798 4 209Net increase/(decrease) in impairmentsfor discounted cashflow losses 48 107 4 14 (9) 164 297Portfolio impairments (162) (69) 24 (143) 22 (328) 316Recoveries 40 38 – 328 51 – 457 379Amounts written off/other transfers (481) (27) (190) (3 823) (631) – (5 152) (3 420)Specific impairments (463) (33) (188) (3 816) (631) (5 131) (3 406)Portfolio impairments (18) 6 (2) (7) (21) (14)Total impairments 1 220 1 112 384 5 895 1 189 (2) 9 798 7 859Specific impairments 814 592 310 5 194 920 7 830 5 542Specific impairments, excludingdiscounts 570 399 306 4 579 836 6 690 4 566Specific impairments fordiscounted cashflow losses 244 193 4 615 84 1 140 976Portfolio impairments 406 520 74 701 269 (2) 1 968 2 317Total loans and advances 51 335 138 285 55 699 163 395 51 640 (255) 460 099 442 092Total average loans and advances 54 187 136 676 53 498 160 034 48 593 (243) 451 096 411 063GROUP REPORTSOPERATIONAL REVIEWSGOVERNANCEOVERVIEW147NEDBANK GROUP ANNUAL REPORT 2009
isk and BALANCE SHEET management reportDefaulted loans and advances increased by 56,3% to R27 045 million, while specific impairments increased to R7 830 million for thesame period. This resulted in a decrease in the coverage ratio from 32,0% in 2008 to 29,0% in 2009 as shown below.Defaulted loans and advances, specific impairments and coverage ratio30 00034,025 00032,027 04532,020 00030,0Rm17 30129,0Defaulted loans and advances15 00028,0PercentageSpecific impairments10 00026,0Coverage ratio (%)7 8305 0005 54224,02008 200922,0The coverage ratio is the amount of specific impairments thathave been raised for the total defaulted loans and advances.This is effectively the inverse of the expected recoveries ratio.The expected recoveries are equal to the defaulted loans andadvances less the specific impairments, as specific impairmentsare raised for any shortfall that would arise after all recoveriesare taken into account.The expected recoveries of defaulted loans and advancesinclude recoveries as a result of liquidation of security orcollateral, as well as recoveries as a result of a client curing orpartial client repayments.The absolute value of expected recoveries of defaultedaccounts (which includes security values) will increase as thenumber of defaults increase. The expected recovery amountwill in most instances be less than the total defaulted exposure,as it is seldom the case that 100% of the defaulted loan wouldbe written off.A decrease in the coverage ratio (or increase in the expectedrecoveries ratio) may arise as a result of the following:• Expected recoveries improving due to higher recoveries beingrealised in the loss given default (LGD) calculation.• A change in the defaulted product mix, with a greaterpercentage of products that have a higher security value(and therefore a lower specific impairment), such as securedproducts (home loans and commercial real estate).• An increase in the collateral value, which is an input into theLGD calculation and would result in a decrease in the LGD(and decrease in specific impairments).• A change in the mix of new versus older defaults as, in mostproducts, the recoveries expected from defaulted clientsdecrease over time.• A change in the writeoff policy, such as extending the periodprior to writing off a deal that will result in a longer period inwhich recoveries can be realised.The decrease in the group’s coverage ratio is due largely tothe change in the defaulted-product mix arising from the highamount of residential mortgage defaults in Nedbank Retail,as well as a higher amount of commercial mortgage anddevelopment loan defaults in Nedbank Property Finance.The total defaulted loans and advances increased by R9,7billion from 2008 to 2009. Residential mortgages accountfor 61% of this increase. Defaulted residential mortgagescontributed 57,6% to the total defaulted loans and advancesin 2008 and this increased to 59,0% in 2009. Residentialmortgages have lower coverage ratios than most other assetclasses due to the high amount of security generally held andtherefore higher expected recoveries.Similarly, defaulted commercial mortgages and developmentloans increased by R2,6 billion from 2008 to 2009 andcontributed 5,1% of the total defaulted loans and advancesin 2008, increasing to 13,0% in 2009. The majority of theexposures that defaulted were fully secured and thereforespecific impairments increased by only R216 million from 2008to 2009.148NEDBANK GROUP ANNUAL REPORT 2009
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