Q3 Trading Update - Nedbank Group Limited

NEDBANK GROUP LIMITED(Incorporated in the Republic of South Africa)Registration number: 1966/010630/06JSE share code: NEDNSX share code: NBKISIN: ZAE000004875('Nedbank Group' or 'the group')NEDBANK GROUP – THIRD QUARTER 2012 TRADING UPDATE“Against the background of a slowdown in global economic growth and anincreasingly challenging economic environment in South Africa, Nedbank hascontinued to focus on delivering on its key strategic focus areas.Our balance sheet remains well capitalised and liquid, and we are deliveringsustainable value to all our stakeholders comprising staff, clients, shareholders,regulators and communities. In this regard we fully support initiatives to ensureresponsible lending by all service providers in the unsecured lending market.Importantly, the group is still on track to achieve its earnings growth target in 2012,notwithstanding the more challenging economic environment”.Mike BrownChief ExecutiveOPERATING ENVIRONMENTThe global economic slowdown continued into the third quarter of 2012 with theEurozone facing significant economic challenges. Furthermore, most emergingmarkets, including South Africa (SA), experienced slower growth as exports cameunder pressure.Domestically, the unexpected 50 basis point reduction in interest rates in July 2012provided some relief to consumers, although private sector credit demand remainedlow. Fixed investment continues to be delayed in light of worsening economicprospects and uncertainty, further exacerbated by the strikes taking place across a1

number of vital sectors of the SA economy. The downgrade of SA’s sovereign debtratings and the foreign currency deposit ratings of the five largest SA banks by creditrating agencies, Moody’s Investor Services and Standard & Poor’s, highlighted thegrowing concerns around the deteriorating macro environment in SA.OPERATIONAL PERFORMANCENet interest income for the nine months ended 30 September 2012 (“the period”)grew by 9,2% to R14 523m (Q3 2011: R13 299m). The net interest margin of 3,50%(Q3 2011: 3,45%) improved as a result of continued benefits from mix changetowards higher yielding assets and improved risk-adjusted pricing. This was partlyoffset by the cost of enhancing the group’s liquidity profile in line with the impendingrequirements of Basel III and the effect of lower endowment income from thereduction in interest rates in July.Ongoing improvements in the level of impairments contributed to the lower credit lossratio of 1,03% (Q3 2011: 1,13%). The group continues with regular reviews of allindustry sectors, including mining, and remains satisfied with the mix, performanceand levels of impairments on these portfolios.Non-Interest Revenue increased by 13,9% to R12 403m (Q3 2011: R10 885m). Theincrease was largely driven by growth in fee and commission income of 12,7%,insurance income of 27,1% and trading income of 28,3%. Negative fair valueadjustments of R228m (Q3 2011: R12m profit) were recorded in the hedgedportfolios.Total advances grew 6,8% (annualised on December 2011) to R521bn. Excludingtrading advances, banking advances growth was 3,4%. Deposits increased 8,6%(annualised) to R555bn as the group maintained a strong focus on building andenhancing its deposit base.On 1 August 2012 the group obtained approval from the South African Reserve Bank(SARB) to include the MFC vehicle financing book in the use of its existing AdvancedInternal Ratings based credit approach. This along with good earnings growth, partly2

offset by the distribution of the interim dividend in September 2012, contributed to animproved Core Tier 1 ratio of 10,7%.Q3 2012ratio(Basel II.5)Jun 2012ratio(Basel II.5)Internal targetrange(Basel II)Regulatoryminimum(Basel II)Core Tier 1 ratio 10,7% 10,6% 7,5% to 9,0% 5,25%Tier 1 ratio 12,2% 12,1% 8,5% to 10,0% 7,00%Total capital ratio 14,3% 14,4% 11,5% to 13,0% 9,50%Ratios calculated including unappropriated profitsThe SARB issued a guidance note on the prescribed Basel III minimum requiredcapital levels for SA banks on 15 October 2012. The group remains in a strongposition to meet the new capital requirements and will communicate its revisedinternal target capital ratios incorporating the new Basel III capital levels to themarket at the release of the 2012 annual results.PROSPECTSThe SA economy is slowing as reflected in the group’s revised gross domesticproduct (GDP) growth forecast for 2012 of 2,5%. Interest rates are currentlyanticipated to remain unchanged for the remainder of 2012, but further economicweakness either globally or domestically could increase the probability of further ratecuts.Given the prevailing economic slowdown and uncertainty combined with the effectsof wage related strike actions, the group remains cautious on its outlook. However,the strength of the Nedbank franchise together with the momentum built in the firstnine months of the year allows the group to re-affirm its previous financial guidanceto achieve its medium-to-long-term diluted headline earning per share growth target(being, greater than or equal to GDP plus consumer price index plus 5%) in 2012.Shareholders are advised that these forecasts and the figures stated in this tradingupdate have not been reviewed or reported on by the group’s auditors.3

FORWARD-LOOKING STATEMENTThis announcement contains certain forward-looking statements with respect to thefinancial condition and results of operations of Nedbank Group and its groupcompanies, which by their nature involve risk and uncertainty because they relate toevents and depend on circumstances that may occur in the future. Factors that couldcause actual results to differ materially from those in the forward-looking statementsinclude, but are not limited to, global, national and regional economic conditions,levels of securities markets, interest rates, credit or other risks of lending andinvestment activities, together with competitive and regulatory factors.Sandton29 October 2012Sponsors to Nedbank Group in South Africa:Merrill Lynch South Africa (Pty) LimitedNedbank CapitalSponsor to Nedbank Group in Namibia:Old Mutual Investment Services (Namibia) (Pty) Ltd4