Nedbank has warned that elevated inflation and higher interest rates are placing consumers under increasing financial pressure, resulting in a rise in credit defaults.
Speaking during the bank’s latest results presentation, Nedbank Group chief operating officer Mfundo Nkuhlu said impairments increased significantly during the reporting period as households struggled with rising living costs.
“One downside would be the impairment line. The impairments deteriorated to 95 basis points, that is higher than we would have expected, noting that last year impairments were 81 basis points. That is quite a jump, that reflects higher levels of inflation in our economy which puts the consumer under pressure.
“That inflation was generated by events in the world elsewhere, particularly the conflict in the Middle East, which had a negative impact on oil and energy prices, which were transmitted through the economy and put our consumer clients under pressure. As a consequence of that, we saw the Reserve Bank raising interest rates earlier in the year. All those events that put consumer clients under pressure were reflected in the numbers as a higher impairment charge,” he said.
Read More: Fuel shock pushes inflation to 5%
The deterioration in impairments came despite solid underlying growth across the group’s operations.
Nkuhlu said headline results were largely unchanged from the same period last year due to the impact of Ecobank Transnational Incorporated (ETI) contributions in the comparative period.
“The results were flat half-year on half-year. In the first half of the year we also had an ETI in that base. When stripping out the impact of ETI on the previous numbers, that growth becomes 12%. The underlying business grew stronger to also compensate for the fact that ETI contribution is not in the numbers now, which is why it comes across as flat.”
Nedbank maintains ROE
Nedbank maintained a return on equity (ROE) of 15%, slightly down from 15.2% in the corresponding period last year. Nkuhlu said the bank remains focused on achieving its medium-term target of 17%.
“The reason it is important that the return on equity remains at 15% and above is that over the medium term we want to take the number to 17%.
And so it does mean, with growth underpinning this set of numbers, there would be an expectation that that ROE continues to improve in the period ahead of us.”
Growth was supported by positive momentum across the group’s business units. Corporate and Investment Banking (CIB) recorded 8% growth in loans and advances, supported by its ability to originate and distribute large transactions.
Business and Commercial Banking grew advances by 6%, driven by sector expertise and lending linked to Sustainable Development Goals.
In the retail segment, Nedbank continued to gain market share in home loans and cards.
“The growth of our home loans book has now been building up for a few years and so we are encouraged by a new vintage of loans we are writing in that portfolio.”
Non-interest revenue increased by 10%, supported by stronger growth in commissions and fees from transactional banking services.
Nkuhlu said this category remains critical to the bank’s service offering, describing it as:
“which is a very important category of our transactional services that we provide to clients”.
Insurance income was another strong contributor, rising by 20% during the period.
Despite the increase in impairments and a difficult economic environment, Nedbank said growth across its core businesses and diversified revenue streams positions the group for improved performance in the periods ahead.
Read More: Nedbank posts flat interim earnings, lifts dividend as revenue grows
- Nedbank reported a rise in credit impairments to 95 basis points, up from 81 basis points last year, due to high inflation and increased interest rates impacting consumers.
- Inflation pressures were driven by global events, notably the Middle East conflict affecting oil and energy prices, prompting Reserve Bank rate hikes.
- Despite impairment challenges, Nedbank's underlying business grew 12% when excluding Ecobank Transnational Incorporated's previous contributions, with solid loan growth across Corporate, Commercial, and Retail segments.
- Nedbank maintained a return on equity (ROE) of 15%, with a medium-term target of 17%, supported by growth in transactional banking fees and a 20% rise in insurance income.
- The bank remains optimistic about future performance, citing diversified revenue streams and strong momentum in home loans, cards, and sustainable development-linked lending.
"One downside would be the impairment line.
impairments deteriorated to 95 basis points, that is higher than we would have expected, noting that last year impairments were 81 basis points. The is quite a jump, that reflects higher levels of inflation in our economy which puts the consumer under pressure. That
"
Read More: Fuel shock pushes inflation to 5%
"
results were flat half-year on half-year. In the first half of the year we also had an ETI in that base. When stripping out the impact of ETI on the previous numbers, that growth becomes 12%. The underlying business grew stronger to also compensate for the fact that ETI contribution is not in the numbers now, which is why it comes across as flat." The
"
reason it is important that the return on equity remains at 15% and above is that over the medium term we want to take the number to 17%. The
And so it does mean, with growth underpinning this set of numbers, there would be an expectation that that ROE continues to improve in the period ahead of us."
Business and Commercial
In the retail segment,
"
growth of our home loans book has now been building up for a few years and so we are encouraged by a new vintage of loans we are writing in that portfolio." The
Non-interest revenue increased by 10%, supported by stronger growth in commissions and fees from transactional banking services.
"which is a very important category of our transactional services that we provide to clients".
Insurance income was another strong contributor, rising by 20% during the period.
Despite the increase in impairments and a difficult economic environment,
Read More:
