RYK VAN NIEKERK: Nedbank reported financial results today. The group’s revenue rose by 6.3%, while the headline earnings rose by 2.6% to R6.9 billion. On the line is Mike Brown, the chief executive of Nedbank. Mike, welcome to the show. These results obviously reflect the poor economic conditions we saw in the first half of the year.
MIKE BROWN: Yes, that’s right. I think it’s certainly not a surprise to anybody that the economy is in a really tough place right now. And essentially underneath all of these things we saw low single-digit growth in our South African businesses; a little bit of faster growth outside of South Africa. When you put all that together you get around 3% earnings growth.
RYK VAN NIEKERK: In your press statement you repeated the call you made earlier this year for the urgent implementation of structural reforms in South Africa, because it seems like there is so much uncertainty and distrust and lack of confidence by various stakeholders that, if those things are removed, we will see accelerated growth.
MIKE BROWN: That’s exactly right. We are currently at a critical juncture in the South African economy and, to get us out of the difficulty we are in right now, we absolutely require coherent economic policy. We need to make the difficult decisions, not postpone them and we need to take urgent action. Our country is simply fast running out of both time and money.
RYK VAN NIEKERK: Indeed. We’ve got one rating agency in Moody’s, which still has South Africa on an investment grade rating. Clearly that is in danger and, if something doesn’t change in the near future, that will also be cut to so-called junk status. What will the impact be on the banks, specifically, if that happens?
MIKE BROWN: You are exactly right. That’s why we talk about the need for urgent structural reform. It is to try and avert our country losing that last investment-grade rating that we’ve worked so hard to retain. And certainly, if we did lose it, I think the most important impact is to every single South African. We will have higher inflation, we’ll have higher interest rates, and we’ll have lower economic growth, and lower levels of employment than would otherwise have been the case.
From the bank’s point of view we have a very strong capital and liquidity position, so we are resilient [enough] to be able to withstand something like this. But it certainly makes growth extremely difficult.
RYK VAN NIEKERK: This is not a new call. We’ve heard these calls for structural reforms for several years, and especially after President Cyril Ramaphosa was elected. Why do you think we are not seeing these changes being implemented, because it seems pretty obvious?
MIKE BROWN: I think in the run-up to the national elections in May, there was an expectation that it would be very difficult to implement material structural reform. But post the election in May, the message we are giving is that we’ve been too slow on a number of key issues. And suddenly, front of mind is Eskom, which is certainly the elephant in the room in terms of the South African economy.
And, while we have very little option but to bail out Eskom with taxpayers’ money, what we don’t have yet is the plan for the reform of Eskom, or effectively the conditionality that went alongside that bail out, in terms of what the structure of Eskom is likely to be, what is the leadership of Eskom likely to be, what is the operational capacity of Eskom currently, and what is the long-term financial plan for Eskom.
RYK VAN NIEKERK: The engagement with government? Obviously this is an area of concern for every single private-sector business. How has the engagement with government been, and do you think there is an appreciation of how urgently these reforms are needed?
MIKE BROWN: Certainly in all of our engagements, either as the Banking Association or through Business Leadership South Africa, we are stressing the urgency of these reforms. We have quite simply run out of time. Government I do think understands that but does need to deliver in terms of, in particular, the Eskom plan in the short term.
RYK VAN NIEKERK: Let’s talk about Nedbank. This is one of the critical sectors in South Africa, the banking sector. You are implementing a new IT program called Managed Evolution, and you seem to be very excited about it. Tell us about the system and how it will change the way customers will engage with Nedbank.
MIKE BROWN: This certainly isn’t something that is new for us. We’ve been working for a long time on rebuilding our entire tech stake at Nedbank to create a bank that’s capable of leading in digital financial services. But what’s really exciting for Nedbank clients right now is that that hard work is starting to translate into a significantly better client experience.
So, what we launched in June this year was a new way of on-boarding or signing up customers through our retail branch network, using a brand new platform that we call Eclipse. In short, it’s taking the time to sign up a customer for a transactional account from around 45 to 50 minutes to under 20 minutes, and our really good bankers can do it in under ten. So a significantly improved client experience.
RYK VAN NIEKERK: Several banks are looking at their internal efficiencies, and several banks have announced significant staff cuts, significant reduction in the number of branches they have. Are you looking at any rationalisation?
MIKE BROWN: We continue to look at how to run our bank and business in the most efficient way possible. We have over time slightly reduced our overall presence, but we’ve been much more focused on optimising the size of our current branch infrastructure, reducing the actual size of our existing branches as they become more digital.
And certainly there are a number of initiatives under way, the most public of which at the moment is that we are shifting some activities that take place at the bottom end of our business banking environment into an area that we call Retail Relationship Banking. That’s where, unfortunately, the press has incorrectly reported that we are retrenching 1 500 staff. There are 1 500 staff whose jobs are impacted by this shift. We believe that 1 400 of them will be placed, and there are currently 100 in a redeployment pool that we are trying to place internally or reskill.
RYK VAN NIEKERK: You can see significant details of your customers’ financial positions. Are you seeing customers trying to cut back? Do you see fewer home loans, do you see fewer applications for vehicle finance? Are you seeing any behavioural changes from your customers?
MIKE BROWN: We are definitely seeing customers under pressure. That shouldn’t be a surprise in this environment. So, we see a cyclical deterioration of customer financing on the retail side of our business. And many large corporates and businesses are choosing to wait before making material investments, given the lack of progress that we’ve seen on structural reform.
RYK VAN NIEKERK: Thank you Mike, for your time this evening.