GDP rebound sees Nedbank’s return to paying FY dividends

Group’s headline earnings surge 115% to R11.7bn, but remains 7% below 2019 levels.
Nedbank CEO Mike Brown. Image: Moneyweb

South Africa’s economic rebound in 2021 has resulted in a rebound for banking group Nedbank, which reported a robust full-year financial performance on Wednesday and a return to paying out its annual dividend to shareholders.

Nedbank became the latest bank to confirm the payout of a final dividend for its year ended December 31, 2021. This follows the broader Covid-19 financial fallout in 2020, which saw banks being allowed to withhold dividends and bolster balance sheets to weather the pandemic.

The group declared a final dividend of 758 cents per share, up more than 100% compared to FY 2020, when no dividends were declared. This takes its full-year dividend per share to 1 191 cents (2020: 0c).

The bank’s net asset value per share for the year was also up 11.4%, to 20 493 cents (2020: 18 391 cents). Revenue was up 6.1% to R57.5 billion (2020: R54.2 billion).

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The group’s full-year headline earnings per share – the key profit measure for SA corporates – came in at 2 410 cents, which represents a robust increase of 114% over FY2020 (1 126 cents). Its cost-to-income ratio improved to 57.7% (2020: 58.1%).

“Nedbank Group’s financial performance for 2021 reflects a strong rebound off a low 2020 base. Headline earnings in 2021 increased by 115% to R11.7 billion, but remains 7% below 2019 levels,” the bank’s CEO Mike Brown notes in its results Sens statement.

“The operating environment in 2021 was more supportive for Nedbank and our clients. The South African economy performed better than we expected at the start of the year, resulting in upward revisions of gross domestic product [GDP] growth to 4.9%,” he however points out.

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“Off the low base in 2020, the rebound in economic growth was underpinned by higher commodity prices, lower levels of lockdown restrictions and some positive developments on key reforms in SA.”

“The low-interest-rate environment supported demand for retail credit and transactional activity increased as lockdown levels eased. Demand for corporate credit remained muted, particularly in the first half of the year as excess cash was used to repay debt, and investment activity remained low. Encouragingly, demand for corporate credit saw a recovery in the second half,” he adds.

July unrest and power outages

However, Brown says that in the third quarter of 2021 the negative impacts of a prolonged third wave of Covid-19 infections, tighter lockdown restrictions, the July civil unrest in parts of the country and frequent power outages weighed heavily on economic activity.

“Trading conditions improved in the last quarter of 2021, supported by more lenient lockdown restrictions despite the onset of the fourth Covid-19 wave [and Omicron variant].”

Read: July riots rob SA economy of above 5% growth

“Key balance sheet metrics have all strengthened to above pre-Covid-crisis levels. Capital and liquidity ratios increased as reflected in our tier 1 capital ratio of 14.3% [December 2020: 12.1%], common equity tier 1 [CET1] ratio of 12.8% [December 2020: 10.9%], average fourth-quarter liquidity coverage ratio [LCR] of 128% [December 2020: 126%] and net stable funding ratio of 116% [December 2020: 113%],” he notes.

“The strong financial performance was supported by ongoing strategic delivery. Our Managed Evolution technology journey to create a modern, modular and digital IT stack is at 85% completion.

“The benefits of this are evident in most of our digital metrics showing double-digit growth, as well as target operating model [TOM 2.0] benefits of R967 million being realised, as we move forward towards our target of R2.5 billion by the end of 2023,” he adds.

Brown says Nedbank also recorded the largest retail main-banked market share gain among the large South African banks, while its Corporate and Investment Banking (CIB) division gained 35 new primary clients during the period.

Nedbank’s share price was over 4.5% stronger (at around R218 a share) in morning trade, following the release of its full-year results on Wednesday.

Nedbank share price

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