Nedbank Group’s financial performance in the first half of 2020 reflects the impact of the Covid-19 pandemic and resultant lockdown from the end of March 2020 as headline earnings (HE) declined 69,2% to R2,1bn.
The decline was driven by a significant increase in impairments, including R2,9bn related to IFRS-9 macromodel adjustments and judgemental overlays for estimated Covid-19-related impacts and expected future job losses.
Nedbank CE Mike Brown described the period as one which presented “unprecedented health, economic and social challenges that have had a material impact on individuals, families, businesses, societies and countries. In particular our thoughts and prayers are with the family and friends of 5 Nedbankers who lost their lives as a result of Covid-19 related illnesses.”
“Our primary focus was on remaining resilient and ensuring the health and safety of our staff and clients; invoking business continuity plans; ensuring IT systems stability; supporting our clients in managing their finances through this very difficult period; and managing liquidity, credit risk, capital and discretionary costs closely.”
“While operating under lockdown we provided payment relief for over 375 000 clients amounting to R119bn of loans, reduced various client fees amounting to R104m, and launched digital innovations using foundations from our managed evolution technology rollout to assist our clients during the lockdown, including launching the Avo app and Tap on Phone payments functionality. Importantly, these capabilities enabled digital sales to increase from 18% to 53%.”
Avo is a one-stop super app enabling clients to buy essential products and services online and have them delivered to their home. Since its launch in app stores on 19 June 2020, Avo has signed up more than 750 businesses offering their products and services on this ecommerce platform.
SA’s first tap-on-phone functionality, allowing all merchants and business owners to convert their cellphones into payment acceptance devices in order to meet the needs of customers who are increasingly looking for contactless ways to pay. This tap-on-phone functionality is a first for Africa, and Nedbank is currently the only bank to offer this capability.
Nedbank maintained a strong balance sheet, evident in a tier 1 capital ratio of 11,7% and CET1 ratio of 10,6% at 30 June 2020, as well as a strong liquidity profile.
Nedbank experienced a lower return on equity (ROE) as headline earnings declined given the impact on clients of the difficult macroeconomic environment and the Covid-19 crisis.
While it is disappointing to report large reductions in ROE and headline earnings, we consider this as a resilient outcome in extraordinarily difficult circumstances where there was less focus on profitability in its own right, other than as a buffer against capital.
Impairments increased significantly, driven by the impact of Covid-19 on consumers and businesses, and the deteriorating SA macroeconomic environment. The group’s impairment charge increased 202% to R7 675m and the credit loss ratio was up from 70 bps to 194 bps.