On Monday, 1 August 2011, Nedbank used just that, reporting an increase in headline earnings of more than 28% to R2,8bn in the six months to June, which masked a worrying decline in its gross advances and loans.
CEO Mike Brown ignored a slight cold to share his enthusiasm about the progress Nedbank is making to rehabilitate impaired customers, to diversify income by expanding noninterest revenue and restore growth in the once-troubled retail unit.
The market appeared to welcome the results. Nedbank's share price at one stage was as high as 1,5% ahead of its three larger rivals.
The retail unit sticks out as the turnaround story, says Brown. Headline earnings rose to R833m, up from just R133m.
"Overall, impairments are down and this is a pleasing trend," he says.
Senior analyst at research firm Intellidex, Nesbert Ruwo, says despite a tough market, the retail business has shown signs of recovery, with a return on equity of 9.9%, up from 1.7%.
This shows the turnaround strategy is working. "The bank, however, has to brace itself for tough competition as peers up their game to grow customer numbers," Ruwo says.
"In the 12 months to June 2010, it grew its retail clients base by 94000 - that's about 8000 per month, a far cry from what Capitec has been doing."
Brown says the other revenue centres, except Nedbank Capital, have also performed well in the period under review.
The corporate unit's earnings rose by 24% to R779m, business banking grew by 3.9% to R456m, and the wealth unit registered a growth of 16.6% to R274m.
But Nedbank Capital's earnings fell by almost 6% to R546m, reflecting weak corporate activity and bad debts.
The retail unit registered growth in personal and vehicle loans, and the card business, but home loans fell as the bank reduced its appetite to lend.
"The turnaround of Nedbank Retail is well on track and gaining momentum," Brown says in remarks with the results.
"A strong leadership team has been formed to implement the distinctive client-centred growth strategy in a phased approach, building a strong foundation for sustainable earnings growth, having addressed the secured-lending impairment challenges of the back book."
Brown says the unit's return on equity is still below the group's target of 18%-20%. "There is still a way to go, particularly when compared against the cost of equity of 13%."
But he is pleased with a fall in impairments, which declined to R2,1bn from R2,7bn, reflecting a tougher approach to collections and rehabilitating distressed customers.
Nedbank has proactively assisted distressed customers by, among other measures, reducing their monthly repayments and helping them to sell their houses before they are repossessed.
The other three big banks have similar programmes, as their aim is to avoid the potentially lengthy and costly legal process of repossessing houses.
Bank executives say assisting distressed customers to sell their houses helps them to recover more value than they would have if their houses were auctioned.
"Since July 2009 Nedbank has kept over 10700 households in their homes through effective rehabilitation and nurturing clients towards improved financial fitness," says Brown.
But he says Nedbank's home loan portfolio continues to be affected by the bad debts incurred in 2007 and 2008.
This, he says, could influence more than 50% of future impairments and, "together with the mispricing of risk, will continue negatively to impact headline earnings on the R4,6bn of allocated capital over the next few years".
Although Nedbank continues to lag behind its three larger rivals on retail customer growth, Brown says steady progress is being made.
The bank had just more than 5-million retail customers as of June, up from 4,83-million in December, while more than 520200 were registered as internet bank users against 498000 in December.
Brown also says that he expects demand for credit to grow in the last half of this year, particularly from corporate clients.
Nedbank's expansion will largely be organic, he says, noting the bank is in no rush to make acquisitions outside SA because the assets it has been offered so far have been too expensive.
Source: Business Day
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