Nedbank Group Ltd (NDBKF) (Q4 2024) Earnings Call Highlights: Strong ROE and Dividend Growth ...

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Wed, Mar 5, 2025, 12:06 AM 4 min read

Diluted DHEPs Growth: Increased by 11%.
Return on Equity (ROE): Strengthened to 15.8%.
Final Dividend per Share: Increased by 8%.
Headline Earnings Growth: Up 8%.
Credit Loss Ratio: Decreased to 87 basis points.
Gross Banking Advances Growth: Increased by 7%.
Deposit Growth: Increased by 8%.
Net Interest Income (NII) Growth: Increased by 1%.
Non-Interest Revenue (NIR) Growth: Increased by 10%.
Cost-to-Income Ratio: Increased to 55.9%.
CET1 Ratio: At 13.3%, above the board target range.
Net Asset Value per Share: Increased by 4%.
Expenses Growth: Increased by 8%.
Stage 3 Loans Coverage: Increased to 40.5%.
Sustainable Development Finance Exposures: ZAR183 billion, representing 19% of total gross loans and advances.

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Release Date: March 04, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Nedbank Group Ltd (NDBKF) reported an 11% increase in diluted DHEPs and strengthened ROE to 15.8% for 2024.
The company achieved strong double-digit NIR growth and lower impairments, contributing to improved financial performance.
Nedbank's strategic initiatives, including the 'perform agenda' and 'transform agenda,' have identified new opportunities for sustainable growth.
The group's CET1 ratio remained robust at 13.3%, well above the board target range, indicating a strong balance sheet.
Nedbank's digital transformation efforts have led to increased digital client onboarding and a high adoption rate of digital services, enhancing client satisfaction.

Negative Points

The operating environment remains volatile and uncertain, with socio-political issues and economic challenges impacting performance.
Economic activity in South Africa was weak, with GDP growth expectations at only 0.5% for 2024.
Nedbank experienced slow balance sheet growth and muted NII growth, impacting overall financial performance.
The cost-income ratio increased to 55.9% due to low average advances growth and lack of NII growth.
The consumer segment remains under pressure with high interest rates and limited job prospects, leading to muted credit demand.

Q & A Highlights

Q: Can you expand on the headwinds resulting in low earnings growth in the first half of 2025, and any updates on plans to hedge part of the endowment book? Also, could you explain the difference between main bank customer growth and total active customers? A: The headwinds are largely due to slowing balance sheet growth throughout 2024, geopolitical risks, high global and domestic inflation, and a shallower rate-cutting cycle. We have done some hedging in our CIB portfolio and will continue as opportunities arise. Main bank customer growth has been positive, but we aim for stronger growth. Our digital sales, which account for two-thirds of total sales, are contributing positively to customer service and account maintenance.

Q: Should we expect a similar level of NIM compression in the next six months, and can you provide insights on business banking fee dynamics and the strategic review of ETI? A: Yes, a similar level of NIM compression is expected in the first half of 2025, with stabilization in the second half. In business banking, while there is fee pressure, we see opportunities in product offerings and service improvements. The strategic review of ETI is ongoing, and while we can't time-bound outcomes, it is a focus area for us.

Q: With the organizational restructure, will there be further cost savings or job cuts? What are the current staff numbers? A: Our staff numbers are stable at around 25,500, including the addition of Eqstra colleagues. The restructure aims to build scale and client-centricity rather than cut costs. Any cost opportunities found will be reinvested in our frontline.

Q: Can you explain the muted NAV per share growth and the higher cost-income ratio? What was the amount of share buybacks implemented? A: NAV per share was impacted by foreign currency translation debits and share-based payments. The cost-income ratio increased due to slow balance sheet growth and low NII growth. We executed share buybacks worth ZAR77 million.

Q: What risk management measures are in place for potential East African acquisitions, and is organic growth not more prudent? A: We are not pursuing acquisitions in East Africa but rather leveraging our strengths in areas like infrastructure finance and trading. We have learned from the ETI investment and will apply those lessons to any future opportunities.

Q: With mid-single-digit NII growth expectations, does this imply close to double-digit loan growth expectations? A: We expect higher average loans and advances growth in 2025 compared to 2024, with stronger growth in the second half of the year.

Q: Do you expect unsecured lending growth to accelerate with an improving consumer outlook? A: While we have a deliberate risk appetite in unsecured lending, we hope for improved quality of business in the second half of the year, supporting loan growth.

Q: What are your priorities in payment modernization, and what is Nedbank's competitive advantage? A: Payment modernization is driven by our tech investments, focusing on digital payment channels and industry-wide changes. We aim to compete effectively in this evolving landscape and are reviewing our card processing partnerships.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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