Johannesburg - Nedbank Group, the South African bank controlled by Old Mutual, said interest rate increases in its domestic market will boost revenue and help offset any uptick in bad debts that may appear from next year.
A 1 percentage point increase in rates will add R1 billion ($79 million) to net interest income, Mike Brown, CEO of Nedbank, said Tuesday by phone. “Given the slow growth in South Africa, we think this interest rate cycle is likely to be flatter than usual. The entire cycle is likely to only be 150 basis points of increases.”
The central bank increased rates by 25 basis points last month and Nedbank is among lenders forecasting a similar move in September. The Johannesburg-based lender is targeting expansion in the rest of Africa where growth rates are relatively faster than its home market. It owns a fifth of Togo-based Ecobank Transnational Inc. and 37 percent of Mozambique’s Banco Unico.
“In Mozambique, we will go to between 50 percent to 70 percent next year and we intend to pay in cash,” Brown said, adding the payment won’t affect the bank’s capital levels. Nedbank isn’t in discussions with Ecobank to buy a stake in its Nigerian operations, he said.
The number of people using Nedbank as their main bank rose 8 percent in the first half to 2.5 million customers, Brown said. Business banking took on 2 500 more small-and medium enterprise accounts and the corporate and investment unit won the account for the Durban municipality, South Africa’s third- largest city, known as eThekwini.
Stock record
Nedbank stock advanced to a record in Johannesburg Tuesday after the lender posted earnings that beat estimates. The shares climbed 5.6 percent to R272.37 as of 11:58 am in the city, the highest intraday level since the bank started trading in August 1990. The six-member FTSE/JSE Africa Banks Index climbed 2.6 percent.
First-half profit rose 16 percent from a year earlier to R5.3 billion after bad debts fell and earnings from the rest of Africa increased, Nedbank said earlier in a statement. Earnings per share excluding one-time items rose 14 percent to R11.01, beating the median estimate of four analysts surveyed by Bloomberg. The interim dividend increased 16 percent to R5.37 a share.
“Nedbank delivered good fee growth, ongoing improvement in the credit-loss ratio and disciplined cost management,” said Neelash Hansjee, bank analyst at Old Mutual’s Cape Town- based investment unit. “The environment is tough, but Nedbank seems defensively positioned with the wholesale business being a bigger part of its mix versus its peers.”
‘Sustainable performance’
Advances and non-interest revenue are expected to increase by more than five percent in the rest of the year, the bank said in its statement. The South African economy is projected to improve slightly in 2015 off its low 2014 base.
“Management have maintained full-year guidance of diluted earnings per share excluding one time items growth at around 8 percent, so I think the performance is sustainable,” said Adrian Cloete, portfolio manager at PSG Wealth in Cape Town. “The big banks are well diversified across corporate, retail, wealth and also into Africa. The banks are also very well run by good management teams, so it’s unlikely that we get negative surprises in the current environment.”
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