Increase in impairments causes Nedbank profit slump

Nedbank’s profits slumped almost 70 percent in the six months to June as impairment charges surged 202 percent to R7.68 billion on Covid-19.

Nedbank’s profits slumped almost 70 percent in the six months to June as impairment charges surged 202 percent to R7.68 billion on Covid-19.

Published Aug 27, 2020

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DURBAN – Nedbank’ profits slumped almost 70 percent in the six months to the end of June as impairment charges surged 202 percent to R7.68 billion on Covid-19.

The group said that headline earnings tumbled 69.2 percent to R2.1bn on the significant increase in impairments, including R2.9bn related to IFRS-9 macro-model adjustments, judgemental overlays for estimated Covid-19-related impacts and expected future job losses.

It said full-year earnings were now expected to decline by more than 20 percent for the year to the end of December despite charging that forecasting in the current environment would be complex and estimates subject to a much higher level of forecast risk than usual.

Nedbank said its revenue declined 1.8 percent to R27.18bn and diluted headline earnings per share fell to 434 cents a share.

The bank did not declare a dividend, in line with the guidance from the South African Reserve Bank, and provided a cushion for its customers by providing payment relief across the portfolio.

The support included R30.5bn corporate and investment banking, R78.4bn in retail and business operations, R7.1bn in the wealth division and R2.6bn in Africa regions to more than 375 000 clients.

Chief operating officer Mfundo Nkuhlu said the country entered Covid-19 in a much more difficult economic position than it did during the global financial crisis.

“We entered Covid-19 in a far weaker position as a result of the technical recession we found ourselves in, and the pandemic was followed by the Moody’s and Fitch downgrades of the SA sovereign credit ratings, which combined to place unprecedented pressure on the local economy in the second quarter,” Nkuhlu said.

The group said the economy would remain weak and household finances would continue to be under pressure in the second half of the year. “However, the recovery is expected to be weak and too late to prevent a sharp contraction in real gross domestic product (GDP) in the year as a whole, with our forecasts being for GDP in 2020 to decline by 7 percent, with second-quarter GDP declining more than 40 percent,” Nkuhlu said.

Citadel trader Jordan Weir said Nedbank’s results reflected similar patterns of the negative impact Covid-19 in the banking sector.

Weir said the sector had seen the “bottom of the barrel” of the Covid-19 credit impairments.

He said Nedbank was likely to take a more defensive approach when conducting business, given the embattled state of the economy, while focusing most of its attention on financial recovery, coupled with a finessed strategic approach.

“With South Africa having lost around three million jobs during the lockdown period, banks are not out of the mud just yet,” Weir said.

Nedbank shares declined 5.68 percent on the JSE on Wednesday to close at R105.75.

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