Nedbank’s FY profit rises as bad debts decline

South Africa’s Nedbank beat expectations with a nine percent increase in annual profit, helped by a fall in bad debts, and said it expected further growth in the coming year.

South Africa’s fourth-largest bank, like its rivals, was lacerated by bad debts in 2009, after a recession slashed more than a million jobs and left many consumers with ballooning household debt.

Faced with weak loan demand, South African banks are increasingly looking to cut costs and boost non-interest revenue, such as fees and commissions.

“What was encouraging was non-interest revenue again. They keep on saying it and they keep on doing it. They definitely are improving that area and that’s the area that lagged the most against the other banks,” said Rob Nagel, senior portfolio manager at Cadiz Asset Management.

“The other part that impressed us was the cost control. It is a difficult environment to control costs and they somehow managed to do that as well.”

Nedbank rival Standard Bank last year cut more than 2,000 jobs in London and Johannesburg, to offset weaker revenue. Nedbank Chief Executive Mike Brown told Reuters he did not expect to follow suit.

The bank will also focus on keeping cost growth below the rate of growth of non-interest revenue, he said.

Retail unit
Nedbank, majority owned by insurer Old Mutual, has also been focused on righting its retail unit, which has been hit by a flood of bad mortgages. The unit returned to profit in 2010 after a loss a year earlier.

Nedbank, the South African bank that HSBC dropped a takeover bid for last year, said diluted headline EPS totalled 1,069 cents in the year to end-December, up from 983 cents a year earlier.

That compares with a median estimate of 1,039 cents in a poll of 11 analysts by Thomson Reuters.

Headline earnings, the main measure of profit in South Africa, exclude certain one-time items.

Non-interest revenue totalled 13.2 billion rand ($1.9bn), up 11 percent from 11.9 billion a year earlier.

Net interest income, the measure of earnings from lending, was little changed.

Bad debts costs came to 6.2 billion rand versus 6.6 billion in the previous year.


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