RMB Morgan Stanley conference - Nedbank

1Nedbank Group – RMB Morgan Stanley Bank Showcase (May 2019)

RMB Morgan Stanley conferenceThe drivers of improved balance sheet growth27 May 2019


Nedbank Group – drivers of improved balance sheet growth

Macroeconomic drivers – a top down view

CIB & RBB credit growth drivers

▪ Wholesale-biased business model positions Nedbank Group well to benefit

from increase in business confidence & economic growth

▪ Growth momentum in RBB to continue (after having de-risked the portfolio

in prior years)

RBB deposit growth

▪ Ongoing focus on driving primary client gains across all our businesses

1

2

3


Stronger economic growth dependent on structural reforms, policy

certainty, improved levels of confidence, investment & job creation

Early stages of political &

institutional turnaround in SA

Structural

reforms

& policy

certainty

Improved

levels of business & consumer confidence

Increased

levels of

inclusive

economic

growth

Job creation & reduced …

− unemployment

− poverty

− inequality

Increased

levels of local & foreign

investment

Government, business, labour & civil society working together to create a more prosperous SA for all her people …

… underpinned by improved skills & educational outcomes

To move forward we need more

certainty on electricity supply, EWC

(land) & other areas of policy certainty

the post general elections

1


Macro economic forecasts under Ramaphobia, Ramaphoria &

Ramareality scenarios

Ramaphobia

(High stress)

Ramaphoria

(Positive)

Ramareality

(Base case)

SA GDP growth 0.8% 0.4% (0.2%) 0.7% 0.8% 1.4% 2.0% 2.2% 0.8% 0.9% 1.6% 1.9%

1.3% 1.8% 2.0%

Ave prime

interest rate 10.1% 10.6% 11.3% 11.3% 10.1% 10.1% 10.0% 10.0% 10.1% 10.3% 10.5% 10.5%

Inflation (CPI) 4.7% 5.4% 6.4% 5.8% 4.7% 3.9% 4.2% 4.0% 4.7% 4.6% 5.3% 5.2%

Credit growth 5.2% 4.7% 3.2% 5.4% 5.2% 7.6% 9.0% 9.2% 5.2% 5.5% 6.9% 7.7%

18 19 20 21 18 19 20 21 18 19 20 21

Rmaobia

(high stress) (hiRaaphobiagh stress)

Raphoba

(high stre5s)

Nedbank forecasts & scenarios updated: 1 April 2019 (Nedbank Group Economic Unit)

1

Previous

forecast

(Feb 2019)


Industry credit growth – companies vs households

Nedbank forecasts & scenarios updated: 24 May 2019 (Nedbank Group Economic Unit)

1

-10

-5

0

5

10

15

20

09 10 11 12 13 14 15 16 17 18 19

Total Companies Households

Company growth benefitted from

renewable energy investments &

rest of Africa expansion

SA credit growth (%)

5.5

%

6.9

%

7.7

%

5.9

%

6.2

%

7.0

%

5.2

%

7.5

%

8.3

%

7.1

%

8.9

%

10

.2%

2019 2020 2021

SA credit growth forecasts

Total SA credit Households

Non-household Other corporate


Wholesale credit growth – fixed investment to increase modestly1

Gross domestic fixed investment (Rbn) Top-down sector sensitivity to various factors

Expected

growth

Economic

cycle

Energy

reliance

Policy

influence

Mining

Manufacturing

(incl industrials)

Electricity

Construction

Domestic trade

Transport &

comms

Finance

General government

Very challenging Very supportive

Source: Nedbank Economic Unit

350000

450000

550000

650000

750000

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

Base case

Positive scenario

High stress scenario

Current

status

Commercial property

REIPPPREIPPP


Retail credit growth – interest rates & consumer indebtedness stable, but

growth dependent on job creation & increased levels of consumer spending1

07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

SA prime rate (%) Employment trends (index: 100 = March 2008)

Household consumption expenditure (Rbn)Personal debt-to-disposable income (%)

2 500

2 000

1 500

50020

40

60

80

100

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

8

9

10

11

12

13

14

15

16

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22

90

95

100

105

08 09 10 11 12 13 14 15 16 17 18 19

Private sector Total Employment

Source: Nedbank Economic Unit Base case Positive scenarioHigh stress scenario

1 000



Macro-economic drivers – a top down view





in prior years)

RBB deposit growth


1

2

3


Nedbank Group advances growth 2

200

250

300

350

H114

H214

H115

H215

H116

H216

H117

H217

H118

H218

CIB (excl trading advances) RBB

CIB & RBB banking advances (Rbn)Banking vs trading advances (Rbn)

400

500

600

700

800

H114

H214

H115

H215

H116

H216

H117

H217

H118

H218

Banking advances Trading advances


BA900 market share

14.5

0

10

20

30

40

20182016201420122010

HL market share (%)

13.7

0

10

20

30

40

20182016201420122010

Credit card market share (%)

35.7

0

10

20

30

40

50

20182016201420122010

VAF market share (%)

10.4

-5

5

15

25

35

20182016201420122010

Personal loans market share (%)

20.6

-5

5

15

25

35

20182016201420122010

Core corporate market share (%)

39.1

-5

5

15

25

35

45

20182016201420122010

Commercial property market share (%)

18.0

0

5

10

15

20

25

30

20182016201420122010

Household deposits market share (%)

16.5

0

10

20

30

40

20182016201420122010

Commercial deposits market share (%)

2


SDGs – opportunities to grow while contributing to a greater purpose

Sustainable Development Finance SDG 4: Quality education – Student accommodation, Student loans, Student Financial Aid

programme (Ikusasa) etc

SDG 6: Clean water & sanitation – Assistance, advisory services & finance to address SA’s

water challenges (public & private sector)

SDG 7: Affordable & clean energy – Utility-scale renewable-energy finance (R22,8bn

disbursed to date from R40bn underwritten), Embedded energy generation eg R1bn of solar

power installations in CPF in 2018), Solar power for small businesses & homes, First SA

commercial bank to launch a green renewable energy bond (3x oversubscribed) etc

SDG 8: Decent work & economic growth – Inclusive banking solutions including MobiMoney,

Stokvel account, Unlocked.me, assisting VBS clients etc, Enterprise Development including

assistance to 24 Expanded Public Works Programmes, YES programme – 3 315 job

opportunities, R20m contribution to government’s SME fund etc

SDG 9: Industry, innovation & infrastructure – Infrastructure development in SA & Africa

including mass transit, rail & road corridors, ICT, energy, schools & hospitals etc

SDG 10: Reduced inequalities – Cross border remittances, low cost banking solutions,

consumer education etc

SDG 11: Sustainable cities & communities – Affordable housing funding (R1,2bn in 2018),

Social housing project partnerships, Green buildings (R4,8bn in 2018) etc

SDG 12: Responsible consumption & production – Sustainable and ethical agricultural

practices, including investments eg Aerobotics

SDG 15: Life on land – Conservation partnership with WWF (Water Balance programme,

Sustainable Agriculture programme etc)

Using our

financial

expertise to

do good

2


CIB – commercial property growth drivers

Commercial property finance Growth range1: 2 to 6%

Macro drivers:

▪ Low growth economic environment & difficult market

conditions

▪ Rentals under pressure across all segments of the

market with rental reversions common

▪ Significant competition across lenders to win high quality

deals at the top end of the market

▪ Pressure in the construction sector negatively impacting

new developments

Nedbank specific drivers:

▪ High-quality book (as evident in CLR below 50 bps over

10 years2) & LTVs at < 45%

▪ Growth & investment in Africa business to ensure

ongoing revenue growth & diversification

▪ Focus on the equity business as a competitive advantage

▪ Proactive management of the portfolio has resulted in

CLR below target range

▪ Continue leveraging dominant market position in the SA

debt business

21

22

1211

5

10

2

33

11

Offices

Retailers

Warehouse

Multiple portfolios

Manufacturing

Residential

Vacant land

Hotel & BB

Other mortgages

Other loans

Diversified book by property type (%) Dec 2018

2

Advances (Rbn)Advances (Rbn)

68.5

73.9

77.5

79.4

84.4

99.6

116.1

127.1

137.4

140.8

20172009 20182010 20132011 2012 2014 20162015

Note 1: 3-year growth target per annum | 2: Excluding Imperial Bank book


CIB – other corporate loan growth drivers

Other corporate loans1 Growth range1: 6 to 12%

Macro drivers:

▪ Policy certainty expected to improve post-elections due to focus

on governance & ease of doing business as well as

implementation of growth-enabling & job-creating policies in line

with the NDP

▪ This will impact the energy sector (IRP); mining charter;

immigration (tourism & FDI – especially skills acquisition); telcos

(Spectrum) & land reform (expropriation bill)

▪ Business & consumer confidence likely to improve, but with a

lag – which should yield better growth outcomes into 2020/ 2021

▪ Growth sectors – diversified, mining, renewable energy, telcos,

infrastructure, Africa

▪ Stressed sectors – cement, construction, retailers, SOEs


▪ Momentum from execution of Q4 2018 deal activity

▪ Despite slowdown in the economy, we continued to win deals &

mandates (without impacting economic returns) – solid pipeline

across Debt, Equity (VC) & Advisory

▪ Renewable energy: Closed round 4 in 2018, paid away R23bn,

with R40bn commitments in all rounds

28

0

25

50

75

100

95 97 99 01 03 05 07 09 11 13 15 17 19

SA BER/ RMB Business confidence index

2

Note 1: 3-year growth target per annum | 2: Represents IB, Coverage & other corporate loans in CIB

169.6

187.2

182.8

179.6

Banking advances2 (Rbn)

2017 201820162015


RBB – homeloans growth drivers

Homeloans Growth range1: 4 to 7%

Macro drivers:

Mortgage growth remains benign, primarily due to:

▪ Difficult macro-economic environment

▪ Political/ regulatory uncertainty (ie land expropriation,

load-shedding)

▪ Slowing house price inflation: < 4% for the first time since

2012 (Lightstone)

▪ Recent competitor action (particularly underwriting)


▪ De-risked the book from 2009 to 2012

▪ Improved pricing from ‘Prime minus 130bps’ (2008) to

‘Prime plus 30bps’ (Q1 2019)

▪ Digital innovations (eg Home Buying toolkit)

▪ Multi-channel strategy

▪ Strong focus on improving client experiences

▪ Selective identification of risk appetite opportunities given

credit performance

▪ Working to build strong relationships with key real estate

groups

114.3

113.4

108.9

105.0

102.9

103.0

109.3

112.2

116.1

121.7

Advances (Rbn)

20172009 20182010 20132011 2012 2014 20162015

0,7%4,3%

CAGR

Source: Experian Delphi Score

Nedbank vs peers’ new business: proportion of low-risk clients (%)

0%

10%

20%

30%

40%

50%

09 10 11 12 13 14 15 16 17 18

2

Note 1: 3-year growth target per annum


RBB – vehicle finance (MFC) growth drivers

Vehicle finance Growth range1: 7 to 10%

Macro drivers:

▪ Weak Rand negatively affecting new car prices

▪ Low levels of consumer confidence

▪ Negative client cashflow

▪ Publicly declared intent of peer banks to resurrect historic

successes

▪ Ongoing increase in funding costs, driving up client risk-

adjusted interest rate offers


▪ Intrinsic security higher with largely used assets

▪ Strategic positioning and risk appetite adjustments in the

R100,000 – R300,000 car market

▪ Ability to grow (off a low base) the taxi and light

commercial vehicle (LCV) books

▪ The launch of a digital VAF channel to be able to serve

client choice to source cars and apply on-line / in App

44.3

50.1

54.4

59.4

67.6

75.5

81.2

87.4

94.9

104.2

20172009 20182010 20132011 2012 2014 20162015

Advances (Rbn)

79

7165 63 65 67

63

74 72 71

21

2935 37 35 33

37

26 28 29

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

MFC used vs new vehicle sales (%)

Used New

10,0%

CAGR

2



RBB – personal loans growth drivers

Personal loans Growth range1: 7 to 10%

Macro drivers:

▪ Consumers strained given the weak macro

▪ Reduced excess affordability & increase in retrenchments

driving increase in risk

▪ Market growth > 10% notwithstanding risk /strain

▪ Banks competing for deeper share of wallet of their own

customers & shift to digital /simple /quick

▪ Potential margin pressure as digital solutions make

comparative offers quick & simple

▪ Debi Check – potential negative impact on growth/ risk

(dependent on mandates)


▪ De-risked the book from 2012 to 2015

▪ New end to end onboarding system

▪ ‘Good for credit’ client CVP

▪ Credit products in App

▪ New online banking ‘7-click process’ launched

▪ Kiosks/ ATMs following shortly

9.1

12.5

17.3

22.2

20.1

17.1

16.3

17.5

18.1

20.0

20172009 20182010 20132011 2012 2014 20162015

Advances (Rbn)

34,7%

CAGR7,0%

PL market share of new business by risk band1 (%)

Nedbank Tier 1 ** Tier 2 **

0%

5%

10%

15%

20%

15 1816 17

Low Risk Low-Medium Risk Medium Risk High risk

0%

20%

40%

60%

80%

15 16 17 180%

20%

40%

60%

80%

15 1716 18

* Low risk (Bureau score ≥ 658); Low−medium risk (Bureau score 644−657); Medium risk (Bureau score 626−643); High risk (Bureau score ≤ 625).

** Tier 1 refers to traditional 4 banks, excluding Nedbank, while tier 2 refers to remaining material providers of unsecured personal loans.

Source: Experian

2



RBB – credit card growth drivers

Card Growth range1: 7 to 9%

Macro drivers:

▪ Credit-eligible population small relative to total SA

population

▪ TransUnion SA Consumer credit index < 50 for two

quarters. Corroborated by falling consumer confidence &

retail sales growth.

▪ Client behaviour shift from credit products to debit

products – indicative of the difficult environment.

▪ Commercial clients reducing spend on certain categories

eg travel & entertainment


▪ Continued focus on digital channels.

▪ Access to data & insights off the back of the growth of

digital client intent (potentially identify areas of

opportunity for automated client engagement)

▪ Limit increase on App & campaigns

▪ Ghost accounts & digital on-line application

▪ Deepening cross sell to clients, both new & existing

7.3

7.8

8.5

9.9

11.3

13.2

13.9

14.7

15.6

16.3

20172009 20182010 20132011 2012 2014 20162015

Advances (Rbn)

9,4%

CAGR

103

15 24

Retail Hardware

6

Restaurants Forecourts Drug Stores Other Total Portfolio

-2

10 5

Card acquiring growth per segment %

Turnover Growth

2



RBB – Retail Relationship Banking credit growth drivers

Retail Relationship Banking Growth range1: 7 to 9%

Macro drivers:

▪ Low capital outlay from large corporates (confidence)

directly impacting growth in small business

▪ Limitations on the current infrastructure as provided by

Parastatals

▪ Small Business: Poor record keeping / inability to

produce up-to-date financials


▪ EPIC lending tool: full roll-out across all products

completed by July 2019

▪ Client centric pricing: in play, but constant refinements.

▪ Pre-assessment / client profiling: partially in play for EPIC

lending tool (go live H2 2019)

▪ SBS Accounting: Integrated solution to assist with basic

accounting & credit decision making (2020)

▪ Tailored policies for young professional & Medical

profession

25.1

26.3

23.3

23.7

24.4

24.9

30.7

33.2

33.8

37.7

2.4

0

2.6

0

1.4

7

0.7

2

0.3

3

0.0

7

0.1

2

0.0

9

0.0

5

0.2

1

2009 & 2010 still the carry over of higher provisions on Home Loans book following 2008 Crisis

Advances (Rbn)

20172009 20182010 20132011 2012 2014 20162015

4,6%

CAGR

7,1%

Credit loss ratio (%)

20172009 20182010 20132011 2012 2014 20162015

2

R4.9bn advances moved from BB to RRB in 2015 with normalised growth of 2.5% in 2016 due to

client migrations to CIB



RBB – Business Banking credit growth drivers

Business Banking Growth range1: 8 to 11%

Macro drivers:

▪ Increased competitor pricing pressure on the back of a challenging

macro. Specific challenges in the mining sector, transport (high

fuel costs); construction & consequently steel industry.

▪ Increased credit risk as a result of the prolonged drought (yields

declining in the agric base).


▪ Growth in Debtor Management with enhancements to improve

efficiencies & overall client experience

▪ Specialised Finance scaled with good pipeline of activity (spurred by

M&A as a lever for growth & increased focus on BBBEE)

▪ Enhanced Public Sector strategy resulting in increased client gains

(eg Municipalities, Universities)

▪ Finalising a unique & integrated pricing philosophy across assets,

transactional banking & investments, (over & above credit risk).

▪ Accelerate Advances Growth Strategy: A plan designed for the

frontline to taking more risk based on an inherently good risk

philosophy.

▪ See Clients Differently: Unique & integrated pricing philosophy

across assets, transactional banking and investments –

incorporating various risk elements such as liquidity & diversification

risk, unlocking more cross sell opportunities over & above credit risk

52.0

52.6

60.4

61.4

64.1

67.2

66.2

65.3

67.8

75.4

R4.9bn advances moved from BB to RRB in 2015 with normalised growth of 2.5% in 2016 due to

client migrations to CIB

0.5

2

0.4

0

0.5

3

0.3

4

0.6

5

0.4

2 0.4

8

0.2

6 0.1

2

0.1

5

2013 included R167m of First Strut impairment

20172009 20182010 20132011 2012 2014 20162015

Advances (Rbn)

4,2%7,4%

CAGR

Credit loss ratio (%)

20172009 20182010 20132011 2012 2014 20162015

2




Macro-economic drivers – a top down view





in prior years)

RBB deposit growth


1

2

3


Main-banked client gains across all our businesses an underpin to

deposit growth

6.9

7.5

5.4

6.0

2.53.0

8.8%

13.1%

Total

clients

Main-banked

clients

Transactional

clients

RBB retail client base (million)

2014 2018

+2%

+3%

+5%

Primary bank

market share2

Target: 15%

by 2020

Note 2: 2014: AMPS; 2018: Consulta: Same question asked: ‘Which ONE bank do you regard as your main

bank for personal banking?’

25

5

16

10

11

10

2

7

2

21 22

2

3

2

14 15 16 17 18

Tier 4 Tier 3 Tier 2

Tier 1 Target

CIB primary-client wins1 (#)

Target = 25 p.a.

30

26

39

Definition of tiers:

Note 1: Tier 1 > R5m | Tier 2 < R5m > R500k | Tier 3 < R500k > R100k | Tier 4 < R100k

3


RBB – deposit growth drivers

Retail Deposits Growth range1: 8 to 10%

Macro drivers:

▪ Slow market growth on the back of economic pressures

and uncertainties.

▪ Reducing consumer savings as a percentage of

household income.


▪ Strategic decision in Q4 2017 to not price materially

higher relative to competitor rates.

▪ This contributed to a more equitable margin at the cost of

slightly lower market share.

▪ On a net basis, the higher margins offset the lower

volumes resulting in a favourable outcome on NII.

▪ Digital focus with the goal of enhancing the client

experience & ease of opening, maintaining & reinvesting

investment products, thereby growing our market share &

lowering costs.

▪ Focus on growing main-banked clients across all

segments.

86.6

87.2

91.5

98.9

107.8

118.1

133.1

150.0

168.8

183.2

Post financial crisis CAGR growth >10%

Retail deposits (Rbn)

20172009 20182010 20132011 2012 2014 20162015

8,7%10,4%

CAGR

Main-banked client market share (%)

9.6 10.1

12.7 13.1

2017 20182014 20162015

Retail

ConsultaAMPS

2021

2019

22

2017 20182014 20162015

Business Banking

KPI Research: BB electronic Banking study

3



Contact us

Disclaimer

Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this

document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities legislation.

Forward-looking statements may be identified by words such as ‘believe’, 'anticipate', 'expect', 'plan', 'estimate', 'intend', 'project', 'target', 'predict' and 'hope'.

Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections,

expectations, beliefs and assumptions regarding the group's future performance.

No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements.

The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the

interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market

conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to

domestic and international operational, social, economic and political risks; and the effects of both current and future litigation.

Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or

damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential

loss or damage.

Nedbank Group

nedbankgroup.co.za

Nedbank Group Limited

Tel: +27 (0) 11 294 4444

Physical address

135 Rivonia Road

Sandown

2196

South Africa

Nedbank Investor Relations

Head of Investor Relations

Alfred Visagie

Direct tel: +27 (0) 11 295 6249

Cell: +27 (0) 82 855 4692

Email: [email protected]

Investor Relations

Larisa Masliukova

Direct tel: +27 (0) 11 295 5261

Cell: +27 (0) 82 085 9914


Investor Relations

Vuyo Majija

Direct tel: +27 (0) 10 234 5975

Cell: +27 (0) 76 785 3562


RMB Morgan Stanley conference - Nedbank

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