18th ubs south african financial services conference ... · eti investment (30 june 2015): - cost:...

NEDBANK GROUP LIMITED

18th UBS South African Financial Services ConferenceBeyond South Africa

October 2015

Mfundo Nkuhlu, Chief Operating Officer

2

Agenda

Nedbank share price (Rand)

Context

The Nedbank Group journey

Operating in rest of Africa will be volatile…

…but the long-term potential remains intact

Key strategic considerations

Client centred – following our clients

Capital efficient – prudent deployment of capital

Risk mitigated – with diversification benefits

Nedbank Group Rest of Africa

strategy

SADC & East Africa – own, manage & control banks

Central & West Africa – partnership approach

Rest of Africa – investment banking opportunities

Conclusion Nedbank Group’s unique & differentiated strategy

3

The Nedbank Group journey…

2009 – 2014Competing strongly in SA, while

laying foundations in rest of Africa

2014 onwardsDelivering the

Rest of Africa strategy

Nedbank Group Headline Earnings (Rm) Nedbank Rest of Africa Headline Earnings (Rm)

4277

4900

6184

7483

8670

9880

2009 2010 2011 2012 2013 2014

133

139

126

162

173

357

2009 2010 2011 2012 2013 2014

4


05 06 07 08 09 10 11 12 13 14 15Food Metals All commoditiesIndustrial commodities Brent Crude Oil

Commodity prices (Indices in USD$)

Sub-Saharan Africa economic growth (%)

Recurring pandemics

Resource-reliant economies, but becoming more diversified

Improving, but still weak corporate governance

Political & social unrest

Uncertain legal & property rights

Currency volatility & liquidity challenges

6.8

6.8 7.6

6.0

4.0

6.7

5.0

4.2 5.2

5.0

4.5

05 06 07 08 09 10 11 12 13 14 15

Key risks

Poor infrastructure

GDP growth 2,0 - 3,5x that of SA

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Infrastructure development

Demographics shifts

Natural resources

Financial services penetration

Regional integration & trade

Urbanisation‘00

‘05

‘10SA ’15

‘00‘05 ‘10

‘15

‘00

‘05‘10 ‘15

‘00‘05‘10

‘15

‘00

‘05 ‘10‘15

30

40

50

60

70

80

90

20 30 40 50 60 70 80

Risk ¹

Growth Potential²

Good overall potential

Low uneven growth, higher risk

Higher potential, but higher risk

Lower risk, but more limited opportunity

Potential growth versus risk over time Illustration of selected countries in key regions

Source: Nedbank Economic Unit1: Risk a function of country risk, economic freedom2: Growth potential a function of GDP per capita, demographics & business conditions

Nigeria

Large population: 270m Rich oil reserves Better economic policies –

electricity privatisationKenya

Tourism Good ports & trade corridor Entrepreneurial Business friendly

Mozambique

Oil & gas field discoveries Resource rich &

economically exploitable even at current prices

SA linkages

Namibia

Advanced, mixed economy Large projects underway Generally good policies

Diversifying economies

Generally better policies

Key drivers

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Agenda


Context









strategy





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Client-centred – SA corporates are expanding into the rest of Africa

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Client-centred – SA corporates are expanding into the rest of Africa

Source: Ecobank Nedbank Alliance data and Group Strategy analysis.

Nam

ibia

Botswana

Swaziland

Zambia

Zimbabw

eMozam

biqu

eLesotho

Malaw

iMauritius

DRC

Angola

Seyche

lles

Tanzania

Kenya

Ugand

aRw

anda

Sudan

Ethiop

iaMadagascar

Burund

i

Nigeria

Ghana

Burkina Faso

Mali

Côte d'Ivoire

Guine

aSene

gal

Sierra Leo

neBe

nin

Other W

est A

frica

Algeria

Egypt

Other North Africa

Cameroo

nRe

p of th

e Co

ngo

Gabon

Other Cen

tral AfricaNum

ber o

f SA listed corporates present in

each coun

try

SA listed corporates ‐ presence in Rest of AfricaLegend:Nedbank SA clients Non SA Nedbank client

Top 3 ETI country & Nigeria

ETI presence

Nedbank presence

No ETI / Nedbank presence

Nedbank’s clients, as with many JSE-listed companies, are concentrated in SADC but are expanding into West & East Africa…

SADC (excl. Tanzania)

East Africa

West Africa

North Africa

Central Africa

***

+ Nedbank and Ecobank presence * Ecobank rep office # Nedbank rep office** Nedbank and Ecobank rep offices

++

#

9

14.5%

8.4%

6.1%

ETI Return oninvestment

ETIFunding cost

Carry

Capital efficient – prudent deployment of capital for the long-term

Invested to become c20% ETI shareholder

ETI investment (30 June 2015): - Cost: R5,9bn- Book value: R5,6bn- Market value: R6,4bn

Entry price of less than 1,0x NAV Long-term strategic shareholding & alliance

Value created from day 1 (ETI transaction)

Return on investment (annualised) (as at 30 June 2015)

Capital deployed

1.11.9 2.0

3.5

7.1

2011 2012 2013 2014 2014 YE

Average capital deployed in Rest of Africa & percentage of Group Ordinary Shareholders Equity (Rbn, %)

2,4% 3,7% 3,6% 5,7% 10,5%

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Capital efficient – “Regulatory roll up”: implication of banks transitioning from Basel I to Basel III

Many African banks are primarily retail funded, placing

excess liquidity into government stock or other banks:

Basel I Basel III

Credit risk

Government exposure 0% risk weighted 100% risk weighted

Other banks 20% 100%

Retail credit 120% 80%

Off balance sheet 0% <100%

Market risk Not measured STD: Net open bookADV: Stressed VAR

Operational risk Not measured Gross income x 18%

Equity risk Risk weighted at 300% / 400%

Risk weighted at 300% / 400%

Other risk Risk weighted at 100% Risk weighted at 100%

Qualifying capital & reserves

Reserves (incl FCTR) Do not qualify Qualifies (FCTR volatile)

Intangible assets Not a deduction Deduction

Goodwill at acquisition Not a deduction Deduction

CET 1 ratio Capital position can reduce significantly

Illustrative bank:

Rest of Africa domiciled & country rated 6 by OECD

Balance sheet structure:

Client advances: 40%

Government stock & other banks exposure: 45%

Large trading book

Immaterial level of reserves that qualify as capital

High levels of intangible assets

At 20% shareholding a holding bank does not have to underwrite risk e.g. AML & capital structures are usually more efficient

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Exposure within risk appetiteExposure within risk appetite Exposure within risk appetite


Exposures concentrated in markets where we own, manage & control banks (SADC)

c20% shareholding in ETI limits exposure to oil-based economies

12.8%

70.6%

4.0%

12.6%

West & Central AfricaSADCEast Africac20% ETI shareholding

0

50

100

150

Jan 14 Jul 14 Jan 15 Jul 15

ETINigerian Bank Index

Nedbank exposures (30 June 2015)

ETI vs Nigerian Bank indexBased to 100 (1 Jan 2014)

28 year track record & strong position in Central & West Africa

On the ground presence & local knowledge across 36 countries

Benefits of a diversified portfolio

Exposure within risk appetite Ecobank diversification benefitsSmall, but growing

Rest of Africa advances % of Group(30 June 2015)

4.9%

10.2% 10.1%

15.2%

Nedbank Bank A Bank B Bank C

Current exposure low, but growing in line with risk appetite

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Agenda


Context









strategy





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A strong positioning in Africa

The Banker Magazine Top 10 banks in Africa (July 2015)

Region rank

World rank Bank Country Tier 1 Capital

($m)

1 123 Standard Bank SA 10,187

2 152 FirstRand SA 7,983

3 216 Nedbank Group SA 4,760

4 264 Attijariwafa Bank Morocco 3,699

5 279 Groupe Banques Populaire Morocco 3,446

6 295 Zenith Bank Nigeria 3,162

7 306 Ecobank Transnational Togo 3,030

8 357 Investec SA 2,518

9 358 National Bank of Egypt Egypt 2,502

10 371 First Bank of Nigeria Nigeria 2,327

Source: The Banker Magazine, July 2015Note: Barclays Africa Group excluded from the main rankings as it is a subsidiary of Barclays, but would have come in at #3 with a Tier 1 capital base of $6,1bn

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Multi-pillar strategy – leveraging unique strengths

Nedbank existing presence

Expansion opportunities

Ecobank Top 3 in country

Ecobank other

Ecobank rep offices

SADC & East Africa Central & West Africa Investment banking in rest of Africa

Investment banking deals

Nedbank rep offices

Own, manage & control banks Partnership approach Investment banking deals Nedbank currently in 6 countries

Banco Unico control in 2016

Expand to 10 countries over time

Ecobank presence in 36 countries

#1 in Ghana, #6 & SIFI in Nigeria

Top 3 in 14 countries Concluded deals in 24 countries

Access to unmatched banking network across 39 countries & >2000 outlets

Collaboration with Old Mutual

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Banco Unico – control (50-70%)

Banco Unico - 37% shareholding (Moz)


Reconstituted subsidiary boards

Standardised operating model

Core IT system replacement (Flexcube)

Scale in existing operations

Review risk appetite

Investing in products, digital platforms &

distribution

Central oversight & control

Completed In progress To be delivered

Dec 11 Dec 12 Dec 13 Dec 14 Jun 15

50 49 56 61 61

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91 98 117 126 136

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Number of clients

Branches

ATMs

19.1% 18.4%12.3% 4.2% 3.4%

0.8%

Swaziland Lesotho Namibia Mozambique Zimbabwe Malawi

Advances market share

Build strong foundations

Invest in existing subsidiaries Acquisitions

Acquisition opportunities

BancoUnico

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Dec 2008 Announced Ecobank Nedbank

strategic alliance

Dec 2011 $285m loan to ETI & 20%

subscription rights

Oct 2014 Exercised 20% rights & invested

R5,9bn to become c20% shareholder in ETI

Board membership

Oct 2015 ETI investment banking team co-

located into Nedbank Sandtonoffices


Evolving strategic Relationship with Ecobank

Successes to date (examples)

Value through board representation & strategic alliance

Dealflow

2 joint deals completed 2015 YTD

Strong pipeline

Transactional

70 Nedbank wholesale clients banked by Ecobank

SAA Voyager / Ecobank co-branded credit card

Joint exhibitor stand at the SIBOS conference

Regional card initiative - Ecobankdebit card holders, can withdraw cash from their accounts at any Nedbank ATM in SA

Board participation A seat on the ETI Board

Participated in selection of new CE

Like-minded shareholders

- Nedbank: 20%

- QNB*: 18%

- IFC: 15%

- PIC: 13%

Strategic & technical banking alliance Quarterly alliance steerco meetings

Workgroups across all clusters

Technical working groups e.g.

- BSM e.g. Capital optimisation

- IT e.g. Flexcube

* Post preference share conversion, QNB shareholding estimated to be ~20%

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Rest of Africa investment banking – deals concluded in 24 countries

0

30

60

90

H12011

H12012

H12013

H12014

H12015

South Africa Outside South Africa

Strong growth outside of SA

Evolving partnership a potential key differentiator

Continued growth opportunities in areas of CIB strength:• Infrastructure• Energy• Commercial property• Trade finance

Likely muted demand given macro developments:• Resources &

commodities• Oil & gas

Investment banking loans & advances (Rbn)

Other strategic partners

Local knowledge On the ground origination force Structuring capabilities Underwriting & fronting of large transactions

in line with risk appetite Access to foreign currency funding

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Agenda


Context









strategy





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Conclusion – unique & differentiated strategy

Banking presence across 39 countries Local knowledge Ability to service our clients across the most extensive banking network in Africa

Strategy tailored for each region SADC & East Africa – own, manage & control banks Central & West Africa – partnership approach Investment banking deals leveraging relationships, expertise, skills & resources Collaboration with Old Mutual

Positioned for upside potential, with downside protection Exposure within Board approved risk appetite Diversification benefits Cognisant of regulatory implications (Basel III, AML etc)

ETI value creative from day 1 c20% ETI investment at less than 1,0x price to book on the back of 6 year strategic

partnership

Long-term play, but demonstrate growth & returns in the short-to-medium term

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THANK YOU

18th ubs south african financial services conference ... · eti investment (30 june 2015): - cost:...

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