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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
Operating in rest of Africa will be volatile…
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
5
…but the long-term potential remains intact
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
6
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
7
Client-centred – SA corporates are expanding into the rest of Africa
8
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%
10
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
11
Exposure within risk appetiteExposure within risk appetite Exposure within risk appetite
Risk mitigated – with diversification benefits
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
12
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
13
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
14
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
15
Banco Unico – control (50-70%)
Banco Unico - 37% shareholding (Moz)
SADC & East Africa – own, manage & control banks
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
17
Dec 11 Dec 12 Dec 13 Dec 14 Jun 15
91 98 117 126 136
24
Dec 11 Dec 12 Dec 13 Dec 14 Jun 15
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
16
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
Central & West Africa – partnership approach
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%
17
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
18
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
19
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
20
THANK YOU
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