Nedbank Retail Division
Rob Shuter
December 2004
2
Agenda
Nedbank Retail in perspective
Key issues facing Nedbank Retail
Strategic focus for 2005
Nedbank Retail in perspective
4
Retail in the context of Nedcor
H1 2004 NII
Nedbank Corporate
49%
Nedbank Retail40%
Nedbank Capital
11%
H1 2004 Headline Earnings
Nedbank Corporate
62%
Nedbank Retail14%
Nedbank Capital
24%
H1 2004 NIR
Nedbank Corporate
28%
Nedbank Retail54%
Nedbank Capital
18%
Excluding central divisions, Imperial Bank & forex
FTP, AJTP & risk adjusted capital allocation not yet implemented
5
Selected market share information
Sep 04%
Dec 03%
Dec 02%
Home loans 23,7 26,3 27,5
Asset based finance 19,6 18,9 14,8
Credit card 17,4 18,9 20,9
Individual overdrafts 25,1 29,6 25,1
Individual deposits 29,9 29,9 19,9
Source: DI900
6
Retail footprint & customers
Category Total
Branches
- Nedbank
- Peoples Bank / NBS
- Old Mutual Bank
541
288
207
46
ATM’s 1 218
Self Service Terminals 328
Retail outlets - Pick ‘n Pay* 127
Point of sale devices 31 993
Footprint
*Cards can be collected at 72 Pick n Pay stores
Customers per brand
0.110.18
1.63
1.17
3.09
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Tota
l Ret
ail
Bank
ing
Nedb
ank
Reta
il
Peop
les
Bank OM
B
PnP
Go
Bank
ing
m
Two largest competitors: 5m-6m clients
7
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
Clients / branch Clients / ATM
0
1 000
2 000
3 000
4 000
5 000
6 000
Nedbank Bank B Bank A Bank C
Branches ATMs SSTs
Retail Footprint Competitor Comparison
Nedcor’s ATM footprint sub-scale
Size of Nedcor’s branch network comparable with competitors
Number of Clients per Point of Presence
Clients per branch far less than competitors
* Including Peoples, NBS & OMB branches, but excluding JV outlets.
*2 087
5 405
3 8053 605
Heavy Nedcor branch network
Light ATM footprint
Nedbank
Retail footprint & customers continued
Key issues facing Nedbank Retail
9
Key issues facing Nedbank Retail
Staff morale
Financial underperformance
Losing market share in home loans & card
Brand misconceptions
Complex & ineffective structure
Poor primary banker status
10
Source: M
cKinsey organisational perform
ance profile survey, June 2004
DistinctiveSuperiorCommonNot effective
Significant performance inhibitors, combined with recent retrenchments has contributed to low staff morale.
Cluster performance profiles
External orientation48%
Innovation43%
Retail (n = 232)
Environment & values32%
Direction45%
Account-ability55%
Co-ordination & control41%
Capability65%
Motivation41%
Leadership60%
External orientation33%
Innovation31%
GBI(n = 271)
Environment & values22%
Direction29%
Account-ability37%
Co-ordination & control25%
Capability59%
Motivation37%
Leadership48%
External orientation51%
Innovation45%
Group Ops(n = 223)
Environment & values30%
Direction50%
Account-ability51%
Co-ordination & control46%
Capability68%
Motivation41%
Leadership61%
Staff morale
Roadshows, divisional reorganisation, clearer strategy all helping to improve morale
Source: McKinsey survey (July 2004)
11Source: Retail Finance, Analysis of Financial Results
Compared to other large SA Retail banks, Nedbank is performing poorly.
Cost / Income Ratio
2003
ROE
2003
Nedbank Retail 73.4% 9.7%
Bank A Retail 60.2% 32.3%
Bank B Retail 63.9% 33.2%
Financial under-performance
12…losing market share in these primary retail product categories
Home Loan Market Share Month-on-month growth (%) Sept 2003 – Sept 2004
Card Balances Market ShareMonth-on-month growth (%) Sept 2003 – Sept 2004
Bank BBank CNedbankBank A
2.8% down
10%
15%
20%
25%
30%
35%
Sep-03 Oct-03 Dec-03 Jan-04 Mar-04 May-04 Jun-04 Aug-04
3% down
10%
15%
20%
25%
30%
35%
Sep-03 Oct-03 Dec-03 Jan-04 Mar-04 May-04 Jun-04 Aug-04
Source: DI900, September 2004
Market share performance
13
Nedbank clearly differentiated,but in areas that are seen to be unimportant to current & prospective clients
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
EmotionalAppeal
FunctionalAspects ofBanking
Brand Image IncreasinglyPopular
Conservative Exclusive SocialResponsibilty
Expensive-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
8 Top Drivers of Main Bank Usage Nedbank Main Bank Users
Bank B Main Bank Users Bank C Main Bank Users
Bank A Main Bank Users
Brand misconceptions – not promising what matters
Source: Nedbank Retail analytics
14Complex matrix of channels, client segments & products, overlaid with
the additional complexity of multiple brands, alliances & JV’s
HL ABF CardLoans/
overdraftsSavings Current Insurance Assurance Investment Offshore
ATM/ SST
Branch
Face-to-face
Telephony
Internet
In-store
Inter-mediary
Mobile
High-net-worth Private Personal Mass Market Underserved
All client segments
High-net-worth & Private Banking clients
Products
Segments
ChannelsBrands
Mass Market clients
Mass Market clients
Mass Market clients
All client segments
Personal banking clients
Illustrative four-dimensional matrix
All client segments
Amex
BoE Private Clients
Visa/ Master Card
Middle Market clients
Structure - complex & ineffective
15
1.17
0.94
0.11 0.080.03 0.02
0.0
0.2
0.4
0.6
0.8
1.0
1.2
To
tal
Ne
db
an
k
Re
tail
SM
E
Pe
rso
na
l
Sta
ff
Pri
va
te
Nedbank customers per segmentm
15% 13% 35% 24% 61% 42%
1.37 1.32 1.46 2.06 2.23 1.90
% Primary clientsCross-sell ratio
Poor primary banker status
Excludes Peoples Bank & Old Mutual Bank
Strategic focus for 2005
17
Strategic focus for 2005
Credit integration & improvement
Organise ourselves better:• Branch integration• Reorganise Nedbank Retail & appoint new executive team• Integrate Nedbank & Peoples Bank• Reduce & simplify JV’s
Unleash our Bancassurance potential
Retain & grow our market share – particularly home loans & card
Act quickly & decisively to deliver our plans
Grow net transactional accounts & improve funding mix
Expense control
CC
OO
UU
RR
AA
GG
EE
18
C = Credit integration & improvement
Integrate credit scoring – one view of the client
Improve customer experience – increase turnaround times
Introduce risk based pricing
Align credit analytics with the business
Apply credit analytics to collections environment
19
O = Organise ourselves better - 1. Branch integration
13 Jul: Decision to integrate Retail & Branch Operations(5 000 staff moved into Retail)
28 Jul: Integration project team & project principals established
3 Aug: Consultation with Unions
6 Aug: Placement of Divisional Directors
11 – 13 Aug: Assessment & placement process(22 Regional Managers)
16 – 18 Aug: Assessment of Branch Managers (13 venues with 32 panels conducting over 850 interviews)
20-21 Aug: Appointment of 454 branch managers
23 Sep: Placement of remaining unplaced staff in vacancies
… process completed in 72 days
20
Nedbank Retail Division
Rob Shuter
• Visa / Mastercard
• Amex• Card
Operations• Card Fraud• Card
Authorisations• Card Product• Card Process• Card NCCC• Card Marketing
NRD Card
Sydney Gericke
• Home loan Areas transfer from within Retail
• Home loan Product
• Home loan Process
• Home loan NCCC
• Home loan Marketing
NRD Home Loans
June Tudhope
• P.L.A.• Credcor• JDNA• M.L .
Process• M.L.
Operations Branch 326
• M.L. Marketing
NRD Personal
LoansHassim Akoob
• Gerrard Private Bank
• Fairbain Trust
• London Retail
• Group Country Head
NRDInternational
Gavin Cookman
• Call Centre Product
• Trans. & Invest. Product
• ABF & Vehicle Finance Product
• ATM/SST• eRetail
Channel• Internet/
Intra-net• Telephone• Cellular• Branch
Systems
NRD Product Solutions
Saks Ntombela
• Markets (Branches, Nedbank & Peoples)
• Mass Market• SME• Personal• Private• Boe Private
Clients• CSAU & cross-
border• Schemes• Staff Banking• Client Analytics &
research• OM Bank• PnP Go Banking• Retail client
service marketing• Other NCCC• Relevant
Operations areas
NRDBanking Services
Clive van Horen
• HR• Retail Projects• Strategy• Internal Retail
communi-cations
• Retail Organisational Change
NRD People Strategy & ProjectsDennis
Jackson
• Finance• Risk• Compliance• Credit• Client &
Products Analytics & profitability
NRDShared
ServicesIngrid Hindle
• NFP• NRI• Insurance• Assurance
NRDBancass &
WealthDave
Macready
New areas to be created
Transfer ex Product
Transfer ex Operations/ Risk
Transfer ex Process
O = Organise ourselves better - 2. Reorganise Nedbank Retail
21
Pieces of the card business are scattered throughout Nedbank, leading to blurred accountability, complex governance & contributing poor performance
Visa, Mastercard
Visa, Mastercard
Visa, Mastercard
Retail
Front-line businessesRiskCentral Operations Group Business
Innovation
Visa, Amex, Mastercard
Risk
AmexRisk operations (credit)
AmexCustomer Servicing
AmexDistribution
Fraud
AmexVisa,
MastercardCard helpdesk
Amex, Visa, Mastercard
Card operations
AmexVisa,
MastercardCard processes
AmexVisa,
MastercardCard acquiring
AmexVisa,
MastercardCard issuing
Amex JVNCCCCPOProcessProduct
Ca
rd F
un
cti
on
s &
c
om
pe
ten
cy
ce
ntr
es
Nedbank divisions
Card businesses
Previous structure of the card business
O = Organise ourselves better - 2. Reorganise Nedbank Retail
22
Rationale for integration – create a great bank for all South Africans
• move Peoples Bank to Nedbank brand, after section 54 approval
• reposition Nedbank as a bank for all South Africans
• limited IT issues
• number align & optimise infrastructure geographically
Rebranding of Peoples Bank does not mean “closure of Peoples Bank”
• some overlapping branches will be merged
• aim to minimise impact on staff & clients
• expand into new areas
Dedicated integration team under Brian Duguid
All branches under common regional management
• 13 regions across SA - business design unchanged
O = Organise ourselves better - 3. Integrate Nedbank & Peoples Bank
23
Integrate Nedbank & Peoples Bank - Nedbank footprint
24
Integrate Nedbank & Peoples Bank - Adding Peoples Bank footprint
25
Percentage Peoples/NBS Branches:
within 1Km of Nedbank: 68%
within 3Km of Nedbank: 81%
within 5Km of Nedbank: 85%
Integrate Nedbank & Peoples Bank - Overlap removed & potential new sites
26
Integrate Peoples Bank & Nedbank Regions Nov ’04
Staff communication Nov ‘04
Client & product systems high level design Jan ‘05
Finalise branch footprint plan (consult with regional managers) Mar ’05
Communicate to staff re branch rebranding & closures Mar ‘05
Align product & client systems & processes Q4 ’05
Rebrand products, clients & branches once systems aligned by Dec ’05
Create & implement cultural transformation programme throughout 2005
Functional staff training (product, process) throughout 2005
Ongoing brand s-t-r-e-t-c-h throughout 2005
Open new Nedbank branches in areas not adequately served Q3, Q4 & ongoing
2005
Peoples Bank integration next steps
…need to rebrand all products & branches by December 2005
27
Termination of Capital One alliances announced (Amex & PLA)
Termination of the JDNA alliance announced
Increased weight & effort behind Pick ‘n Pay Go Banking
Discussions being held with Old Mutual re joint ventures
O = Organise ourselves better - 4. Reduce & simplify JV’s
External JV’s Internal JV’s
Capital One – Amex
Capital One – PLA
JDNA
Pick ‘n Pay Go Banking
Old Mutual Bank
Bancassurance alliance
BoE Life
BoE Private Clients
28
Review insurance product set & launch new products
Enhance ‘embedded’ nature of sales processes & non advice products
Incentivise distribution channels
Focus on education, training & sales support
Adoption of a simple integrated financial planning system
Ensure maximum penetration of ‘own’ Group product
Increase number & productivity of planners
Conduct product profitability reviews
U = Unleash Bancassurance potential
29
100%100% 29%29% 19%19% 52%52%
Intake Declined Approved Reworked
Actions Status
1. Provide infrastructure to link credit scorecard to front-end
2. Provide straight through processing for selected branch bonds
3. Originator capture strategy4. Increase product offering to cover 80% of bonds
through both channels
Complete
Complete
On track for delivery – 30/11On track for delivery – 31/12
Market share from pilot originator up from 16% in July to 25% in September
Market share from pilot originator up from 16% in July to 25% in September
Process inflow problem
R = Retain & grow market share - 1. Fix the home loan business
30
100%100% 50%50% 36%36% 12%12%
Opening pipeline from previous month
Inflow & rework from current month
Registration Not taken up
Actions Status
1. Develop MI capability to measure and monitor real-time application progress
2. Agree acceptable queue length and escalations3. Analyse MI and re-engineer processes as appropriate4. Manage commitment report to reduce time taken to
convert bonds to book and to proactively assist clients in the registration process
5. Install queuing system at call centre to increase take-up ratio and reduce time delays due to amendments
6. Integrate home loan infrastructure with other bank infrastructure to reduce duplicate capture and errors resulting in amendments and delays
Complete
On track for delivery – 31/12On track for delivery – 31/12Pilot due to begin – 01/12
Complete
Part of proposal due for 31/12
102%102%
Closing pipeline
Pipeline problem
R = Retain & grow market share - 1. Fix the home loan business continued
31
Market positioning & reputation
• Re-visiting our mass market & low income housing strategy• Improving our service levels
Staff Morale • Build enthusiasm & passion for home loans business by establishing identity & highlighting early victories
• Formulation of the monoline structure
Systems • Streamline development process • Tackle unresolved system constraints and issues with vigour• Reduce time-to-market
Risk • Testing credit policy• Improving pricing policies & methodology
Channel management
• Improve service levels to originators• Lever branch sales capability - investment in training & product
knowledge & through appropriate target-setting & staff incentivisation
MI • Resolve disparate information sources & produce meaningful, timely MI for decision-making
• Develop better client & business understanding - analysis
R = Retain & grow market share - 1. Fix the home loan business continued
Other issues
32
Reorganise into single integrated business unit
Integrate Amex, Mastercard & Visa
Map, understand & improve client service processes
Re-activate the branch network for card sales
Activate client retention programs
Leverage Corporate cluster business opportunities
Improve credit policies & collections
Review & enhance card loyalty programmes
Launch cash back at point of sale
R = Retain & grow market share - 2. Fix the card business
33
E = Expense control
NBS / Peoples Bank / Nedbank integration
• savings from branch integration
• address mismatch of clients & distribution
• head office savings achieved in 2004
Retail Reorganisation – reduces resource duplication
Concentrated focus on headcount
Accelerated sales of PIPs – maintenance & guarding benefits
Optimisation of marketing – reduced number of brands
“There is no miracle moment. Small
incremental wins in one common
direction will restore Nedcor to a
highly rated & respected financial
institution.”
Thank you
Booklet only slides
37Source: Retail Finance, September 2004; Competition in SA banking, JP Morgan, Infochoice
SA Retail banking highly profitable (ROE’s of 20% - 40%)
Foreign competition historically concentrated on the stock brokerage
& private banking businesses
SA banks could have continued strong performance (ROE) in retail
banking in the next three years
Expect increased competition, but barriers to entry high.
The proposed take-over of ABSA by Barclays indicative of the
opportunities that exist in the retail market.
Industry profitability
38
Low interest & inflationary environment = banks experiencing buoyant growth
• boom conditions residential mortgage market - demand likely to be sustained
• retail sales booming - augmented by emerging Black middle class
• interest rates - remain stable in 2004 - long term rates to trend gently upwards
While this stimulates borrowing, banks experiencing downward pressure on fees
Anticipated year on year credit growth
ABF Mortgages Overdrafts Credit Cards
2004 NEU 21.8 21.8 -5.4 19.0
BER 17.6 17.7 1.5 19.2
2005 NEU 23.6 20.0 6.5 12.6
BER 18.2 14.2 5.7 16.9
2006 NEU 17.9 17.7 6.6 10.9
BER 17.6 15.1 12.5 16.6
2007 NEU 26.7 20.8 -1.2 17.3
BER 11.1 9.1 13.2 12.0
Source: Nedbank Economic Unit, Bureau of Economic Research ,Nedbank Retail Data annualised using simple averages
Economic outlook
39
Market environment
Our Competitors
Highly competitive market
New entrants - Standard Chartered (20twenty) & Barclays (bid for ABSA)
Positive economic environment - Nedbank has been losing market share
Increasing disintermediation & consolidation (e.g. retail stores)
Our Clients
Clients becoming increasingly sophisticated - pressure on delivery & margins
Transition from product push to holistic financial planning
Financial education to clients, especially in the low-income market vital
Market changing - mature white market to growing black middle & affluent market
Source: Nedbank Economic Unit, Nedbank Retail
40
Legislation
FAIS, POCA, FICA & Basel II - impacts on Retail
The Consumer Credit Bill - significant impact on consumer credit lending in the
micro lending, banking & retail sectors if promulgated
Consumer bodies & regulators - challenge the basis of fees charged by banks.
The Falkena Report indicate that the NIR earned by banks (especially on retail
transactional banking) cannot be sustained
Financial Sector Charter targets
Source: Nedbank Economic Unit, Nedbank Retail
Increased legislation & compliance increases the cost,risk & complexity of doing business
41
DI900
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
Dec
-01
Jan
-02
Feb
-02
Mar
-02
Apr
-02
May
-02
Jun
-02
Jul-
02
Aug
-02
Sep
-02
Oct
-02
Nov
-02
Dec
-02
Jan
-03
Feb
-03
Mar
-03
Apr
-03
May
-03
Jun
-03
Jul-
03
Aug
-03
Sep
-03
Oct
-03
Nov
-03
Dec
-03
Jan
-04
Feb
-04
Mar
-04
Apr
-04
May
-04
Jun
-04
Month
De
bto
rs b
oo
k v
alu
e
AMEX CARD Total Retail Card TOTAL CARD TOTAL BUSINESS BANKING
240m Write-off192.5m Net LossSale of the
Edgars Book
Card debtors
Source: DI900
42
Receivables as per DI900
3,100,000,000
3,150,000,000
3,200,000,000
3,250,000,000
3,300,000,000
3,350,000,000
3,400,000,000
3,450,000,000
3,500,000,000
2004/01 2004/02 2004/03 2004/04 2004/05 2004/06 2004/07 2004/08 2004/09
Period
Outstanding Balances
2004 Receivables 2003 Receivables
Card Receivables
Source: DI900
43
Number and Value of Transactions where Nedbank is the Acquirer
0500
10001500200025003000350040004500
Millions
Period
Val
ue
of T
ran
sact
ion
s
0123456789
Millions
Nu
mb
er o
f Tra
nsa
ctio
ns
2003 Toatal Value of Acquiring Transactions 2004 Total Value of Acquiring Transactions
2003 Total Number of Acquiring Transaction 2004 Total Number of Transactions
Card transactions - acquiring
44
Card transactions - issuing
Total Number and Value of Transactions for All Cards
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2004
/01
2004
/02
2004
/03
2004
/04
2004
/05
2004
/06
2004
/07
2004
/08
2004
/09
2004
/10
Millions
Period
Valu
e of
Tra
nsac
tions
0
1
2
3
4
5
6
7
8
Millions
Num
ber
of T
rans
actio
ns
2004 Total Value of Transactions 2003 Total Value of Transactions 2004 Total Number of Transactions 2003 Total Number of Transactions
Note: These figures exclude Private Label & Visa Electron
45
Reorganisation - resolve complexity
3 focused integrated businesses under the Nedbank brand
• Card
• Home Loans
• Personal Loans
Flexible channel strategy
Integrated high-net-worth offering
Product & process functions aligned to client-driven strategy in each
business cluster
Process should remove significant uncertainty
Resolve complexity, duplicated resources & enhance focus
46
Nedbank Retail Division
Banking Services
Clive van Horen
• Nedbank Network
• Peoples Network
Branches
Sharon Kersten
Personal Banking
Cross Border
Martin Schultheiss
BoE PrivateClientsPrivate
Banking
Vince Boulle
Operations SupportPnP Go BankingOM Bank
Staff Banking
Andrew Lumsden
• Bank for All Strategy
• Strategic Planning
• Projects• Knowledge
management
Strategy
Mohamed Saloojee
SMECorporate Schemes
Alfred Ramosedi
• NCCC• NCC• Service
Recovery Desk
• Retention Unit
• CSAU• Service
Transformat-ion
• Client Satisfaction Research
Client Services
Doug Hardie
• Marketing & Research
Marketing
Acting Head: Arthur Werren
• HR• Learning &
Development
• Communica-tion
HR & Comms
TBA
Finance (in-sourced)
Acting Head: Craig Nelson
• Risk and Compliance
David Power is head of Nedbank Private David Power is head of Nedbank Private Banking, reporting to Vince BoulleBanking, reporting to Vince Boulle
Banking Services structure
47
Nedbank Retail Division
Home Loans
June Tudhope
• Channel Management
• Non-Channel Acquisition
Home Loans Client & Dbn Management
Geoff Els
• End to end process execution
• IT Operations SLA management
• NCCC – SLA management
• PML
Home LoansOperations
Eugene Drotskie
• Process Efficiency & Improvement
• IT development relationship management
• Training• PML
Home LoansProcess
Mark Danckwerts
• Market segments
• Banking council & stakeholder relationships
• Business development
• Marketing
Home Loans Innovation & Development
Lindiwe Kubeka
• FSC• Internal/
External communica-tion
• HR• Projects• Training –
facilitators• Strategy
support
Home LoansStrategy, People
& ProjectsDiana
Musara
• Finance• Operational
risk• Compliance• MIS
Home Loans Shared
ServicesGreg Salter
Home LoansCredit Risk
Pieter van Heerden
Home loan structure
48
Nedbank Retail Division
Card
Sydney Gericke
• Card Issuing Credit
• Card Issuing Debit
Consumer Card
Services
Nick Moore
• Corp. Acquiring Solutions
• Corp. Purchasing & Procurement Solutions
• Merchant Acquiring
Corporate Card
Services
TBA
Card Operations
Barry van Huyssteen
• Voyager• Membership
Rewards• Marketing /
Advertising• Ensure /
Manage Brand Integrity (A/M/V)
• Promotions
Card Marketing
TBA
• Client Satisfaction Measure-ment
• Resolve Escalated Queries
• Process Improvement end-to-end
• Project Management
• Strategy Planning
Card Service
Solutions
Susan Fourie
• Credit Risk Management
• Fraud Risk Services
• Card Authorisa-tions
Card Risk Services
Rene de Villiers
• Rapid Deployment Initiatives
• CAMS Platform
• Emerging Card Technology
• Determine rqmts & Create Release Plans
• Implement Card Solutions
Card Innovation Services
Joy Rees
• Human Resources
• M.I.
Card People
Practices
TBA
• HR• Risk• Learning &
Development• Finance (in
sourced)• Communica-
tion• Knowledge
management
Card Compliance
& Operational
RiskTBA
• Finance• Reporting• AJTP
Card Finance
(In-sourced)
TBA
Card structure