Nedbank says it has been lending more, and as the interest rates continue to climb, the green bank is cashing in some handsome net interest income. The banking group published a trading update for the ten months to 31 October 2022 on Monday evening.
It said that despite the South African economy losing momentum in the second half of the year as global and domestic headwinds escalated, its net interest income (NII) and non-interest revenue – which it generates from banking fees and commissions – remained robust. NII grew by low double digits, as the group predicted when it gave shareholders earnings guidance earlier this year.
The bank said its interest-earning assets increased by “mid-single digits” thanks to selling more loans. It said there was solid loans and advances growth in both its retail banking franchise and at Nedbank Corporate and Investment Banking (CIB).
“The recovery in CIB loans and advances growth has been driven by stronger performances from the Investment Banking and Transactional Services businesses as demand for short-term and long-term credit has increased. In RBB, loans and advances continue to be driven by strong growth in our commercial banking and small business segments, as well as solid growth in home loans, vehicle finance and overdrafts,” wrote the bank in the trading update.
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And as this growth coincided with rapid interest rate increases, Nedbank’s net interest margin has increased further from the 385 basis points the group reported at the end of June. The bank will provide the exact number when it reports its full-year financial results for 2022 in March next year.
This means that Nedbank continued to grow its loan book even when other banks started to become wary of the rising risk of bad debts as interest rates, food and fuel prices have stretched many households’ budgets beyond limits.
Despite this growth, Nedbank’s credit loss ratio remained within its through-the-cycle (TTC) target range, albeit sitting at the top half of that range. The bank targets a credit loss ratio of between 80 and 100 basis points. But the retail banking franchise’s credit loss ratio is sitting at 152 basis points, thanks to higher interest rates and the deteriorating economic environment that’s affecting households’ disposable incomes.
On non-interest income, Nedbank said the “high single digits” growth in the 10 months to 31 October benefitted from solid fee and commission growth because of higher transactional activity by its clients and the acceleration in main-banked client growth in the retail banking division, among other things.
It also recorded strong insurance performance as Covid-19-related death claims subsided and sold more of its other products to existing clients who hadn’t taken up the full suite of what Nedbank has to offer. However, the bank has warned shareholders that growth in non-interest income for the full 2020 financial year might not be as high as initially guided. The bank provided guidance of high single digits. But then it encountered delays in the closure of renewable energy deals, contributing to lower non-interest income.
SOURCE: News 24