Nedbank Group Interim results for the six months ended 30 June 2020 1 NEDBANK GROUP LIMITED – Interim Results 2020
OVERVIEW Primary focus in H1 2020 has been on resilience: ▪ health & safety of our staff ▪ supporting our clients ▪ maintaining a strong balance sheet Mike Brown ▪ communication Chief Executive 2 NEDBANK GROUP LIMITED – Interim Results 2020
Overview A very difficult environment for clients & banks – compared to the GFC the SA economy is in a worse ▪ position, but SA banks in a stronger position ▪ Primary focus on health & safety of staff & clients; & supporting our clients – including health & safety measures, new digital innovations & supporting clients with D3 restructures on R119bn loans ▪ Maintained strong balance sheet metrics ‒ LCR 115% | NSFR 114% | CET1 10.6% & Tier 1 CAR 11.7% ‒ Total coverage up to 2.95% (2.31% at Dec 19) ▪ HE down 69% to R2.1bn reflecting the impact of a significant increase in impairments & a slowdown in client activity impacting revenue growth under lockdown ‒ ECL charge increased 202% to R7.7bn, resulting in an annualised CLR of 194 bps (inclusive of R2.9bn provision build from judgemental overlays & the impact from IFRS 9 macro forward-looking assumptions) ‒ Interest rate cuts of 275 bps up to 30 June 2020 (adverse endowment impact), transactional volumes down since lockdown started & negative revaluations of private equity to reflect listed market ‒ Expenses very well managed: -1% ▪ Tilted our strategy: Resilience, Transition & Re-imagine – leveraging technology investments 3 NEDBANK GROUP LIMITED – Interim Results 2020
SA entered the Covid-19 crisis on the back of an already challenging macroeconomic environment Foreign currency ratings: SA ▪ SA economic downswing the longest since records began in 1945 – urgent structural reform required to boost investment & economic growth A3/A- ▪ Ongoing financial & operational challenges at Baa1/BBB+ Eskom Baa2/BBB ▪ Unsustainable fiscal position without material increase in economic growth Baa3/BBB- ▪ Sovereign credit ratings now all firmly below investment grade Ba1/BB+ ▪ Ongoing policy uncertainty negatively impacting Ba2/BB confidence (EWC, SARB, NHI, SWF, Mining Charter, prescribed assets, etc) Ba3/BB- ▪ Ongoing corruption & political infighting 94 96 98 00 02 04 06 08 10 12 14 16 18 20 ▪ Elevated government cost structures & red tape Moody's S&P Global Fitch Threshold 4 NEDBANK GROUP LIMITED – Interim Results 2020
Evolution of Covid-19 pandemic – a health crisis turned into an economic crisis & escalating into a social crisis Health crisis … … economic crisis … … escalating social crisis SA confirmed daily positive cases SA unemployment SA GDP yoy (#) (%) (%) 8.0 35 15 000 31 4.0 30 10 000 0.0 25 22 5 000 (2.6) -4.0 20 (7.0) - -8.0 15 Mar Apr Apr May Jun Jul 06 08 10 12 14 16 18 20 08 10 12 14 16 18 20 Source: Nedbank Group Economic Unit Source: sacoronavirus.co.za Source: Nedbank Group Economic Unit ▪ SA deaths: 2% of confirmed cases – at the ▪ SA Q2 GDP likely to be down > 40% ▪ SA unemployment forecast to peak in Q2 lower end of global countries at c35% (1.6m job losses), ending 2020 at ▪ Nedbank forecasts informed by underlying 31% ▪ SADC countries’ infections low & lagging SA recovery from client/industry data 5 NEDBANK GROUP LIMITED – Interim Results 2020
The Covid-19 pandemic has led to the Great Lockdown Crisis (GLC) – expected to have a longer, more widespread & deeper impact than the GFC GFC (Financial) GLC (Covid-19 pandemic) Cause US mortgage credit crisis Viral pandemic Probability 1-in-15-year event 1-in-100-year event Source Originated in US Global spread of virus + lockdown creating supply & demand shocks Major sectors impacted Financial markets/housing Broad impact across sectors/economies Uncertain – V, U, L or W shape Time horizon 2 years SA fiscal response Countercyclical fiscal response R500bn national stimulus package SA monetary response Initial interest rate hikes in 2008 300 bps cuts in interest rates to date (followed by c500 bps cuts) (off a lower base) Regulatory response Capital & liquidity increases Relaxation of liquidity & capital (Basel III) requirements (directives & guidance notes) & SARB bond-buying programme 6 NEDBANK GROUP LIMITED – Interim Results 2020
SA economy in a more challenging position but SA banks in a much stronger position when compared to the GFC SA economy (going into the crisis 1 ) SA banks GLC GFC GLC GFC Debt to GDP ratio 26% 61% Role of global banks Cause Part of solution Budget deficit 0.2% (6.3%) SA industry credit growth 2 > 20% 5 to 7% Unemployment rate 22% 29% SA regulatory intervention Limited Positive Prime interest rate 15% 10% SA bank capital & liquidity Solid Stronger (no issues) (no issues) CPI (inflation) 13% 4% Provision accounting IAS 39 IFRS 9 (incurred (forward- Consumer confidence -4% -9% . losses) 3 looking) 4 Digital adoption/usage Low Higher Business confidence 33% 26% 1 As at Dec 2008 vs Dec 2019. | 2 Prior 3 years. | 3 Slower impairment recognition. | 4 Faster impairment recognition. 7 NEDBANK GROUP LIMITED – Interim Results 2020
SA economy is in a significantly more challenging BOOKLET SLIDE position entering the GLC when compared to the GFC Gross debt as % of GDP (%) SA budget balance (%) GDP growth (yoy) Forecast 100 7.0 5 82% 80 3.5 0 60 0.0 -5 61% 40 -6.8% -6.5% -3.5 -10 20 -2.6% Forecast -15% 26% -7.0% forecast -7.0 0 -15 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 40 100 Average prime rate & CPI (%) Credit growth (%) Consumer & business confidence > 20% 20 Prime (average) CPI (yoy) 30 20 75 15.5% 25 15 20 7.3% 0 50 15 10 5 – 7% 10 -20 25 5 5 13.2% 0 3.3% Consumer (LHS) Business (RHS) 0 -5 -40 0 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Unemployment rate (%) Household-debt-to-income ratio (%) Household spending (yoy) Forecast 35% 100 35 15 88% 31 90 30 10 80 74% 25 5 70 20 0 60 22 50 15 -5 -3.3 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 8 NEDBANK GROUP LIMITED – Interim Results 2020
Client turnover data from our POS devices & digital channels highlights the impact & recovery rate through the lockdown levels for various industries in SA Total Telecoms Retail shops Wholesale stores 100% 57% 111% 122% 141% 100% 47% 73% 82% 89% 100% 18% 86% 119% 106% 100% 47% 103% 103% 111% Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Healthcare Supermarkets Education Auto 100% 81% 87% 81% 86% 100% 30% 66% 82% 95% 100% 62% 88% 81% 91% 100% 54% 56% 60% 74% Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Restaurants Entertainment Hotel & lodgings Airlines 100% 2% 11% 60% 74% 100% 9% 8% 14% 22% 100% 2% 1% 9% 17% 100% 10% 12% 20% 81% Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul Jan Feb Mar Apr May Jun Jul 1 Based on Nedbank POS & digital payment data (client turnover). | Numbers above the graphs show rand turnover volumes as percentage of March. 9 NEDBANK GROUP LIMITED – Interim Results 2020 Indicators Prior to lockdown Level 5 Level 4 Level 3
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