Numerologists tie the number 14 to transformation, and this certainly seems to fit the bill as Nedbank wraps up a digital transformation that has brought through cost savings of R1.5-billion.

Other wins from the green bank’s digital transformation strategy include client satisfaction scores at the top end of the South African banking peer group, and market share gains in household deposits. In 2022, main-banked clients in retail grew 6% to 3,24 million. Corporate and investment banking gained 25 new primary clients in the period.

“Our digital initiatives helped us to increase the number of digitally active retail clients in South Africa by 13% to 2.6 million. This now represents 68% of retail main-banked clients,” said chief executive Mike Brown. 

Retail digital transaction volumes in South Africa increased by 18% (up 76% over the last three years) and transaction values by 16% (up 40% since 2019). Digitally active clients across the business grew by 18% and now represent more than half (57%) of Nedbank’s total active client base.

The bank’s money app reached the key milestone of 2 million active clients, up by 23% from the previous year, while transaction volumes on the app have increased by 34% (up by 253% since 2019) and transaction values increased by 27% (up by 233% since 2019).

“The outcome of our digital innovations was evident in higher levels of client satisfaction, with Nedbank ranked #1 in Net Promoter Score among South African banks in the Kantor survey that was conducted among SA consumers, reaching our 2023 target a year earlier than expected,” Brown said. 

The Avo app that enables clients to buy essential products and services online has signed up more than 2 million users since its launch in June 2020.  

At the end of 2022, more than 20,000 businesses, up 15%, were registered to offer their products and services on this e-commerce platform. Avo Auto, a virtual vehicle mall that was launched in 2021, now hosts over 200 MFC-accredited dealers, with more than 8,000 vehicles available on the platform.

Headline earnings were driven by strong double-digit revenue growth, a slightly higher credit loss ratio and a well-managed expense base. The group’s balance sheet remained very strong, and capital and liquidity positions improved further to multiyear highs.

Brown noted that the strong financial performance was significant given the challenging macroeconomic backdrop. 

Global and domestic challenges over the last year have included the Russia-Ukraine war, lockdowns in China, slower global growth, lower commodity prices, destructive floods in KwaZulu-Natal, persistent power outages, as well as 325-bps-higher rates and inflation that peaked at 7.8% in July. 

“A strong balance sheet and excess levels of capital enabled the group to declare a record-high final dividend of 1,649 cents as well as announce a R5-billion capital optimisation initiative, subject to regulatory approvals, to be executed over the next year through both a share repurchase and an odd-lot offer.”

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Urgent leadership needed

Brown called for urgent and decisive leadership to address the country’s challenging economic environment. Economic conditions deteriorated over the final quarter of 2022 as the country’s electricity crisis worsened, global growth slowed, commodity prices dipped and the pressure on household income from the earlier surge in inflation and the increases in interest rates intensified. 

In addition, municipal service delivery is poor and levels of crime and corruption are unacceptably high. 

“These are critical foundations required for business confidence, sustainable investment, higher economic growth and job creation, as well as fiscal sustainability, and more urgent action is needed. 

“Progress on structural reforms to address these matters has been far too slow, and the will of the political and public sector to make meaningful changes is uneven and actual delivery is poor. 

“This cannot continue and more urgent and decisive leadership and action is required. Nedbank remains committed to working with all like-minded South Africans to accelerate delivery of structural reforms in these key areas,” he said.

Load shedding impact

The higher levels of load shedding in the second half of the year pushed an increase of more than 200% in generator run-time in Nedbank offices and branches, taking diesel-related expenses up by just more than 100% to R59-million. 

However, Brown says load shedding had no material impact on ATMs, branches and point-of-sale devices as the bank leveraged its wide coverage of sustainable backup power solutions.

“Load shedding has increasingly become a catalyst for renewable- and embedded-energy investments to support both SA’s Just Energy Transition and for individuals and companies to reduce their exposure to Eskom. This is creating a strong runway for bank advances growth in this sector. 

“However, electricity outages adversely impact business and consumer confidence, and, as a result, GDP growth will be negatively impacted in 2023 and beyond. 

“From a credit quality perspective, we have not seen a material impact on impairments or credit loss ratios in 2022 yet, but we are becoming concerned as risks take time to emerge,” he cautioned.

The year ahead

The Nedbank Group Economic Unit forecasts include:

• SA’s gross domestic product to increase by only 0.7% in 2023. This has downside risk as it assumes load shedding at an average of Stage 4, but the recent experience has been worse than this.
• Interest rates to increase by a further 50 bps from December 2022 levels, taking the repo rate to 7.5% and the prime lending rate to 11% by the end of the year.
• Inflation to reduce from 2022 levels and average 5.5% in 2023.

In SA, economic conditions deteriorated significantly in early 2023, hurt by a sharp escalation in rolling blackouts as the country’s electricity shortage escalated. 

Load shedding is likely to continue at elevated levels throughout 2023, and combined with slower global demand and softer commodity prices, will negatively impact domestic production and exports, resulting in a wider current account deficit in 2023. BM/DM