After two trading statements relating to the six months to June 2021, Nedbank has released its full interim results. Net interest income increased by 7% and impairment decreased by 59%, so the net impact on its income from credit activities is obviously very positive. The bank’s core lending business increased revenue (net of write-downs) by 85%.
Nedbank notes that demand for personal credit (borrowing from individuals) has been strong in this ultra-low interest rate environment, while demand for corporate loans has been subdued. Companies have used excess cash to pay down debt, deleveraging their balance sheets and reducing risk.
Interestingly, non-interest income (called NIR – a key driver of shareholder return) fell 8%. This includes all non-lending income of the group, such as trading income or advisory fees. As these services generally require little capital and carry no significant risk of depreciation, they have been key to bank returns throughout the pandemic.
The decline in the NIR was driven by a sharp decline in net trading income, which fell from R2.7 billion to nearly R1.9 billion. There were some positive impacts on other NIR lines, but not enough to offset the decline in trading revenue. This has been a common theme across banks around the world as last year’s baseline includes a period of extreme market volatility and increased trading activity, which is great news for trading operations at banks. .
The net effect is that 43% of Nedbank’s operating profit for the period was contributed by NIR, with the remainder coming from lending activity. Overall operating profit increased by 29%.
Operating expenses were only up 6%, so the net impact on operating profit was a massive jump from R2 billion to R5.8 billion for the six months. This allowed Nedbank to declare an interim dividend of 433 cents per share, an annualized yield of 4.8% based on yesterday’s closing price.
Nedbank’s interim overall profit remains 24% below levels achieved in the comparable period in 2019. The road to recovery is still long for the green bank.
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