Nedbank Group Ltd. Annual Report 2020

Plain-text annual report

ANNUAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2020 Contents 1 MESSAGE FROM OUR CHIEF EXECUTIVE PRESENTATION 2 RESULTS 52 2020 RESULTS 64 FINANCIAL COMMENTARY RESULTS 65 Financial highlights 66 Consolidated statement of comprehensive income 67 Consolidated statement of financial position 68 Consolidated statement of changes in equity 70 Return on equity drivers 71 SEGMENTAL ANALYSIS 72 Our organisational structure, products and services 74 Operational segmental reporting 76 Nedbank Corporate and Investment Banking 79 Nedbank Retail and Business Banking 94 Nedbank Wealth 97 Nedbank Africa Regions 101 Geographical segmental reporting 102 INCOME STATEMENT ANALYSIS 103 Net margin analysis 107 Impairments 112 Non-interest revenue 114 Expenses 116 Headline earning reconciliation 116 Taxation charge 117 Preference shares 118 STATEMENT OF FINANCIAL POSITION ANALYSIS 120 Loans and advances 134 Investment securities 135 Investments in associate companies 136 Intangible assets 138 Amounts owed to depositors 142 Liquidity risk and funding 145 Equity analysis 146 Capital management 152 SUPPLEMENTARY INFORMATION 153 Earnings per share and weighted-average shares 154 Nedbank Group employee incentive schemes 155 Long-term debt instruments 155 Additional tier 1 capital instruments 156 Shareholders’ analysis 158 Basel III balance sheet credit exposure by business cluster and asset class 160 Nedbank Limited consolidated statement of comprehensive income 161 Nedbank Limited consolidated statement of financial position 161 Nedbank Limited consolidated financial highlights 162 Definitions 165 Abbreviations and acronyms IBC Company details Nedbank Group Annual Results 2020 IN A VERY DIFFICULT OPERATING ENVIRONMENT, NEDBANK GROUP REMAINED RESILIENT, MADE GOOD STRATEGIC PROGRESS AND DELIVERED AN IMPROVED FINANCIAL PERFORMANCE IN THE SECOND HALF OF THE YEAR. The year 2020 was unprecedented as the Covid-19 pandemic and subsequent lockdowns led to a rapid slowdown in global economic growth. In SA the pandemic and resultant domestic lockdowns had a severe impact on economic activity as the country's GDP declined by 7,0%, the largest fall in this metric since World War II. Businesses and individuals came under severe pressure and transactional volumes fell significantly in Q2 2020 before recovering somewhat in the second half of the year. In response to the economic crisis the SARB cut interest rates by 300 bps, which proved beneficial to clients’ cashflow as instalments on floating-rate loans declined, but this also resulted in lower endowment income for Nedbank. On the back of these economic pressures, job losses increased and many clients’ current and future ability to repay debt declined, resulting in higher levels of impairment charges, now determined under more-forward-looking IFRS 9 models. Despite these challenges, the SA banking sector and Nedbank demonstrated strong levels of resilience and was able to support clients while remaining well capitalised, liquid and profitable, albeit at levels lower than in the prior year. Nedbank’s primary focus has been on the health and safety of our stakeholders, including employees and clients, as well as on helping our clients in good standing to navigate the financial challenges that arose in their business and personal finances. At the peak of the crisis we supported our clients with cashflow relief on more than R120bn of loans. We are pleased that our clients reduced this level of support to R28bn by the end of the year as economic conditions improved. We pivoted our strategy to focus on resilience and maintaining a well-capitalised and liquid balance sheet. Capital and liquidity ratios remained strong and most finished the year at higher levels than those reported in June, reflected in our tier 1 capital ratio of 12,1% (June 2020: 11,7%), CET1 ratio of 10,9% (June 2020: 10,6%), average fourth-quarter LCR of 126% (June 2020: 114,5%) and NSFR of 113% (June 2020: 114%) – all well above regulatory minima. Overall impairment coverage also increased from 2,26% in 2019 to 3,25% at year-end. We remain on high alert for the risks associated with new rounds of infections and variants and continue to monitor the effect that new lockdown restrictions may have on our clients and the economy as a whole. The impact of the very difficult operating environment was evident in Nedbank Group’s HE for the year ended 31 December 2020, as it declined by 56,5% to R5,4bn, compared to a decline of 69,2% in H1 2020. Nedbank remained solidly profitable and, despite the challenges of forecasting in such a complex environment, performed in line with the guidance we provided to the market, supported by an improved financial performance in H2 2020. HE for the year was affected by higher impairments and lower revenues, mainly due to lower levels of client activity and the impact of lower interest rates on endowment income. Expenses were well managed and declined by 1,3% from the prior period. Our ROE of 6,2% was lower than in the year before but improved from the 4,8% reported in H1. Improving the ROE from these levels back to above our cost of equity is a key focus of management. Despite our strong capital and liquidity position at 31 December, having considered the spirit of Prudential Authority Guidance Notes 4/2020 and 3/2021 and noting growth opportunities and our responsibility to support clients and the economy, alongside the current uncertainty about the progression of the virus, possible future waves, and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on our current forecasts the group expects to resume dividend payments when reporting interim results in 2021. We made excellent progress on our goal of delivering market-leading client experiences, as is evident in improved client satisfaction rankings. In the 2020 Consulta survey Nedbank increased its position to number two in the Net Promoter Score (NPS) among the five large SA banks, and maintained the second-highest-rated position in the SAcsi survey on customer satisfaction. During the lockdown our digital capabilities were vital as we launched various innovations such as Avo (our super app). We also introduced more retail digital onboarding (Eclipse) capabilities to new products such as investments, cards and overdrafts, and started the rollout of juristic client onboarding. This resulted in retail digital sales increasing to 49% of all sales (2019: 21%) and digitally active clients increasing by 25% to 2,2m. Our digital successes were underpinned by our Managed Evolution (ME) technology strategy, which is materially complete for all the foundation projects and overall 78% complete (2019: 70%). Our Target Operating Model 1.0 (TOM 1.0) optimisation programme recorded additional savings of R675m in 2020, translating to cumulative savings of R1,8bn to end-2020. The group’s long-term sustainability journey continues. Our focus remains on the delivery of the United Nations SDGs and we look forward to publishing our first TCFD report as part of our integrated reporting suite in April 2021. The Nedbank franchise is well positioned for growth, as reflected in our ‘Reimagine’ strategy, which includes delivering market-leading client solutions, unlocking value through our Strategic Portfolio Tilt 2.0 and Target Operating Model 2.0 (TOM 2.0) initiatives, and leading sustainably as we deliver on our purpose of using our financial expertise to do good for all our stakeholders. Forecasting remains difficult in a volatile health and economic environment, but we currently expect the country's GDP to increase by 3,4% in 2021. Given the economic forecasts from the Nedbank Group Economic Unit, our strategic drivers and particularly our expectation of an ongoing improvement in the credit loss ratio, our current guidance on financial performance for the half-year 2021 is to grow HEPS and EPS by more than 20%, as referred to in our trading statement. We have revised our medium-term targets* so that they reflect the current environment, and by 2023 we aim to exceed our 2019 diluted HEPS level of 2 565 cents, achieve an ROE greater than the 2019 ROE level of 15%, reduce our cost-to-income ratio to below 54%, and rank number one on the NPS among SA banks. We thank all our committed Nedbank employees for remaining resilient during an extraordinarily difficult time, and for continuing to follow the Covid-19 health protocols while diligently supporting our clients and the economy throughout this crisis. We extend our deepest condolences to the families, friends and communities of employees and clients who have succumbed to Covid-19 and related illnesses. Mike Brown Chief Executive HEADLINE EARNINGS (56,5%) 6 0 5 2 1 0 4 4 5 2019 H1 2020: (69,2%) 2020 CLR 161 bps CLR (56,6%) 187 161 79 ROE 6,2% 15,0 4,8 6,2 CET1 RATIO 10,9% CET1 RATIO 10,9% 11,5 10,6 10,9 2019 H1 2020 2020 2019 H1 2020 2020 2019 H1 2020 2020 * These targets are not profit forecasts and have not been reviewed or reported on by the group’s joint auditors. 1 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNedbank Group Annual Results 2020 Nedbank Group Annual results for the year ended 31 December 2020 NEDBANK GROUP LIMITED – Annual Results 2020 OVERVIEW Recovery in H2 2020 after peak Covid-19 impact in H1 2020 ▪ 2020 a very difficult environment for clients & banks ▪ Excellent outcomes on ‘resilience’ metrics ▪ Good progress as we transitioned out of the peak of the crisis Mike Brown Chief Executive NEDBANK GROUP LIMITED – Annual Results 2020 2 1 2 NOTES:NOTES:Nedbank Group Annual Results 2020Overview ▪ ▪ 2020 a very difficult environment for clients & banks ─ High-frequency data indicates an improvement in H2 2020 after Q2 GDP fell 17,5% yoy, full year GDP down 7,0% Excellent outcomes on ‘resilience’ metrics ─ Focus on health & safety of our stakeholders; & supporting our clients (payment relief on R121bn loans) ─ IT system uptime at multi-year highs (world-class levels) & sound cyber security ─ Strong balance sheet metrics: LCR 126% | NSFR 113% | CET1 10,9% & Tier 1 CAR 12,1% - all above June 2020 levels ─ Total coverage increased to 3,25% (Dec 2019: 2,26%) ▪ Good progress as we transitioned out of the crisis ─ Remained solidly profitable, with HE down by 57%, an improvement on the 69% decline in H1 | Decline driven primarily by higher impairments, lower endowment income & lower client transactional volumes. Financial performance in line with guidance provided to market for all income statement items ─ CLR at 161 bps lower than the H1 2020 peak of 187 bps, slightly higher than the GFC (152 bps) & expected to continue to trend down ─ Great client satisfaction outcomes – ongoing upward trajectory & now rated the #2 SA bank ─ Market-leading technology & digital innovations beneficial during the crisis NEDBANK GROUP LIMITED – Annual Results 2020 3 Operating environment – volatile & challenging for Nedbank & our stakeholders Health crisis … … economic crisis … … social challenges SA confirmed daily positive cases (#) SA quarterly GDP yoy (%) SA unemployment rate (%) 30k 20k 10k r a M r p A y a M n u J l u J g u A p e S t c O v o N c e D n a J b e F 10 5 0 -5 -10 -15 -20 (2,6) 34 32 30 28 26 24 23.2 (17,8) 22 20 32.5 07 09 11 13 15 17 19 08 10 12 14 16 18 20 Source: sacoronavirus.co.za Source: Nedbank Group Economic Unit Source: Nedbank Group Economic Unit NEDBANK GROUP LIMITED – Annual Results 2020 4 3 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Operating environment – high-frequency data from client transactional turnover1 indicates an improvement in operating conditions in H2 Total industry (indexed to March 2020) Total industry (yoy growth %) Key sectors (indexed to March 2020) (1%) Telecoms 62% 12 mnt yoy growth 100 5 11 9 Retail 1 1 2 1 3 Healthcare -5 -10 -19 Mar 20 May Jul Sep Nov Jan 21 -46 Mar 21 May Jul Sep Nov Jan 21 Restaurants Entertainment Hotels/Lodging Airlines Mar May Jul Sep Nov Jan 20 21 16% 29% (26%) (31%) (52%) (70%) Indicators March 2020 < 50% < 80% < 100% ≥ 100% > 120% of March 2020 levels NEDBANK GROUP LIMITED – Annual Results 2020 1 Based on Nedbank POS & card-related digital payment data (client turnover). 5 Operating environment – corporate activity improved, but commitment to long-term fixed investment still lagging Mining production (indexed to 2019) Business confidence1 (LHS) vs fixed investment (RHS) Manufacturing production (indexed to 2019) 100 90 80 70 60 50 40 30 20 10 0 60% 30% 0% (30%) (60%) Apr May Jun Jul Mar 20 Aug Sep Oct Nov Dec 20 00 02 04 06 08 10 12 14 16 18 20 Business confidence index (LHS) 1 SA Bureau of Economic Research. NEDBANK GROUP LIMITED – Annual Results 2020 Public sector GDFI growth (RHS) Private sector GDFI growth (RHS) 6 4 NOTES:NOTES:Nedbank Group Annual Results 2020Resilience – we supported our staff, clients & society in difficult times Staff Clients Society ▪ Primary focus on the health & safety of our staff – social distancing, sanitation & health practices, emotional wellbeing, etc ▪ Activated BCPs1 – tailored for various lockdown phases ▪ > 75% of SA campus staff enabled to work from home ▪ All branches reopened ▪ Increased capacity of staff & clients to work & bank remotely ▪ Ongoing reviews of our remuneration & retention strategies ▪ Enabled & educated our clients to increasingly bank through our mobile & web capabilities ▪ Enabled staff & clients to contribute to Solidarity Fund through our apps, web & internet banking – R160m ▪ Support for clients – eg payment holidays (on R121bn loans for more than 400k clients), fees concessions amounting to R104m, claims from credit life insurance cover (> R150m), applying for readvances & drawdowns on existing facilities, etc ▪ Support spaza shops & general dealers – procurement cards, discounted prices for preapproved goods, etc ▪ SARB SME Loan Guarantee Scheme: R1,4bn paid out ▪ One of four banks to administer the R1bn SA Future Trust (R300m payouts) ▪ Donated > R16m to Covid-19 relief efforts including the Red Cross ▪ Numerous health & economic interventions through BASA, BLSA & BUSA/Business4SA ▪ Cash taxation paid incl direct, indirect & other taxes: R8,7bn ▪ 79% local procurement & 92% SME suppliers paid in 30 days (#PayIn30) NEDBANK GROUP LIMITED – Annual Results 2020 1 Business continuity planning. Resilience – our balance sheet metrics remained strong & improved further in H2 Regulatory responses Liquidity ▪ Liquidity measures – transmission of liquidity through the system ▪ D1/2020 – minimum LCR from 100% to 80% Nedbank June 2020 Nedbank Dec 2020 LCR 115% LCR 126% ▪ D3/2020 – provide temporary relief for qualifying loans (distressed Credit Covid-19 related restructures) D3 relief R119bn ▪ G3/2020 – ensure impairments are appropriately conservative but do D3 relief R28bn not result in excessive procyclicality ▪ D2/2020 – temporary capital relief (removal of Pillar 2A, banks can Capital use Capital Conservation Buffer) ▪ Nedbank well above regulatory minimums ▪ G4/2020 – suspension of future dividends & cash bonus payments Dividends to certain individuals ▪ G3/2021 – board discretion regarding dividends & bonuses in 2021 1 G3/2021 considered. NEDBANK GROUP LIMITED – Annual Results 2020 CET1 ratio 10,6% No interim dividend declared CET1 ratio 10,9% No final dividend declared1 7 8 5 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Transition – good progress on delivering key strategic enablers that underpin future revenue growth & cost savings Create great client experiences & grow market share in key value-creating areas Enabled by Technology + People & brand delivered through process/ operational excellence Target Operating Model (TOM 1.0 & TOM 2.0) leading to Client growth & client satisfaction Operating efficiencies resulting in Revenue growth Cost savings NEDBANK GROUP LIMITED – Annual Results 2020 9 Transition – client satisfaction metrics continue an upward trajectory & Nedbank now the #2 rated SA bank, while app ratings remain at the top end SA-client satisfaction index1 Net promoter score1 Apple & Google Play Store app ratings2 (stars / 5) 70 60 50 40 30 20 10 0 15 16 17 18 19 20 15 16 17 18 Absa Capitec Nedbank Standard 20 19 FNB k n a B A k n a B B 4 . 4 k n a b d e N y e n o M 5 . 4 k n a b d e N h t l a e W k n a B C k n a B D 1 Annual Consulta survey (released March 2021). | 2 Average of Apple & Google Play Store client ratings (Feb 2021). NEDBANK GROUP LIMITED – Annual Results 2020 10 90 85 80 75 70 65 6 NOTES:NOTES:Nedbank Group Annual Results 2020 Transition – solid progress on our technology strategy, supporting accelerated digital sales & transactional activity & underpinned by high levels of system availability Managed Evolution – 78% complete (2019: 70%) ▪ 90 core systems (2019: 117) ▪ Individual onboarding in place & juristic rollout in progress ▪ 5 products/client journeys digitised (2019: 2) ▪ Digital sales: 49% (of total sales, 2019: 21%) ▪ Digitally active clients: 30% (of total clients, 2019: 24%) ▪ Growth in volume/value of app transactions: +70%/53% ▪ 171 of retail services digitised (2019: 114) ▪ Record levels of system uptime: 99,6% (2019: 99,5%) Digital leadership externally acknowledged1 ▪ Best SA Banking App, Best Banking Technology Implementation, Most Innovative Digital Branch Design NEDBANK GROUP LIMITED – Annual Results 2020 1 Source: Global Banking & Finance Awards 11 Transition – good progress on Eclipse, our simplified end-to-end digital client onboarding for individuals & juristic clients BOOKLET SLIDE End-to-end digital client onboarding & digitising our top 10 products H1 2019 H2 2019 H1 2020 H2 2020 H2 2021 Clients: Individual client onboarding   RBB Juristic client onboarding1  CIB Channels: In branch  Web & app  Omni-channel (Branch, Web, App, ATM, Self-service kiosk, Call centre) Individual Products2: ▪ Personal loans ▪ Transactional products  ▪ Card issuing (1) ▪ Investments (1) ▪ Overdrafts (1)  ▪ Investments (2)  ▪ Home loans (1) 3 Investments include unit trusts & retirement annuities (additional benefit) ▪ Card issuing (2) ▪ Overdrafts (2)  Additional Products ▪ NedGroup Investments  ▪ Home loans (2) 3 ▪ Vehicle Finance 3 ▪ Stockbroking 3 ▪ Forex 3 ▪ Student Loans 3 ▪ Wealth 3 1 Juristic Client Onboarding went live on 11 July 2020. 2 The number (1) refers to first minimal viable product launch on the new platform; (2) refers to additional enhancements. 3 Delivery timelines remain under review given dependencies on other core Managed Evolution programmes. 4 A strategic pivot to deliver Everyday Banking and Retail Relationship Banking solutions early resulted in Home loans & Vehicle Asset Finance being reprioritised for delivery in 2021 Additional Products4 ▪ RRB ▪ Everyday Banking (MVP) NEDBANK GROUP LIMITED – Annual Results 2020 12 7 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Transition – Managed Evolution technology strategy on track BOOKLET SLIDE Core systems (#) Rationalise, standardise & simplify Managed Evolution programme ~78% complete, R11,4bn spend to date IT software development spend (Rbn) Annual cashflow continues to decline Core Banking Modernisation Client Systems Enterprise Strategic Payments 5 7 - 5 6 1 7 1 2 5 1 2 4 1 8 2 1 9 1 1 7 1 1 0 9 > 5 7 Bubble size indicates total estimated spend = prior year Enterprise Data Foundations ERP 1,9 14 15 16 17 18 19 20 LT 0% 25% 50% 75% 100% 14 15 16 17 18 19 20 21 22 23 NEDBANK GROUP LIMITED – Annual Results 2020 Completion Illustrative only Compliance related 13 0 5 2 10 Transition – accelerated digital delivery, uptake & usage BOOKLET SLIDE Digitally active clients (% of total clients) Digital sales (# 000) App transaction volumes (# m) +70% 20% 24% 30% 18 19 20 4 4 7 6 9% 4 4 1 1 18 7 4 1 4 7 5 1 21% 1 19 49% 20 +194% 7 4 1 4 7 5 1 1 19 4 4 7 6 4 4 1 1 18 Products digitised (# of top 10) 5 2 20 18 19 20 Digitally active clients (% of main-banked1 clients) Money app active users (# 000) App transaction values (Rbn) Retail services digitised (#) +163% +42% +177% +53% 171 114 71 18 19 20 18 19 20 44% 51% 57% 18 19 20 0 5 4 18 2 3 8 19 4 8 1 1 20 1 Digitally active main-banked clients NEDBANK GROUP LIMITED – Annual Results 2020 8 10 21 Target Build on the 140 digital services to juristic clients 21 focus 14 NOTES:NOTES:Nedbank Group Annual Results 2020 Delivering on our purpose – to use our financial expertise to do good Environment Social Governance Assisting our clients R31bn renewable energy finance provided (since 2012) > 3 500 MW added to the electricity grid Leading through example R7,7bn green/SDG bonds issued & loans secured (#1 SA bank)3 Carbon neutral operations (since 2009) Alignment to the Paris agreement 100% approval of our climate change resolutions (53rd AGM) 1st TCFD report in April 2021 Embracing diversity Female staff: > 61% Black staff1: > 79% BBBEE: level 1 Financial inclusion & support R47bn loans to SMEs, entrepreneurs, professionals2 Payment relief on R121bn of client loans Financial solutions to more than 7,3m clients y Supporting society 45% of R103m CSI spend on skills development & education R16m donated to Covid-19 relief Caring culture 17 7% staff NPS (+10 yoy) staff attrition (down from 2019:11%) Performance contracts include ESG components & Individual group executive ownership of nine SDGs Independent & diverse board 60% Independent directors 60% Black1 directors 20% Women on the board Regular shareholder engagements on ESG matters (2020: 7th annual roadshow) ESG AA rating Top 5% of all banks 16th out of 408 diversified banks NEDBANK GROUP LIMITED – Annual Results 2020 1 Defined as African, Indian & Coloured population. | 2 Represents RRB loans & advances. | 3 R4,7bn bonds issued & $200m IFC loan. Top 20% of all global banks 15 MANAGING RISK Risk Management has demonstrated great agility & effectiveness – the extra focus on credit risk remains, albeit with a much improved outlook Trevor Adams Chief Risk Officer NEDBANK GROUP LIMITED – Annual Results 2020 16 9 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Overview – successful risk management through the ‘Great Lockdown Crisis’ 2020 outcomes Key risk category Inherent risk Residual risk 2021 focus ▪ Resilience Business/Country risks ▪ BCP successfully implemented Operational risk ▪ Best-ever IT stability IT risk ▪ No cyber internal breaches (#1 Bitsight ranking) Cyber risk ▪ Market conduct & culture 3x market conduct & culture programmes/ Covid support programme fully completed Conduct risk ▪ Covid-19 client support Reputational risk ▪ Leading as the ‘green bank’ Leading as the ‘Green Bank’, step up governance, plans etc Climate risk ▪ Excellent management of market crisis (Q2) Liquidity & Market risks ▪ CLR better than expected Credit risk ▪ CARs well within/above target ranges Capital risk Risk indicators High Medium Low NEDBANK GROUP LIMITED – Annual Results 2020 Dec 19 Jun 20 Dec 20 Dec 19 Jun 20 Dec 20 ▪ Re-imagine ▪ SA Inc/macro turnaround ▪ Organisational resilience ▪ Emerging 4th IR IT/Digital risks ▪ Cyber resilience ▪ Regulatory evolution/new SA conduct standards ▪ Stakeholder engagement ▪ Glide-path to 2050/Clean energy opportunities/TCFD ▪ Business-as-usual ▪ Covid-19 credit programme ▪ Optimise risk-adjusted returns ▪ Capital plan/ICAAP ▪ RWA optimisation 17 18 Credit risk – successful approach in managing a 1-in-100 year crisis event ▪ Covid-19 Credit Programme ‒ Revised credit models, where appropriate ‒ Deep dives (clients, products, portfolios, industry sectors & security valuations) ‒ Stress & Scenario Testing ‒ Overlays & expert judgment ▪ Accounting for credit risk ‒ Balance required & achieved o IFRS 9 forward-looking (upfronting) o Regulatory guidance (avoid excessive procyclicality) o Abnormal economic uncertainty ‒ Nedbank economic forecasts at H1 2020 proved to be materially correct ‒ Interpretation & application of IFRS 9 (eg staging classifications) ‒ Conservatism & prudence applied, especially appropriate in the current economic climate ▪ Combined Assurance across the three Lines of Defence ‒ Engaged External Audit early NEDBANK GROUP LIMITED – Annual Results 2020 10 NOTES:NOTES:Nedbank Group Annual Results 2020Credit risk – outcome at FY 20 better than was expected at H1 20 Credit loss ratio1 (CLR, bps) GFC 152 250 200 150 100 50 0 GLC 187 161 134 ▪ CLR ended only marginally higher than GFC, despite the 1-in-100 years GLC event in 2020 ▪ High-quality credit book & well secured (LTVs) ─ Selective origination (lower risk) & enhanced credit risk management & IFRS 9/Basel 3 since the GFC ▪ D3 loans reduced to R28bn (H1 2019: R119bn) – risk now mostly incorporated in credit models 79 ▪ D7 loans increased to R13bn (2019: R6,6bn) – as expected due to end of D3s in H2 2020 ▪ Coverage ratios have been increased – book quality, asset mix/security, loan migrations across stages & IFRS 9 classifications (eg SICR, D3 & D7 loans, Covid-19 overlays) & timing of write-offs are key considerations ▪ Commercial Property Finance book continues to confirm its quality & performs ahead of expectations 06 07 08 09 10 11 12 13 14 15 16 17 18 19 H1 20 H2 20 1 Given the restatement of loans & advances to include listed corporate bonds to align with industry practice, CLRs have also been restated for 2019, H1 2020 & 2020. The impact in 2020 was 6 bps lower CLR for Group at YE 2020 & 3 bps lower at YE 2019. NEDBANK GROUP LIMITED – Annual Results 2020 19 Credit risk – R13,1bn impairments up by 114% (H1 +202%), driven by stages 2 & 3 impairment migrations & adjustments/overlays due to Covid-19 Impairment charge (Rm) Covid-19 related adjustments/overlays RBB CIB Other 6 129 389 917 4 823 2019 Other 13 127 1 136 ▪ Central Provision increase of R350m in H2 to R750m (emerging risk not yet in models/data/macroeconomic forecasts) ▪ NAR & Nedbank Wealth overlays of R70m & R98m ▪ IB & TS macroeconomic impact: R389m incorporated in model in H2 (H1: R1,0bn, lower at Dec 2020 given much improved GDP outlook beyond 2020) 3 245 CIB ▪ Additional R386m overlay for specific industry stress ▪ CPF total overlay of R440m ▪ R1,1bn job-loss D3 overlay at H1 incorporated in the Retail models in H2 ▪ Interest rate benefit neutralisation overlay reduced to R370m (MFC) from R500m in H1 (Rest of Retail adjusted in the models from H2) RBB ▪ R1,8bn Covid-19 related adjustments 8 746 2020 ‒ R334m overlays raised on Retail D3 loans to cater for short-term residual risk ‒ BB overlay increased to R416m from R314m at H1 ‒ RBB R1 027m raised for longer-term impact using stressed forward looking information (FLI) NEDBANK GROUP LIMITED – Annual Results 2020 R750m R168m R386m R440m R370m R334m R416m R1 027m ____________ R3 891m 20 11 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Credit risk – D3 loans reduced to R28bn at YE 2020, from a peak in July 2020 of R121bn D3/2020 relief provided (Rbn) 119 86 65 28 ▪ Ceased granting D3 renewals (only on an exceptional basis) ▪ RBB ─ 97% of D3 loans matured ─ Only R2bn outstanding ▪ CIB ─ Original payment relief provided beyond 3 months ─ R25bn outstanding (majority mature in H1 2021) ─ CPF D3 loans peaked below 6% of book, lowest in the group Apr CIB Jun RBB Sep Dec Wealth NAR ▪ Wealth & NAR ‒ Immaterial NEDBANK GROUP LIMITED – Annual Results 2020 21 Credit risk – progression of Retail D3 payment holidays & payment success Status of Retail D3 payment holidays (Rbn, %) Repaying accounts (# of payments) 78 80 80 80 68 30% 78 7% 76 8% 75 9% 45 100% 96% 85% 52% 63% 51% 19% 25% 19% 13% Apr May Jun Jul Aug Sep 82% 87% 88% 6% 6% Oct Nov Dec Not matured Extended Repaying Missed payment NEDBANK GROUP LIMITED – Annual Results 2020 6+ 5 4 3 2 1 26% 23% 12% 18% 7% 2% ▪ D3 loan performance at Dec ‒ 88% of clients repaying (79% have made 3+ payments) ‒ 9% missed a payment o 6% in Stage 2 o 3% in Stage 3 ‒ 2% of D3 payment holidays extended ‒ 1% of D3 payment holidays have not yet matured ‒ R5bn of D3 loans repaid ‒ R200m D3 loans written off ▪ Non-D3 loan repayments significantly better ‒ Stage 1 above 90% & approximately 2% better than pre-Covid levels 22 12 NOTES:NOTES:Nedbank Group Annual Results 2020Credit risk – D3 loans at 30 June 2020 reflect the profile of payment relief provided BOOKLET SLIDE D3 as % of gross loans (Jun 2020) 32% 27% 24% 11% 10% 6% 22% 8% 11% Group 15% (Jun 20) 3,6% (Dec 20) CIB CPF BB HL MFC PL Card Wealth NAR other Positions at 31 Dec 2020 NEDBANK GROUP LIMITED – Annual Results 2020 23 Credit risk – D7 loans increased as expected D7 exposures (Rbn) D7 as % of gross loans (Dec 2020) 13,0 12,3 5.5% 6,6 Dec 19 Jun 20 CIB RBB Dec 20 Other NEDBANK GROUP LIMITED – Annual Results 2020 2.0% 2,5% 1,5% Group 1,7% 0,8% 0,6% 1,1% 0,6% 0,2% CIB CPF BB HL MFC PL Card Wealth NAR other 24 13 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Credit risk – large increases in stages 2 & 3 Gross Loans & Advances, driven by the Covid-19 economic crisis Stage 1 loans & advances1 (Rbn) 700 Stage 2 loans & advances1 (Rbn) 120 Stage 3 loans & advances1 (Rbn) 50 59 600 500 678 Dec 19 619 619 Dec 20 80 40 0 26 17 25 0 28 Dec 19 45 Dec 20 72 Dec 19 98 Dec 20 % of book 87% 81% 9% 13% 4% 6% Peers2 86 to 90% 82 to 87% 6 to 9% 9 to 11% 4 to 5% 5 to 6% Key drivers of decrease ▪ Reduction in CIB book on the back of large repayments, portfolio optimisation & low levels of activity ▪ Migrations to stage 2 & 3 due to Covid-19 Key drivers of increase ▪ CIB client migrations & certain watchlist Key drivers of increase ▪ R6,4bn increase in D7 clients triggered SICR ▪ All SICR treated as stage 2 – IFRS 9 ‘Low Risk exemption’ not applied (R22bn) ▪ D3 renewals in H2 treated as stage 2 loans ▪ Migration of book ‒ CIB +169% yoy ‒ RBB +48% yoy NEDBANK GROUP LIMITED – Annual Results 2020 1 Loans & advances restated to include listed corporate bonds to align with industry practice. | 2 Peer range as at 30 June 2020. 25 Credit risk – Nedbank has a large secured lending profile, requiring lower coverage generally given the greater extent of collateral/security & selective origination Gross loans & advances1 (Rbn, Dec 2020) 3-year vehicle finance CAGR1 (%) 11.1% 13.0% 7.5% 1 048 904 865 792 -2.9% 3-year home loans CAGR1 (%) 3.4% 4.3% 4.0% 4.4% Share of secured loans 43% 38% 57% 47% 3-year commercial mortgages CAGR1 (%) Absa FirstRand Nedbank Standard Commercial mortgage loans Vehicle finance Home loans Other 1 Analysis based on BA 900 data as at 31 Dec 2017 & 31 Dec 2020. NEDBANK GROUP LIMITED – Annual Results 2020 14.1% 10.9% 5.2% 3.1% Absa FirstRand Nedbank Standard 26 14 NOTES:NOTES:Nedbank Group Annual Results 2020Credit risk – significant increase in total coverage ratio to 3,25% Gross loans & advances1 (Rbn) Expected credit loss (Rbn) Coverage ratios 2,26% 3,25% ▪ Stage 3 coverage – decrease 778 762 +64% +36% (9%) 24,8 17,5 37,9% 31,5% +36% +70% +24% 5,30% 6,61% 0,48% 0,65% Dec 19 Dec 20 Dec 19 Dec 20 Dec 19 Dec 20 1 Loans & advances restated to include listed corporate bonds to align with industry practice. NEDBANK GROUP LIMITED – Annual Results 2020 Stage 1 Stage 2 Stage 3 driven by higher migration of CIB stage 3 loans vs RBB, specific CIB client counters in stage 3 (high collateral, low coverage) vs FY 2019, increase in RBB D7 loans & non-D7 secured loans. ▪ Stage 2 coverage – increase driven by most of the R3,9bn Covid-19 overlays including CP, all SICR in stage 2, classification of D3 loans as stage 2 & migration of specific watchlist clients (high coverage). ▪ Stage 1 coverage – increase driven by adverse macro economy & some Covid-19 overlays 27 Credit risk – Stage 3 ECL & coverage reflects impact of mix & highly collateralised loans in both CIB & RBB BOOKLET SLIDE Stage 3 loans & advances1 (Rbn) Expected credit loss (Rbn) Coverage ratios 14,3 37,9% 31,5% ▪ Group stage 3 coverage impacted by mix change +63% 24,6% 14,9% ‒ Higher CIB growth at lower 45,2 10,5 27,6 +169% +48% +33% 41,6% 37,3% Dec 19 Dec 20 Dec 19 Dec 20 Dec 19 Dec 20 1 Loans & advances restated to include listed corporate bonds to align with industry practice. NEDBANK GROUP LIMITED – Annual Results 2020 Other CIB RBB coverage vs RBB ▪ CIB coverage ‒ High collateral, low LTVs ‒ Client-by-client ECL calculation incl collateral (top 10 CIB clients: 66% of stage 3 ECL) ‒ Specific counters vs FY 2019 ▪ RBB coverage ‒ Increased levels (esp. HL & MFC) of D7 loans attract lower coverage ‒ Expected to increase in H1 2021 as D7 loans exit monitoring ‒ Skewed to secured lending 28 15 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Credit risk – Stage 3 RBB coverage: high-quality portfolio (selective origination & skewed to secured), earlier writeoffs & higher levels of post-writeoff recoveries excl in LGDs RBB writeoffs (% of stage 3 RBB loans) 9% 5% 6% Stage 3 coverage 38% 27% 19% 21% 39% 44% 43% 39% Nedbank RBB Bank A Bank B Home Loans VAF Nedbank Bank A Bank B Bank C RBB post-writeoff recoveries1 (% of stage 3 RBB loans) 1.6% ▪ Nedbank HL LTVs lower (78%) than SA peers (~88% disclosed). ▪ Nedbank has a mature book & market share marginally down over past 3 years 0.6% 0.7% ▪ Loan approval rates down 9% since Nedbank RBB Bank A Bank B Disclosures as at 30 June 2020 (Based on 6 months results & excludes banks with 12-month data to ensure comparability.) 1 Bank A post-writeoff recoveries only reported at group level | Bank B recoveries include modification gains & losses. NEDBANK GROUP LIMITED – Annual Results 2020 2018 ▪ Nedbank originates fewer loans from loan originators (Nedbank 30-50% vs peers > 50% over past 3 years) ▪ Increased D7 restructures dilute coverage yoy (high recoveries) ▪ Nedbank’s VAF book skewed to used/lower value vehicles (less sharp drop-off/reduction in collateral) ▪ New-business market share flat over 3 years (Experian) ▪ Loan approval rates down 6% since 2018 ▪ Increased D7 restructures dilute coverage yoy (high recoveries) 29 Credit risk – R26,1bn ECL is our base case, with positive & high- stress scenarios indicating minimal up/downside risk BOOKLET SLIDE Various scenarios used in ECL modelling for FY 2020 purposes GDP growth assumptions (Dec 2020) Positive – 21% probability Base – 50% probability High stress – 8% probability 3.9 2.4 1.6 t h w o r g P D G 3,4 2,2 1,81 3.0 2.2 1.5 2.1 1.7 0.9 21 22 23 21 22 23 21 22 23 ▪ Virus spreads slower & ▪ Covid-19 transmissions remain vaccine rollout somewhat faster leading to the virus largely defeated in ‘21 ▪ Country moves to lockdown Level 0 ▪ CPI increases to just below 4% ▪ Credit growth around 6% ▪ Prime flat in 2021 & beyond steady & virus effectively contained, with some flare- ups. Vaccine rollout by end ’21 ▪ Lockdowns eased in ‘21 ▪ CPI increases to just below 4% ▪ Credit growth around 5% ▪ Prime flat in ‘21 & increases 50 bps in early ‘22 ▪ Regular virus infection flare- ups occur throughout ‘21. Vaccine rollouts delayed to ‘22 ▪ Long-lasting lockdowns & restrictions. Significant wave of bankruptcies & severe financial instability ▪ CPI around 5% & credit growth slows to around 3-4% ▪ Prime increases >1% A mild-stress scenario, with variables between base case & high stress has a further 21% weighting | 1 Feb 2021 forecasts. NEDBANK GROUP LIMITED – Annual Results 2020 16 Scenarios Probability-weighted ECL2 R26,1bn 100% probability of positive scenario -1,8% R25,6bn 100% probability of high stress scenario +3,7% R27,0bn 2 Includes ECL on loans & advances at amortised cost & FV OCI. 30 NOTES:NOTES:Nedbank Group Annual Results 2020 Credit risk – key drivers of coverage including quality origination, low LTVs & good collection outcomes BOOKLET SLIDE Home loans LTV distribution 2009 vs 2020 (%) Vehicle finance New vs used vehicle distribution (%) Personal loans Market share of disbursed business (%)1 New Used Targeted Risk High Risk < 50 50-80 80-90 90-100 > 100% 100% 80% 60% 40% 20% 0% 25% 20% 15% 10% 5% 0% 2018 2019 2020 NEDBANK 70% 60% 50% 40% 30% 20% 10% 0% 2018 2019 2020 TIER 1 80% 70% 60% 50% 40% 30% 20% 10% 0% 2018 2019 2020 TIER 2 2009 2020 09 10 11 12 13 14 15 16 17 18 19 20 New business – proportion of low-risk clients (%, Lightstone) New business market share (%, TransUnion) Payment success (%) – performing book 2 50% 40% 30% 20% 10% 0% s e t a r l a s r u b s d i & l a v o r p p A t e k r a m 0 0 9 A B e r a h s 50% 40% 30% 20% 10% 0% 09 10 11 12 13 14 15 16 17 18 19 20 16 17 18 19 20 NEDBANK GROUP LIMITED – Annual Results 2020 92% 90% 88% 68% 66% 64% 62% 60% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1 Per Experian Bureau Data | Targeted Segment (Bureau Score > 625); High Risk (Bureau Score <= 625) | Tier 1 refers to traditional 4 banks excluding Nedbank while Tier 2 refers to remaining material providers of unsecured personal loans; Tier 1 market share mid 2020 impacted by Covid-relief personal loans | 2 2020 Q2 Payment Success impacted by payment holidays 31 Credit risk – quality RBB book: supported by selective loan origination BOOKLET SLIDE Home loans Vehicle finance Personal loans Approval rates Disbursal rates Approval rates Disbursal rates Approval rates Disbursal rates 28.5 28.7 29.0 14.5 14.4 14.4 10.4 10.2 11.2 18 19 20 18 19 20 18 19 20 NEDBANK GROUP LIMITED – Annual Results 2020 32 17 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020 Credit risk – CIB Covid-19 high-risk exposures BOOKLET SLIDE CIB Covid-19-impacted sectors (Rbn) Covid impacted sectors (excl CPF**) % of CIB exposure D3 % of sector exp D7 & NP % of sector exp 47% 35% 18% ▪ SOEs / Municipalities – defaulted exposures being restructured with [33%] government guaranteed ▪ Construction* – Stressed sector pre-Covid with reduction in high risk & defaulted exposure in 2020 7% 3% 0% 1% ▪ Aviation – [38%] of exposure guaranteed & 1% 29% remaining exposure secured at [75%] average LTV ▪ Retail – limited high-end fashion exposure with portfolio concentrated to large listed entities ▪ Automotive & Transport – Portfolio tilted towards listed entities & OEMs 2% 2% 5% 0% 5% 6% 28% 1% 0% Covid impacted sectors Rest of CIB CPF ▪ Hospitality – exposure to largest hotel & casino groups with substantial asset / equity base 2% 97% 0% ▪ Manufacturing – some improvement post level 2 lockdown 1% 0% 0% NEDBANK GROUP LIMITED – Annual Results 2020 * Construction includes Steel & Cement ** CPF to be covered on following slides 33 Credit risk – Business Banking Covid-19 high-risk exposures BOOKLET SLIDE BB Covid-19-impacted sectors (R’bn) 12% 5% 3% 80% Rest of RBB BB Medium Impact BB High Impact BB Low Impact Covid-19 industry risk classification is linked to the risk of transmission industry classification (Dept of Trade) NEDBANK GROUP LIMITED – Annual Results 2020 Covid-19-impacted sectors % of BB exposure D3 % of sector exp NP & D7 % of sector exp Construction Manufacturing Mining & Quarry 7,8% 8,3% 14,1% 5,0% 2,3% 2,7% 1,8% 1,1% 2,4% Value added services 1,7% 3,5% 0,9% ▪ The focus of most businesses has been on protecting employees, understanding the risks to their business & managing the supply chain disruptions. Every client reviewed (deep dives) ▪ The payment success for payment holidays was above 99% across all sectors ▪ Significant Covid-19 support provided with ~R9bn (700 clients) in exposure that has been restructured for payment holidays (99,6% ended & 99,4% resumed payment by end Dec 2020) ▪ Almost R4bn in additional overdraft facilities approved (1 500 clients pre-approved for overdrafts - 500 took up) ▪ The portfolio remains well secured & dynamically monitored to proactively identify emerging risk ▪ D7 portfolio only contributed R0.65bn of R77bn BB loans 34 18 NOTES:NOTES:Nedbank Group Annual Results 2020Credit risk – commercial property sector performing better than expected; CPF CLR at 54 bps marginally above 53 bps GFC peak Market liquidity What gives us comfort ▪ Liquidity remained better than expected across the sector ▪ High-quality, well-diversified & collateralised – largely due to better-than-expected rental collections, as evidenced by listed funds collection data portfolio ▪ Low LTVs going into the crisis 85% 90% 94% 91% 97% 94% 97% 67% 70% Apr May Jun Jul Aug Sep Oct Nov Dec ▪ ▪ Increases in vacancies evident but remain manageable (increase of between 1,0% to 2,5%) Interest cover ratios (ICR) in the listed sector remain robust – ICR covenant generally 2x, majority of funds remain above covenant levels ▪ Reduced shareholder distributions in the listed sector have strengthened balance sheets & improved liquidity (good for bondholders/financiers) ▪ Clients benefiting from the 300 bps interest rate reductions & low-interest-rate environment NEDBANK GROUP LIMITED – Annual Results 2020 ‒ Average LTV increased to 50% at YE (48% in 2019) due to lower revaluations ‒ LTVs remain low with adequate collateralisation (significantly reduces the risk of potential losses) ▪ Revalued > 4 500 properties in H2 (covering 65% of our exposure) ‒ Revaluations in line with market trends (5,5% decrease in valuations) ‒ Top 20 largest deals with LTV ≥ 50% ‒ All deals > R250m exposure & LTV ≥ 65% ▪ R440m overlays held in the debt portfolio to buffer against further deterioration in valuations & credit migration. ▪ Low levels of arrears – 0 to 90 days: R22m (H1: R74m) ▪ Stress & scenario testing Credit risk – Commercial Property Finance profile BOOKLET SLIDE Credit loss ratio (bps) & Loan-to-value (%) 53 49% 4 (5) 10 45% 42% 44% (2) 48% 54 50% CLR LTV ▪ Strong client base supported by an experienced team 1 GFC peak 1 CPF peaked in 2010. Dec 16 Dec 17 Dec 18 Dec 19 Dec 20 ▪ Well diversified portfolio & highly collateralised Diversification & average LTV by sector LTV 54 34% % of loans: 53 47 47 38 50 43 27% 19% 9% 6% 3% 1% Retail Commercial Industrial Residential Other Hotel Hospital Covid-19- impacted sectors: High Medium Low NEDBANK GROUP LIMITED – Annual Results 2020 ▪ Low gearing – adequate collateralisation significantly reduces potential losses ▪ Primary lending operation supplemented by private-equity arm 35 36 19 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Credit risk – commercial property sector risks & stress tests BOOKLET SLIDE ▪ Total Expected Credit Loss overlays R440m for the risks & valuation impacts estimated through various stress-tests ‒ R90m unlisted clients – for industry stresses in the hospitality, retail & office ‒ R250m for property funds ‒ R100m to buffer against reductions in valuations for stage 1 & stage 2 clients ▪ Supported clients ─ R7,2bn loans classified as D3 restructures (4,2% of loans) ─ Declined from H1: R8,7bn (5,8% of loans) ▪ Various stress-tests applied to the portfolio in sizing the overlays ─ Valuation stress for Stage 1 & 2 clients: cap rates increase of 150 bps & income decline of 20% ─ Listed fund PD migration stress: negative PD migration of 1, 2 & 3 bands identified per specific fund ─ Hospitality, Retail, Commercial, Mixed usage type and Industrial type properties: negative PD migration of between 1 & 3 bands have been applied. Residential portfolio generally has higher PD already, so no further migration forecast NEDBANK GROUP LIMITED – Annual Results 2020 37 Credit risk – Commercial Property Finance valuation update BOOKLET SLIDE Market trends ▪ Recent reporting by listed property funds reflects lower property valuations ▪ Wide range between +2% & -20% (dependent on underlying portfolio) | 6 funds declined > 10% | 3 funds declined between 5% & 10% | 10 funds declined < 5% Nedbank portfolio – H2 revaluations ▪ Revalued over 4 500 properties held as collateral against 65% of our exposure, including: i) Largest 20 deals with LTV ≥ 50%, ii) All deals ≥ R250m with LTV ≥ 65% ▪ Values down 5,5% on comparable values over 12-month period ▪ Nedbank generally more conservative than client valuations – going into lockdown generally within a range of up to 10% lower & significantly lower for outliers R100m impairment overlay – held to cover risk of collateral not revalued in H2 & further declines expected in the portfolio Frequency of valuations ▪ Stage 2 & 3 valuations performed 6 monthly or more regularly if required ▪ Stage 3 valuations performed on both a market & forced sale basis ▪ Stage 2 & 3 valuations are generally significantly more conservative than client values – in some instances more than 20% lower NEDBANK GROUP LIMITED – Annual Results 2020 38 20 NOTES:NOTES:Nedbank Group Annual Results 2020Credit risk – Commercial Property Finance valuation update BOOKLET SLIDE % of exposure by LTV bucket range (%) Unsecured 1 5% >91% 2% 81% - 90.99% 6% ▪ Analysed all deals greater than R100m in the >71% buckets & reviewed the basis of the original credit decisions 71% - 80.99% 10% classified as stage 1 ▪ Did not identify any material concerns in deals 61% - 70.99% 51% - 60.99% 41% - 50.99% 0 - 40.99% 21% ▪ Deals classified as stage 2 & 3 are monitored 24% on an ongoing basis 17% 15% ▪ We hold overlays of R440m to buffer against further deterioration in risk 1 High-quality REITS with low gearing. NEDBANK GROUP LIMITED – Annual Results 2020 39 Credit risk – commercial property sector insights BOOKLET SLIDE Office space – oversupplied Retail sector – largely oversupplied in metros ▪ Office vacancies increased to 13,3%, up 60 bps on the previous quarter & the highest since 2004 ▪ Rentals remain under pressure with negative reversions common ▪ Vacancies likely to increase further in the medium term, but it is uncertain where they will top out & what the potential recovery could look like, as tenants continue to assess their operating models & space requirements ▪ A repurposing of office space could be seen in certain nodes with high vacancy levels, such as residential conversions ▪ Retail vacancies at the end of September were 6,9%, up 130 bps on the previous quarter & up 200 bps since Feb 2020 ▪ Rentals remain under pressure with negative reversions common – this trend is expected to continue. Rental collections over lock- down period in 2020 were significantly better than expected ▪ The speed of a vaccine rollout is crucial in lifting footfall & trading densities ▪ Convenience retail has outperformed larger retail centres & this trend is expected to continue ▪ Retail will remain under pressure due to difficult economic conditions impacting consumers & retailers Industrial sector – resilient Residential – cautious ▪ Logistics & warehousing remained the best performing sector in 2020 & forecast to continue this trend in 2021 ▪ Industrial sector performance highly impacted by extent of Eskom load shedding ▪ The full impact of Covid-19 will need to be assessed over time, but industrial space entered this period with better supply demand dynamics than some of the other segments ▪ Strong demand for residential product in lower price brackets – purchase price below R1m & monthly rental under R8 500 ▪ Affordable rental stock market buoyant in the current market ▪ Developers remain cautious given the current economic environment, despite lower interest rates ▪ Office to residential conversation possible in certain nodes NEDBANK GROUP LIMITED – Annual Results 2020 40 21 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Credit risk – LTVs make CPF & HL good secured asset classes through a crisis & both in a much stronger position than during the GFC BOOKLET SLIDE CLR (bps) % of group 257 31% ‘09 18% 152 53 Group % of group 21% ‘20 24% 161 60 54 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 300 250 200 150 100 50 0 -50 CPF HL Book growth ’06 to ’09 (CAGR) +20% +14% Change in market share ‘06 to ‘09 +0.5% +0.4% LTVs ’09 49% Defaulted loans % of ‘09 book 5% 85% 12% Book growth ‘16 +6% +4% CPF HL to ’20 (CAGR) Change in market share ‘16 to ‘20 (2%) flat LTVs ’20 50% 78% Defaulted loans 5% 2% % of ‘20 book ▪ Nedbank total property exposure: 45% ‒ less than during the GFC: 49% ▪ Conservative & high-quality loan growth going into the GLC crisis (selective origination since GFC) ‒ HL & CPF growth well below GFC & recent industry levels (selective origination) ‒ LTVs low & indicative of significant security ‒ High-volatility CRE book 4% (vs 12% during the GFC – biggest driver of impairments) ‒ Risk-adjusted performance management (Basel II/III & EP) into GLC vs non-risk-adjusted (Basel I/ IAS 39 in GFC) ▪ Defaulted books significantly lower going into the GLC NEDBANK GROUP LIMITED – Annual Results 2020 CPF Home Loans Rest of Group 41 FINANCIAL OVERVIEW Robust balance sheet, strong liquidity & solvency positions with profitability metrics impacted by lower revenues & increased impairments, offset by expenses well managed Mike Davis Chief Financial Officer NEDBANK GROUP LIMITED – Annual Results 2020 42 22 NOTES:NOTES:Nedbank Group Annual Results 2020A difficult period evident in the key drivers of shareholder value creation NAV per share (cents) ROE & cost of equity (%) Dividend per share (cents) +1% 4 0 2 8 1 1 9 3 8 1 2 2 5 8 0 0 1 9 13.4 11.8 14.5 6.2 0 4 4 5 1 4 1 l d e r a c e d d n e d v d o N i i 6 8 10 12 14 16 18 20 6 8 10 12 14 16 18 20 6 8 10 12 14 16 18 20 COE ROE Interim Final Positive but slower NAV growth ROE below COE No dividend declared (G3/2021) NEDBANK GROUP LIMITED – Annual Results 2020 43 Maintained strong liquidity & capital positions notwithstanding the impact of lower revenues & increased impairments on profitability metrics Profitability Advances & deposits Asset quality Liquidity Capital (57%) (60%) (57%) (71%) (2%) +6% Headline earnings (Rm) Total comprehensive income attributable to ordinary shareholders (Rm) DHEPS (cents) Basic EPS (cents) ROE (%) Gross banking advances (Rbn) Deposits (Rbn) Credit loss ratio (bps) Total coverage (%) Liquidity coverage ratio (%) NSFR (%) CET1 ratio (%) Risk-weighted assets (Rbn) +7% 2020 5 440 4 358 1 113 717 2019 12 506 11 017 2 565 2 500 6,2% 15,0% 797 954 161 3,25% 126% 113% 10,9% 674 810 904 79 2,26% 125% 113% 11,5% 629 NEDBANK GROUP LIMITED – Annual Results 2020 44 23 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020 Headline earnings down by 57% – driven by significant increase in impairments & slowing revenues Headline earnings (Rm) 0% (7%) (114%) (1%) (43%) (86) (1 857) (6 998) 407 (341) 1 809 12 506 HE 2019 NII NIR Impairments Expenses Associate income Direct tax & other 1 1 Other includes Indirect tax, Net monetary loss, Minority & Preference shareholders. NEDBANK GROUP LIMITED – Annual Results 2020 5 440 HE 2020 45 Total comprehensive income impacted by ETI adjustments & goodwill impairment of Nedbank Wealth SA BOOKLET SLIDE Total comprehensive income attributable to ordinary shareholders (Rm) (60%) (750) (528) (345) (350) 446 445 5 440 HE 2020 IAS 36 ETI impairment (H1) Our share of ETI goodwill impairment (Q3) Nedbank Wealth goodwill Other non-HE Other comprehensive income FCTR on subsidiaries 4 358 11 017 Total comprehensive income 2020 Total comprehensive income 2019 3 467 IFRS profits attributable to ordinary shareholders (Basic earnings) 1 Amount attributable to ordinary shareholders is net of non-controlling interest, preference shares & AT1 of R987m (2019: R717m). NEDBANK GROUP LIMITED – Annual Results 2020 46 24 NOTES:NOTES:Nedbank Group Annual Results 2020Improved financial performance in H2 & FY 2020 in line with the guidance provided R million NII H1 2020 H1 growth H2 2020 H2 growth FY 2020 FY 2020 growth 2020 guidance 14 969 1% 15 112 (2%) 30 081 (0%) (5%) 0% Impairments (7 675) 202% (5 452) 52% (13 127) 114% Credit loss ratio (bps) 187 134 161 150 NIR Expenses 12 220 (5%) 11 920 (9%) 24 140 (7%) (11%) (15 391) (1%) (16 381) (1%) (31 772) (1%) (4%) 185 (7%) (1%) Net monetary loss (47) (158) (205) (31%) Associate income 98 (77%) 354 (5%) 452 (43%) Direct tax (928) (58%) (1 066) (38%) (1 994) (49%) Headline earnings 2 114 (69%) 3 326 (41%) 5 440 (57%) DHEPS 434 (69%) 679 (41%) 1 113 (57%) Note: Only key lines of the income statement shown. NEDBANK GROUP LIMITED – Annual Results 2020 HEPS: -55 to -60% DHEPS > 20% down 47 Gross advances -2% ‒ divergent H1 vs H2 dynamics between retail & wholesale loan growth CIB & RBB gross banking advances1 (Rbn) 400 350 300 250 +12% +3% +3% (8%) Jun 19 Dec 19 Jun 20 I B C B B R Dec 20 Dec 19 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20 CIB (excl trading advances) RBB 1 Loans & advances restated to include listed corporate bonds to align with industry practice. NEDBANK GROUP LIMITED – Annual Results 2020 48 25 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020CIB banking advances – a tale of two halves: client drawdowns on committed facilities in H1 vs repayments & RWA optimisation in H2 Quarterly advances movements (Rbn) ▪ New loans – modest demand in Q1, with lockdown severely impacting Q2/Q3. Slight increase in demand from Q4 ▪ Existing balances – driven by clients’ search for liquidity in Q1/Q2 & committed structured drawdowns during Q3/Q4 ▪ Repayments – need for liquidity reduced ▪ RWA optimisation/sale of assets – optimisation efforts focused on capital preservation ▪ Fx – currency devaluation beneficial in Q1, with slight negative impact as the rand strengthened in H2 Q1 2020 Q2 2020 Q3 2020 Q4 2020 New loans Increase in existing balance Repayments & settlements Fx translation Optimisation NEDBANK GROUP LIMITED – Annual Results 2020 49 Business Banking & Small Business Services – SBS recovery in Q3 & Q4 while BB remains muted BOOKLET SLIDE Business Banking Small Business Services Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2020 Q2 2020 Q3 2020 Q4 2020 New loans Increase in Existing Balances Repayments and Settlements 100% 38% 64% 75% 92% 99% 113% 126% 123% 106% ▪ New loan payouts on term-based lending reduced in Q2 during level five lockdown, but overdraft-related payouts were strong as we supported our clients with funding during the crisis ▪ Advances reduced by 3% as new-loan payouts remained muted in Q3 & Q4 given the lower business activity levels ▪ New-loan payouts in Q2 were significantly negatively impacted during level five lockdown ▪ A strong recovery in Q3 & Q4 contributed to overall SBS advance growth of 5% NEDBANK GROUP LIMITED – Annual Results 2020 50 26 NOTES:NOTES:Nedbank Group Annual Results 2020Retail loan application volumes – initially impacted by the lockdown but strong demand in H2 on the back of 300 bps lower interest rates Home loan applications Vehicle finance applications 100% 30% 69% 131% 52% 146% 149% 152% 133% 100% 100% 17% 80% 126% 135% 131% 136% 146% 181% 96% Ave 2019 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec Personal loan applications Card applications 100% 38% 64% 75% 92% 99% 113% 126% 123% 106% Ave 2019 100% 50% 66% 83% 87% 98% 114% 124% 126% 98% Ave 2019 Ave 2019 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec NEDBANK GROUP LIMITED – Annual Results 2020 Indicators March 2020 < 50% < 80% < 100% ≥ 100% > 120% of March 2020 levels 51 Gross banking advances -2% BOOKLET SLIDE Gross banking advances (Rbn) Wholesale Retail H1 growth: Growth: +9% +6% +6% (12%) +67% +84% (71%) (44%) +3% +4% +1% +4% +6% +8% (13%) (2%) 1 9 1 5 7 1 1 4 2 4 9 6 1 5 3 1 7 2 7 1 Commercial property 1 Term loans Loans to banks Other loans Home loans Vehicle finance Personal loans Card Jun 2020 1 Term loans include a reclassification of some investment banking loans from other loans. | Restated CIB loans & advances to include listed corporate bonds to align with industry practice. Dec 2019 Dec 2020 NEDBANK GROUP LIMITED – Annual Results 2020 52 27 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020 Deposits +6% – driven by clients’ short-term operational cash requirements, higher levels of savings & decrease in demand for term deposits Deposits (Rbn) H1 growth: Growth: +14% (2%) +8% +17% +23% +31% +4% (5%) (4%) (18%) 12 (3) (14) (5) ▪ CASA & cash management – increased as clients built up their short-term cash surpluses, rolling maturing term deposits into the short end ▪ Call, term & fixed deposits – clients opted to keep their cash short due to the uncertain economic environment ▪ NCDs & other term deposits – clients opted to invest in higher-yielding government bonds coupled with a decrease in repos included in other deposits 60 904 Dec 2019 CASA & cash man Call & term Fixed NCDs & other Foreign currency ▪ ▪ 954 Dec 2020 Foreign currency deposits – repayment of foreign borrowings Loan-to-deposit ratio improved to 88% (Dec 2019: 91%) NEDBANK GROUP LIMITED – Annual Results 2020 53 Net interest income: -0,3% ‒ slow AIEBA growth & a resilient NIM in H2 resulted in decreased NII at the top end of guidance [0% to down 5%] Net interest margin (bps) (17) (4) (1) 5 (2) 2 (2) (7) 16 (6) 352 Dec 2019 Endowment impact Liability pricing Asset pricing HQLA Other 333 Jun 2020 326 320 320 336 336 Endowment impact Liability pricing Asset pricing HQLA Other 336 Dec 2020 Average interest-earning banking assets: +4,4%; Average interest-earning banking assets: +0.8% NII sensitivity for 1% change in interest rates R1,3bn NEDBANK GROUP LIMITED – Annual Results 2020 54 28 NOTES:NOTES:Nedbank Group Annual Results 2020NIR growth down 7% – despite impact of weak transactional client activity & negative private-equity revaluations, NIR growth at the top end of guidance [-7% to -11%] NIR (Rm) H1 growth: Growth: (9%) (9%) +44% (8%) >(100%) > 100% +16% (12%) >(100%) > 100% ▪ Commission & fees – subdued client transactional activity, particularly during the lockdown in Q2 & yoy impact in H2 7 3 1 7 1 2 5 2 5 2 2 6 1 ) 8 3 0 1 ( 2 5 3 5 1 8 Commission & fees Trading income Insurance income Private equity Fair value Other¹ 1 Represents sundry income & investment income. NEDBANK GROUP LIMITED – Annual Results 2020 ▪ ▪ ▪ ▪ Trading – strong performance driven by volatile markets & increased client activity Insurance – impacted by higher retrenchment/loss-of-income claims & funeral claims, offset by better HOC claims Private equity – reflective of impact of negative revaluations (impact slowed in H2) Fair value – gains as a result of the group’s fair-value hedge accounting solution, which reduced compared to H1, as expected 55 RBB – recovery in transactional activity in H2 & greater levels of cross-sell on new loans support growth for 2021 Branch teller transactions POS volumes Cross-sell ratio2 100% 39% 59% 65% 72% 74% 78% 83% 77% 84% Ave 2019 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec ATM withdrawals Digital payment & transfers1 100% 59% 87% 92% 99% 101% 98% 111% 103% Ave 119% 2019 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2 3 8 Ave 2019 Ave 2019 250 4 4 5 1 N/A FY 18 2 , 1 FY 19 8 , 1 H1 20 9 , 1 FY 20 Retail main-banked clients3 (# m) 8 9 . 2 4 4 5 1 FY 18 5 9 . 2 FY 19 5 6 . 2 H1 20 1 App & web payment volumes combined. | 2 Cross-sell on new sales in branches (Core Plus). | 3 FY 20 Main-banked represents updated segmentation, digital transaction enhancements eg inclusion of MobiMoney & main-banked stabilisation. NEDBANK GROUP LIMITED – Annual Results 2020 Indicators March 2020 < 50% < 80% < 100% ≥ 100% > 120% of March 2020 levels 4 9 . 2 FY 20 56 29 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020 RBB – strong main-banked client growth in H2 as transactional activity returned BOOKLET SLIDE Retail client base breakdown (# million) FY 19 H1 20 H1 20 % growth on H1 7,5 7,3 7,3 5,9 5,7 5,4 Consulta3 main-banked market share Change 2020 vs 2019 & rank +4,0% #1 Capitec #5 +0,0% Nedbank #4 (0,6%) Standard #3 (1,3%) Absa FNB #2 (2,1%) Other banks +0,0% +11% +7% +20% 2,9 2,9 2,7 2,1 2,0 2,2 1,8 1,9 2,2 Total retail clients Transactional clients1 Main-banked clients Consistently main- banked clients2 Digitally active clients 1 Clients with a transactional product. | 2 Main-banked for each of the past 12 months. | Definition of main-banked clients: Youth & ELB ≥ 3 debits, 1 credit | Middle market ≥ 6 debits, 1 credit | Professionals ≥ 12 debits, 1 credit | SBS ≥ 25 debits | All over 3-month period. | 3 Consulta survey 2020. NEDBANK GROUP LIMITED – Annual Results 2020 57 Main-banked clients – ELB, youth & SME segments impacted by slowdown in transactional activity from lockdown, but recovery in H2 BOOKLET SLIDE Main-banked, # 000 Main-banked, # 000 h t u o y & s d K i l e v e l y r t n E l e d d M i (20%) +55% 336 268 416 (13%) +3% 1 495 1 302 1 345 (1%) +6% 884 873 924 l i a n o s s e f o r P s s e n s u B i l l a m S i s e c v r e S s s e n s u B i i 2 g n k n a B (2%) +11% 84 82 92 (6%) +19% 130 122 145 (3%) +1% 14.7 14.3 14.6 19 H1 20 20 19 H1 20 20 1 FY 20 showing updated segmentation, digital transaction enhancements eg inclusion of MobiMoney, USSD transactions & main-banked stabilisation assumptions – applicable to all segments except BB. | 2 Client groups with gross operating income contributions in excess of R500 pm. | Note: Non-resident, non-individual segment not shown. NEDBANK GROUP LIMITED – Annual Results 2020 58 30 NOTES:NOTES:Nedbank Group Annual Results 2020 Trading income – benefited from volatile market conditions Private equity – impacted by negative revaluations Trading income (Rm) Lower levels of volatility & compressed global yield curves in H2 3 129 Private-equity income (Rm) 2 174 2 350 2 123 293 H1 19 H2 19 H1 20 H2 20 H1 19 H2 19 (31) (765) H1 20 (273) H2 20 Commodities & equities Debt securities Foreign exchange Realised gains, dividends, etc Unrealised losses Investment over last few years in market-leading capabilities supported good outcomes: ▪ Equities – increased volatility & good client activity ▪ Debt securities – strong results in fixed income & hedging activity ▪ Fx – uptick in Fx derivatives client flow NEDBANK GROUP LIMITED – Annual Results 2020 ▪ IB – negative equity revaluations impacted by weakened client profitability & lower listed market prices ▪ CPF – declines driven by negative equity revaluations, mezz loan impairments & equity valuation overlays created to reflect the expected reduction in valuations over time Insurance – higher retrenchment/loss-of-income & funeral claims Retrenchment/Loss-of-income claims (volumes) Funeral claims (volumes) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 20 19 20 19 ▪ Provided clients, who have a Nedbank unsecured loan, the opportunity to apply for debt relief & claim for credit life protection through loss-of-income claims NEDBANK GROUP LIMITED – Annual Results 2020 ▪ Increase in funeral claims, in comparison to 2019, as a result of the severe impact of the Covid-19 pandemic on clients 59 60 31 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Asset Management – strong growth in AUM & increased market share Assets under Management (Rbn) Market share (%) 375 331 312 297 167 273 126 190 151 112 11 12 13 14 15 16 17 18 19 20 11 12 13 14 15 16 17 18 19 20 Local International International Cash SA (excl MMF) NEDBANK GROUP LIMITED – Annual Results 2020 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 61 Impairments up 114% – driven by stage 2 & 3 impairment increases Impairment charge (bps) +114% H1 +202% 7 675 14 13 127 3 687 1 751 6 129 5 784 983 908 Dec 2019 Stage 1 Stage 2 Stage 3 Jun 2020 Stage 1 Stage 2 Stage 3 Dec 2020 Note: Stage 1 includes off-balance-sheet movements. NEDBANK GROUP LIMITED – Annual Results 2020 62 32 NOTES:NOTES:Nedbank Group Annual Results 2020Credit loss ratio at 161 bps – improvement from H1 levels, slightly higher than GFC levels & within guidance range [150 bps to 185 bps] CLR (bps) 2 5 1 9 7 7 8 1 1 6 1 3 4 5 2 8 1 1 2 8 6 5 2 8 3 1 9 6 2 0 4 2 8 1 7 4 0 5 4 6 6 5 1 0 1 0 1 2 5 8 1 Group CIB RBB Wealth NAR GFC peak Dec 19 Jun 20 Dec 20 Given the restatement of loans & advances to include listed corporate bonds to align with industry practice, CLRs have also been restated for 2019, H1 2020 & 2020. This is only applicable to Group & CIB. The impact in 2020 was 6 bps lower CLR for Group & 3 bps lower CLR for CIB. NEDBANK GROUP LIMITED – Annual Results 2020 63 Expenses down by 1% – good cost management in response to slowing revenue growth, efficiencies & benefits from digitisation & outcome within guidance [-1% to -4%] Expenses (Rm) H1 growth: Growth: +7% +2% (59%) (32%) +17% +20% (7%) (9%) 1 4 7 1 0 3 8 5 Incentives (STI & LTI) Computer processing 5 1 1 9 Other 8 8 0 5 1 Staff packages & other ▪ Staff costs ‒ ASR +4,7% offset by 6,1% decline in headcount (mainly through natural attrition) ‒ Incentives down 32% ‒ Other: higher leave costs (R121m) & PRMA benefit in 2019 base (R354m) ▪ Computer processing – incl software amortisation +23% (2019: +22%) ▪ Other costs – down 9% (includes marketing, communication, travel, etc.) ▪ Covid-19-related costs – R81m (includes PPE, healthcare costs & consulting) ▪ TOM 1.0 – additional R675m in 2020 (R1,8bn cumulative benefits to end 2020) NEDBANK GROUP LIMITED – Annual Results 2020 64 33 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Optimisation of operations continue BOOKLET SLIDE Group employees (# of) SA outlets/branches (# of) Teller activity (# 000)2 (9%) 3 0 4 9 2 19 7 7 2 1 3 18 (4%) 4 2 3 8 2 20 4 0 6 18 9 8 5 19 9 4 5 20 (56%) 3 4 3 3 2 1 1 9 0 3 1 5 4 3 1 18 19 20 Branch floor space saved (‘000 m2)1 Corporate real estate floor space saved (‘000 m2) Cumulative TOM 1.0 benefits (Rbn) 33 18 42 19 57 20 25 18 54 19 69 20 7 . 0 18 1 . 1 19 8 . 1 20 1 Represents the total branch floor space we saved since 2014 equating to approximately 25% of our branch floor space in 2014 when we started the journey. | 2 Refers to the volume of interactions with tellers. NEDBANK GROUP LIMITED – Annual Results 2020 65 ETI carrying value – improved financial performance offset by once-off items BOOKLET SLIDE Carrying value drivers (Rbn) ) m R ( e m o c n i 608 668 2018 2019 (0.2) (178) 2020 0.6 (0.5) 0.4 (0.75) Value-in-use >R2,5bn 2.7 2.2 1.2 Carrying value Dec 2019 ETI 2018 restatement Associate income ETI Q3 goodwill impairment FCTR & other IAS 36 Impairment Carrying value Dec 2020 Market value Dec 2020 1 ETI accounted for one quarter in arrear. NEDBANK GROUP LIMITED – Annual Results 2020 66 i e t a c o s s A 34 NOTES:NOTES:Nedbank Group Annual Results 2020 Capital – CET1 improved from June 2020 driven by both supply (earnings/no dividend) & demand (RWA optimisation/low loan growth); & remains within board target & well above regulatory minimum level CET1 ratio (%) 0.3 (0.5) 0.2 (0.1) Board CET1 target2: 10,0 – 12,0% SARB PA minimum CET1: 7,5%1 R23bn surplus capital above regulatory minimum (0.8) 0.5 (0,2) (0.1) 0.1 11.5 Dec 2019 Profits 2019 final dividend FCTR ETI impairment RWA increase 10.6 Jun 2020 Profits FCTR ETI goodwill RWA decrease Capital adequacy ratios remain well above regulatory minima under various downside stress scenarios. 1 Excluding idiosyncratic buffers & including D-SIB of 50 bps. | 2 Nedbank’s internal board-approved target ranges have been revised to align with industry benchmarks & adjusted for the lower new regulatory minimum requirements as per the PA Directive 2/2020. NEDBANK GROUP LIMITED – Annual Results 2020 10.9 Dec 2020 67 Capital – particular focus on RWA optimisation in H2, following the increase in H1 driven by market & credit RWA increases BOOKLET SLIDE Risk-weighted assets (Rbn) RWA density: 55,0% 17.4 8.3 55,0% 54,9% (3.3) 4.4 0.1 (8.0) (0.7) 26.7 629 Dec 2019 Counter- party credit Credit Market Other RWA 678 Jun 2020 Counter- party credit Credit Market Other RWA 674 Dec 2020 NEDBANK GROUP LIMITED – Annual Results 2020 68 35 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Stress testing – Capital adequacy ratios remain well above regulatory minima under various downside stress scenarios BOOKLET SLIDE 5 0 -5 -10 10 8 6 4 2 0 GDP growth Credit growth 7.5 5 2.5 0 20 21 22 23 20 21 22 23 Average prime rate Average inflation 6 5 4 3 2 1 0 20 21 22 23 20 21 22 23 Base case Severe inflation scenario Severely adverse scenario Outcomes1 CET1 ratio 10% to 12% > 10% > 9,25% CLR ratio < 100 bps by 2022/3 < 170 bps < 200 bps NEDBANK GROUP LIMITED – Annual Results 2020 1 For 2021 to 2023 (based on macroeconomic scenarios completed in December 2020). 69 Headline earnings by cluster Headline earnings (Rm) H1 growth: Growth: (57%) (41%) (91%) (70%) (21%) (37%) >(100%) (97%) (44%) (3%) 7 6 1 6 6 3 6 3 3 9 2 5 5 9 5 1 2 4 0 1 2 6 6 7 5 4 2 1 CIB RBB Wealth Africa Regions Centre 2019 2020 ) 3 5 4 ( ) 5 6 4 ( NEDBANK GROUP LIMITED – Annual Results 2020 70 36 NOTES:NOTES:Nedbank Group Annual Results 2020NEDBANK CIB Crisis negatively impacted revenue growth & increased impairments Anél Bosman Group Managing Executive NEDBANK GROUP LIMITED – Annual Results 2020 71 Crisis negatively impacted revenue growth & increased impairments Headline earnings, ROE 12 000 10 000 8 000 6 000 4 000 2 000 - 17.7 7 6 1 6 19 (41%) 9.4 6 3 6 3 20 Headline earnings (Rm) ROE (%) 28.0 23.0 18.0 13.0 8.0 3.0 -2.0 ▪ NII decreased 1%: ─ average banking advances +6%: driven by clients search for liquidity in H1, however repayments & optimisation in H2 ─ expansion in client asset margins offset by impact of lower interest rates on endowment & cost of liquidity ▪ NIR decreased 12%: ─ strong trading performance +16%: driven by good client activity & increased volatility ─ negative equity revaluations & lower commission & fees ▪ Expenses decreased 3%: good cost containment ▪ CLR at 82 bps (2019: 25 bps): increased additional provisions & client stresses NEDBANK GROUP LIMITED – Annual Results 2020 72 37 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020CIB strategic growth focus – play our role in rebuilding SA & diversify into Africa Build SA A sector-led approach… ▪ Sustainable financing solutions and contributing to the UN SDG’s remains a core focus of our strategy ▪ Support government’s infrastructure investment programme as part of South Africa’s Economic Reconstruction and Recovery Plan ▪ Nedbank well positioned to contribute & participate given market leadership in renewable energy financing ▪ Employ innovative solutions to play our part in creating a more prosperous & inclusive SA economy Africa ▪ CIB currently financing deals in 20 countries ▪ Leverage our strong relationships, proven track record and deep industry knowledge to provide bespoke banking solutions in commercial property ▪ Deliver through a coordinated approach with NAR – entrench our capabilities & products Franchise approach underpinned by sector expertise & informed by enhanced analytics Consumer Goods Financial Institutions Retail ICT Automotives TFL Healthcare Travel & Leisure Public Sector PE/BEE Portfolio TFL (SOEs) Energy & Water Construction Mining & Chemicals Real Estate Diversified Industrials NEDBANK GROUP LIMITED – Annual Results 2020 73 CIB strategic growth focus – enabled by digital, optimisation & our people Digital Optimisation People ▪ Empower our clients – created a ▪ Optimise capital – active ▪ Attracting skills – strong single channel, the Nedbank Business Hub, using User Experience design principles & client involvement ▪ Superior service – digitising pre- sales and post-sales fulfilment & servicing processes ▪ Deepen relationships – build holistic client insights by leveraging data & CRM management of scarce resources to maximise returns (+R60bn RWA savings in 2020) franchise has enabled us to attract key skills across the organisation in recent years ▪ Transition our portfolio to reflect our client strategies, improve crosssell & optimise ROE ▪ Culture – ongoing improvement to manage hybrid, digitally-enabled & high-performing workforce ▪ Optimise resourcing and improve flow of work to create value for clients ▪ Diversity & inclusion remains central to the People strategy Eclipse Juristic servicing & onboarding NEDBANK GROUP LIMITED – Annual Results 2020 74 38 NOTES:NOTES:Nedbank Group Annual Results 2020 Excellent client solutions & service BOOKLET SLIDE Top Analyst Awards Top Analyst Awards Global Finance 2020 Global Investor Survey: top rated by our clients 2020 Winner: 1st place , technical analysis Neels Heyneke 2020 Rankings: 1 2nd place 3 3rd place 4 other top 6 2020 Ranking: 1st place for Investment Advisor for BEE deals by value and volume 2021 Global Finance Investment Bank Awards: Best Debt Bank: Africa Top Analyst Awards 2020 Winner: Energy Deal of the Year 2020 Winner: 1st place, diversified industrials Munira Kharva Impact Awards 2020 Winner: Impact initiative of the year – Africa 2020 Ranking: 3rd place for Investment Advisors in GCF by deal flow Top Analyst Awards Top Analyst Awards 2020 Winner: 1st place, Young analyst – non equities Reezwana Sumad 2020 Winner: 1st place, fixed income trading Mark Southwood *2020 Spire awards delayed into 2021 NEDBANK GROUP LIMITED – Annual Results 2020 2020 Winner: SA’s best sub- custodian bank for the 11th consecutive year 2020 Ranking: 4th place for GCF Sponsor by deal flow Global Finance 2021 Global Finance Investment Bank Awards: Best Investment Bank: South Africa BBlloooommbbeerrgg DCM Rankings 2020: 2nd place by value and volume (incl and excl self-led) 75 Reimagine CIB A powerful wholesale business focused on our clients Leverage strengths 2021 drivers Markets Best-in-class teams Property Finance Market leader Investment Banking Transactional Services ▪ Capital optimisation continues Advisory led & sector expertise Disruptive thinking & technology solutions Strategic focus Build SA/ Africa Digital Optimisation People ▪ NIR – high base in trading but expect other revenue benefits from economic recovery ▪ Advances growth – robust pipeline with selective origination ▪ CLR – improvement off a high base (CPF likely to remain elevated) NEDBANK GROUP LIMITED – Annual Results 2020 76 39 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020NEDBANK RBB Improvement in performance in H2 after a difficult H1 Ciko Thomas Group Managing Executive NEDBANK GROUP LIMITED – Annual Results 2020 77 Improvement in performance in H2 after a difficult H1 Headline earnings, ROE 7 200 6 000 4 800 3 600 2 400 1 200 - 17.3 3 9 2 5 19 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 - NII – decreased 1% ─ muted advances & deposit growth with some pick up in H2 ─ impact of lower interest rates, partially offset by better pricing ▪ NIR – decreased 11%: lower client transactional volumes in lockdown ▪ Expenses – decreased 1%: ongoing benefit from optimising processes & operations ▪ CLR at 240 bps (2019: 138 bps): driven by additional overlays & increased defaults (70%) 5.4 5 9 5 1 20 Headline earnings (Rm) ROE (%) NEDBANK GROUP LIMITED – Annual Results 2020 78 40 NOTES:NOTES:Nedbank Group Annual Results 2020Reimagine – Digital First, First in Digital Personal Loans – our first fully digitised client journey/product now delivering tangible benefits Channels Digital sales Credit Channels (% of total) Personal Loans market share (%) Cross-sell PL paid into a Nedbank Tx account Existing Nedbank clients (out of 10) 78% 17% 5% Q1 19 Physical 56% Call centre Digital 19% 24% Q4 20 Nedbank API 10.2% 11.2% 5 7 Dec 19 Dec 20 Q1 19 Q4 20 Client satisfaction score (SA-csi) Loan approval & disbursal rates (%) New to Nedbank clients (out of 10) Rank: #3 75.8 #1 79.6 2018 2020 +400% 4 1 19 20 Approval rates Disbursal rates Q1 19 Q4 20 #3 #9 Q1 19 Q4 20 NEDBANK GROUP LIMITED – Annual Results 2020 79 Reimagine – Efficient & client-centred operating model Channel infrastructure transformation to reflect a digital operating model Client-centred organisation that enables focused optimisation Diversified distribution formats Megastore Branch, Nedbank Express Branch, Easy Access Branch Strengthen focus on segment value delivery eg client segment, product Express branch Nedbank-owned distribution Partner distribution Touchpoint cohesion (better client interaction) Flexible workforce In-store (fixed), in/out store staff (flexi) & community activators (mobile force) underpinned by Bank-owned devices (ATMs, ID, SSK, lockers), digital channels (App, web, USSD) & contact centre Consolidation of operations (client servicing, product admin & risk – credit/ops) Megastore branch NEDBANK GROUP LIMITED – Annual Results 2020 e u a v l t n e i l C e u n e v e R s e s n e p x E l a n o i t a r e p O l y t i x e p m o c 80 41 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020 Reimagine – Growth vectors Market development Diversification API Marketplace Township Economy AVO Market penetration Product development Commercialisation of data Value-added services Cross-sell – increasing our share of wallet Partnerships & collaborations Converging our digital platforms for scale Insurance l t n e m p o e v e d t e k r a M w e N g n i i t s x E Existing Products & services New NEDBANK GROUP LIMITED – Annual Results 2020 81 Reimagine RBB Building sustainable, profitable businesses through the cycle Leverage strengths Consumer client-centred model delivering market-leading experiences Retail Relationship Banking personalised, flexible & proactive approach Business Banking accountable, empowered, decentralised business service model Strategic focus Digital First, First in Digital Leading client Efficient operating New Growth Vectors experiences model 2021 drivers ▪ Momentum in advances growth continues ▪ Recovery in CLR off high base ▪ Diversify NIR- generating products given significant impact of Covid-19 & lockdown ▪ Expense optimisation continues NEDBANK GROUP LIMITED – Annual Results 2020 82 42 NOTES:NOTES:Nedbank Group Annual Results 2020 NEDBANK WEALTH Resilient performance despite operating environment Iolanda Ruggiero Group Managing Executive NEDBANK GROUP LIMITED – Annual Results 2020 83 Resilient performance despite operating environment Headline earnings, ROE 15,3 (37%) 2001 1501 1001 501 1 24,8 2 4 0 1 19 2 6 6 20 ROE (%) Headline Earnings NEDBANK GROUP LIMITED – Annual Results 2020 32.0 27.0 22.0 17.0 12.0 7.0 2.0 -3.0 ▪ ROE above cost of equity ▪ NII – decreased 22%: reduced interest rates both locally & internationally ▪ NIR – decreased 4%: higher credit life & funeral claims, impact of reduced interest rates on actuarial reserves & lower investment returns on shareholder funds in Insurance, offset by higher asset management fees ▪ Expenses – decreased 2%: costs well-contained ▪ CLR – increased 46 bps to 64 bps: significant growth in credit impairments due to the tough local economic environment & Covid-19 related risks 84 43 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Resilient performance despite operating environment BOOKLET SLIDE Headline earnings per division (Rm) (92%) +7% (36%) 2 5 2 0 2 9 1 3 1 4 3 1 7 4 1 0 3 Wealth Management Asset Management Insurance 19 20 NEDBANK GROUP LIMITED – Annual Results 2020 Wealth Management ▪ Significant increase in credit impairments locally ▪ Lower interest rates locally & internationally ▪ Growth in brokerage income (locally) & Fx income (internationally) Asset Management ▪ Positive net flows ▪ Strong AUM growth ▪ Shift to lower-risk asset classes Insurance ▪ Higher credit life & funeral claims ▪ Negative impact of reduced interest rates on actuarial reserves and lower investment returns on shareholder funds ▪ Improved non-life claims experience 85 Reimagine – Nedbank Wealth growth vectors Wealth Management Asset Management Insurance South Africa ▪ Position integrated offering ▪ Active cross-selling & CVP positioning into wider Nedbank Group ▪ Drive Digital enablement International ▪ Further establish the Nedbank Private Wealth International business as a high-net-worth advice- led business ▪ Maintain momentum in cash & passive income ▪ Grow institutional offering both locally & internationally ▪ Leverage access to group distribution & digital integration ▪ Drive the execution of key strategic initiatives, such as Personal Lines ▪ Improve data capabilities ▪ Accelerate mobile & digital delivery ▪ Commercialisation of existing assets RE-IMAGINE NEDBANK GROUP LIMITED – Annual Results 2020 86 44 NOTES:NOTES:Nedbank Group Annual Results 2020 Reimagine Nedbank Wealth Delivering client-driven solutions Leverage strengths Wealth Management Asset Management Insurance Holistic & integrated HNW offering Best of Breed™ exclusivity Fully comprehensive Personal Lines solution Single-investment platform 100% digital client engagement Digital integration into Nedbank assets Optimise structure & operations Grow new clients Strategic focus areas Deliver long-term performance Expand mobile & digital platforms Provide simple, easy & secure client solutions Leverage data capabilities 2021 drivers Wealth Management ▪ Lower credit impairments off a high base locally ▪ Upsell & cross-sell ▪ initiatives Internationally still impacted by record-low interest rates Asset Management ▪ Growth in market share ▪ Cost efficiencies from automation Insurance ▪ Increased penetration into the Nedbank Group ▪ Normalised claims trends NEDBANK GROUP LIMITED – Annual Results 2020 87 NEDBANK AFRICA REGIONS SADC – lower revenues & increased impairments ETI – resilient performance offset by Ecobank Nigeria (ENG) Terence G. Sibiya Group Managing Executive NEDBANK GROUP LIMITED – Annual Results 2020 88 45 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020NAR – resilient business tested by the pandemic Headline earnings, ROE SADC 7.7 457 FY 19 ▪ HE of (R141m), down by >100% from: - Lower revenues & higher impairments from Covid-19 economic impact - Net monetary loss (HE R89m) as hyper- inflationary pressure persists in Zimbabwe ▪ Costs down by 5% due to continued efforts in streamlining operating model and increasing efficiency ETI (Ecobank Transnational Incorporated) ▪ HE of R153m, down 65% due to: - Strong performance in West African regions - Offset by 2018 interest reversal related to (97%) 0.2 12 FY 20 Headline earnings (Rm) ROE (%) Nigeria NEDBANK GROUP LIMITED – Annual Results 2020 89 Reimagine – key strategic growth drivers Greater earnings contribution to the group over the long term from faster growth in economies in the rest of Africa & geographic diversification benefits SADC – managed operations ETI – strategic alliance ▪ Digital enhancements to meet rapidly changing client ▪ Continued support in behaviour ▪ Increased stake in Banco Único & well positioned for future opportunities in Mozambique ▪ Managed operations portfolio optimisation for greater Private banking: Diamond Arrow Award (Namibia) focus (ie sale of Malawi – small market share in a small market) ▪ Zimbabwe business ongoing reconfiguration the capacity as shareholder ▪ Strong West & Central Africa franchise: Top 3 in 13 of 16 countries NEDBANK GROUP LIMITED – Annual Results 2020 90 46 NOTES:NOTES:Nedbank Group Annual Results 2020Reimagine Nedbank Africa Regions Leveraging enterprise capabilities to unlock opportunities Strengths SADC – manage, own & control banks ▪ Strong wholesale client service model ▪ Advantageous brand sentiment ▪ Strong credit risk management West & Central Africa – ETI ▪ Widest Pan African network ▪ LocalknowledgeAfricaTM Strategic focus areas ▪ Digital enhancements ▪ Business transformation: Improved efficiency & achieving scale ▪ Mozambique integration & growth ▪ Zimbabwe business reconfiguration ▪ Drive strategic agenda ▪ Commercialise collaboration & increase deal flows 2021 drivers SADC ▪ Maximise Mozambique growth opportunities ▪ Reimagined business & operating model ETI ▪ ETI prospects more positive as evident in FY 2020 results ▪ Resolution of Ecobank Nigeria challenges to unlock value NEDBANK GROUP LIMITED – Annual Results 2020 91 OUTLOOK A resilient performance & good strategic progress in a difficult 2020 set the base for stronger growth in the period ahead & delivery of revised medium term targets that support shareholder value creation Mike Brown Chief Executive NEDBANK GROUP LIMITED – Annual Results 2020 92 47 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Economic recovery – Nedbank forecasts Base case: Feb 2021 SA GDP growth scenarios (%) 202 20 21 22 23 24 5.0 SA GDP growth (7,0%) (7,0%) 3,4% 2,2% 1,8% 1,5% YE prime interest rate 7,0% 7,0% 7,0% 7,5% 7,5% 7,5% 2.5 Inflation (CPI) 3,3% 3,3% 4,2% 4,6% 4,3% 4,2% Industry credit growth SA fiscal deficit % of GPD1 SA gov debt % of GDP1 2,5% 1,2% 4,5% 5,7% 5,1% 5,2% (6,3%) (6,4%) (14,2%) (10,6%) (9,8%) (9,7%) 63,5% 63,3% 81,5% 84,9% 89,7% 94,1% 0.0 -2.5 21 22 23 Base case (Jul 2020) Mild stress Positive outcome Base case (Feb 2021) Adverse stress Source: Nedbank Group Economic Unit. | 1 Year ending March. | 2 Nedbank Group Economic Unit forecasts in July 2020 (as part of H1 2020 results). NEDBANK GROUP LIMITED – Annual Results 2020 93 Banks are highly integrated in the economies where they operate – SA GDP only forecast to get back to 2019 levels by late 2023/early 2024 Real SA GDP1 (R trillion) SA Bank HE2 (Rbn) 3.2 3.0 2.8 2.6 2.4 100 80 60 40 20 0 s t s a c e r o f s u s n e s n o c o N t e y 4 2 / 3 2 0 2 r o f 06 08 10 12 14 16 18 20F 22F 24F 1 Nedbank Group Economic Unit. | 2 IRESS combined forecasts for ABG, CPI, FSR, NED & SBK (5 March 2021). NEDBANK GROUP LIMITED – Annual Results 2020 94 48 NOTES:NOTES:Nedbank Group Annual Results 2020 Revised targets for the medium-term that support shareholder value creation Diluted HEPS (cents) Return on equity (%) Cost-to-income ratio (%) Net promoter score (NPS) Greater than the 2019 level by 2023 (2019: 2 565 cents) Greater than the 2019 level by 2023 (2019: 15,0%) 54% by 2023 (2019: 56,5%) #1 SA bank by 2023 (2019: #3/ 2020: #2) Less than Supported by the CLR getting back into the TTC range of 60 to 100 bps & meeting our cost-to- income target & delivering on SPT 2.0 & TOM 2.0 (cumulative R2,5bn benefits over 3 years) CET1 ratio to remain within the board-approved TTC target range of 10% to 12% & well above regulatory levels & dividend payments expected to resume for 2021 interim results Focus on areas that create value (SPT 2.0), ongoing investment in the franchise, efficient execution & cost optimisation (TOM 2.0) & digital leadership Market-leading client solutions, disruptive market activities & leading sustainably/creating positive impact (caring for staff, clients, society & the environment) NEDBANK GROUP LIMITED – Annual Results 2020 95 2021 full-year financial guidance based on February 2021 macroeconomic forecasts 2020 Performance 2021 guidance range1 Key drivers NII growth (0%) 0% to 3% CLR 161 bps 110 to 130 bps NIR growth (7%) 5% to 9% Expense growth (1%) 7% to 9% ▪ Advances growth to recover off a low base – RBB momentum continues & CIB return to growth, albeit at low levels ▪ NIM drivers: interest rates flat in 2021 at 7,0% (run rate impact continues from 2020) & better asset pricing ▪ Ongoing retail & corporate CLR improvement into 2021, but risks from the pace of economic recovery remain ▪ Client transactional volumes improve (aligned to economic activity) & benefits from strategic actions eg cross-sell ▪ High base for trading income vs low base for private-equity in 2020 ▪ Impact of new costs (DIS, Twin Peaks) & some discretionary costs returning (eg YES, Sponsorships, marketing etc). Cost control remains a key focus ▪ Earnings recovery in 2021 & dividends to resume post 2021 Capital (CET1 ratio) 10,9% 10% to 12% interim results announcement ▪ RWA optimisation continues Liquidity (LCR & NSFR ratios) LCR: 126% NSFR: 113% Above regulatory minima DHEPS (57%) Increase > 20% Dividends NEDBANK GROUP LIMITED – Annual Results 2020 No dividend declared Resume paying from H1 2021 interim results ▪ PA G3/2021 – the board will apply its mind but plan to resume dividend payments when reporting interim results in 2021 96 49 NOTES:NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 2020Thoughts on the outlook for 2021 & beyond Although forecast risk remains high as the vaccine roll-out races the virus & variants thereof, our resilient performance in 2020 & good strategic progress position Nedbank well for higher levels of growth & returns 2020 2021 Reimagine ▪ Period of unprecedented health, economic & social challenges ▪ Supported all our stakeholders – Staff, clients & society ▪ Excellent outcomes on resilience metrics ▪ Improved financial performance in H2 ▪ Good progress as we ▪ Manage through additional waves of the pandemic ▪ Focus on our strategic growth drivers ▪ Create value for all our stakeholders ▪ Maintain focus on resilience metrics – strong balance sheet ▪ DHEPS growth > 20% ‒ Revenue recovery transitioned out of the crisis ‒ Ongoing improvement in CLR ▪ Strong digital progress ‒ Expenses normalising ▪ Deliver on our 2023 targets ‒ DHEPS > 2019 levels ‒ ROE > 2019 levels ‒ C:I < 54% ‒ # 1 in NPS ▪ Enabled by value unlocks ‒ Market-leading client solutions ‒ Disruptive market activities ‒ SPT 2.0 ‒ TOM 2.0 ‒ Leading sustainably Delivering on our purpose of using our financial expertise to do good for all our stakeholders has never been more important NEDBANK GROUP LIMITED – Annual Results 2020 97 Thank you NEDBANK GROUP LIMITED – Annual Results 2020 98 50 NOTES:NOTES:Nedbank Group Annual Results 2020Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as 'forward-looking statements' within the meaning of United States securities legislation. Forward-looking statements may be identified by words such as ‘believe’, 'estimate', 'intend', 'project', 'target', 'predict' and 'hope'. 'anticipate', 'expect', 'plan', Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group's future performance. No assurance can be given that forward-looking statements are correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation. Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings or profits, or consequential loss or damage. NEDBANK GROUP LIMITED – Annual Results 2020 99 51 NOTES:RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONRESULTS PRESENTATIONMESSAGE FROM OUR CHIEF EXECUTIVENedbank Group Annual Results 20202020 RESULTS COMMENTARY. 52 NEDBANK GROUP Annual Results 20202020 RESULTS COMMENTARY BANKING AND ECONOMIC ENVIRONMENT In 2020 the onset of the Covid-19 pandemic brought global economic activity to a near standstill as many countries imposed tight restrictions to curb the spread of the virus – a period aptly named the Great Lockdown Crisis (GLC). This tipped the world economy into a deep recession. The International Monetary Fund (IMF) projects a contraction of 3,5% in global GDP for 2020, which would have been far worse had it not been for the unprecedented global monetary and fiscal policy response. While many advanced countries continued to battle new waves of Covid-19 infections in the final quarter, resulting in tighter lockdown restrictions and softer economic activity, confidence nonetheless improved, boosted by the rapid development and production of effective vaccines. Equity markets rallied, with the US markets closing at record highs. The surge in risk appetite late in 2020 also boosted demand for emerging-market assets, which supported capital inflows, driving some recovery in emerging-market equities, bonds and currencies. The pandemic hit most emerging and developing countries particularly hard, aggravating deeply entrenched structural imbalances and adding to already high public debt burdens. The pandemic-induced recession had a material impact on tax revenues, and most governments increased health and other pandemic-related spending aggressively, resulting in large budget deficits and sharply higher public debt burdens. Economic activity in China rebounded strongly from the second quarter onwards as the country managed to contain the virus while rolling out a large fiscal stimulus package amplified by substantial liquidity injections and looser monetary policies. The Chinese economy expanded by 2,3% in 2020, making it the only country in the world to post growth in 2020, albeit its slowest rate of growth since 1976. The stronger-than-expected recovery in China, together with infrastructure investment programmes in many countries supported demand for and prices of commodities, providing some relief to many commodity-exporting emerging economies in the second half of the year, particularly in Latin America and sub-Saharan Africa. While Covid-19 infection rates have not been as high in sub-Saharan Africa as in many other regions, the collapse in global oil prices in the second quarter, restrictions on international trade and tourism, as well as strict lockdown measures in many African countries have caused substantial economic and fiscal damage. The IMF projects that the region’s GDP shrunk by 2,6% in 2020. In SA economic conditions also improved in the second half of the year, but the recovery was too muted to erase the damage done under the strict lockdown imposed in the second quarter. The economy shrunk by 7,0% in 2020. This followed several years of economic stagnation caused by widespread corruption, repeated power outages, the slow pace of structural reforms, widening fiscal deficits and mounting public debt. Against this already bleak background, the negative impact of the pandemic and lockdown on SA’s growth prospects and debt level resulted in both Moody’s and Fitch downgrading the country's sovereign credit ratings in April. With all three major global rating agencies now considering SA's sovereign debt as subinvestment grade, foreign capital inflows dried up, debt and equity markets experienced extreme volatility, and the rand depreciated sharply. The South African Reserve Bank acted quickly to adopt extraordinary measures to stabilise markets. These measures included increasing liquidity provision to the banking sector through the repo mechanism, limited purchases of government debt in the secondary market and cutting policy rates by a dramatic 300 basis points, taking the prime rate to a 55-year low. These measures were successful in supporting market liquidity and restoring stability. The government also responded with a R500bn fiscal relief package consisting of extensions to social grants, UIF payments, a loan guarantee scheme and tax deferrals. As a result of this environment, government’s finances deteriorated even further. National Treasury expects the budget deficit to have hit 14% of GDP in 2020, up from an already problematic 6,4% in 2019. Government projects its gross debt burden to peak at 88,9% in 2025/26, with debt service costs anticipated to remain the fastest-growing expenditure item in the budget over the years to come, increasingly crowding out other urgent spending priorities. While this outcome is better than what was expected in the MTBS, the weak fiscal metrics will continue to undermine domestic growth prospects and further deterioration in the country’s ratings remains a risk. This will weigh on confidence, raise hurdle rates for new private sector investments and increasingly crowd out the private sector from the capital markets. Consumer finances and spending also improved in the second half of 2020. Data on high-frequency industry turnover from our point-of-sale (POS) devices and digital channels highlighted surprising resilience, with sales picking up noticeably from August, after sharp declines in April and May were registered. Industries that held up well during the year include telecommunications, healthcare and grocery retail and wholesale stores. Airlines, entertainment, hotels and restaurants were affected most adversely, with sales still well below 2019 levels. The recovery in fixed-investment activity has been much less compelling, even though the rebound in global trade, led by China, supported relatively robust recoveries in the mining and manufacturing sector. Fixed-investment activity is set to contract by a historic 18,2% in 2020. Inflation ended 2020 at a subdued 3,1%, kept in check by lower global oil prices, modest increases in local food prices and weak domestic demand. The year 2020 was a volatile and difficult year for the South African banking sector as it navigated the various lockdown levels, resulting in lower client activity and significantly higher credit risk. Increased market volatility boosted trading activities, which to some degree offset a slowdown in corporate dealflow across various sectors. Impairments rose significantly as a result of the difficult operating environment for our clients and due to the frontloading of forward-looking IFRS 9 portfolio impairments. Despite these challenges, the banking sector demonstrated strong levels of resilience and was able to support clients while remaining well capitalised, liquid and profitable, albeit at levels lower than in the prior year. 53 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020While South African sovereign finances entered the GLC in a much worse economic shape than they did the Global Financial Crisis (GFC), the banking system entered this crisis in a stronger position, with higher levels of capital and surplus liquidity (largely as a result of Basel III). Overall credit growth in the recent pre-GLC period (5% to 7%) has been slower than it was in the pre-GFC period (more than 20%). Impairments during the GLC are higher when compared with GFC impairment levels, in part due to the frontloading of impairments under forward-looking IFRS 9 macro-factor models (faster impairment recognition), which is materially different from the previous IAS 39 accounting requirements (slower impairment recognition) for incurred losses used during the GFC. While the GFC was a financial crisis, triggered by credit overextension (particularly in US residential mortgage loans) and high levels of gearing, rippling through global financial markets and translating into an economic recession, this is a health crisis that has morphed into an economic crisis as a result of the lockdown and poses significant social challenges such as higher levels of inequality and unemployment. Group strategy The impact of the Covid-19 pandemic has resulted in a tilt in our strategic focus since the lockdown started at the end of March 2020. Initially, our focus was on ‘Resilience’, as we managed the group through the most restrictive phases of the lockdown and the extreme volatility experienced in financial markets. Our focus on ‘Transition’ continued thereafter as the strict lockdown at levels four and five eased and we reintegrated our full suite of financial services. As part of business planning in the latter part of the year our focus shifted to ‘Reimagine’, as we strategised to emerge stronger in a post-Covid-19 world and set revised medium-term targets for 2023. Resilience (Manage the crisis) – Our key focus throughout the pandemic has been on ensuring the health, safety and wellbeing of our stakeholders, including our employees and clients. We invoked business continuity plans (BCPs) and enabled remote working across the enterprise as we continued to deliver essential banking services. Additionally, we focused on ensuring our IT systems were stable and available, reviewed stress-testing scenarios and modelling of potential economic outcomes, educated clients and employees regarding digital solutions and capabilities available to them, provided debt relief to support qualifying clients, launched new digital solutions such as Avo (our repurposed platform solution for essential services) and enabled clients to transact through digital channels. From a financial perspective, our focus was on managing liquidity, capital, market, operational and credit risk, and at the same time managing discretionary costs, with less focus on profitability other than as an initial buffer against capital. Transition (Enable recovery) – From Q3 our focus shifted from managing the crisis to dealing with its implications and the reintegration of the business in a phased manner (in line with revisions to government lockdown levels). Our focus was on mitigating downside risk, providing ongoing support to clients, managing costs and continuing to deliver world-class client experiences while remaining alert to new waves of infections and market volatility. This held us in good stead as the second wave emerged in December 2020. Pleasingly, the focus on managing credit risk and discretionary costs, together with a macroeconomic recovery from the low Q2 2020 base, supported a stronger second-half financial performance. Reimagine (Strategise for value creation in a new environment) – The environment for our employees, clients and other stakeholders, as well as the world of financial services and banking, is likely to be materially different after the Covid-19 pandemic. As part of our business planning in H2 2020 we identified opportunities to create new revenue streams, enhance operations and optimise the structure of our businesses. Key value unlocks for the future include delivering market-leading client solutions, growing in value-creating areas (including in line with the Strategic Portfolio Tilt 2.0 as we leverage our balance sheet to grow transactional revenue and deposits while increasing cross-sell), continuing our disruptive market activities (underpinned by digital leadership), driving efficient execution (including in line with the Target Operating Model 2.0, through which we are optimising our branch infrastructure in the context of an increasingly digital world, shifting our RBB structure to be more client-centred, as well as optimising shared services across the group), and leading sustainably (caring for our employees, clients, society and the environment). These value unlocks support our revised medium-term targets, and by 2023 we aim to have achieved DHEPS greater than the 2019 level (2 565 cents), ROE greater than the 2019 levels (ROE 2019: 15,0%), a cost-to-income ratio lower than 54% (2019: 56,5%) and the number one ranking in the NPS (2019: 3), having improved to number two among all South African banks in 2020 in the recently released Consulta survey. Leveraging our strategic foundations Delivering on the Nedbank strategy over the past few years has positioned us well in building foundational enterprise capabilities that have been beneficial during the Covid-19 pandemic and will support delivery of our reimagined strategies. In 2020 our focus on delivering market-leading client solutions was evident in the rollout of new digital innovations and enhanced client satisfaction ratings. In particular, our technology investments with our Managed Evolution (ME) IT strategy and Digital Fast Lane (DFL) as key components have provided an enhanced digital platform to enable delivery of new digital products and services and faster product development, as well as support operating efficiencies. • Delivering innovative, market-leading client solutions » Eclipse: Our simplified digital client onboarding platform for individual clients continued to gather pace, enabling clients to open FICA-compliant accounts remotely through our employee-assisted and self-service channels. All new individual client applications, transactional products and personal-loan sales are now processed through Eclipse. In the period we also expanded digital product sales to include investments, cards and overdrafts. During the year a decision was made to pivot delivery of Everyday Banking solutions on Eclipse ahead of secured-lending products as we respond to a changing environment. The roll-out of home loans, vehicle finance, stockbroking, forex and student loans should be completed in 2021. Juristic client onboarding in RBB was rolled out, with 99% of all juristic onboarding done in December 2020 via Eclipse in RBB, while the CIB roll-out is progressing well. » Apps: The Money app, which makes banking more convenient for our retail clients, is now actively used by 1,2m clients, up by 42% from 2019. It continues to be rated highly on the Apple and Google app stores, with an average client rating of 4,4 (out of five). Transaction volumes on the app increased by 70% and transaction values increased by 53% when compared to 2019. The Nedbank Private Wealth app, which offers integrated local and international-banking capabilities, has been downloaded nearly 24 000 times and has an average rating of 4,5 on the Apple and Google app stores. » Avo: In response to the crisis, which created challenges for many clients in accessing essential services such as healthcare and home repair services, we launched our market-leading digital innovation Avo, which is a one-stop super app enabling clients to buy essential products and services online and have them delivered to their home, with payment via the Nedbank digital wallet. Since its launch in app stores on 19 June 2020 Avo has signed up more than 145 000 customers, along with over 5 000 businesses registering and offering their products and services on this e-commerce platform. 54 NEDBANK GROUP Annual Results 2020 » Tap on phone: We launched SA's first tap-on-phone functionality, enabling all merchants and business owners to convert their cellphones into payment acceptance devices to meet the needs of clients who are increasingly looking for contactless ways to pay. This tap-on-phone functionality is a first for Africa, and Nedbank is currently the only bank to offer this capability. » Loyalty and rewards: Our enhanced loyalty and rewards solution (a money management programme offering incentives for better money management and opportunities for doing good for society, as well as enabling clients to earn rewards) continued to gain traction. To date we have signed up more than one million Greenbacks members on the new platform and have so far acquired over 300 000 new members since launching the new programme in September 2019, an increase of 28%. » These initiatives helped us to increase the number of digitally active clients by 25% to 2,2m. • Operational efficiencies and optimisation » Cost discipline during the period increased as we actively managed discretionary spend and leveraged existing initiatives to optimise our cost base. These included the reduction of our core systems from 250 to 90 since the inception of the ME programme (a reduction of 27 since December 2019), and we are on track to reach our target of 60 to 75 core systems. The rationalisation, standardisation and simplification of our core banking operating systems led to reduced infrastructure, support and maintenance costs, less complexity and increased agility in adopting new innovations. Overall, investments in various foundational IT programmes are either complete or nearing completion, and we expect annual IT cashflow spend to remain flat or decline from here, after having peaked in 2019. Our ME programme has now reached 78% completion. » During 2020 additional self-service options, which were previously available in branches or through employee-assisted channels only, were released on our digital channels, taking the total digital self-service functions to 171 (compared with 114 in 2019). This digitisation of services in RBB, along with the impact of the lockdown, has enabled us to increase digital service volumes by 187% and reduce branch teller volumes by 42%. To date, branch floor space has decreased by almost 57 000 m2 (decreased by around 15 000 m2 in 2020) and employee points of presence declined by 40 in 2020 to 549. Over the past 12 months we reduced total group headcount by 1 079, mainly through natural attrition. » Through our strategy of consolidating and standardising corporate real estate, our number of campus sites (offices) has decreased from 31 to 26 over the past two years, with a longer-term target of 19. Since 2016 we have saved almost 69 000 m2 and saved around 15 000 m2 in 2020. In the next few years we will continue to optimise the portfolio by enhancing workstation use to more than 100% (from the current 94%) by enabling flexible office constructs to support more dynamic ways of work, as well as leveraging successful work-from-home experiences as a result of Covid-19, while creating further value and cost reduction opportunities. » Our TOM 1.0 initiatives recorded additional savings of R675m in 2020, translating to cumulative savings of R1,8bn to end 2020, which is ahead of our R1,2bn target by December 2020 as disclosed in the corporate performance targets in our long-term incentive scheme. We have started implementing TOM 2.0, which looks at the shape of our branch infrastructure in the context of an increasingly digital world, a shift in our RBB structure so that it is more client-centred, as well as shared-services optimisation across the group. We anticipate cumulative revenue uplift and costs savings relating to TOM 2.0 of R2,5bn in the next three years (of which approximately 90% relate to cost savings). Cumulative TOM 1.0 savings of R1,8bn (R675m in 2020) exceeded the incremental increase of computer-processing costs, adjusted for inflation, of R1,1bn over three years (R291m incremental amortisation and depreciation charges in 2020) and we expect similar benefits from TOM 2.0. REVIEW OF RESULTS Nedbank Group’s financial performance for the year ended 31 December 2020 reflects the difficult operating environment, largely as a result of the impact of the Covid-19 pandemic and strict lockdowns in Q2 2020. HE declined by 56,5% to R5,4bn. While HE in H1 2020 declined by 69,2% and was primarily impacted by a significant increase in impairments (largely related to IFRS 9 forward-looking macro models and Covid-19-related judgemental overlays), H2 2020 earnings showed an improvement when compared to H1 as levels of additional impairments in the six months declined, non-interest-revenue (NIR) declined less than expected and the group’s net interest margin (NIM) improved, in part due to better asset pricing. Expenses remained well managed. The underlying financial performance for all key metrics was in line with the guidance we provided at our interim results and during our market announcements in H2 2020. HEPS and EPS declined by 56,8% to 1 126 cents and by 71,3% to 718 cents respectively, in line with the updated trading statement released on 5 March 2021, which highlighted a decline of between 55% and 60% in HEPS and between 69% and 74% in EPS respectively. When compared with HEPS, the larger decline in EPS can be attributed primarily to the R750m impairment of the group’s investment in Ecobank Transnational Incorporated (ETI) as disclosed in our H1 2020 results, accounting for our share of ETI’s impairment of their own goodwill, as announced in their 9M 2020 results released in November 2020, and an impairment relating to Nedbank’s own goodwill on the SA Wealth businesses. DHEPS declined by 56,6% to 1 113 cents. ROE and ROA declined to 6,2% and 0,45% respectively but improved from 4,8% and 0,36% in H1 2020. Return on RWA decreased from 2,02% to 0,82% as headline earnings declined and RWA grew by 7,2%. NAV per share of 18 391 cents increased by 1,0%, compared to 18 204 cents in December 2019. Throughout the crisis the group maintained strong capital and liquidity positions. Our IFRS 9 fully phased-in CET1 and tier 1 capital ratios of 10,9% and 12,1% increased from H1 2020 levels and remained well above our board targets of 10,0% to 12,0% and greater than 11,25% respectively, and well above the SARB minimum requirements of 7,5% and 9,25% respectively (excluding idiosyncratic buffers). For Q4 an average LCR of 126% was above the H1 level of 115% and well above the adjusted regulatory minimum level of 80% under the PA’s Directive 1/2020 (D1) (revised from 100% on 1 April 2020). An NSFR of 113% was in line with that in H1 and well above the 100% regulatory minimum. Despite our strong capital and liquidity position at 31 December, having considered the spirit of Guidance Notes 4/2020 and 3/2021 and noting growth opportunities and our responsibility to support clients and the economy, alongside the current uncertainty about the progression of the virus, possible future waves, and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on our current forecasts the group expects to resume dividend payments when reporting interim results in 2021. CLUSTER FINANCIAL PERFORMANCE Nedbank Group’s HE declined by 56,5% to R5 440m and our ROE of 6,2% was below our cost of equity of 14,5%. The decline in HE was less than the 69,2% recorded in H1 2020 and consequently ROE improved from the 4,8% reported at half year. Year on year ROEs were lower across all our frontline clusters as HE declined and capital levels increased in the difficult Covid-19 operating environment. 55 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020Change (%) HE (Rm) ROE (%) 2020 2019 2020 2019 CIB RBB Wealth NAR Centre Group (41,0) (69,9) (36,5) (97,4) (2,8) 3 636 1 595 662 12 (465) 6 167 5 293 1 042 457 (453) 9,4 5,4 15,3 0,2 17,7 17,3 24,8 7,7 (56,5) 5 440 12 506 6,2 15,0 HE in CIB declined by 41,0% (H1 2020: -57,1%) to R3,6bn, and the cluster delivered an ROE of 9,4% (H1 2020: 7,3%). HE was primarily impacted by an increase in impairments as reflected in the CLR, increasing to 82 bps (H1 2020: 118 bps) from 25 bps in the prior year. NII declined by -0,7%, with average interest-earning banking assets (AIEBA) increasing by 5,4% to R392bn. Actual gross banking advances decreased by 8,1% to R361bn due to early repayments from clients as well as active portfolio management as we focused on capital optimisation. Trading advances grew by 118% as clients repaid foreign currency banking loans and advances early, resulting in excess liquidity being placed in the repo market. Improved client asset pricing was offset by the impact of the significant decline in interest rates on endowment income. NIR declined by 11,6%, impacted by negative equity revaluations, partially offset by a strong trading performance across all asset classes given increased market volatility and client demand. Expenses decreased by 2,6%, driven by good cost containment, resulting in a cost-to-income ratio of 43,8%. HE in RBB declined by 69,9% to R1,6bn and ROE declined to 5,4% (H1 2020: 1,5%). The HE decline of 49,4% in H2 was less than the 91,2% reduction seen in H1. The main drivers for this performance were higher impairment charges, including R2,2bn of Covid-19-related adjustments, as well as lower NIR as a result of lower levels of client transactional activity. The CLR increased to 240 bps from 138 bps in the prior year and is above the cluster’s TTC target range of 130 bps to 180 bps, but below the H1 2020 peak level of 269 bps. Revenue growth was impacted by slow advances growth, although improving in the second half of the year, and NIM pressure from the impact of lower interest rates on endowment income. NIR decreased as client-related transactional activity slowed during the lockdown, particularly in the travel and leisure sectors, where we have a leading market share via the Amex franchise. A reduction in expenses was supported by the management of discretionary spend and ongoing optimisation of processes and operations, including a reduction in permanent headcount in RBB of 290 largely through natural attrition. HE in Nedbank Wealth decreased by 36,5% (H1 2020: 20,5%) to R662m, with an ROE of 15,3% (H1 2020: 17,1%) remaining above the group’s cost of equity. Wealth Management experienced a decline in earnings impacted by a reduction in SA and global interest rates, as well as significantly higher impairments locally. This was partly offset by a very good performance in Asset Management, which benefited from positive netflows, resulting in a 13,1% growth in AUM to R375bn. Insurance results were impacted by higher claims in the life portfolio, the negative effect of reduced interest rates on actuarial reserves and lower investment returns on shareholder funds. HE in Nedbank Africa Regions declined by 97,4% to R12m, with an ROE of 0,2%. The performance of the cluster reflects the impact of Covid-19 on the SADC operations evident in higher impairments (CLR up to 185 bps from 101 bps) and lower revenues, as well as accounting for the continued impact of hyperinflation in Zimbabwe. HE benefited from R153m relating to our investment in ETI, inclusive of our share of a 2018 ETI restatement reported in their 2019 results and now included in Nedbank’s 2020 results. The performance in the Centre reflects a R500m (pretax) increase in the central impairment (to R750m) and the base effect in 2019 of the final postretirement medical aid (PRMA) credit amounting to R255m (after tax). This was offset by fair-value gains as a result of the group’s fair-value hedge accounting solution that partially unwound in H2 2020. FINANCIAL PERFORMANCE Net interest income NII decreased by 0,3% to R30 081m, an outcome that was at the top end of our full-year 2020 guidance range of between 0% and a decline of 5%. The decline reflects AIEBA growth of 4,4% and a lower NIM. The AIEBA growth was driven by muted advances growth and higher levels of HQLA in the banking book. AIEBA growth slowed from the 8,2% recorded in H1 2020. NIM decreased by 16 bps to 3,36% from 3,52% in 2019, an improvement from the 3,33% recorded in June 2020. Cumulative interest rate cuts of 300 bps had a negative impact on endowment income, decreasing NIM by 24 bps. Liability pricing and the narrowing of the prime–JIBAR spread reduced NIM by a further 10 bps and 4 bps respectively, while strategic management actions in 2020 resulted in asset pricing increasing NIM by 15 bps and HQLA optimisation contributing to an increase of 7 bps. Impairments charge on loans and advances Impairments increased significantly, driven by the impact of Covid-19 on consumers and businesses and the difficult SA macroeconomic environment. The group’s impairment charge increased by 114% to R13 127m, including R3,9bn of Covid-19-related overlays and judgemental estimates. The group’s CLR increased from 79 bps in 2019 to 161 bps in 2020, an outcome that was just below the mid-point of our full-year 2020 guidance range of between 150 bps and 185 bps. During the period loans and advances were restated to include listed corporate bonds to ensure alignment with industry practice, and this reduced the group CLR by 3 bps and 6 bps in 2019 and 2020 respectively (this restatement applied to CIB only and consequently the group). To support clients in good standing, the group provided D3/2020 payment relief on a total of more than R120bn of client loans across the portfolio, representing 15% of total loans and advances. At 31 December 2020, this had declined to R28bn as payment holidays matured and clients resumed payment plans. RBB D3 loans declined from a peak of R80bn to R2bn at the end of December, with 88% of clients who had any form of payment relief having resumed payment, 9% having missed payments and 3% having payment relief either extended or having not yet matured. The remaining outstanding D3/2020 loans include R25bn for clients in CIB and the majority of these are expected to mature in H1 2021. Impairments in CIB increased by more than 100% to R3 245m and its CLR, at 82 bps, is above its TTC target range of 15 bps to 45 bps, but below the 118 bps in H1 2020. This compares with the 43 bps peak during the GFC. Stage 1 and 2 impairments increased as a result of Covid-19-related overlays, amounting to R826m. These overlays were driven by a bottom-up industry review, where the current macroeconomic forecasts and models do not yet sufficiently capture the impact of Covid-19 for certain vulnerable sectors in the CIB portfolio that are impacted by Covid-19. Stage 3 impairments increased, this relating to specific counters (most notably those operating in the aviation, business services and selected SOE sectors). In RBB impairments increased by 81% to R8 746m and its CLR, at 240 bps, increased to above the top end of its TTC target range of 130 bps to 180 bps as a result of R1,8bn judgemental Covid-19 adjustments and increased levels of consumer stress. RBB’s CLR compares with the 269 bps reported in H1 2020 and 256 bps during the GFC. During the year the group’s central provision was increased by R500m to R750m to account for emerging risks not yet reflected in the data, impairment models or macroeconomic forecasts. 56 NEDBANK GROUP Annual Results 2020 Average banking advances (%) 48,4 44,7 4,0 2,9 100,0 CLR (%) CIB RBB Wealth NAR Group 2020 20191 TTC target ranges 0,82 2,40 0,64 1,85 1,61 0,15–0,45 0,25 1,38 1,30–1,80 0,18 0,20–0,40 0,75–1,00 1,01 0,79 0,60–1,00 1 CLR for 2019 restated due to reclassification of listed corporate bonds into loans and advances. Overall coverage increased from 2,26% of total loans and advances at December 2019 to 3,25% at December 2020 due to clients moving into different stages of impairment and additional overlays raised for Covid-19-related risks. The stage 1 coverage ratio increased to 0,65% (December 2019: 0,48%), driven by Covid-19-related overlays. The stage 2 coverage ratio increased to 6,61% (December 2019: 5,30%), primarily as a result of the increased levels of Covid-19-related overlays, our classification of the majority of D3 loans as stage 2 and an increase in watch list clients. In line with guidance from the Basel Committee, Nedbank does not use the low-risk exemption available under IFRS 9. The stage 3 coverage ratio decreased to 31,5% (December 2019: 37,9%) given the mix impact of CIB stage 3 loans increasing faster than that of RBB stage 3 loans, an increase in the number of stage 3 clients in CIB with high levels of collateral, and an increase in D7 restructures in Retail (so-called performing restructures or technical cures), which attract a lower coverage than non-D7 restructures. Non-interest revenue NIR decreased by 7,1% to R24 140m, an outcome at the top end of the full-year 2020 guidance range of a decline of between 7% and 11%. The decline was primarily driven by lower levels of client-related transactional activity, lower equity valuations and lower insurance income. • Commission and fee income declined by 8,6% (H1 2020: declined by 9,2%) to R17 138m. Transactional activity declined significantly in H1, impacted by the lockdown, but had improved by the end of H2 2020 to above pre-crisis levels. Digital, POS and ATM volumes increased to above March levels in the second half of the year, although branch volumes remained lower. The number of retail main-banked clients, at 2,94m, was flat on 2019, but improved by 11% from H1 2020 levels as transactional activity returned. Fee concessions in April and May decreased NIR by R104m. CIB was also impacted negatively by subdued client activity but recorded 37 primary client wins that will support growth into the future. • Insurance income declined by 11,7% (H1 2020: declined by 7,8%) to R1 622m due to higher credit life loss-of-income claims and funeral claims as a result of Covid-19, as well as the adverse impact of reduced interest rates on actuarial reserves and the effect of lower JSE market performance on shareholder funds, despite some improvement in Q4. Credit life loss-of-income claims peaked in September and while volumes had decreased by December, they remain above normalised levels. This was partially offset by an improved non-life claims experience. • Trading income increased by 16,1% (H1 2020: 43,8%) to R5 252m given increased market volatility and higher client activity. • Private-equity income declined to a loss of R1 039m (H1 2020: R765m loss), primarily due to downward revaluations of unrealised investments as the subdued macroeconomic environment impacted the profitability of investee counters and listed market prices declined, although the levels of adverse impact declined in H2. • Fair-value gains from the group’s fair-value hedge-accounting solution increased more than 100% to R352m and, as expected, partially unwound in H2 2020 (H1 2020: R836m). Expenses The decline in expenses of 1,3% to R31 772m was in line with our full-year 2020 guidance range of a decline of between 1% and 4%, reflecting the close management of our discretionary spend, a decline in incentives and continuing optimisation initiatives offset by increased levels of Covid-19-related spend. • Staff-related costs decreased by 2,8% following: » average 2020 annual salary increases of 4,7% and a reduction in employee numbers of 1 079 since 31 December 2019, largely through natural attrition and including the impact of the sale of Nedbank Malawi (171 employees) in Q1 2020 (total of 3,7% reduction in headcount yoy); and » a 27% decrease in STIs impacted by the group’s financial performance (2019 decrease of 25%) and a 50% decrease in LTIs (2019 decrease of 22%) as expected vesting ratios have declined due to underperformance against corporate performance targets set in a pre-Covid-19 environment. » This decline was partially offset by the base effect of the PRMA pretax credit of R354m in 2019 and a R121m increase in the leave expense provision as employees took less leave during lockdown. • Computer-processing costs increased by 19,5% to R5 830m, driven by the increase in the amortisation charge of 23,0%, as well as investment in digital solutions and cash and self-service devices. The incremental savings under TOM 1.0 of R675m have more than offset the increase in amortisation and depreciation charges of R291m. • Other cost lines reflect the management of discretionary spend during the crisis. Savings were recorded across travel, communication, marketing and training. We also unlocked cumulative benefits of R1,8bn (December 2019: R1,1bn) from process enhancements and implementing TOM 1.0, mainly in RBB. • Covid-19-related spend of R81m includes the provision of personal protective equipment, additional spend to comply with health and safety regulations, and international consulting support relating to impairment model development and provisioning. Increasing demand on technology as a result of Covid-19, such as that arising from working from home, has not had a material impact on our cost base. The group’s decrease in expenses of 1,3% was less than the decrease in revenue and associate income of 4,0%, resulting in a negative JAWS ratio of 2,7% and the cost-to-income ratio increasing to 58,1% (December 2019: 56,5%). Hyperinflation accounting in Zimbabwe In the second half of 2019 the group adopted hyperinflation accounting in Zimbabwe. Given the further depreciation of the Zimbabwean dollar, a R205m monetary loss was recorded (2019: R296m loss), which had a net effect on HE of R89m (2019: R142m). Earnings from associates A loss from associates of R76m, relating primarily to the group’s 21% shareholding in ETI for the period ended 31 December 2020, has been recognised. This includes accounting for our share of ETI’s earnings from Q4 2019 to Q3 2020 (in line with our policy of accounting for our share of ETI’s attributable earnings a quarter in arrear), as well as Nedbank’s share (R236m) of the US$79,5m restatement of ETI’s 2018 income statement for interest accruals on oil market exposures that had to be reversed in terms of Central Bank of Nigeria regulations, as well as Nedbank’s share of ETI’s impairment on goodwill of US$159m, relating to ETI’s acquisition of Oceanic Bank in Nigeria. Nedbank’s share of ETI’s goodwill impairment decreased Nedbank’s profit for the year by R528m with no impact on HE. Due to the prolonged decline of the market value of Nedbank’s investment in ETI below its carrying value, Nedbank reviewed its impairment provision at 30 June 2020. While various scenarios supported a value-in-use calculation above the carrying value of 57 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020our investment, more weight was given to downside scenarios and an impairment of R750m was raised. Our position was reassessed at 31 December 2020 and no change in impairment was required. Total comprehensive income Total comprehensive income attributable to ordinary shareholders declined by 60,4% during the year to R4 358m, driven by the 56,5% decline in HE to R5 440m as well as the R750m impairment of the group’s investment in ETI, accounting for our share of ETI’s impairment of their own goodwill (R528m) and an impairment relating to Nedbank’s own goodwill on the SA Wealth businesses (R345m). The decline was partially offset by other comprehensive income that increased by more than 100% to R891m, primarily as a result of foreign currency translation gains in the period as the rand weakened against most currencies. STATEMENT OF FINANCIAL POSITION Capital The group remains capitalised at levels well within board targets, well above the minimum regulatory requirements and well above the levels during the GFC, with a tier 1 ratio of 12,1% (H1 2020: 11,7%) and a CET1 ratio of 10,9% (H1 2020: 10,6%). The CET1 ratio was achieved after absorbing the final 2019 ordinary-dividend distribution of R3,5bn, the impairment of the group’s investment and goodwill in ETI, further investment in software development as part of the ME programme, and an increase in credit RWA, driven by credit migration and the effect of volatility in market risk RWA. The tier 1 CAR was impacted by the further grandfathering of old-style preference shares (R531m) in January 2020 in line with the Basel III transitional arrangements, as well as the issuance of additional tier 1 instruments of R972m. The total CAR included the redemption of R2,3bn tier 2 capital and the issuance of new-style tier 2 capital of R4,1bn, in line with the group’s capital plan. Basel III capital ratios (%) 2020 2019 Internal target range Regulatory minimum2 CET1 Tier 1 Total CAR 10,9 12,1 14,9 11,5 10,0–12,0 > 11,25 12,8 > 13,0 15,0 7,5 9,25 11,5 (Ratios include unappropriated profits.) 2 PA minimum requirements are disclosed, excluding bank-specific Pillar 2b capital requirements. The PA issued Directive 2/2020 in April 2020, which provided capital relief to banks in light of the Covid-19 pandemic and temporarily relaxed the Pillar 2A requirements to nil, resulting in regulatory minimum requirements decreasing for CET1 by 50 bps for tier 1 by 75 bps and by 100 bps for total CAR. Funding and liquidity Maintaining a strong liquidity position remains a priority for the group during the crisis. The group achieved a quarterly average long-term funding ratio of 25,4%, which compared favourably with the industry average of 22,0% in an environment of increased financial market volatility as a result of the Covid-19 pandemic. The group’s December 2020 average LCR of 125,7% (H1 2020: 114,5%) exceeded the minimum regulatory requirement, with the group maintaining appropriate operational buffers designed to absorb seasonal, cyclical and systemic volatility observed in the LCR. On 31 March 2020 the PA issued Directive 1/2020, reducing the minimum LCR requirement from 100% to 80% with effect from 1 April 2020. Nedbank Group LCR 2020 2019 HQLA (Rm) Net cash outflows (Rm) Liquidity coverage ratio (%)3 Regulatory minimum (%) 3 Average for the quarter. 206 943 164 583 125,7 80,0 177 985 142 421 125,0 100,0 More details on the LCR are available in the ‘Additional information’ section of the condensed consolidated annual financial results. Nedbank’s portfolio of LCR-compliant HQLA increased by 16,3% to a December 2020 quarterly average of R207bn in support of the higher quarterly arithmetic average in the LCR net cash outflows driven by increased financial market volatility introduced by the Covid-19 pandemic. Nedbank proactively managed its HQLA liquidity buffers, resulting in a marginal yoy increase in the LCR. The HQLA portfolio, together with Nedbank’s portfolio of other sources of quick liquidity, equated to total available sources of quick liquidity of R254,4bn, representing 20,7% of total assets. Nedbank exceeded the minimum NSFR regulatory requirement of 100% effective from 1 January 2018 and reported a December 2020 ratio of 112,8% (December 2019: 113,0%). The structural liquidity position of the group remained relatively the same yoy as a result of well-managed balance sheet growth. Banking loans and advances Gross banking loans and advances decreased by 1,6% yoy to R797bn, driven primarily by a reduction in CIB banking advances in the second half of the year. The group’s loans and advances were restated to include listed corporate bonds, in line with industry practice. The restatement related to Nedbank Group and CIB only. Gross banking loans and advances growth by cluster was as follows: Rm CIB RBB Wealth NAR Centre4 Group Change (%) (8,1) 3,3 1,9 7,8 >100 (1,6) 2020 20195 361 280 375 385 31 567 24 186 4 438 796 856 393 088 363 471 30 970 22 427 (307) 809 649 4 Includes macro fair-value hedge-accounted portfolios and disclosure reallocations. 5 The group reclassified listed corporate bonds of R22bn (2019: R28bn) from government and other securities to loans and advances to be aligned with peer disclosure and so that they better reflect the group’s management of these assets. CIB gross banking loans and advances declined by 8,1% yoy to R361bn. Increased levels of client drawdowns during the crisis in H1 was offset by early repayments, active sell-downs, selective participation and portfolio optimisation, predominantly in H2 2020. RBB gross loans and advances increased by 3,3% yoy to R375bn. After a negative impact as a result of the closure of the deeds office and motor dealerships in April 2020, payouts increased in H2 2020 as clients who were in good financial standing took advantage of the 300 bps decline in interest rates. BB advances declined by 2,7% as new-loan payouts remained muted, given the lower business activity levels, and were not sufficient to replace the book rundown. MFC (vehicle finance) loans increased by 4,6% due to a combination of increases in average payout per deal, as well as a slowdown in rundown. Unsecured lending grew by 10,3% as a result of product and process enhancements, mostly through digital and call centre channels, driving increased take-up rates of 58 NEDBANK GROUP Annual Results 2020 approved loans. Card advances decreased by 2,0%, challenged by the impact of Covid-19 and clients’ reduced ability to spend during the period. Residential mortgage loans grew by 4,8%, slightly ahead of the industry. • In 2020 we increased our focus on the physical, mental and financial wellbeing of our employees through various interventions. We are saddened by the loss of nine of our employees who succumbed to Covid-19 in 2020. Deposits Deposits grew by 5,5% to R954bn, with total funding-related liabilities increasing by 5,1% to R1 014bn, while the loan-to-deposit ratio was 88% (2019: 91%). Within the clusters CIB grew deposits by 11,4%, RBB by 4,5%, Wealth by 9,7% and Africa Regions by 10,2% while the Centre declined by 14,2%. Current and savings accounts (CASA), along with cash management deposits, increased by 31,1%, driven by increased short-term operational cash requirements by businesses impacted by Covid-19, while retail clients opted to hold more short-term operational deposits given the impact of Covid-19 on the economy. Individually, current accounts increased by 14,7%, cash management accounts increased by 47,6% and savings accounts increased by 35,7% (including foreign exchange translation gains in Nedbank Wealth). Call and term deposits increased by 3,5% and fixed deposits decreased by 5,0% as retail clients opted to keep their cash short or in notice deposits due to the uncertain economic environment. Fixed deposits were subject to increased competition in the domestic market, where some banks were pricing retail fixed deposits above the wholesale cash curve. NCDs decreased by 15,6% as institutional clients opted to invest in higher-yielding government bonds and treasury bills, while other deposits increased by 11,8% as a result of increased institutional and financial corporate demand for term deposits. The demand for other deposits was also linked to client appetite for increased deposit duration in an environment of slow growth and lower interest rates and contributed positively to managing Nedbank’s contractual longer-term funding ratio. Foreign funding, although small in relative terms for Nedbank, decreased by 17,8%, facilitated by the prepayment of foreign currency lending facilities. USING OUR FINANCIAL EXPERTISE TO DO GOOD Nedbank continues to play an important role in society and in the economy, and this role has been elevated during the Covid-19 crisis. We remain committed to delivering on our purpose of using our financial expertise to do good and to contribute to the wellbeing and growth of the societies in which we operate by delivering value to our staff, clients, shareholders, regulators and society. Staff • Despite the difficult operating environment in 2020, employee engagement levels remained high. Our employee insights survey highlighted that 85% of the participating employees are proud to work for Nedbank and our employee NPS increased from seven in 2019 to 17 in 2020. • Although a portion of our employees qualified, we did not apply for any benefit from any of the Unemployment Insurance Fund TERS subsidies. • Paid special leave was introduced for employees who were unable to perform their duties and did not fall into the essential-services category and for those in self-quarantine who were unable to perform their duties remotely. • In 2020 training spend amounted to R924m (2019: R760m) and a skills development score of 15,99 was achieved (2019: 15,67) on the BBBEE scorecard. • We enabled more than 16 500 employees to work from home (more than 75% of campus-based employees) as BCPs were activated seamlessly with the ongoing support of our technology teams. • The employee uptake of digital learning increased significantly, with 45 565 online LinkedIn Learning courses completed in 2020, which reflects growth of over 183% on the previous year. The Udemy learning platform has 511 users, with an increase in adoption rate from 62% in 2019 to 71% in 2020. • Despite the crisis, we continued to focus on transformation as a key imperative to ensuring Nedbank remains relevant in a transforming society. Black representation at board level is 60%, at executive level it is 46% and among our total employees it is more than 78%. Female representation at board level is 20%, at executive level it is 46% and among total employees it is 61%. • We were formally recognised for our efforts towards transformation and diversity and for being an employer of choice during 2020: We placed second in the ‘Reporting JSE-listed boards’ category; won the ‘Employer of choice: Large organisations’ category at the Topco Media Future of HR Awards; placed third in the category ‘Employer of choice: Commercial and Retail Banking’ at the SA Graduate Employers Association (SAGEA) Employer Awards; and won the Oliver Top Empowerment Award for our 2019 participation in the Youth Employment Service (YES) programme. Clients • Delivering market-leading client experiences remains a key priority and we are pleased to report that in the 2020 Consulta survey, we achieved second position among the five largest SA banks, and recorded the largest increase over the past five years in both client satisfaction (SAcsi score of 81%) and NPS (score of 41%). Our focus on client satisfaction during the crisis enabled us to be ranked consistently number one or two on social-media net sentiment by BrandsEye. Nedbank was also announced winner of both the Most Helpful Bank in Africa during Covid-19 and Most Helpful Bank in SA during Covid-19 categories by the Asian Banker as part of their BankQualityTM consumer survey. • We have not retrenched any employees as a result of • We safeguarded R954bn of deposits at competitive rates. Covid-19 and have paid our 28 324 employees’ salaries and benefits of R16,8bn. Our Agility Centre successfully redeployed 234 employees into alternative roles within Nedbank, while 18 employees were regrettably retrenched as result of changes in operational requirements. • Before the crisis emerged in 2020, we concluded annual salary increases with our bargaining-unit employees at 6,3%, with non-bargaining-unit employees receiving increases of no more than 4,0% and the blended average employee salaries increasing by 4,7%. • Our Nedbank Group executives, other senior management and boardmembers received no increases in their guaranteed pay for 2020. • We supported clients by advancing R210bn (2019: R208bn) in new loans to enable them to finance their homes, vehicles and education, as well as grow their businesses, and to help them manage through a difficult period in 2020. • Under the PA’s Directive 3/2020 we supported more than 400 000 clients who were in good standing at 29 February 2020 with payment relief (payment holidays) on more than R120bn of loans. • We provided an online portal for clients to access various debt relief programmes by leveraging the onboarding capabilities that we have built, and we digitised debt relief application processes on our digital channels. 59 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020• Clients who have a Nedbank Personal Loan and have lost their income were able to claim against credit life protection, which covers up to 12 months of debt payments (amounting to more than R150m paid in 2020). • We implemented our end-to-end digital onboarding, sales and servicing capabilities as part of our ME technology journey, which have proven to be beneficial in this time, with digital sales in RBB increasing to 49% (from 21% in 2019). Excluding MobiMoney, digital sales increased to 26% (from 12% in 2019). Our clients’ access to banking improved, as digitally active retail users increased by 25% to 2,2m. • Nedbank won various awards at the prestigious Global Banking & Finance Awards in recognition of the progress we made and our leadership in digital banking. The awards included Best Banking Technology Implementation in SA (Managed Evolution), Most Innovative Digital Branch Design in SA, Most Innovative Retail Banking App in SA (Nedbank Money app) for the second year in a row, Best Retail Bank in SA and CIO of the Year in South Africa. At the 2021 Global Finance World’s Best Investment Bank Awards, Nedbank CIB won the Best Debt Bank: Africa category and was the overall country winner in the Best Investment Bank: SA category. • Nedbank’s brand ranking among SA companies increased from 11 in 2019 to eight in 2020, and Nedbank’s brand was one of only two banking brands to improve value yoy in the 2020 annual review by Brand Finance of the most valuable brands in SA. Shareholders • Banks are highly integrated in the economies in which they operate and, as a result of the Covid-19 pandemic and sharp reductions in GDP, bank share prices across the world declined. Similarly, SA bank share prices declined in 2020 as reflected in the JSE SA bank index closing down 22% yoy. While we are disappointed that the Nedbank share price declined by 40% in 2020, we continue to focus on delivering on our strategy and actions alongside enhanced disclosure to address key issues investors may have. Pleasingly, in an environment of heightened forecast risk, we achieved the 2020 guidance we provided in H2 2020 and continue to focus on the drivers of value creation, as evident in our revised 2023 financial targets. • Despite our strong capital and liquidity position at 31 December, having considered the spirit of Guidance Notes 4/2020 and 3/2021 and noting growth opportunities and our responsibility to support clients and the economy, alongside the current uncertainty about the progression of the virus, possible future waves, and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on our current forecasts the group expects to resume dividend payments when reporting interim results in 2021. • We successfully hosted our first virtual AGM in 2020 and Regulators • We worked closely with the government, regulators and the Banking Association SA to mitigate the risks of Covid-19 and the associated lockdowns on the economy and to ensure the safety and soundness of the SA banking system. • Key developments included the following: » SARB changed its liquidity management strategy to help with the orderly transmission of liquidity through the financial system. Through Directive 1/2020 the regulatory minimum for the LCR was reduced from 100% to 80%. » The PA issued Directive 3/2020, amending the requirements specified in Directive 7/2015 to provide temporary relief to banks for qualifying clients whose loans were up to date at 29 February 2020 when dealing with any Covid-19-related distressed restructures. » The PA issued Directive 2/2020, which allows for the temporary removal of the systemic risk buffer, or Pillar 2A capital requirement, which was reduced from 1% in total CAR to zero. Banks can now use their capital conservation buffers, including the additional loss absorbency requirements that were built up by D-SIBs. » A block exemption was issued by the Department of Trade, Industry and Competition allowing banks to collectively formulate the SME loan guarantee scheme with National Treasury and SARB and to engage and agree on client relief measures, for example helping Sassa beneficiaries and announcing payment holidays during the pandemic. • We maintained a strong capital position, with a tier 1 capital ratio of 12,1% and CET1 ratio of 10,9%. • We ended the year in a strong liquidity position, with an average LCR of 126% in Q4 of 2020 and an NSFR of 113% at December 2020. Both ratios improved on the levels achieved at June 2020. • We hold investments of over R159bn in government and public sector bonds as part of our HQLA requirements. • We made cash taxation payments across the group of R8,7bn (2019: R11,5bn) relating to direct, indirect and employee taxes, as well as other taxation. SOCIETY Our long-term sustainability and success are contingent on the degree to which we deliver value to society. Through the considered development and delivery of products and services that satisfy societal needs and through our own operations, we aim to play our part in enabling a thriving society, create long-term value and maintain trust to ensure the ongoing success of our brand. This is particularly important in the current context of SA as well as the broader African continent. recorded good voting outcomes. We became the first company in SA to proactively table two climate-change-related resolutions, which shareholders unanimously supported as both received 100% votes of approval. Our inaugural TCFD report will be published in April 2021. We have adopted the United Nations SDGs as a framework for measuring delivery on our purpose, and this has proven very important during this time. We continued to make progress in driving groupwide adoption, awareness and delivery of the SDGs to bring our purpose to life. Key highlights include the following: • We ensured transparent, relevant and timeous reporting; enhanced our disclosures to shareholders; and hosted numerous virtual investor engagements in 2020, which were accompanied by a significant increase in investor attendance. • Nedbank achieved first place with honours at the 2020 EY Excellence in Integrated Reporting Awards – the only SA company to be named overall winner for three years in a row. This achievement was followed by a top 40 merit award at the 2020 Chartered Governance Institute of Southern Africa/JSE Integrated Reporting Awards. Good health and wellbeing (SDG 3) • We donated over R16m towards Covid-19 relief efforts: R5m was provided to The South African Red Cross Society and R2m to Doctors Without Borders. • We actively engaged in numerous health and economic interventions through the Banking Association South Africa, Business Leadership SA and Business Unity SA (including Business4SA). Quality education (SDG 4) • Over the past five years Nedbank has provided approximately 4 300 students with student loans to the value of R232m. A total of R38m of this was disbursed to 617 students in 2020. 60 NEDBANK GROUP Annual Results 2020• Every year our sponsorship of the Thuthuka Education Upliftment Fund supports 45 students who are pursuing an academic qualification towards becoming chartered accountants in SA, and we have funded the qualification of 56 black chartered accountants. • Our CSI spend totalled R103m in 2020 and included over R46m allocated to skills development and education. • We provided further funding for the development of student accommodation of R691m, creating an additional 785 beds in 2020. Clean water and sanitation (SDG 6) • We continued to work with key water players to address issues with services, including providing advisory services and funding for significant water projects such as those of the Trans-Caledon Tunnel Authority (TCTA) and Rand Water. • We decreased our own total water consumption by 25% as a result of ongoing water restriction measures, floorspace consolidation and reduced levels of employees at our campus sites due to the lockdown. Affordable and clean energy (SDG 7) • Nedbank launched a R2,0bn SDG-linked tier 2 capital instrument (SDG green bond), which is the first of its kind in SA, listed on the Green Bonds segment of the JSE and created in partnership with the African Development Bank. Proceeds will be used to fund solar and wind renewable-energy projects. The inaugural Nedbank Green Renewable Energy Bond won numerous awards in 2020: Energy Deal of the Year at the African Banker Awards 2020 and the Impact Initiative of the Year at the Environmental Finance Impact Awards 2020. During the year Nedbank also became the first SA sustainable bond issuer to be invited to join the Nasdaq Sustainable Bond Network as a contributing member. • We continued our focus on embedded generation through our partnerships with leading developers in embedded generation, such as the Sola Group and Energy Partners, who can provide our clients with trusted energy solutions. • In December 2020 Nedbank partnered with the International Finance Corporation (IFC) in raising $200m of climate-linked loan financing. This funding is being directed towards a combination of solar, wind and biomass projects and is aimed at supporting the construction of new projects under future rounds of SA’s REIPPP. Decent work and economic growth (SDG 8) • We developed new digital solutions to facilitate greater banking access and lower banking costs for our clients, including a USSD-based application process for onboarding informal traders, enabling them to accept payments digitally at no cost to them and limiting handling of cash for their safety during the pandemic. • We launched the Nedbank Small Business Services Startup Bundle, which is a bank account for new small businesses offering zero monthly maintenance fees for the first six months. • We facilitated the distribution of R300m of loans to small businesses as one of the banks administering the South African Future Trust, at no cost to the fund, while we also waived fees for all loans approved under the scheme. We also created a partnership with SA’s largest crowd funder, ThundaFund, which continues to help small businesses raise emergency operational funds from their supporters. Under the SARB SME loan guarantee scheme we paid out R1,4bn in loans. • We enabled our employees and clients to contribute R160m to the Solidarity Fund through the Money app, Online Banking and the Nedbank website. Reduced inequalities (SDG 10) • In 2020 a total of 16,9m people were reached through radio, TV, digital platforms and social media as we digitised our financial literacy and education initiatives during the Covid-19 lockdown. • We waived ATM withdrawal charges for Sassa clients and Saswitch fees for all clients during levels four and five of the Covid-19 lockdown. • We partnered with the Department of Small Business and Development to help spaza shops and general dealers access support during the Covid-19 crisis. Through our branches and numerous Boxer stores with a Nedbank presence we issued more than 5 000 procurement cards to spaza shop owners preloaded with R3 500, allowing purchases at selected wholesalers. • We added the Nedbank Insurance Funeral Plan onto five Nedbank digital platforms – the Money app, Online Banking, USSD, API Marketplace and Avo – to give our clients online access and enable financial inclusion. • We have retained a level one BBBEE contributor status for the third consecutive year in financial year 2020 under the Amended FSC. • In our own operations 79% of our procurement spend was used to support local SA business. In an effort to support the cashflow needs of small businesses as part of our commitment to the #PayIn30 Campaign, 92% of the total amount paid to 1 747 qualifying SMEs was paid within 30 days of our receiving their invoices. Sustainable cities and communities (SDG 11) • We disbursed R1 527m towards the development of affordable housing for lower-income households, bringing our five-year investment in this key sector to R5,7bn. • We provided funding of over R2,2bn for the construction of buildings that conform to green building standards in 2020, bringing the amount of funding provided to this important sector to over R12bn to date. Economic outlook The outlook for the global economy has improved with the development and rollout of Covid-19 vaccines. Most economies are expected to return to growth in 2021, underpinning a rebound in merchandise trade, although activity in some services sectors will remain subdued. The risks to the global outlook remain to the downside, with much depending on the efficacy of the vaccines in containing the pandemic. The large advanced and developing economies are expected to continue to lead the global upturn, with China recording the fastest growth. The return to pre-Covid-19 global output levels is unlikely in the foreseeable future due to the destruction of some production capacity. Stimulatory measures on the monetary and fiscal fronts will also be key determinants of the pace of rebound across different economies. The IMF forecasts global GDP to rise by 5,5% in 2021 as vaccines contain the spread of the virus and allow governments around the world to ease lockdowns and encourage a return to normal economic activity. The world economy is further expected to benefit from the large government stimulus programmes announced by a few advanced economies, notably the US and Japan. In mid-January 2021 the markets welcomed the inauguration of newly elected US president Joe Biden, with expectations that the US would once again play a coordinating role on a global scale and that the US$1,9 trillion US stimulus programme would help support the global economy. In sub-Saharan Africa most countries are likely to emerge from the crisis with large budget deficits. However, the new African Continental Free-trade Area (AfCFTA) will serve as a framework for the region’s economic recovery and a World Bank report estimates regional income could receive a US$450bn boost. In the short term the IMF expects a muted recovery in sub-Saharan Africa, with growth forecast to rebound by 3,2% in 2021. 61 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020SA’s economic outlook has improved since 2020 but remains uncertain. Consequently, forecast risk remains high given the continuously evolving environment particularly the risk of a third wave of the virus. It is essential that government follows the path to deficit reduction set out in the national budget to avoid any further sovereign risk rating downgrades and the resultant negative feedback loops. Given government’s limited resources, the focus should be on implementing much-needed growth-enhancing structural reforms, particularly ensuring a more stable energy supply, stabilising SOEs and the release of spectrum. Ultimately, the pace of the domestic economic recovery will depend on how quickly SA can achieve herd immunity as the phased Covid-19 vaccine rollout races against new and more contagious variants of the virus. The outlook for the SA economy is nevertheless more promising, with the recovery supported by firmer consumer spending, the rebuilding of domestic inventories and stronger commodity prices and export growth, particularly during the second half of the year. The Nedbank Economic Unit forecasts GDP growth of 3,4% for 2021, which is a material improvement from the 7,0% contraction in 2020, but real GDP is expected to return to 2019 levels only in the latter part of 2023. Inflation is set to increase in 2021, edging higher off a low base on an uptick in fuel, food and electricity prices. These upside pressures will be contained by subdued domestic demand and a stronger rand. Headline inflation is forecast to average around 4,1% in 2021. We believe that the SARB has provided appropriate monetary stimulus since the pandemic began last year, and therefore we expect interest rates to remain flat throughout 2021. The SA banking system weathered a very difficult and uncertain operating environment in 2020 and emerged with resilient capital and liquidity positions. Significant economic support is expected from low interest rates and the likely normalisation of activity once the global vaccination drive has gathered some critical mass and starts to contain the spread of the virus. However, it will take longer to repair the damage inflicted to household incomes and company profits. These realities will contain the speed of recovery to a modest pace over the next 12 months. The outlook for overall credit demand in the industry, although improving from 2020 levels, is expected to remain weak, reflecting the difficult economic conditions faced by households and companies. Industry-level credit growth is expected to improve gradually during the year to end at around 4,5%. Prospects Our guidance on financial performance for the full year 2021, in a global and domestic macroeconomic environment with high forecast risk, is currently as follows: • NII growth to be between 0% and 3%. Loan growth should recover and NIM is expected to contract slightly on the back of the run rate of the full impact of interest rate cuts on endowment, partially offset by improved asset pricing. • CLR to be between 110 bps and 130 bps, above our TTC target range of 60 bps to 100 bps but showing an improvement from the 161 bps reported in 2020. • NIR to increase by between 5% and 9% as transactional activity recovers off a low base and strategic initiatives such as cross-sell and new revenue streams contribute to growth, as insurance claims decline but remain elevated, and as negative private-equity realisations and revaluations create a low 2020 base. Trading income growth will likely be more muted off the high 2020 base. • Expenses growth to be between 7% and 9%, reflecting the impact of improved levels of profitability on incentives, expected new additional costs such as Deposit Insurance and Twin Peaks, the return of some discretionary spend such as marketing, Nedbank’s support of YES, as well as our current expectation of other activities returning to normality. • Liquidity metrics, including the LCR and NSFR ratios, to remain well above PA minimum requirements. • CET1 capital ratio to remain within the board-approved target range of 10% to 12%. • Dividend payment to resume when reporting interim results in 2021, an expectation supported by the group’s robust balance sheet and earnings growth off a low base. In line with our ‘Reimagined’ strategy we have revised and set new medium- and long-term targets that we believe are appropriate to drive value creation in the current economic environment. These, together with our 2021 guidance, are as follows: Metric ROE 2020 performance6 Full-year 2021 outlook Medium-term target Long-term target 6,2% Improve on 2020 Greater than 2019 levels (15%) by 2023 > 18% Growth in DHEPS (56,6%) Growth greater than 20% Greater than 2019 levels (2 565 cents) by 2023 > consumer price index + GDP growth + 5% CLR 161 bps Between 110 bps to 130 bps Between 60 bps and 100 bps of average banking advances Cost-to-income ratio 58,1% Increases Below 54% by 2023 < 50% (including associate income) CET1 capital adequacy ratio (Basel III) 10,9% Within target range 10,0–12,0%7 Dividend cover No dividend paid 1,75–2,25 times 1,75–2,25 times 6 The COE is currently forecast at around 14,4% in 2021 to 2023. 7 This target will be reconsidered in light of the proposed reintroduction of Pillar 2A in 2022 as per the proposed directive published by the PA in Feb 2021. Shareholders are advised that all guidance is based on organic earnings and our latest macroeconomic outlook and has not been reviewed or reported on by the group’s joint auditors. 62 NEDBANK GROUP Annual Results 2020 Trading statement for the six months ending 30 June 2021 HEPS and basic EPS for the six months ending 30 June 2021 are expected to increase by more than 20% (HEPS greater than 525,6 cents and basic EPS greater than 324 cents) when compared with those in the six-month period ended 30 June 2020 (HEPS: 438 cents, basic EPS: 270 cents). A further trading statement will be issued to provide more specific guidance when there is reasonable certainty about the extent of the increase and the relevant HEPS and basic EPS ranges. Shareholders are advised that the information in this trading statement has not been reviewed or reported on by the group’s joint auditors. Board and leadership changes during the period Peter Moyo tendered his resignation as a non-executive director of Nedbank Group Limited and Nedbank Limited with effect from 19 March 2020. Joel Netshitenzhe retired as an independent non-executive director with effect from the close of Nedbank Group’s AGM on 22 May 2020. Iain Williamson was appointed as a non-executive director with effect from 1 June 2020, in line with the relationship agreement between Old Mutual Limited (OML) and Nedbank Group, which provides for OML to nominate one director to the boards of Nedbank Group and Nedbank Limited for as long as OML’s shareholding in Nedbank Group is equal to or greater than 15%. On 22 January 2021 our Group Chairman, Vassi Naidoo, took a leave of absence to focus on treatment he is receiving for a medical condition that is unrelated to Covid-19. In terms of Nedbank Group’s Board Continuity Programme, Mpho Makwana (Lead Independent Director of the group) assumed the role as acting Chairman until Vassi’s return. Raisibe Morathi resigned as the Chief Financial Officer (CFO) and executive director on the Nedbank Group Limited and Nedbank Limited boards with effect from 30 September 2020. In accordance with Nedbank Group’s executive succession plan and after a process overseen by a panel of non-executive directors, Mike Davis, formerly Group Executive of Balance Sheet Management and an existing member of the Group Executive Committee, was appointed as the group’s CFO and to the group’s boards on 1 October 2020. Brian Kennedy, Group Managing Executive for Nedbank CIB, reached the mandatory retirement age of 60 and retired on 31 March 2020 and Anél Bosman was appointed as Group Managing Executive for Nedbank CIB and as a member of the Group Executive Committee with effect from 1 April 2020. Given Nedbank’s ongoing focus on growth in the rest of Africa, Dr Terence Sibiya, Managing Executive for Nedbank Africa Regions, was appointed as a member of the Group Executive Committee with effect from 1 April 2020. Forward-looking statements This announcement is the responsibility of the directors and contains certain forward-looking statements with respect to the financial condition and results of operations of Nedbank Group and its group companies that, by their nature, involve risk and uncertainty because they relate to events and depend on circumstances that may or may not occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include global, national and regional health; political and economic conditions; sovereign credit ratings; levels of securities markets; interest rates; credit or other risks of lending and investment activities; as well as competitive, regulatory and legal factors. By consequence, the financial information on which all forward-looking statements is based has not been reviewed or reported on by the group’s joint auditors. For and on behalf of the board Mpho Makwana Acting Chairman 17 March 2021 Mike Brown Chief Executive Directors V Naidoo (Chairman), PM Makwana** (Acting Chairman), MWT Brown* (Chief Executive), HR Brody, BA Dames, MH Davis* (Chief Financial Officer), NP Dongwana, EM Kruger, RAG Leith, L Makalima, Prof T Marwala, Dr MA Matooane, MC Nkuhlu* (Chief Operating Officer), S Subramoney, IG Williamson. * Executive ** Lead Independent Director 63 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020FINANCIAL RESULTS. 65 66 67 68 70 Financial highlights Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Return on equity drivers 64 NEDBANK GROUP Annual Results 2020Financial highlights for the year ended 31 December Statistics Number of shares listed Number of shares in issue, excluding shares held by group entities Weighted-average number of shares Diluted weighted-average number of shares Headline earnings Profit attributable to ordinary equity holders Total comprehensive income Preprovisioning operating profit Economic (loss)/profit Headline earnings per share Diluted headline earnings per share Basic earnings per share Diluted basic earnings per share Ordinary dividends declared per share Interim Final Ordinary dividends paid per share Dividend cover Total assets administered by the group Total assets Assets under management Life insurance embedded value Life insurance value of new business Net asset value per share Tangible net asset value per share Closing share price Price/earnings ratio Price-to-book ratio Market capitalisation Number of employees (permanent staff) Number of employees (permanent and temporary staff) Key ratios (%) ROE Return on tangible equity ROA Return on RWA NII to average interest-earning banking assets NIR to total income NIR to total operating expenses CLR – banking advances Cost-to-income ratio Gross operating income growth less expense growth rate (JAWS ratio) Effective taxation rate Group capital adequacy ratios (including unappropriated profits): – CET1 – Tier 1 – Total Change (%) 2020 2019 m m m m Rm Rm Rm Rm Rm cents cents cents cents cents cents times Rm Rm Rm Rm Rm cents cents cents historical historical Rbn 1,0 0,6 0,7 0,2 (56,5) (71,1) (54,5) (8,9) >(100) (56,8) (56,6) (71,3) (71,2) (51,7) 8,6 7,4 13,1 13,1 (32,8) 1,0 0,8 (39,6) (39,0) (3,2) (3,7) 502,1 483,9 483,2 488,7 5 440 3 467 5 345 20 561 (6 580) 1 126 1 113 717 709 – 695 N/A 1 602 683 1 228 137 374 546 3 606 283 18 391 15 549 12 948 11,5 0,7 65,0 28 271 28 324 6,2 7,4 0,45 0,82 3,36 44,5 76,0 1,61 58,1 (2,7) 23,7 10,9 12,1 14,9 497,1 481,2 480,0 487,5 12 506 12 001 11 735 22 577 1 412 2 605 2 565 2 500 2 462 1 415 720 695 1 440 1,84 1 474 485 1 143 349 331 136 3 188 421 18 204 15 426 21 430 8,2 1,2 106,5 29 213 29 403 15,0 17,8 1,13 2,02 3,52 46,3 80,8 0,79 56,5 1,3 22,8 11,5 12,8 15,0 65 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Consolidated statement of comprehensive income for the year ended 31 December Rm Interest and similar income Interest expense and similar charges Net interest income Impairments charge on financial instruments Income from lending activities Non-interest revenue Operating income Total operating expenses Zimbabwe hyperinflation Indirect taxation Profit from operations before non-trading and capital items Non-trading and capital items Profit from operations Share of (losses)/gains of associate companies Profit from operations before direct taxation Total direct taxation Direct taxation Taxation on non-trading and capital items Profit for the year Other comprehensive income/(losses) net of taxation Items that may subsequently be reclassified to profit or loss Exchange differences on translating foreign operations Share of OCI of investments accounted for using the equity method Debt investments at FVOCI – net change in fair value Items that may not subsequently be reclassified to profit or loss Share of OCI of investments accounted for using the equity method Remeasurements on long-term employee benefit assets (Losses)/Gains on property valuations Note % change 2020 2019 1 2 3 4 5 10 6 (13,6) (21,1) (0,3) > 100 (29,5) (7,1) (17,9) (1,3) (30,7) (4,7) (51,6) > 100 (59,5) > (100) (61,9) (50,6) (65,2) > (100) 72 300 42 219 30 081 13 127 16 954 24 140 41 094 31 772 205 1 148 7 969 (1 562) 6 407 (76) 6 331 1 877 1 994 (117) 4 454 891 672 (189) 119 395 (80) (26) 83 680 53 513 30 167 6 129 24 038 25 997 50 035 32 179 296 1 096 16 464 (651) 15 813 793 16 606 3 796 3 942 (146) 12 810 (1 075) (159) (1 025) (232) (145) 300 186 Total comprehensive income for the year (54,5) 5 345 11 735 Profit attributable to: – Ordinary shareholders – Non-controlling interest – ordinary shareholders – Holders of preference shares – Holders of participating preference shares – Holders of additional tier 1 capital instruments Profit for the year Total comprehensive income attributable to: – Ordinary shareholders – Non-controlling interest – ordinary shareholders – Holders of preference shares – Holders of participating preference shares – Holders of additional tier 1 capital instruments Total comprehensive income for the year Headline earnings reconciliation Profit attributable to ordinary equity holders Less: Non-headline earnings items Non-trading and capital items Taxation on non-trading and capital items Share of associate (ETI) impairment of goodwill 7 7 (71,1) > 100 (19,8) 54,6 (65,2) (60,4) > (100) (19,8) 54,6 (54,5) (71,1) > 100 3 467 55 251 (58) 739 4 454 4 358 55 251 (58) 739 5 345 3 467 (1 445) (1 562) 117 (528) 12 001 18 313 478 12 810 11 017 (73) 313 478 11 735 12 001 (505) (651) 146 Headline earnings 66 (56,5) 5 440 12 506 NEDBANK GROUP Annual Results 2020 Consolidated statement of financial position at 31 December Rm Note 2020 2019 Assets Cash and cash equivalents Other short-term securities Derivative financial instruments Government securities Other dated securities Loans and advances to clients Trading loans and advances Loans and advances to banks Other assets Current taxation assets Investment securities Non-current assets held for sale Investments in associate companies Deferred taxation assets Investment property Property and equipment Long-term employee benefit assets Mandatory reserve deposits with central banks Intangible assets Total assets Equity and liabilities Ordinary share capital Ordinary share premium Reserves Total equity attributable to ordinary equity holders Non-controlling interest attributable to ordinary shareholders Holders of preference shares Holders of additional tier 1 capital instruments Total equity Derivative financial instruments Amounts owed to depositors Provisions and other liabilities Current taxation liabilities Non-current liabilities held for sale Deferred taxation liabilities Long-term employee benefit liabilities Investment contract liabilities Insurance contract liabilities Long-term debt instruments Total liabilities Total equity and liabilities 8 8 8 9 10 11 12 14 891 52 605 80 325 130 468 1 753 731 214 71 251 40 838 16 802 164 26 425 69 3 322 657 – 11 334 5 777 26 491 13 751 14 149 64 451 35 243 97 286 3 271 769 859 32 678 22 249 15 393 281 28 961 735 3 917 389 56 11 977 5 602 23 486 13 366 1 228 137 1 143 349 484 18 583 69 925 88 992 466 3 164 7 822 100 444 65 130 953 715 23 704 590 – 390 2 604 20 868 922 59 770 481 18 096 69 020 87 597 780 3 222 6 850 98 449 27 991 904 382 23 297 161 598 939 2 533 24 571 715 59 713 1 127 693 1 044 900 1 228 137 1 143 349 67 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Consolidated statement of changes in equity for the year ended 31 December Rm Balance at 1 January 2019 Shares issued in terms of employee incentive schemes Additional tier 1 capital instruments issued Shares (acquired)/no longer held by group entities and BEE schemes Preference share dividend paid Dividends paid to shareholders Total comprehensive income for the year Profit attributable to ordinary equity holders and non-controlling interest Exchange differences on translating foreign operations Movement in fair-value reserve Gains on property revaluations Remeasurements on long-term employee benefit assets Share of OCI of investments accounted for using the equity method Transfer to/(from) reserves Share-based payment reserve movements Additional tier 1 capital instruments interest paid Other movements Balance at 31 December 2019 Shares issued in terms of employee incentive schemes Additional tier 1 capital instruments issued Shares (acquired)/no longer held by group entities and BEE schemes Preference share dividend paid3 Additional tier 1 capital instruments interest paid Dividends paid to shareholders Total comprehensive income for the year Profit attributable to ordinary equity holders and non-controlling interest Exchange differences on translating foreign operations4 Movement in fair-value reserve Gains/(Losses) on property revaluations Remeasurements on long-term employee benefit assets Share of OCI of investments accounted for using the equity method Transfer to/(from) reserves Share-based payments reserve movement Transactions with non-controlling interest Other movements Number of ordinary shares 477 128 735 4 170 790 (125 146) Ordinary share capital Ordinary share premium Foreign currency translation reserve Property reserve revaluation Share-based payment reserve Other non- Other to ordinary attributable attributable to participating distributable Fair-value distributable equity to ordinary preference preference tier 1 capital shareholders’ reserves1 reserves reserves2 holders shareholders shareholders shares5 instruments Equity Holders of Holders of additional Total equity attributable Non- controlling interest 477 4 17 315 (1 389) 1 725 1 507 (80) 1 064 62 508 83 127 867 3 222 825 (44) (632) (855) 186 – – (470) (68) (787) 186 (72) 481 174 379 5 000 960 481 5 18 096 (2 244) 1 839 779 (2 282 572) (2) (292) 46 591 1 512 (435) 146 (26) – 672 (526) 103 (26) (41) (15) (337) 292 12 001 12 001 (313) 313 313 (14) (73) 18 (91) (197) (7 112) 12 156 300 (145) 1 18 (80) 395 66 173 (11) – – – (44) (7 112) 11 017 (68) (232) 186 300 (1 170) – 591 – 18 – – (294) (3 451) 4 358 672 119 (26) (80) 206 – 292 205 (11) (49) 55 55 (320) (232) (238) 25 119 337 (89) – 401 (56) (55) 594 67 374 87 597 780 3 222 – 6 850 98 449 (53) 296 – 456 (3 451) 3 782 3 467 3 467 (251) 251 251 (58) (58) 3 397 3 500 478 478 (525) 972 (739) 739 739 Total equity 90 613 – 3 500 (44) (313) (7 126) 11 735 12 810 (159) (232) 186 300 (1 170) – 591 (525) 18 296 972 (294) (251) (739) (3 500) 5 345 4 454 672 119 (26) (80) 206 – 292 (115) (11) Balance at 31 December 2020 483 892 767 484 18 583 (1 995) 1 757 1 032 290 961 67 880 88 992 466 3 222 (58) 7 822 100 444 1 Represents other non-distributable revaluation surplus on capital items and non-distributable reserves transferred from other distributable reserves, to comply with various banking regulations, of R290m (2019: R168m). The prior-year balance was offset by the difference between the at-acquisition fair value (net basis) and gross value of the Banco Único put option of R223m. 2 Represents the accumulated profits after distributions to shareholders and appropriations of retained earnings to other non-distributable reserves. 3 Preference share dividends include total dividends paid of R280m less preference dividends earned in respect of preference shares, held by group entities, of R29m. 4 Exchange differences of R672m disclosed in the statement of other comprehensive income includes R227m for the conversion of our investment in ETI from USD to ZAR. 5 The R58m loss attributable to holders of participating preferences shares relates to economic losses allocated to participating preference shareholders in accordance with an operating-profit-share preference share agreement. 68 NEDBANK GROUP Annual Results 2020 Rm schemes Balance at 1 January 2019 Shares issued in terms of employee incentive 477 128 735 4 170 790 477 4 (125 146) 825 (44) Number of Ordinary Ordinary Property Share-based ordinary shares share capital share translation reserve premium reserve revaluation payment reserve Foreign currency Other non- distributable reserves1 Fair-value reserves Other distributable reserves2 Total equity attributable to ordinary equity holders Non- controlling interest attributable to ordinary shareholders Equity attributable to preference shareholders Holders of participating preference shares5 Holders of additional tier 1 capital instruments Total shareholders’ equity 17 315 (1 389) 1 725 1 507 (80) 1 064 62 508 83 127 867 3 222 3 397 90 613 (855) 186 – – (470) (232) (238) 25 (313) 313 313 (14) (73) 18 (91) (197) (7 112) 12 156 – – (44) – (7 112) 11 017 12 001 12 001 (68) (232) 186 300 (1 170) – 591 – 18 300 (145) 1 18 3 500 478 478 (525) – 3 500 (44) (313) (7 126) 11 735 12 810 (159) (232) 186 300 (1 170) – 591 (525) 18 18 096 (2 244) 1 839 (55) 594 67 374 87 597 780 3 222 – 6 850 98 449 146 (26) – – 456 (53) 296 – (294) – (3 451) 3 782 (3 451) 4 358 3 467 3 467 (49) 55 55 (251) 251 251 (58) (58) 972 (739) 739 739 119 337 (89) – 401 (56) 672 119 (26) (80) 206 – 292 205 (11) (80) 395 66 173 (11) (320) 296 972 (294) (251) (739) (3 500) 5 345 4 454 672 119 (26) (80) 206 – 292 (115) (11) Balance at 31 December 2020 483 892 767 484 18 583 (1 995) 1 757 1 032 290 961 67 880 88 992 466 3 222 (58) 7 822 100 444 Additional tier 1 capital instruments issued Shares (acquired)/no longer held by group entities and BEE schemes Preference share dividend paid Dividends paid to shareholders Total comprehensive income for the year Profit attributable to ordinary equity holders and non-controlling interest Exchange differences on translating foreign operations Movement in fair-value reserve Gains on property revaluations Remeasurements on long-term employee benefit assets Share of OCI of investments accounted for using the equity method Transfer to/(from) reserves Share-based payment reserve movements Additional tier 1 capital instruments interest paid Other movements Additional tier 1 capital instruments issued Shares (acquired)/no longer held by group entities and BEE schemes Preference share dividend paid3 Additional tier 1 capital instruments interest paid Dividends paid to shareholders Total comprehensive income for the year Profit attributable to ordinary equity holders and non-controlling interest Exchange differences on translating foreign operations4 Movement in fair-value reserve Gains/(Losses) on property revaluations Remeasurements on long-term employee benefit assets Share of OCI of investments accounted for using the equity method Transfer to/(from) reserves Share-based payments reserve movement Transactions with non-controlling interest Other movements Balance at 31 December 2019 Shares issued in terms of employee incentive schemes 481 174 379 5 000 960 481 5 779 (2 282 572) (2) (292) (632) 46 591 1 512 (435) (337) 292 (68) (787) 672 (526) 103 186 (72) (26) (41) (15) 1 Represents other non-distributable revaluation surplus on capital items and non-distributable reserves transferred from other distributable reserves, to comply with various banking regulations, of R290m (2019: R168m). The prior-year balance was offset by the difference between the at-acquisition fair value (net basis) and gross value of the Banco Único put option of R223m. 2 Represents the accumulated profits after distributions to shareholders and appropriations of retained earnings to other non-distributable reserves. 3 Preference share dividends include total dividends paid of R280m less preference dividends earned in respect of preference shares, held by group entities, 4 Exchange differences of R672m disclosed in the statement of other comprehensive income includes R227m for the conversion of our investment in ETI from USD of R29m. to ZAR. 5 The R58m loss attributable to holders of participating preferences shares relates to economic losses allocated to participating preference shareholders in accordance with an operating-profit-share preference share agreement. 69 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Return-on-equity drivers for the year ended 31 December Rm NII Impairments charge on financial instruments NIR Income from normal operations Total operating expenses Zimbabwe hyperinflation Share of gains of associate companies Net profit before taxation Indirect taxation Direct taxation Net profit after taxation Non-controlling interest Headline earnings Daily average interest-earning banking assets Daily average total assets Daily average shareholders’ funds Daily average shareholders’ funds, excluding goodwill Note: Averages calculated on a 365-day basis. NII/average interest-earning banking assets Impairments/average interest-earning banking assets NIR/average interest-earning banking assets Total expenses/average interest-earning banking assets Zimbabwe hyperinflation/average interest-earning banking assets Associate income/average interest-earning banking assets 100% – effective direct and indirect taxation rate 100% – income attributable to minorities Headline earnings Interest-earning banking assets/daily average total assets Return on total assets Leverage ROE 70 2020 2019 30 081 (13 127) 24 140 41 094 (31 772) (205) 452 9 569 (1 148) (1 994) 6 427 (987) 5 440 895 880 1 209 835 88 021 82 897 2020 3,36% less 1,47% add 2,69% 4,58% less 3,55% less 0,02% add 0,05% 30 167 (6 129) 25 997 50 035 (32 179) (296) 793 18 353 (1 096) (3 942) 13 315 (809) 12 506 857 981 1 104 160 83 579 78 402 2019 3,52% less 0,71% add 3,03% 5,84% less 3,75% less 0,03% add 0,09% 1,06% 2,15% multiply multiply 0,67 0,73 multiply multiply 0,85 0,60% 0,94 1,48% multiply multiply 74,0% = 0,45% 77,7% = 1,13% multiply multiply 13,74 = 6,2% 13,21 = 15,0% NEDBANK GROUP Annual Results 2020 SEGMENTAL ANALYSIS. 72 74 76 79 94 97 Our organisational structure, products and services Operational segmental reporting Nedbank Corporate and Investment Banking Nedbank Retail and Business Banking Nedbank Wealth Nedbank Africa Regions 101 Geographical segmental reporting 71 NEDBANK GROUP Annual Results 2020Our organisational structure, products and services We deliver our products and services through four main business clusters. NEDBANK CORPORATE AND INVESTMENT BANKING NEDBANK RETAIL AND BUSINESS BANKING Corporates, institutions and parastatals with an annual turnover of over R750m. Individual clients and businesses. I S T N E L C R U O S T C U D O R P R U O I S E C V R E S D N A > 600 large corporate clients. Full suite of wholesale banking solutions, including investment banking and corporate lending, global markets and treasury, commercial-property finance, deposit-taking, and transactional banking. > 7,3 million clients, including: • > 302 000 small and medium enterprises (typically businesses with an annual turnover of less than R30m), as well as informal traders like spaza shops. • > 14 583 business-banking client groups with a annual turnover of between R30m and R750m. (Client groups with an annual turnover of < R30m previously managed under Business Banking were migrated to small and medium enterprises in July 2019). Of the total clients, 2,94 million are retail main-banked clients. Full range of Banking and Beyond services including transactional banking, card and payment solutions, lending solutions, deposit-taking services, risk management, investment products, card-acquiring services for businesses, ecosystems and platforms-based solutions. • Market leader with strong expertise in commercial property, • A leader in business banking, underpinned by an accountable, corporate advances, advisory and renewable-energy financing. empowered, decentralised business service model. • Market leading trading franchise with excellent trading • End-to-end digital onboarding capability for transactional and capabilities across all asset classes lending products across various channels. • Leading industry expertise in public sector, mining and • resources, infrastructure and telecoms. Integrated model, delivering high levels of client service and better coverage. • Ability to attract and retain high-quality intellectual capital. • Efficient franchise. H T G N E R T S F O S A E R A R U O I I N O T A T N E R E F F D D N A I ADVANCES HE CONTRIBUTION 50,9% 66,8% ADVANCES R429bn HE R3 636m ROE 9,4% I S C R T E M Y E K 72 • Differentiated and disruptive CVPs across our different client segments, including Unlocked.Me, MobiMoney, Avo, MoneyTracker, USSD-based Stokvel Account, Home-buying Toolkit, Karri school payments app, tap on phone, SimplyBiz and API_Marketplace. • Highly competitive relationship banking offering for our affluent (Professional Banking) and small-business clients. • Digitally enabled, reimagined distribution network with five different store types, including retailer partnerships and flexible workforce. • Leading client experiences evidenced by our improvement in NPS and social-media sentiment, as well as recent award wins for being most helpful bank in South Africa (and Africa) during Covid-19, as voted by clients (Asian Banker BankQuality Consumer Survey on Retail Banks 2020). • Proud of my Town community transformation initiative. ADVANCES HE CONTRIBUTION 42,2% 29,3% ADVANCES R356bn HE R1 595m ROE 5,4% NEDBANK GROUP Annual Results 2020 NEDBANK WEALTH NEDBANK AFRICA REGIONS High-net-worth individuals, and other retail, business and corporate clients. Retail, small and medium enterprises, and business and corporate clients across the countries we operate in. > 18 400 high-net-worth clients locally and internationally (SA, UK, Guernsey, Jersey, Isle of Man and the UAE). > 334 000 clients. Wide range of financial services, including high-net-worth banking and wealth management solutions, as well as asset management and insurance offerings. Full range of banking services, including transactional, lending, deposit-taking services and card products, as well as selected wealth management offerings. Bancassurance offering in selected markets. Nedbank Insurance • Nedbank Insurance Funeral Plan (NIFP) included on five Nedbank digital platforms (Money app, Online Banking, USSD, API_Market Place and Avo). • Nedbank Insurance on-licence personal lines product will be launched to the the broader market in 2021 and included on the Money app. Nedbank Private Wealth • Holistic and integrated high net worth offering. • Launched a seamless service to enable clients to transfer money from their SA account to their Nedbank Private Wealth International Focus Account via the Nedbank Private Wealth app. • Nedbank Private Wealth International was named Best Boutique Private Bank at the 2020 Wealth briefing MENA Region awards. Asset Management • Top fund managers identified through Nedgroup Investments' Best of breed™ investment approach. • Nedgroup Investments launched the MyRetirement solution – an innovative, low-cost, post-retirement solution. SADC (own, manage and control banks) • Presence in five SADC countries – well positioned for growth on the back of a standardised model nuanced for market context. • Technology investments to enhance CVPs and achieve scale (Winner of various awards in 2020: Best Digital Bank in Lesotho and the Most Innovative Bank in Eswatini. Banco Único was awarded Best Digital Bank of Mozambique by the Global Banking & Finance Review, making it the 25th award they have received for their digital offers.) • Winner of the Fastest-growing Bank award in Mozambique (Banco Único) at the Global Banking & Finance Awards. • Aiming for #1 in client service in every market that we are operating in. (#1 in NPS scores in Lesotho and Namibia, and Nedbank Namibia won a Diamond Arrow award at the PMR.africa Namibia Country Survey Business Excellence Awards for Nedbank Private Banking.) Central and West Africa (ETI alliance – 21,2% shareholding) • Ecobank-Nedbank alliance is the widest banking network on the African continent in 39 countries. • Aiming to increase deal flow by leveraging ETI’s local presence and knowledge and Nedbank’s structuring expertise. • ETI has a very strong West and Central Africa franchise: they are in the top three in 13 of 16 countries in the region. ADVANCES HE CONTRIBUTION 3,7% 12,2% ADVANCES R31bn HE R662m ROE 15,3% ADVANCES R23bn HE R12m ROE 0,2% ADVANCES HE CONTRIBUTION 2,7% 0,2% 73 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 Operational segmental reporting for the year ended 31 December Rm Summary of consolidated statement of financial position (Rm) Assets Cash and cash equivalents Other short-term securities Derivative financial instruments Government and other securities Loans and advances Other assets Intragroup assets Total assets Equity and liabilities Total equity Average allocated capital Non-controlling interest Other equity1 Derivative financial instruments Amounts owed to depositors Provisions and other liabilities Long-term debt instruments Intragroup liabilities Total equity and liabilities Summary of consolidated statement of comprehensive income (Rm) NII Impairments charge on financial instruments Income from lending activities NIR Operating income Total operating expenses Zimbabwe hyperinflation Indirect taxation Profit/(Loss) from operations Share of gains of associate companies Profit before direct taxation Direct taxation Profit after taxation Profit attributable to: – Non-controlling interest – ordinary shareholders – Holders of preference shares – Holders of additional tier 1 capital instruments Nedbank Group Corporate and Investment Banking Retail and Business Banking Wealth Nedbank Africa Regions Centre 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 41 382 52 605 80 325 132 221 843 303 78 301 – 37 635 64 451 35 243 100 557 824 786 80 677 – 997 24 403 80 264 54 232 428 992 18 460 1 798 30 773 35 174 35 317 423 542 17 122 1 228 137 1 143 349 607 348 543 726 80 244 77 433 38 385 108 858 106 054 100 444 90 115 11 451 (1 122) 65 130 953 715 49 078 59 770 – 98 449 85 111 10 852 2 486 27 991 904 382 52 814 59 713 – 1 228 137 1 143 349 30 081 13 127 16 954 24 140 41 094 31 772 205 1 148 7 969 452 8 421 1 994 6 427 55 193 739 30 167 6 129 24 038 25 997 50 035 32 179 296 1 096 16 464 793 17 257 3 942 13 315 18 313 478 38 691 38 691 34 885 34 885 65 079 423 046 10 095 543 69 894 607 348 7 339 3 245 4 094 7 229 11 323 6 432 159 4 732 115 4 847 1 211 3 636 27 973 379 656 8 426 705 92 081 543 726 7 390 917 6 473 8 175 14 648 6 604 181 7 863 121 7 984 1 836 6 148 (19) Headline earnings 5 440 12 506 3 636 6 167 1 595 5 293 662 1 042 457 (465) Selected ratios Average interest-earning banking assets (Rm) Average risk-weighted assets (Rbn) ROA (%) RORWA (%) ROE (%) Interest margin (%)2 NIR to total income (%) NIR to total operating expenses (%) CLR – banking advances (%) Cost-to-income ratio, including associate income (%) Effective taxation rate (%) Contribution to group economic (loss)/profit (Rm) Number of employees (permament staff) 895 880 665 119 0,45 0,82 6,2 3,36 44,5 76,0 1,61 58,1 23,7 (6 580) 28 271 857 981 620 113 1,13 2,02 15,0 3,52 46,3 80,8 0,79 56,5 22,8 1 412 29 213 392 089 340 490 0,60 1,07 9,4 1,87 49,6 112,4 0,82 43,8 25,0 (1 974) 2 470 371 862 302 360 1,15 2,04 17,7 1,99 52,5 123,8 0,25 42,1 23,0 1 234 2 553 1 Other equity includes the variance between average allocated capital, which is computed using the average-equity month-end balances and actual equity. 2 Cluster margins include internal assets. 74 390 598 377 751 41 089 38 385 6 468 6 168 356 272 11 917 15 941 390 598 29 573 29 573 349 396 10 610 11 577 377 751 30 573 30 573 354 243 5 242 1 540 338 901 5 829 2 448 19 692 8 746 10 946 11 830 22 776 20 161 488 2 127 2 127 590 1 537 0,42 0,75 5,4 5,40 37,5 58,7 2,40 64,0 27,7 (2 693) 17 267 19 831 4 823 15 008 13 318 28 326 20 384 548 7 394 7 394 2 059 5 335 1,44 2,60 17,3 5,67 40,2 65,3 1,38 61,5 27,8 967 17 607 (58) 42 1 981 25 105 2 31 133 22 023 4 327 4 327 12 43 945 25 527 6 433 80 244 897 208 689 3 303 3 992 3 061 91 840 840 178 662 0,81 2,28 15,3 1,51 78,6 107,9 0,64 72,9 21,2 35 2 115 1 746 20 701 7 30 741 24 238 4 204 4 204 6 40 060 29 703 3 460 77 433 1 148 57 1 091 3 436 4 527 3 113 113 1 301 1 301 259 1 042 52 968 26 468 1,40 3,94 24,8 2,17 75,0 110,4 0,18 67,9 19,9 447 2 207 6 813 3 639 33 827 23 233 3 811 2 733 41 089 6 471 6 471 39 33 294 967 318 1 274 437 837 1 454 2 291 2 325 205 64 (303) 337 34 (30) 64 52 12 0,03 0,03 0,2 3,85 53,3 62,5 1,85 75,9 (88,2) (929) 2 352 6 341 4 083 38 848 21 678 4 898 499 5 943 5 943 11 30 223 1 891 317 1 547 233 1 314 1 220 2 534 2 427 296 58 (247) 672 425 (64) 489 32 1,19 0,93 7,7 5,01 44,1 50,3 1,01 70,6 (15,0) (384) 2 581 25 123 (542) 26 77 162 3 673 22 090 (18 674) 21 382 11 053 11 451 (1 122) 99 187 7 247 57 369 (76 327) 108 858 879 491 388 324 712 (207) 346 573 573 45 528 3 251 739 21 582 8 894 24 64 392 (571) 23 809 (12 076) 22 844 9 506 10 852 2 486 1 115 542 6 965 56 243 (95 541) 106 054 251 99 152 (152) – (349) 196 153 153 (148) 301 5 271 478 (453) (1 019) 4 067 (852) 4 265 364 417 211 606 349 599 203 383 59 590 29 060 33 126 44 636 30 848 48 938 46 658 39 327 52 704 38 964 NEDBANK GROUP Annual Results 2020 Nedbank Group Corporate and Investment Banking Retail and Business Banking Wealth Nedbank Africa Regions Centre 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Summary of consolidated statement of comprehensive income 1 228 137 1 143 349 Summary of consolidated statement of financial position (Rm) Rm Assets Cash and cash equivalents Other short-term securities Derivative financial instruments Government and other securities Loans and advances Other assets Intragroup assets Total assets Equity and liabilities Total equity Average allocated capital Non-controlling interest Other equity1 Derivative financial instruments Amounts owed to depositors Provisions and other liabilities Long-term debt instruments Intragroup liabilities Total equity and liabilities (Rm) NII NIR Impairments charge on financial instruments Income from lending activities Operating income Total operating expenses Zimbabwe hyperinflation Indirect taxation Profit/(Loss) from operations Share of gains of associate companies Profit before direct taxation Direct taxation Profit after taxation Profit attributable to: – Non-controlling interest – ordinary shareholders – Holders of preference shares – Holders of additional tier 1 capital instruments Headline earnings Selected ratios ROA (%) RORWA (%) ROE (%) Interest margin (%)2 NIR to total income (%) NIR to total operating expenses (%) CLR – banking advances (%) Cost-to-income ratio, including associate income (%) Effective taxation rate (%) Contribution to group economic (loss)/profit (Rm) Number of employees (permament staff) 1 228 137 1 143 349 607 348 543 726 41 382 52 605 80 325 132 221 843 303 78 301 – 100 444 90 115 11 451 (1 122) 65 130 953 715 49 078 59 770 – 30 081 13 127 16 954 24 140 41 094 31 772 205 1 148 7 969 452 8 421 1 994 6 427 55 193 739 0,45 0,82 6,2 3,36 44,5 76,0 1,61 58,1 23,7 (6 580) 28 271 37 635 64 451 35 243 100 557 824 786 80 677 – 98 449 85 111 10 852 2 486 27 991 904 382 52 814 59 713 – 30 167 6 129 24 038 25 997 50 035 32 179 296 1 096 16 464 793 17 257 3 942 13 315 18 313 478 1,13 2,02 15,0 3,52 46,3 80,8 0,79 56,5 22,8 1 412 29 213 997 24 403 80 264 54 232 428 992 18 460 1 798 30 773 35 174 35 317 423 542 17 122 38 691 38 691 34 885 34 885 65 079 423 046 10 095 543 69 894 607 348 7 339 3 245 4 094 7 229 11 323 6 432 159 4 732 115 4 847 1 211 3 636 0,60 1,07 9,4 1,87 49,6 112,4 0,82 43,8 25,0 (1 974) 2 470 27 973 379 656 8 426 705 92 081 543 726 7 390 917 6 473 8 175 14 648 6 604 181 7 863 121 7 984 1 836 6 148 (19) 1,15 2,04 17,7 1,99 52,5 123,8 0,25 42,1 23,0 1 234 2 553 Average interest-earning banking assets (Rm) Average risk-weighted assets (Rbn) 895 880 665 119 857 981 620 113 392 089 340 490 371 862 302 360 1 Other equity includes the variance between average allocated capital, which is computed using the average-equity month-end balances and actual equity. 2 Cluster margins include internal assets. 6 468 6 168 356 272 11 917 15 941 390 598 29 573 29 573 349 396 10 610 11 577 377 751 30 573 30 573 354 243 5 242 1 540 338 901 5 829 2 448 390 598 377 751 19 692 8 746 10 946 11 830 22 776 20 161 488 2 127 2 127 590 1 537 19 831 4 823 15 008 13 318 28 326 20 384 548 7 394 7 394 2 059 5 335 (58) 42 1 981 25 105 2 31 133 22 023 1 746 20 701 7 30 741 24 238 80 244 77 433 4 327 4 327 12 43 945 25 527 6 433 80 244 897 208 689 3 303 3 992 3 061 91 840 840 178 662 4 204 4 204 6 40 060 29 703 3 460 77 433 1 148 57 1 091 3 436 4 527 3 113 113 1 301 1 301 259 1 042 5 440 12 506 3 636 6 167 1 595 5 293 662 1 042 364 417 211 606 0,42 0,75 5,4 5,40 37,5 58,7 2,40 64,0 27,7 (2 693) 17 267 349 599 203 383 1,44 2,60 17,3 5,67 40,2 65,3 1,38 61,5 27,8 967 17 607 59 590 29 060 0,81 2,28 15,3 1,51 78,6 107,9 0,64 72,9 21,2 35 2 115 52 968 26 468 1,40 3,94 24,8 2,17 75,0 110,4 0,18 67,9 19,9 447 2 207 41 089 38 385 6 813 3 639 33 827 23 233 3 811 2 733 41 089 6 471 6 471 39 33 294 967 318 1 274 437 837 1 454 2 291 2 325 205 64 (303) 337 34 (30) 64 52 12 33 126 44 636 0,03 0,03 0,2 3,85 53,3 62,5 1,85 75,9 (88,2) (929) 2 352 6 341 4 083 38 848 21 678 4 898 499 25 123 (542) 26 77 162 3 673 22 090 (18 674) 21 582 8 894 24 64 392 (571) 23 809 (12 076) 38 385 108 858 106 054 5 943 5 943 11 30 223 1 891 317 1 547 233 1 314 1 220 2 534 2 427 296 58 (247) 672 425 (64) 489 32 21 382 11 053 11 451 (1 122) 99 187 7 247 57 369 (76 327) 108 858 879 491 388 324 712 (207) 346 573 573 45 528 3 251 739 22 844 9 506 10 852 2 486 1 115 542 6 965 56 243 (95 541) 106 054 251 99 152 (152) – (349) 196 153 153 (148) 301 5 271 478 (453) 457 (465) 30 848 48 938 1,19 0,93 7,7 5,01 44,1 50,3 1,01 70,6 (15,0) (384) 2 581 46 658 39 327 52 704 38 964 (1 019) 4 067 (852) 4 265 75 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 Nedbank Corporate and Investment Banking HEADLINE EARNINGS (Rm) HEADLINE EARNINGS (Rm) RETURN ON EQUITY (%) RETURN ON EQUITY (%) 4 1 0 6 5 1 3 6 4 1 7 6 7 6 1 6 6 3 6 3 1 , 1 2 , 7 0 2 , 0 0 2 , 7 7 1 4 9 , 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 The Covid-19 pandemic and the difficult economic environment impacted CIB’s results. HE decreased by 41,0% to R3 636m and ROE fell to 9,4%. GOI was under pressure and declined by 6,4% to R14 683m, due largely to decreased endowment income, negative equity revaluations and declining fees and commissions. This was offset by good trading income growth of 16%. Capital was well managed throughout the year and grew by 10,9% due to rating migrations, advances growth during H1 and an increase in market risk capital. NII decreased by 0,7% to R7 339m, with AIEBA increasing by 5,4% to R392bn and average banking advances increasing by 6,2% to R394bn, as clients drew down on liquidity facilities during the crisis. Actual banking advances decreased 8,1% to R361bn due to repayments in H2 as well as optimisation efforts to manage RWA. This was in large part due to an active focus on portfolio and capital optimisation. Average deposits increased by 10,8% to R407bn as a result of delayed client capital investment. NIM decreased by 12 bps to 1,87% driven by a reduction in endowment and higher cost FINANCIAL HIGHLIGHTS Corporate and Investment Banking Property Finance Corporate and Investment Banking, excluding Property Finance Headline earnings (Rm) NII (Rm) Impairments charge on financial instruments (Rm) NIR (Rm) Gross operating income (including associate income) (Rm) Operating expenses (Rm) ROE (%) ROA (%) CLR – banking advances (%) NIR to total operating expenses (%) Cost-to-income ratio (%) Interest margin (%) Total assets (Rm) Average total assets (Rm) Total advances (Rm) Average total advances (Rm) Total deposits (Rm) Average total deposits (Rm) Average allocated capital (Rm) Financial highlights 2020 3 636 7 339 3 245 7 229 14 683 6 432 9,4 0,60 0,82 112,4 43,8 1,87 607 348 608 288 428 992 446 176 423 046 407 418 38 691 2019 6 167 7 390 917 8 175 15 686 6 604 17,7 1,15 0,25 123,8 42,1 1,99 543 726 538 064 423 542 405 888 379 656 367 804 34 885 2020 250 2 111 911 146 2 258 956 2,7 0,12 0,54 15,3 42,4 1,07 174 587 172 680 168 832 166 942 341 357 9 222 2019 1 654 2 106 (32) 1 207 3 313 1 051 16,7 0,9 (0,02) 114,8 31,7 1,12 167 975 159 412 148 473 153 840 268 503 9 921 Property Finance Investment Banking Markets 2020 3 386 5 228 2 334 7 083 12 425 5 476 2019 4 513 5 284 949 6 968 12 373 5 553 432 761 435 608 260 160 279 234 422 705 407 061 29 469 375 751 378 652 275 069 252 048 379 388 367 301 24 964 Working capital and transactional services 2020 2019 2020 2019 2020 2019 2020 2019 2 258 3 313 3 460 3 649 5 682 5 106 3 283 3 618 166 942 153 840 198 942 187 444 58 455 38 724 21 837 25 880 Gross operating income (including associate income) (Rm) Average total advances (Rm) 76 NEDBANK GROUP Annual Results 2020 of funding during the crisis. This reduction was partially offset by asset margin increases as credit spreads widened to reflect the risk backdrop. Impairments increased to R3,2bn (2019: R917m) to account for the expected deterioration in the credit environment and stress in certain industries. Even though we have more favourable forward-looking macro parameters compared to H1 2020, we applied additional impairment overlays within the Investment Banking and Transactional Services portfolio, as well as the property sectors where we expect lagging risk migration over the next 12 to 18 months. The CLR increased to 0,82%, which is higher than the GFC peak of 0,43%. The total impairment coverage ratio increased from 0,65% in December 2019 to 1,08%, driven by stage 1 and stage 2 portfolio impairments. Stage 3 advances increased from R4,1bn in December 2019 to R11,0bn – representing 3,7% of banking advances - as the difficult environment resulted in several watchlist clients migrating to non-performing status or requiring distressed restructures. The increased stage 3 impairments mostly relate to lower-than-expected recovery values and an increased time to resolve non-performing loans in the current depressed environment. The stage 3 (specific) coverage ratio decreased to 14,9% due to some write offs in H2 2020 where higher impairments were held, the level of collateralisation on the remaining defaulted book and certain stage 3 loans having implemented restructures. These will now be monitored before they can be re-rated to the performing portfolio. A total of R25,4bn in Directive 3/2020 restructures (8,2% of banking advances) were still in place at year-end, with exposures mainly in the hospitality, property, consumer goods and construction and cement sectors. We remain vigilant on high-risk sectors such as aviation, construction and hospitality and we believe we have raised adequate impairments. NIR decreased by 11,6% to R7 229m due to negative equity revaluations in private equity income as the profitability of certain counters were impacted over this period. Fee and commission income declined by 10,8% to R2 906m as a result of the lockdown negatively impacting new-client-related activities - particularly in Investment Banking. These factors were offset somewhat by good trading income performance – growing at 16,1% and a 4,9% growth in Transactional Services – which continued to see primary-client wins. The NIR-to-expense ratio decreased to 112,4% (2019: 123,8%). Cost containment resulted in expenses decreasing by 2,6% from the prior year. Our cost-to-income ratio has increased slightly from 42,1% in the prior year to 43,8% as a result of the muted income levels. PROPERTY FINANCE Conditions in the property sector are likely to remain challenging for the foreseeable future. Our areas of focus during the second half of the year have been on liquidity pressures caused by the lockdown as well as the longer-term impact expected on property values. We have worked extensively with clients to offer short-term liquidity relief where they experienced cashflow pressures. Our experience, however, is that liquidity in the sector remained significantly better than expected, with our portfolio remaining resilient. We anticipate a decline in property values in the medium term and have started to see this materialise through results reported in the listed sector, as well as through our own valuations of collateral that we hold. While initial value reductions have generally not been excessive, we anticipate the downward trend to continue for the foreseeable future. We will continue to work with clients to understand the themes that are evolving and the potential impact they could have on values. GOI decreased by 31,9%, driven mainly by NIR declining 87,9% as a result of negative equity revaluations, impairments in the mezzanine book and reduced fee and commission income. Total advances increased by 4,1% to R169bn, but NII was flat as a result of the interest rate cuts impacting endowment income. The CLR increased to 0,54% (2019: -0,02%) due to increased impairments as well as overlays raised for listed funds and exposures in the retail, offices and hospitality sectors where we expect negative risk migration over the next 12 to 18 months. Our portfolio contains good-quality collateralised assets and is well diversified. This is underpinned by a strong client base and supported by an experienced property team. INVESTMENT BANKING Investment Banking was impacted by higher impairment charges and negative revaluations on equity exposures, which resulted in GOI decreasing by 5,6%. Actual banking advances, including corporate bonds, decreased by 13,6% due to active portfolio management as we focused on capital optimisation and experienced early repayments from clients in the second half of the year. NII increased by 9,9% due to higher annual average advances and a change in the mix across the portfolio. A higher impairment charge was driven by the expected negative risk migration in the performing portfolio and a larger defaulted book with increased stage 3 impairments. Defaulted exposures increased due to clients experiencing increased pressure, particularly in the aviation, commodity trading, business services and SOE sectors. NIR was impacted by negative equity revaluations, with the private equity portfolio experiencing a reduction in the overall portfolio valuation in line with related JSE sectors. Fees and commissions decreased by 16,4% due to reduced client activity. Despite the challenges in specific sectors we have seen growth in mining and resources, oil and gas, telecoms and energy where Investment Banking has market-leading expertise. Focus is being put on the current advances pipeline to ensure optimisation of return on risk-weighted assets and cross-selling into the broader CIB offering. MARKETS Markets were well positioned for volatility, with trading income growing at 16,3% off a strong base, reflecting good performances across all asset classes. Revenue generation remained robust, despite an expected decline given the dissipation of volatility and compression of rates in the second half of the year. GOI grew at 11,3% and NIR increased by 12,2% to R4 857m. Equities trading increased by 50,7%, driven by strong risk management, increased levels of volatility and good client activity. Strong market-making results in fixed income as well as hedging activity in xVA led to an overall increase of debt securities revenue. Foreign exchange performance was up by 8,6%, largely driven by good outcomes in FX derivatives hedging where Nedbank’s newly positioned offering and team were able to take advantage of the increased client activity levels during the lockdown period. WORKING CAPITAL AND TRANSACTIONAL SERVICES GOI decreased by 8,8% due to the decline in NII from R2 129m in 2019 to R1 792m. This was due to margin pressure on deposits, while average deposits grew 10,6%. Transactional revenue increased by 4,9% driven by the contribution and cumulative effect of our 160 primary-banked wins since 2015, inclusive of the 37 won in 2020 that will also accrete NIR over time. These primary-banked clients represent 10% of the Transactional Services GOI.The Transactional Services business placed strategic focus on growing the short-term lending, trade finance and asset-based finance 77 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020books through the formation of a specialised Working Capital sales team to facilitate additional deposit and transactional growth. In 2020, 46 new facilities were granted to the value of R14bn and 10 restructures undertaken, amounting to R6,4bn (total of R20,4bn).The overall credit environment remains difficult, with impairments increasing and a slowdown in global trade activity being experienced in 2020. Transactional Services continues to deliver on significant innovation in our product areas. We are focussed on efficiencies as well as API initiatives and solutions together with selected clients. Nedbank has invested in its digital capabilities and we will roll out the Nedbank Business Hub (NBH) - an advanced juristic onboarding and servicing digital platform. Looking forward The Covid-19 pandemic and the subsequent measures implemented to contain the spread of the virus have caused further damage to an economy that was already in technical recession. Despite this, we have a robust pipeline and will continue to focus on optimising risk and returns, cross selling and diversifying our revenue pools. Uncertainty continues to be a trend with the ongoing pandemic and a third wave of infections in SA could become a reality. We are continuing our efforts to help clients, protect businesses, and save jobs by providing highly focused client service and assistance where it is needed with an emphasis on providing proactive risk management and focus on resolutions in stressed sectors. Our key strategies for 2021 are to formalise our balance sheet optimisation approach, build opportunities off the base of our ESG credentials, work with South African institutions to build a sustainable economy and accelerate our digital ambitions. We plan to enhance the active optimisation of our balance sheet in line with global investment banking trends, focusing on delivering our ROE ambitions. By developing deep client and product analytics to understand overall returns, changes over time and the effect of pipeline deals, we will ensure we are focused on the right sectors, clients and products. Attracting, upskilling and retaining top talent continues to be significant levers in growing our businesses and remain a priority while we continue to ensure that we build a culture with diversity, equity and inclusion at its heart. We believe our credentials and strength in ESG have an important part to play in creating a sustainable franchise – climate change is a defining battle of our generation that we must win and, as such, we will use our financial expertise to play a part in achieving a sustainable future for the country. We followed up our successful green renewable issuance in 2019 by raising R2bn through a first-of-its kind SDG-linked bond instrument listed on the green segment of the JSE. We also established a dedicated Sustainable Finance Solutions team to keep a front and centre presence and profile in the market as the go-to bank for innovative sustainable financial solutions. Our contribution to growth in our country as a financial services player remains a key focus. To this end we will look for opportunities to support the government’s Economic Reconstruction and Recovery Plan – with a focus on infrastructure and using our strong sector expertise and market leadership in renewable energy. Globally, our industry is increasingly seeing technology as a core capability of product delivery and innovation. There is also a growing focus on digital client experience. We still take the view that deep, quality client relationships are paramount, but acknowledge the importance of our digital ambitions to fulfil on a ‘warm digital’ engagement. This entails investing in meaningful client relationships where it matters, while creating a great digital ‘self-service’ experience for our clients’ day-to-day needs. Our focus, in this respect, is the long-term development of the Nedbank Business Hub to provide a single digital channel for all our clients’ day-to-day transactional and servicing requirements with a consistent, omni-channel user experience. We will leverage the assets created through Managed Evolution and adopt agile and lean practices in partnership with Group Technology to accelerate our digital delivery. Favourable Unfavourable • Strong performance in trading income increasing by 16%. • Impairments increased as the credit environment deteriorated. • Expenses reduced as a result of cost containment. • Worsening economic environment led to negative revaluations in • R25bn of D3 restructures to clients across all sectors still in place. private-equity income and lower client activity. • Achieved 37 primary client wins. • Reduced endowment income from interest rate reductions. 78 NEDBANK GROUP Annual Results 2020Nedbank Retail and Business Banking HEADLINE EARNINGS (Rm) HEADLINE EARNINGS (Rm) RETURN ON EQUITY (%) RETURN ON EQUITY (%) 0 6 9 4 2 0 3 5 9 7 3 5 3 9 2 5 5 9 5 1 , 9 8 1 1 , 9 1 , 9 8 1 , 3 7 1 4 5 , 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 OVERVIEW RBB’s financial performance has been severely impacted by the Covid-19 pandemic and lockdown measures, with HE for the year declining by 69,9% to R1 595m. The HE decline of 49,4% in H2 was better than the 91,2% reduction seen in H1, highlighting some degree of normalisation in economic activity. Allocated capital remained flat and, coupled with the much lower earnings, resulted in an ROE of 5,4%, up from 1,5% in June 2020. The main drivers of this performance are an 81,4% higher impairment charge and 4,9% lower revenues, while expenses decreased by 1,1% on the back of reduced staff incentives and active cost management. NII, although underpinned by moderate growth in advances and deposits, decreased as a result of higher funding costs and lower endowment income given the cumulative 300 bps decline in interest rates. Lower NIR was driven mainly by a reduction in client transactional activities and lower card acquiring revenue, particularly in the travel and leisure sectors, where we have a large market share. The decrease in revenues has resulted in PPOP decreasing by 10%. Impairments increased as clients felt the effect of earnings reductions due to the pandemic, although the impact anticipated at half year did not materialise to the full extent expected. This together with concerted collections efforts towards the end of 2020 resulted in a better-than-expected final impairment charge. We have maintained additional forward-looking information (FLI) impairment overlays across RBB to cover for further job losses that may still emerge given the fragile economy and further Covid-19-related lockdowns. We have also taken cognisance of our exposure to certain sectors of the economy that have been impacted more severely by the pandemic. Notwithstanding the weaker financial performance, RBB showed positive traction on a number of key non-financial metrics, including a 25% increase in digitally active clients, growth in main-banked clients in the EP-rich middle and affluent segments, market share gains in small business, improved Net Promoter Scores, maintaining second position in the South Africa Client Satisfaction Index (SAcsi), and showing positive trends in cross-sell. The business was also recognised at a number of awards, which are covered under the Digital Innovations section below. KEY DRIVERS OF THE 2020 FINANCIAL PERFORMANCE NII decreased by 0,7% to R19 692m, driven mainly by lower endowment income and the higher cost of funds (including prime– JIBAR squeeze), with moderate growth in average advances. Average total banking advances increased by 3,7% to R348bn, driven primarily by growth in personal loans and vehicle finance. Retail lending growth accelerated in H2 after recording low volumes during the April and May lockdown as demand for new home loans and vehicle finance stalled and card balances decreased. Personal Loans has seen good market share growth given enhanced digital processes, preapproved-loan solutions and lending APIs. Overdrafts increased as we supported the cashflow needs of our SME and Business Banking clients. Overall new-loan payouts decreased by R7,1bn to R97bn when compared to 2019. We experienced record intake and payouts on secured lending in H2, particularly in Home Loans. Average deposits increased by 4,7% to R344bn. Our market share of household deposits declined to 15,7% at December 2020, due to proactive pricing decisions to ensure an appropriate balance between margin and volume. This was driven mainly by reduced market share in demand and term deposits (down from 18,5% to 17,7%) as aggressive rate behaviour from competitors increased. Defaulted advances increased by 48% to R31,3bn from R21,1bn in December 2019, increasing the defaulted book to 8,3% of the advances portfolio, up from 5,8% in December 2019. Balance sheet impairments rose to 5,1% of total advances (2019: 3,9%) and coverage on the performing book increased to 2,15% from 1,54%. In particular, stage 2 coverage has increased from 6,94% to 9,48% as we have moved R771m of our Covid-19-related FLI provision to stage 2 in line with an expectation of R3,8bn of impacted GLAAs. It should, however, be noted that these GLAAs have not shown any individual stress behaviour, but on a portfolio basis we expect some of our clients to still be impacted by income and job losses in 2021. The CLR of 240 bps is an increase from 138 bps in the previous year. We have seen an increase in impairments due to higher consumer stress driven by a worsening macroeconomic environment as a result of the Covid-19 lockdown. Covid-19-related impairments of R1,8bn include job-loss-related FLI overlays (R1,0bn) to account for the likelihood that clients would still experience distress into 2021, Directive 3/2020 loans to cater for short-term residual risk of R334m, and a R416m provision to cater for specific industry stress in Business Banking. The loan repayment profile of the Directive 3/2020 payment relief population was significantly better than expected, with 88% of clients having repaid (79% have made three or more payments) and 9% having missed a payment (6% in stage 2 and 3% in stage 3). At December 2020, 3% had not yet matured (2% had had payment holidays extended and 1% were still under the original payment holiday). In addition, R5bn of these Directive 3/2020 loans had been repaid, with only R200m written off. 79 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 NIR decreased by 11,2% to R11 830m, primarily as a result of a reduction in transactional income and lower revenue from Card Issuing (a combined reduction of 9,4% yoy was offset by average product price increases of 3,25% from 1 January 2020). The NIR decrease was driven by Covid-19 lockdown impacts evident in falling card spend, lower sales across products, unfavourable client behaviour (eg increased transacting within bundles or a shift to self-service channels), higher insurance claims and fee waivers provided to clients during the height of the crisis. Expenses decreased by 1,1% to R20 161m, driven by reduced incentives and cost savings of R1 342m through ongoing, active cost management and a reduction in discretionary spend during the Covid-19 lockdown. Headcount has also decreased by 290 to 17 379 since December 2019, mainly achieved through natural attrition as we continue to leverage our investment in digital and Managed Evolution. In 2017 we launched our cost optimisation programme through the Business Transformation Office and by the end of 2020 we achieved R1,4bn in cumulative savings, driven mainly by our branch optimisation programme and process optimisation through robotic process automation (RPA) and digital transformation initiatives. Execution of our strategic focus areas Clients – Total client numbers decreased to 7,3 million, driven by lower transactional client numbers as transactional sales fell by 22%, impacted by the lockdown period. However, the number of main-banked clients was flat, falling slightly by 0,1% yoy to 2,94m at December 2020. This was a good outcome considering that main-banked clients had fallen to 2,65m in June 2020 as Covid-19 lockdown led to lower levels of client acquisition and client transacting frequency. Lower client transacting frequency impacts Nedbank’s main-banked count, as Nedbank’s ‘main-banked’ definition assumes regular transactional behaviour. Nedbank’s main-banked share of South African adults in 2020 was 11,2%, which was flat yoy. The share is estimated from the 2020 edition of a survey run annually by Consulta, an independent research company, that asks South African individuals, ‘Who is your main bank?’ With flat yoy growth in main-banked share, Nedbank was the second-best performing of SA’s top five retail banks regarding yoy change in main-banked share. In terms of our client experience metrics, Nedbank registered excellent gains in 2020 relative to peers. Consulta’s annual survey reported that Nedbank was now second among the big five retail SA banks on the Net Promoter Score (NPS), an improvement from third place in 2019. Nedbank retained its second position in the SAcsi – another measure of client experience – and extended the gap when compared to the third-placed bank. Nedbank’s performance reflects a seven-year positive trajectory in its NPS and SAcsi scores. Furthermore, Nedbank performed the best of the big five banks in loyalty scores, measured by a brand tracker study that Consulta conducts. Nedbank is proud to have received three awards from the Asian Banker for most helpful bank during Covid-19 in SA and Africa and most recommended retail bank in SA for credit cards. Nedbank has also achieved pleasing improvements in its cross-sell ratio. Overall, the cross-sell ratio in Consumer Banking has improved from 1,85 to 1,87. In addition, the cross-sell ratio for new clients has improved dramatically, driven mainly by CorePlus, with new clients now joining with an average of 1,9 products, compared to 1,2 products for the same period in 2019. Digital innovation – The acceleration of our digital journey continued into H2, with core capabilities built to make clients’ lives easier and more convenient, while security was enhanced simultaneously. Clients can now apply for homeowner’s insurance cover and claim directly through the bank’s digital platforms, Retail Relationship Banking clients can now apply for an overdraft, and informal traders can apply for trade grants on USSD platforms. Buying journeys and offerings were also improved, with a new array of unit trusts, additional choice of over 230 airtime and data products, an improved experience for claiming free basic electricity for qualifying clients, and an enhanced gaming and software product catalogue. A host of user-friendly features were introduced, including the ability to redeem Greenbacks into a savings or investment account or to donate them to a charity, enhanced statements, and more seamless loan-offering processes. All these new and convenient features proved beneficial to clients as the various Covid-19 lockdown conditions prevailed. An exciting set of new features is planned for launch in Q1 and early Q2 2021 that will bring about a new payment functionality, a personal-financial-management capability and an enhanced self-service experience through chat. Nedbank also established key strategic relationships that will consume products through API Marketplace, further extending the digital distribution capability beyond Nedbank-owned channels. Notably, Gumtree has partnered with MFC to use the Asset Vehicle Finance (AVF) APIs to better connect buyers and sellers in Gumtree Auto. Global small-business cloud accounting platform Xero has collaborated with Nedbank to provide SME clients with access to their financial data through a fully digital, API-enabled bank feed. Throughout 2020 API Marketplace enhanced the platform and product capability, further laying the foundation for the scaling of the existing products (Personal Loans, Vehicle Asset Finance, Wallet, Rewards, Payments, Open Data). Digital sales and servicing have benefited from the commercialisation and product focus applied to API Marketplace in 2020, contributing to alternate revenue streams for Nedbank. Avo by Nedbank, the super app that brings customers and businesses together, has scaled significantly since its beta launch in May 2020. With more than 145 000 customers and over 5 000 businesses signed up to Avo by year-end, Avo continued to accurately match customers’ lifestyle needs to product and service offerings through powerful AI, safe and secure payments, and bank-grade security. Under lockdown restrictions Avo pivoted initially to provide access only to essential goods and services and deliver to homes throughout SA. However, as restrictions started to lift new customer journeys and experiences were introduced to Avo, extending the proposition beyond online grocery shopping, home services and health essentials. These included offering a wide variety of goods and services, including tech, furniture, gaming and home appliances; extending the on-demand delivery to takeaway and liquor; and creating SA’s first digital mall experience by extending the offerings of outlets to a wider audience on Avo with a convenient click-and-collect lounge situated at the mall. These fresh and relevant customer experiences continue to contribute to Avo’s success as a double-sided platform, providing not only great convenience and value to customers but also a digital marketplace that continues to attract small, medium and large enterprises looking to extend their business models and accelerate their digital and e-commerce strategies in the new normal. Digitally active clients increased by 25% to 2,22 million, with 1,18 million clients using the Nedbank Money app (up 42% yoy). The growth is driven by the wide array of additional account opening, self-service and beyond-banking digital propositions, which have been designed to ensure exceptional client experiences. Logons per user have continued to increase, indicating growing usage levels due to the number of services available and 80 NEDBANK GROUP Annual Results 2020FINANCIAL HIGHLIGHTS for the year ended 31 December SEGMENTAL VIEW Total Retail and Business Banking Business Banking Consumer Banking Relationship Banking 2020 2019 2020 2019 2020 2019 2020 2019 Headline earnings (Rm) NII (Rm) Impairments charge on financial instruments (Rm) NIR (Rm) Operating expenses (Rm) ROE (%) ROA (%) CLR – banking advances (%) NIR to total operating expenses (%) Cost-to-income ratio (%) Interest margin (%) Total advances (Rm) Average total advances (Rm) Total deposits (Rm) Average total deposits (Rm) Average allocated capital (Rm) 1 595 19 692 5 293 19 831 803 3 784 1 383 4 129 161 13 257 2 789 13 238 8 746 11 830 20 161 5,4 0,42 2,40 58,7 64,0 5,40 356 272 347 598 354 243 343 724 29 573 4 823 13 318 20 384 17,3 1,44 1,38 65,3 61,5 5,67 349 396 335 101 338 901 328 272 30 573 853 1 777 3 561 11,4 0,55 1,10 49,9 64,0 2,60 74 860 75 668 143 442 139 408 7 023 382 1 934 3 724 19,0 0,94 0,50 51,9 61,4 2,83 77 658 75 459 139 603 139 301 7 292 7 480 7 070 12 601 0,9 0,07 3,32 56,1 62,0 3,58 233 769 225 428 124 763 121 763 18 160 4 238 7 852 12 726 14,4 1,28 1,95 61,7 60,3 3,72 225 689 217 198 118 872 116 022 19 412 815 2 635 379 1 475 2 587 26,3 0,90 0,82 57,0 63,0 2,91 46 938 45 585 85 750 82 197 3 092 969 2 556 131 1 465 2 536 32,5 1,20 0,32 57,8 63,1 3,17 44 779 41 041 80 627 72 548 2 980 Total includes income, impairments and costs relating to Channel, Card Acquiring and Shared Services, which are not reflected separately. ease of use, with our digital NPS ratings topping the rankings and app ratings consistently above 4,2. Digital sales grew strongly by 144% yoy, with the digital contribution to total retail sales increasing from 21% in 2019 to 49% in 2020. The digital contribution for core product sales increased from an average of 12% in 2019 to 26% in 2020. The new nedbank.co.za platform landed its first digital journey as Personal Loans was deployed to the market in November and is already showing a marked improvement in sales. Despite the tough macroeconomic environment, digital payment volumes continued to grow, up by 17% yoy, with Money app payments increasing by 53% yoy. Exciting new digital features were landed, including the ability to receive inward international payments, and significant innovations are scheduled for release in H1 2021. The tremendous progress made in our digital journey was acknowledged by the market through improve rankings and awards. The Nedbank Money app was named the Best Retail Banking App SA at both the Global Banking & Finance Awards and International Business Magazine Awards; the Nedbank Money app was ranked second in SA by SAcsi and second overall when benchmarked globally against apps of leading US banks; and at the most recent awards by the Asian Banker Nedbank was also named the Best Retail Bank SA by both Global Banking & Finance Awards and International Business Magazine Awards. Further accolades were given in the form of the Nedbank API Marketplace being recognised globally by Innopay in their open-banking benchmark, with Nedbank being listed as one of the top Starters in Open Banking in 2020. Avo by Nedbank also achieved industry recognition, winning the category Best Mobile Wallet Award at Mobexx Awards 2020 and the Silver Loerie for Service Design at the 2020 Loerie Awards. Physical distribution – Our physical footprint reflects both the increased drive towards client self-service and a diverse SA consumer base that still requires face-to-face assistance. In response to shifts in client behaviour and preferences that were fast-tracked by Covid-19, we continued to optimise our branch footprint. Since December 2019 we closed 46 points of presence and opened four new branches and two in-retailer outlets. This reduction has not affected our coverage of the bankable population in SA, which remains around 85%. To date we achieved actual floor space reduction of close to 57 000 m2 at 31 December 2020, representing a total reduction in branch floor space of 25% from what we occupied in 2014. In response to the continued increase in transaction volumes through our self-service channels and additional closures we exceeded our revised targeted reduction in branch space of 49 000 m2 by the end of 2020. We expanded our ATM footprint with a further 44 devices to include 12 additional cash-accepting devices, and during this period cash dispensed through branches and ATMs decreased by 8%, largely due to the impact of Covid-19. Altogether, 84% of client cash deposits at branches are now being processed through cash-accepting ATM devices, an increase of 32% from 2016. In 2020 we continued to improve the experience of clients at our devices through landing touch screen ATMs and enriched functionality through the ability to apply for a loan in real time. In 2021 we will look to roll out our new ATM front-end, which will enable an improved client experience and new functions such as QR-code-initiated withdrawals from the app, meaning that clients will not have to touch our ATMs when touching ATMs has been deemed a Covid-19 risk, as well as real-time cash deposits, which will mean clients will no longer have to wait for funds to be reflected in their accounts. Clients will also be able to enrol for MobiMoney and pay bank-approved beneficiaries and all Nedbank accounts at any of our Intelligent Depositor devices. 81 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 PRODUCT VIEWS, EXCLUDING BUSINESS BANKING Home Loans VAF Unsecured Lending Transactional Card and Payments Forex and Investment 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 NII (Rm) 2 729 2 408 4 392 4 315 3 613 3 456 2 299 2 631 1 435 1 454 1 525 1 549 Consumer banking and other Relationship banking Impairments charge on financial instruments (Rm) Consumer banking and other Relationship banking 1 907 822 1 759 649 4 272 120 4 206 109 3 551 62 3 423 33 1 080 1 219 1 262 1 369 1 435 1 453 1 1 023 502 1 109 440 842 157 3 015 1 910 2 521 1 372 551 291 61 96 2 958 57 1 899 11 2 489 32 1 349 23 44 44 41 41 1 472 923 1 472 923 NIR (Rm) 252 249 701 712 656 707 4 858 5 198 3 450 4 254 194 240 Consumer banking and other Relationship banking Operating expenses (Rm) Consumer banking and other Relationship banking Headline earnings (Rm) Consumer banking and other Relationship banking ROE (%) CLR – banking advances (%) Cost-to-income ratio (%) Interest margin (%) Average total advances (Rm) 206 46 203 46 690 11 702 10 621 35 677 30 3 581 1 277 3 920 1 278 3 428 22 4 228 26 110 84 164 76 1 655 1 537 1 548 1 434 1 648 1 624 6 961 7 228 3 349 3 441 1 368 1 430 1 119 536 334 304 30 1 102 435 680 562 118 1 467 81 1 360 74 1 589 59 422 1 083 427 (5) 1 059 24 67 63 4 1 585 39 832 5 425 1 536 5 579 1 649 3 335 14 3 425 16 1 007 361 91 395 831 1 (600) 691 (324) 719 19 13 6 936 249 928 8 87 162 1 108 322 254 114 140 6,4 13,8 5,6 14,6 2,1 22,1 3,6 13,3 0,7 29,2 39,5 35,0 0,64 0,12 2,69 1,81 10,88 6,16 23,66 22,08 8,94 5,42 55,5 2,03 57,9 1,86 30,4 3,64 28,5 3,82 38,6 15,29 39,0 15,36 97,3 4,48 92,3 5,91 68,5 8,24 60,3 7,87 79,6 1,00 79,9 1,07 130 552 124 366 106 781 101 218 21 040 19 546 114 117 13 855 14 658 2 2 The table does not include BB HE of R803m (2019: R1 383m) and other unallocated costs of R391m (2019: R270m) relating to Channel, Clients and Shared Services. Therefore, the table does not cross-cast. Significant progress has been made in enhancing functionality across self-service and online channels, providing our clients with enhanced convenience. Our network of 415 self-service kiosks within our branches allows clients to complete self-service actions at their own convenience such as changing their ATM limit, maintaining their profile, issuing statements and blocking and replacing cards for PAYU and Savvy Plus accounts. The long-term aim is to offer this across all accounts and to personalise cards for clients, making the card process much faster as we continue to offer convenient options for clients. The kiosks will also offer the ability to open PAYU accounts seamlessly; they are being piloted in four Boxer outlets. A further addition to our 24/7 zone in select branches is 58 lockers through which clients can collect their new or renewed cards and eNatis documents. The locker solution extends beyond banking and provides clients with a convenient collection point for items ordered on e-commerce sites such as Takealot, Avo or our Unlocked.Me platform. We plan to roll out more of these branches nationally and to select Engen garages. We are pleased with our progress in making it easier and more convenient for clients to access our services. Our Contact Centre is available to clients 24 hours a day and use has increased by 13%, substantially due to Covid-19. In 2020 we successfully piloted an arrangement where Contact Centre staff worked from home to ensure continuity in our channel during these tough times and we were also able to switch effectively temporarily branches to assist with Contact Centre volumes during Covid-19. New technologies landed in the Contact Centre to enable co-browsing, which allows clients to give access to agents to help them complete digital transactions more effectively. Our live chat also continues to grow, with 28,6% of all interactions now being non-voice, and we are investing in AI to further enhance our chat functionalities. In Q1 2021 we will go to market with a toll-free number that clients can call to remove airtime constraints, especially in the ELB segment. In 2020 we also identified the need to change our distribution approach in township economies and piloted two new concepts in the Easy Access branch in Marshalltown and a taxi rank acquisition model in Randburg. Further rollout was hampered by Covid-19, but 2021 will see the expansion of this model as we move away from a traditional branch model towards a more in-community mobile operating model leveraging a growing partnership base. Value propositions – We continue to commercialise several disruptive CVPs across our segments, including those covered under digital innovations. For the kids and teens segment (up to the 82 NEDBANK GROUP Annual Results 2020 age of 16) we have collaborated with The Walt Disney Company Africa on the Disney series Ducktales and in the creation of a unique financial literacy series called Penny Power. Penny Power is a simple way to educate children on money management through a series of episodes that follows Penny opening a Nedbank4Me Account while learning to save money, bank safely and give back to her community. The response to Penny Power has been encouraging, with enhanced sales on our digital channels being particularly pleasing. In the ELB segment we have expanded our Proud of My Town programme to 10 townships in SA. Through this programme Nedbank contributes a share of card spend from clients in those communities towards community projects involving entrepreneurship, early-childhood development and food security. These efforts were extremely well-received by these communities, and Nedbank’s main-banked client growth and transactional sales growth have been better in those areas than in the rest of the country, demonstrating the power of the programme. We were also pleased to introduce the short-term loan product – an unsecured loan repayable within 30 days of amounts as little as R250, up to R6 000. Our pricing for this product is the most competitive of major South African banks. This is an important step forward in offering inclusive financial services to as many South Africans as possible. In the middle-market segment 2020 saw the launch of the Lifestyle Desk in our contact centre. This provides clients of our Platinum transactional product, Savvy Bundle, access to 24/7 contact centre support. The desk has agents dedicated to delivering superior service to this segment. Agents can fulfil all service requests as well as assist clients with opening or applying for new products. The client experience and cross-sell metrics from this desk have been pleasing. We also partnered with the Department of Small Business Development to provide payment solutions for Covid-19 relief grants, the Spaza Shop Support Scheme and the fruits-and-veggies grant. For the Spaza Shop Support Scheme we worked through our branches and selected Boxer stores with a Nedbank presence to facilitate applications for the scheme. The programme was launched in April 2020 and by the end of December 2020 we had received close to 9 500 applications, with more than 5 000 procurement cards issued to spaza shops preloaded with R3 500 each. For this group of spaza shop owners we partnered with the Mastercard Center for Inclusive Growth, offering tailored training on business education delivered in weekly modules via SMS and covering a range of topics critical to business growth and financial security, such as recordkeeping, savings and the benefits of electronic payments. This was well received, with a 99% enrolment rate having been achieved. We continued with the differentiated funding structure partnership with Pick n Pay, which facilitates the opening of new Pick n Pay market and bottle stores and/or the conversion or revamping of existing spaza shops or general dealers in townships to Pick n Pay-branded franchisees. To date we have offered transactional banking to 39 stores, of which 12 have been funded under this lending structure. To drive cashless payments in the informal trading sector, we have enabled MobiMoney wallets to accept Masterpass payments and also developed a pay code for traders. This unique SMS short code is issued to informal traders and enables them to accept payments through a MobiMoney wallet. These key capabilities provide clients with a simple, convenient and cost-effective way to receive funds, make deposits and withdrawals, and use value-added and payment services within the wallet. The Karri payments app kicked off 2020 with exponential growth in Q1, with active users, transaction value and number of transactions up by 96%, 82% and 98% yoy respectively. The subsequent closure of schools due to Covid-19 saw traditional collection activity come to a standstill. The Karri team, however, used this time to create new value for customers, launching a Covid-19 screening administration function, a tuck shop QR code solution as well as an exclusive partnership with Bidvest Waltons to help parents and schools with simplifying the purchasing, delivery and administration of stationery. The Karri app is more relevant now than ever, being used by more than 650 schools across SA and maintaining its position as one of the highest-rated apps (with a 4,5 rating). Despite the dramatic impact of Covid-19 the team managed to set an all-time record for monthly active users in February as well as an all-time record for monthly transaction value in November 2020. Treating clients fairly and market conduct – 2020 saw Nedbank demonstrate its brand promise through a number of interventions. These included enabling debt relief applications through various channels, enabling clients to use and adopt online banking through remote assistance and education, keeping the complaints teams and branches available (essential services) to assist our clients, improving measures for safe queue management, attending to vulnerable clients’ needs, and executing a communication strategy to ensure our clients were kept updated with all developments. The formal market conduct programme was completed in October 2020, and new processes were developed through the programme to deliver fair client outcomes. We remain on our market conduct journey into 2021, as we seek to implement best practices for more and improved fair client outcomes. Loyalty and rewards – Having successfully launched the new Greenbacks programme in September 2019, we saw good growth in 2020 and launched several new developments, despite the challenges presented by Covid-19. The new Greenbacks is not just a rewards programme but a money management programme that prompts, incentivises and rewards good money behaviours. The planned evolution of the programme is designed to help and support our clients, even more so now given the financial hardships faced by many consumers. We have successfully launched the Card Swiper package (credit card), Money Manager package (transactional products), Responsible Borrower (loan products from Home Loans, Personal Loans and MFC) as well as the Structured Saver package (investment products). Membership has already grown to over 1 000 000, with monthly enrolments growing rapidly, and of this base 65% are now main-banked. With the focus on digital delivery, the programme has launched multiple redemption options via the Money app and Online Banking. In addition to giving clients the option to redeem Greenbacks to pay for card fees or bank charges, as deposits into unit trusts, or to support an affinity of their choice, they can now also donate to the Solidarity Fund. Clients can also redeem their Greenbacks for airtime, data and electricity using the USSD functionality, allowing a broader base of the population now to benefit from this capability. The Greenbacks SHOP Card for business and corporate clients was launched during the year. The card enables the conversion of Greenbacks to rands to be used to spend or grow their business. Similarly, we launched the American Express Membership Rewards Card, unlocking over R130m for clients and auto-enrolling a large portion of our base – a world first within the American Express global network. 83 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020Looking forward We anticipate a partial rebound in 2021. The current shift to digital by businesses and consumers, including the sustained adoption of remote working and learning practices, is expected to continue. To support our clients in the envisaged ‘new normal’, we remain committed to delivering on our client-centred growth strategy and boldly executing our plans to deliver delightful client experiences through digital transformation using the five strategic levers of digital first, first in digital; leading client experiences; efficient operating model; new growth vectors; and equipping our staff to lead and manage change. We expect continued momentum in advances, with recovery in the CLR coming off a high base in 2020. We will continue to diversify NIR-generating products given the significant impact of Covid-19 lockdown while still continuing to optimise expenses. Our focus remains on accelerating financial inclusivity of our banking propositions through leading client experiences to meet evolving client needs by commercialising existing CVPs and developing new disruptive CVPs, delivering competitively priced products, actively reducing transacting costs for our clients through digital banking services, and tapping into platform-based propositions to offer beyond-banking solutions. The focus for 2021 will be on expanding and fully commercialising existing offerings such as Avo, the new Greenbacks programme and township economy solutions, while also launching new innovations, including Money Tracker – Nedbank’s integrated personal financial management tool; international payment features on Online Banking and the Money app; and the business hub portal to enable self-service for larger businesses. In terms of digital capabilities for small, medium and large businesses, we continued development and implementation of our enterprise juristic client onboarding and servicing platform (Nedbank Business Hub). The Business Hub is an important component of our overall digital juristic journey, more so in an accelerated post-Covid-19 landscape, and is the first step towards an enhanced digital relationship with our clients and includes the ability for staff to leverage the capabilities on a client’s behalf. The Business Hub allows clients to have a holistic view of their transactional Nedbank accounts on one banking portal, from which they can also digitally start product onboarding, access and track services (some of which are already straight-through), as well as access and maintain transactional channels. The Business Hub is accessed via a world-class, single security and authentication solution that provides a choice of mobile or token second-factor authentication. We are currently reimagining the strategic focus areas of our business to leverage the strong capabilities built over the years, especially our digital capabilities, to expand our offerings to new markets, to create new disruptive products and solutions, and to develop new revenue-generating opportunities, including township economies, black industrialists, strategic partnerships, integrated payment capabilities, and platform and API Marketplace-based solutions. Future distribution investments are aimed at ensuring an optimal client channel footprint. This will provide more self-service device options for clients, ensure a marginally reduced branch footprint, as well as enable a reformatted strategy aimed at unlocking more space efficiencies and equipping branches with self-service capabilities to provide convenient alternatives for our clients. There is also a focus on quality-client acquisition. We aim to achieve this through deepening the relationship with our clients by improving the client experience and ensuring we have value-adding, cost-effective products that will drive improvement in our key NPS. We have launched our new staffed interface for account opening and servicing, which will further enhance growth in our transactional-banking franchise by reducing the amount of staff-assisted time required to onboard new clients and by facilitating better cross-selling and client experiences. NEDBANK RETAIL AND BUSINESS BANKING SEGMENTAL REVIEW Business transfers Following an in-depth review of industry practices and internal capabilities, the annual turnover threshold for Business Banking clients was lifted from R10m to R30m in 2019, motivated by a need for Business Banking to create capacity to focus on larger SMEs, coupled with a business model in Retail Relationship Banking that is well-geared to serve small businesses with lower complexity. As a result, about 17 000 clients with a turnover of R10m to R30m were transferred from Business Banking to Retail Relationship Banking in July 2019. This saw the following movements for the prior period: • R3,9bn in advances. • R7,2bn in deposits. • R78m in HE for six months. • 7 297 client groups (equivalent to 17 000 client records). Business Banking Business Banking provides relationship-based banking services to mid-sized corporates and agricultural, franchising and public sector entities with an annual turnover of less than R750m but more than R30m. Comments below reflect the core Business Banking yoy performance adjusted for the client migration to Retail Relationship Bank. Business Banking generated HE of R803m and achieved an ROE of 11,4% despite a muted economy not yet operating at pre-Covid-19 levels. It was evident that activity levels increased during H2, with GOI decreasing by only 4,9% in H2 when compared to 6,6% in H1, while judicious cost management resulted in expenses decreasing by 1,6% yoy. Impairment levels improved, with CLR moving from 150 bps in H1 to 110 bps in H2. Given the tough economy, new-loan payouts declined to R23,5bn yoy, with average advances increasing by only 2,9%, notwithstanding strong growth in overdrafts of 9%, as we supported our clients with funding during the crisis. Average deposits increased by 2,7%, as clients managed their cashflows more carefully, coupled with competitor pressures in the market given the low-interest-rate environment. Business Banking remains a strong generator of funding, with R73,1bn in net surplus funds generated. The CLR of 110 bps increased by 60 bps yoy and is above the TTC target range of 50–70 bps, as we raised Covid-19-related overlays of R406m. The increase in impairments reflects the potential deterioration in the credit portfolio due to Covid-19 credit risk across all the key sectors, including our estimation of downstream impacts. Given the continuing risk in high-stress sectors such as hotels, tourism and franchising, among others, although we consider ourselves to be adequately provided, there is further downside risk across these sectors and related downstream sectors due to the uncertainty around the extent and duration of lockdown restrictions. 84 NEDBANK GROUP Annual Results 2020Enhanced analytics to identify client attrition risk and to support targeted client acquisition, cross-sell and retention efforts, as well as increased client engagements during the crisis, have resulted in significant improvements in client satisfaction and improved client loyalty ratings in the second quarter. Although active client groups declined yoy to 14 583, these have collectively contributed to a three-percentage-point increase in market share to 23% owing to an increased number of clients nominating Nedbank as their main bank in 2020. As a responsible bank that sees money differently, we introduced proactive support measures for our clients during this very challenging period in the form of various financial assistance mechanisms and loan restructures to around 5 200 clients totalling over R16bn. In addition to proactive funding assistance and loan restructures, Business Banking has also provided assistance of R645m to qualifying businesses via the SME loan guarantee scheme. Business Banking has also been instrumental in actively driving awareness of our new innovative market trading platform, Avo, to assist merchants in their effort to sustain business and trade through the various Covid-19 alert levels. Despite limited marketing presence, the 2020 Brand Performance Annual Report indicates an increase in awareness levels of 4% for Business Banking from 70% in January to 74% for the full year, with consideration levels also increasing by 4% to 42%. Client loyalty reached a new high of a pleasing 91% for the full year, the highest we have seen following the proactive client engagements initiated by our frontline teams during this crisis. Nedbank Business Banking achieved the highest loyalty score across all main banks. Business Banking is well positioned to support the growth of SA and our people by enabling business growth through the delivery of key initiatives to the business sector that will add to the future sustainability of SA. We will also continue to focus on delivering delightful client experiences through the consistent performance of our core banking propositions. To do so we will continue to leverage our capability in developing digital advances, which includes providing machine-learning tools to our frontline client service teams. A further focus will be developing propositions that will unlock new markets and new revenue streams, including high-end disruption through the delivery of ecosystem-led CVPs that are enabled by digital innovation. Retail Relationship Banking Retail Relationship Banking (RRB) provides relationship-based banking services to affluent individuals and their households (salaried and self-employed), to non-resident clients and embassies, and to SMEs with a turnover of less than R30m and their business owners. The relationship banking CVP is designed for clients seeking a personalised, flexible and proactive approach, and caters for the more complex financial needs typically associated with the above-mentioned client segments. Despite the stressed Covid-19 macroeconomic environment and significantly lower interest rates, RRB delivered R815m in HE and a solid ROE of 26,3%. This demonstrates both the resilience of the underlying client segments (albeit with small-business clients taking more strain than affluent clients) and the quality of the RRB business itself, which remains a significant contributor to the overall performance of the cluster. Rebased HE declined by 22% yoy, of which almost half is attributable to a reduction in endowment earnings, given lower interest rates. Average advances growth recovered to 6,1%, driven by record home loan and reasonable vehicle sales and the Covid-19 loan applications. Average liabilities growth of 7,9% improved on the prior year, which meant the business increased the net funding contribution to the cluster and group to R41,3bn. The RRB CLR has increased from 32 bps to 82 bps and reflects a stressed scenario beyond the TTC range of 40–80 bps. Impairments include an FLI overlay of R117m for job losses. In addition to proactive funding assistance and loan restructures to approximately 15 000 clients, RRB also provided assistance in excess of R680m to qualifying businesses via the SME loan guarantee scheme and R300m via the SA Future Trust. From a strategic perspective, the Professional Banking value proposition remains a well-priced, high-value offering in the very competitive private-banking category. Our digital platforms – Online Banking and the Money app – provide extensive self-service capabilities, while the relationship model ensures a quick, tailored response to the more complex banking needs. Progress in terms of establishing Nedbank as a leader in this segment is evidenced by an improving trend in NPS, with the bank achieving the highest SAcsi score in the market and steady growth. Market share, however, remained flat yoy. Additional enhancements to our digital platforms, including the end-to-end digital onboarding of a professional client, is expected to yield further growth. Nedbank also remains well positioned in the small-business segment, with urban market share increasing to 23% as a result of positive perceptions regarding our ability to understand and serve the needs of this important sector. According to the 2020 Small Business Tracker (a Nedbank-commissioned survey that has been running for 12 years and is conducted by independent research company KPI Research), small-business owners now rank Nedbank as the market leader in the provision of banking services to this market. H2 saw significant emphasis placed on closing the remaining gaps to make the Online Banking and Money app channels fully functional for small businesses. For small-business owners this means a seamless experience as they can manage their personal and business banking in one place. The migration of small-business clients to the new platforms is now almost complete, setting the foundation for ongoing enhancements and innovation in this market. The SimplyBiz beyond banking portal has grown to over 17 000 registered users and continues to offer much-needed guidance and support to small-business owners with initiatives like the Shifting Gear programme, Back-a-Business crowdfunding campaign and the hosting of webinars on a variety of topics. Looking ahead to the coming year, focus in RRB will remain on balancing the need to support our client base with funding where possible, while also managing risk tightly. Further investments into digital enablement (such as appointment booking, digital account opening and credit applications, as well as financial management capabilities) will strengthen Nedbank’s position in this highly contested market space. Consumer Banking Consumer Banking serves approximately 6,6 million clients in three primary subsegments, namely youth, ELB and the middle market. These consist mostly of individuals earning less than R750 000 a year, but also include some non-individual clients, primarily stokvels, clubs and societies. Consumer Banking generated HE of R161m in 2020, with HE of R416m reported in H2, showing an improvement when compared to the headline loss of R255m in H1. The 2020 HE of R161m is a 94% decline when compared to 2019 HE of R2,789m. The major swing in HE relative to 2019 came on the impairments line mainly as a result 85 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020of the impact of Covid-19. The CLR increased to 332 bps in 2020, up from 195 bps in 2019. Impairments grew to R7,480m in 2020, up by R3,242m or 76,5% from the 2019 level of R4,238m. This large increase in impairments materially impacted HE for 2020. Revenue growth was also challenging in a Covid-19- and lockdown-impacted consumer market. NII was largely flat at 0,1% growth, underpinned by advances growth on average of 3,8% per annum and liabilities growth on average of 4,9% per annum, offset by lower margin and endowment. NIR was down by 10%, due to transacting volumes being well below prior years during the lockdown period. Reduced sales of Transactional and Card products due to lockdown also contributed to the lower NIR. Expenses were reduced by 1% for the year, as the business minimised discretionary spend and continued to harvest efficiencies in distribution and from digitising onboarding and servicing. Beneath the challenged financial performance in the first half of 2020 is a business that is showing positive fundamentals to support profitable growth going forward. Firstly, the client experience has continued to shift positively. Consulta’s annual survey reported that Nedbank was now second of the big five retail SA banks on NPS, having leapfrogged from third place in 2019. Nedbank retained its second position in the SAcsi, another measure of client experience. Secondly, our performance on cross-sell is improving after many years of being flat. The Consumer Banking cross-sell ratio has improved to 1,91 in December 2020, from 1,85 in December 2019. This is supported by a client-centred, opportunity-based cross-sell strategy (Core Plus), which has been rolled out across the branch network. Under this strategy, we are experiencing a material improvement as new-to-Nedbank clients are now joining with an average of 1,84 products per client, compared to 1,16 a year ago. Furthermore, we have deployed a data-driven ‘next best action’ capability, which empowers our frontline with cross-sell and upsell leads. Thirdly, our digital journey continues to be a platform for us to create even better convenience for more of our clients, and a more efficient operating model. Across transactional, credit cards, investments and personal-loans products, the share of sales Nedbank does through digital channels is now ahead of the average of SA banks, as reported by Finalta. The digitisation of client onboarding journeys through our front-end platform, Eclipse, has been a material contributor to the improved client experience referenced above. It offers clients benefits such as shorter onboarding times and same-day disbursal of personal loans. Eclipse also supports efficiencies by being paperless and straight-through. Digital servicing also improved, with digitally active clients growing to 2,2 million, an improvement of 25% yoy. These fundamental improvements are starting to show themselves on the BA900s, with Nedbank improving market share in 2020 for personal loans, overdrafts, vehicle loans and home loans. From H2 2020 the credit card product also registered improved market share. In summary, the financial performance in Consumer Banking has been challenging, largely due to pressure on the impairments line. However, there are some fundamental markers of improved competitiveness versus peers, in particular regarding client experience, BA900 market share in most products, and the share of sales performed digitally. Together with the improvements in cross-sell, these trends are a firm foundation on which the business can build to achieve profitable growth going forward. NEDBANK RETAIL AND BUSINESS BANKING PRODUCT REVIEW Transactional Banking Transactional Banking provides fully inclusive access to banking by offering affordable and meaningful banking to clients across all income levels, enabling financial inclusion and effective money management through key innovations such as MobiMoney, Unlocked.Me and savings pockets. Social distancing and lockdown regulations resulted in elevated volumes of self-service transactions, with a notable shift in behaviour away from the branch to ATMs and digital channels for cash withdrawals, deposits and payments. Payments for goods and services resulted in increased usage of EFTs, instant payments and Send-iMali transactions. Send-iMali volumes further increased due to the need for people to send money instantly and cost-effectively to loved ones countrywide. The purchasing of value-added services such as airtime, electricity and Lotto also increased, demonstrating the value and convenience of the availability of these services. As we continue on our digital journey, all our transactional products are now enabled for straight-through processing on the Money app and Online Banking. This supports the delivery of delightful client experiences that enable convenient and seamless account activation. The client experience has been further enhanced with card delivery to lockers, home or office, thereby ensuring our clients can bank safely. MobiMoney wallets continue to resonate with clients, with almost one million wallets opened to date. This continues to be an innovative and market-leading solution, zero monthly maintenance fees, free deposits up to R4 000 per month, and the ability to pay bills and buy airtime and electricity. Payment options have been increased through the enablement of Masterpass and a unique feature called Paycode, which enables informal traders with a MobiMoney wallet to receive payments from customers. We continue to deliver client-centred innovations on this platform. Our targeted acquisition strategies have been focused on key industries and clients subsegments, enabling wallets for previously underserviced individuals. Card and Payments Card and Payments provides card issuing, acceptance and payment products and solutions across all client segments, extending beyond Retail into Nedbank Private Wealth. It is also responsible for the bank’s commercial card offerings. Card and Payments offerings include key innovations such as tap on phone, scan to pay, Market Edge and GAP Access. Card-related NIR and client spend growth saw a strong recovery in H2 as lockdown measures eased and economic activity resumed. The recovery of certain sectors that have been harder hit by ongoing restrictions is slower, in particular travel, entertainment, restaurant and hospitality. However, other industries, including supermarkets and retail, healthcare and telecommunications, are seeing significant growth in volumes across all the levels of lockdown, with online e-commerce driving most of the spend during the strictest lockdown levels. Spend in Card Issuing grew by 22% in H2 2020 on H1 2020, with Card Acquiring volume growth at 30% for the same period. The growth for Card Issuing and Card Acquiring was driven by the economic recovery, seasonality, increased client acquisition and limit increases for Card Issuing. 86 NEDBANK GROUP Annual Results 2020Consumers and merchants are keenly interested in minimising the risk of exposure to Covid-19 through person-to-person contact or shared surfaces. The pandemic has prompted surges in online shopping and the use of contactless payment technologies. It has also fuelled the popularity of recent shopping innovations, including app-based shopping, curbside pickup and QR-code-based ordering and purchasing. There was a significant increase in the use of our digital payment methods, with growth of 62% in e-commerce volumes, over 500% growth in contactless payments and 37% growth in QR payments. The introduction of national lockdowns and curfews has also resulted in a noticeable shift in consumer spend patterns, with trade peaking between 09:00 and 15:00 versus the pre-Covid-19 pattern of between 09:00 and 19:00. While the pandemic has been the main driver of these trends, we expect these trends to continue and become the new normal in transacting behaviour. Our Card and Payments innovation agenda was dominated by digitally enabled, simple, secure and cost-effective payments. Nedbank is a leader in mobile payments through its scan-to-pay capability; Masterpass acceptance; Samsung, Garmin and Fitbit Pay solutions; as well as market leading e-commerce solutions across a broad network of merchants. Nedbank is also the first in Africa to launch tap on phone, a payments solution that enables businesses to accept payments by simply using an Android smartphone for contactless card payments. Nedbank also launched the SEFA small-business card during the pandemic in partnership with the Department of Small Business Development, as well as the Pick n Pay Smart Shopper card for businesses, enabling Pick n Pay stores to purchase goods and services directly at beneficial rates while earning rewards points within the Smart Shopper programme. Card and Payments digitised its client onboarding and servicing capabilities by going live on the Eclipse platform in the consumer card segment, enabling our frontline channels and client self-service area to digitally onboard clients, assess their credit, open accounts and issue cards. Similarly, in the commercial card environment, Nedbank has been piloting a juristic servicing and onboarding platform aimed at enabling digital statements, real-time transaction listings and balances, as well as offering other unique commercial card services to a range of small-business, business banking and corporate clients. Forex and investment products Our purpose is to create investment and forex value propositions that are centred on evolving client experiences by steadily improving digital channels, enabling a lower cost-to-serve model. As interest rates declined, we have noted aggressive pricing from competitors, which we intentionally did not match as it would have resulted in a negative margin and this reduced new and additional investment volumes. During 2020 we expanded the investment capabilities on the Money app and Online Banking to include Nedgroup Investments unit trusts and tax-free savings products. Consumer digital investment volumes have improved to 65% of new accounts opened (FY 2019: 36%) and 74% of notices of withdrawal (FY 2019: 53%). In the 2020 SAcsi report on notices and saving, client-perceived value, client satisfaction and client loyalty increased by 1%, 2% and 3% respectively. We look forward to our consistent efforts yielding a positive tilt in the portfolio going forward. The Forex business aims to create new and improved trade and cross-border payment value propositions across all RBB segments. These include travel cards, foreign banknotes, remittances and foreign currency accounts, and are among the business-related services that enable clients to import and export with well-managed risks. We observed material reductions in revenues resulting from travel restrictions, largely eliminating travel card and foreign banknotes volumes from late March. Import and export values and outgoing international payments have been under pressure, with heightened competitive margin compression being seen in the market. The Nedbank individual forex international banking and travel container was launched on the Money app in 2020. The forex container features the Travel (buy and sell currency for yourself or your child), Invest or Save (view balances) functionalities, as well as those enabling a digitised experience of international incoming and outgoing payments and cross-order remittance payments to Africa. The digitisation of various other services will be delivered in 2021, including of international incoming and outgoing payments for small businesses. The cross-border-remittance footprint will be expanded from Africa to international destinations and will include incoming money transfers through a partnership with Western Union. Unsecured Lending Unsecured Lending serves all segments of Consumer Banking with personal loans, overdrafts and student loans. The gross personal-loans portfolio (excluding disclosure adjustments) of R25,2bn represents the majority (97%) of Unsecured Lending's total advances. Unsecured Lending HE was negatively impacted by a 84% increase in net impairments due to Covid-19, resulting in a CLR increase from 6,16% to 10,4%. In total, approximately a quarter of the portfolio requested assistance due to either personal or household income stress in 2020. Credit risk management and collections remain the key priority in this environment. Credit policy was tightened in April by reducing risk appetite on high-risk clients, and sector-specific tightening was implemented. In addition, the collections team headcount was increased to manage increased volumes and as a result collections performance exceeded expectations in H2 2020. Early risk indicators have returned to pre-Covid-19 levels and are in line with risk appetite and expectations. Personal Loans average advances increased by 9,7%, while period-end advances were up by 11,0%, resulting in total market share of 10,9%, up from 9,9% in the prior year. New-business market share in targeted lower-risk segments increased to 17%, compared to 13% in 2019, having reached more than 20% in Q4. All new business is now being written on a new technology stack via Eclipse or the Nedbank Money app. The shift to digital continues to gain momentum, as evidenced by the 50% fourth-quarter increase in value disbursed from direct channels (call centres and digital solutions) from pre-Covid-19 levels. During the lockdown more than 50% of personal loans were originated through direct channels, compared with 35% in the first quarter. Furthermore, self-service via digitisation increased to 37% versus 20% in 2019. A consumer overdraft solution was introduced in the Money app in Q4 2019, with the app becoming the biggest channel for new Nedbank overdrafts in 2020 – three to four times greater than the branch channel. Consumer overdraft volumes are up by 217% yoy. Transactional cross-sell after the sale of a personal loan to non-Nedbank clients has nearly doubled yoy from approximately 17% to 32% and remains a key lever in growing our main-banked base. 87 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020We have launched our fully digital personal-loans API solution, which enables both Nedbank and non-Nedbank clients to take out personal loans or pay for goods and services with just a few clicks in under 10 minutes. These initiatives are beginning to scale and are expected to provide further impetus to digital growth and enhance the market share trajectory for both Personal Loans and Transactional Banking via cross-sell. Home Loans Home Loans provides secured-lending products to the consumer, professional and SME segments, with the relationship segments RRB and Business Banking providing these products to their segments directly, leveraging off the home loans product line infrastructure for several of the administrative processes. HE declined by 51%, driven by higher-than-expected credit losses as a result of the Covid-19 pandemic. In response to the pandemic, Nedbank Home Loans proactively assisted over 47 000 clients with debt relief totalling 17% of the book. The overall impairment coverage on the book has increased to 2,02%, resulting in a CLR of 64 bps. The South African property market was severely impacted by the lockdown restrictions in the second quarter, with estate agents and deeds offices not being able to operate. As restrictions eased, demand returned strongly and a significant increase in mortgage application volumes was experienced in the second half of the year, driven by pent-up demand and the lower interest rate environment. As a result, the value of new mortgages granted grew by 24% and overall advances by 4,79%, slightly ahead of the market, to R137bn. Nedbank continues to invest in innovative home loan CVPs, digital offerings and overall improvements in client service experience. For the last three years we have been working collaboratively across the group to eliminate pain points that hinder client experience. These efforts are bearing results, with Nedbank Home Loans now holding the top position in all measured constructs according to the Consulta SAcsi 2020 report. MFC MFC provides motor vehicle financing primarily to the consumer market segment. The financing of dealer floor plans and key vehicle distributor joint ventures are materially aligned with our vehicle finance dealer partner and client offering. MFC’s HE in the first half of the year decreased by 79%, but rebounded to a lower yoy decrease of 60% for the full financial year. MFC posted HE of R427m for 2020 (2019: R1,059bn). Lower HE was primarily attributable to decreased NII and increased impairment levels presented by the challenges of Covid-19. MFC provided financial support through payment holiday restructures to approximately 220 000 of our clients, representing R33bn in loans. The payment success rate on the Covid-19 restructured loans is very encouraging so far, and MFC had good collections success over December month-end when compared to 2019. The motor industry, like many major businesses in SA, saw a total shutdown of vehicle sales in the months of April and May as a result of Covid-19. With the relaxation in lockdown levels as well as consumers taking advantage of the lower interest rates, sales volumes recovered steadily over the few months following total lockdown, resulting in gross book growth of 4,7% yoy. The pandemic saw MFC move swiftly to a fully integrated digital process in terms of the origination and payout of vehicle finance, thereby protecting clients from potential exposure. Clients using this digital process increased from 33% to 93% in 2020, and the digital process will have a material positive impact on operational efficiencies going forward. MFC maintains a sustainable vehicle finance model and remains resolute in providing an ever-evolving value proposition to our dealer partners and clients. Favourable Unfavourable • Finalised the rollout of Eclipse for individuals, more than 90% of • Earnings severely impacted by the Covid-19 national lockdown total juristic applications completed. in H1. • Launch and rollout of our superapp, Avo by Nedbank. • Worsening macro-environment driving increase in impairments. • Debt relief support offered to qualifying clients. • Economic uncertainty influencing borrowing activity. • Launched Tap on Phone contactless payment capability & • Aggressive competitor pricing driving lower household deposit USSD-based homeloan affordability calculator. market share. • The Nedbank Money App was named the best Retail • Transactional volumes down particularly due to industries Banking App. impacted by the Covid-19 lockdown. • Nedbank API Marketplace recognised globally by Innopay. • Cost-to-income ratio and ROE ratio requires improvement. • On SACSi and NPS, Nedbank has made material progress and is now rated second. 88 NEDBANK GROUP Annual Results 2020RETAIL AND BUSINESS BANKING: KEY BUSINESS STATISTICS Business Banking New client acquisitions – groups1 Cross-sell product holding Home Loans Number of applications received Average loan-to-value of new business registered Average balance-to-original-value of portfolio Proportion of new business written through own channels Proportion of book written since 2009 Owned-properties book MFC Number of applications received Percentage of used vehicles financed Personal Loans Number of applications received Average loan size Average term Retail deposits Total value of deposits taken in Total value of deposit withdrawals Number of clients at period-end Retail main-banked clients Consistently main-banked clients2 Total Retail clients Business Banking groups Small Business Services segment Home Loans MFC Personal Loans Card Issuing Investment products Transactional products Distribution Number of Business Banking locations Number of retail outlets Number of new-image branches3 Number of ATMs Number of ATMs with cash-accepting capabilities4 Digitally active retail clients POS devices 2020 2019 278 84 644 1 087 83 380 thousands % % % % Rm thousands % thousands R000s months rand billions rand billions thousands thousands thousands thousands thousands thousands thousands thousands thousands thousands thousands thousands 182 93 78 52 83 32 1 601 70,4 1 088 61,4 44,2 73 78 2 942 2 168 7 309 14 583 302 295 574 433 1 067 1 462 5 414 58 549 364 4 224 1 244 2 221 102 157 93 77 67 79 28 1 664 70,6 1 380 52,8 41,8 81 80 2 945 2 045 7 523 14 709 296 295 603 453 1 048 1 501 5 946 63 589 379 4 180 1 232 1 777 101 1 The new-client-acquisition measurement was amended to include a minimum GOI threshold. A total of 584 of the 1 087 client groups in 2019 met the new criteria. 2 Clients who met our transactional-activity criteria for each of the past 12 months. 3 Included in the number of retail outlets – shown separately for additional disclosure. 4 Cash-accepting devices and interactive teller machines included in total number of ATMs. For 2020 H2 - all clients are showing updated segmentation, digital transaction enhancements eg inclusion of MobiMoney, USSD transactions & main-banked stabilisation assumptions – applicable to all client segments except BB 89 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 BALANCE SHEET AVERAGE ADVANCES AND IMPAIRMENTS Daily gross average advances Rm Stage 1 % Stage 2 % Stage 3 % % of total advances Credit loss ratio1 % 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Home loans VAF Personal loans Card Other loans Total Retail Business Banking 132 437 111 965 23 177 16 414 2 754 286 747 77 361 126 054 105 384 21 143 17 022 2 150 271 753 76 659 Total RBB 364 108 348 412 82,8 80,3 67,2 76,8 83,3 80,2 75,0 79,1 85,0 79,5 71,3 85,2 79,6 81,7 87,7 83,0 10,4 11,5 14,2 9,4 6,4 11,1 18,2 12,5 10,4 15,1 11,9 4,3 9,5 12,0 8,0 11,1 6,8 8,3 18,6 13,8 10,3 8,7 6,8 8,3 4,6 5,4 16,8 10,5 10,9 6,2 4,3 5,8 36,4 31,5 6,5 4,4 0,8 79,5 20,5 35,9 31,1 6,1 4,6 0,6 78,3 21,7 100,0 100,0 0,64 2,69 10,62 8,97 3,78 2,75 1,10 2,40 0,14 1,82 6,39 5,42 3,27 1,63 0,50 1,38 1 Impairments charge and resultant CLR include charges housed centrally within RBB. BALANCE SHEET IMPAIRMENT AS A PERCENTAGE OF BOOK % of total Stage 1 % Stage 2 % Performing stage 3 % Non-performing stage 3 % Total stage 31 % 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Home loans2 VAF Personal loans Card Other loans Total Retail Business Banking Total RBB 2,02 5,29 20,04 17,57 11,17 5,73 2,61 5,09 1,47 4,09 16,83 13,18 12,59 4,48 1,68 3,87 0,23 1,16 4,27 4,36 1,66 1,10 0,54 0,99 0,20 0,85 3,85 4,27 1,48 0,96 0,33 0,81 5,07 11,47 24,51 49,58 27,51 11,94 3,68 9,48 3,72 7,67 17,07 44,22 24,41 7,69 2,84 6,94 10,78 21,72 56,99 34,64 50,00 15,65 22,42 54,85 14,08 57,32 21,31 24,59 24,18 71,80 76,73 76,47 79,11 54,84 22,66 21,30 65,85 75,61 77,45 84,52 53,38 27,24 19,31 36,84 73,43 69,40 77,78 40,28 22,66 20,03 41,78 71,85 72,81 83,57 44,40 27,24 21,31 24,59 46,44 47,70 37,35 41,65 BALANCE SHEET ACTUAL ADVANCES Total advances Rm Stage 1 Rm Stage 2 Rm Performing stage 3 Rm Non-performing stage 3 Rm Total stage 3 Rm 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Home loans VAF Personal loans Card Other loans 136 703 130 455 113 190 110 930 118 103 24 274 16 474 2 963 112 956 22 010 16 817 2 245 94 781 16 307 12 658 2 468 89 814 15 699 14 332 1 787 Total Retail Business Banking 298 517 284 483 239 404 232 562 76 868 78 988 57 659 69 277 14 268 13 552 3 440 1 545 189 32 994 13 988 13 578 17 027 2 618 720 213 34 156 6 315 3 359 6 820 758 384 14 1 340 3 390 674 129 9 11 335 5 542 5 886 2 950 3 769 1 887 292 14 784 5 221 4 607 2 725 3 019 1 636 236 12 223 3 396 9 245 9 770 4 527 2 271 306 26 119 5 221 5 947 6 115 3 693 1 765 245 17 765 3 396 Total RBB 375 385 363 471 297 063 301 839 46 982 40 471 11 335 5 542 20 005 15 619 31 340 21 161 90 NEDBANK GROUP Annual Results 2020 BALANCE SHEET ACTUAL IMPAIRMENTS Total impairments Rm Stage 1 Rm Stage 2 Rm Performing stage 3 impairments Rm Non-performing stage 3 impairments Rm Total stage 3 impairments Rm 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Home loans2 VAF Personal loans Card Other loans Total Retail Business Banking 2 766 6 250 4 864 2 894 331 17 105 2 008 1 921 4 620 3 705 2 216 283 12 745 1 330 257 1 097 697 552 41 225 761 605 612 26 724 1 554 843 766 52 505 1 305 447 319 52 362 1 481 432 133 7 210 760 370 18 5 2 644 310 2 229 226 3 939 515 2 628 179 2 415 1 363 1 423 2 118 2 892 1 443 231 8 107 1 183 981 1 794 2 283 1 267 200 6 525 925 1 785 3 599 3 324 1 576 238 10 522 1 183 1 191 2 554 2 653 1 285 205 7 888 925 Total RBB 19 113 14 075 2 954 2 455 4 454 2 807 2 415 1 363 9 290 7 450 11 705 8 813 INCOME STATEMENT IMPAIRMENTS Income statement impairments charge1,3 Rm Stage 1 Rm Stage 2 Rm Stage 3 Rm Interest on impaired advances Rm Postwriteoff recoveries Rm 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Home loans VAF Personal loans Card Other loans Total Retail Business Banking 842 3 014 2 460 1 473 104 7 893 853 178 1 919 1 351 923 70 4 441 382 Total RBB 8 746 4 823 14 375 92 (56) 16 441 87 528 64 154 52 205 3 478 13 179 212 358 455 1 1 205 366 (59) 251 76 (178) 1 91 3 776 2 917 2 927 1 411 133 8 164 415 294 1 963 2 095 1 200 121 5 673 400 (82) (42) (653) (58) (25) (860) 5 (71) 14 (549) (21) (23) (650) 11 (45) (448) (264) (279) (21) (1 057) (20) (50) (463) (323) (283) (32) (1 151) (45) 491 1 571 94 8 579 6 073 (855) (639) (1 077) (1 196) 1 Impairment charge and resultant CLR include charges housed centrally within RBB. 2 For the HL product, there have historically been performing loans that have been incorrectly allocated to non-performing within the default category. This has resulted in coverage ratios being overstated on performing defaults and understated on non-performing defaults. Total defaulted category and provisions are however correct. Coverage ratios on performing defaulted loans should reflect as Dec 2019: 11,00%. Coverage ratios on non-performing default should reflect as Dec 2019: 24,11%. 3 The income statement charge includes the charge associated with unutilised balances. 91 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 Retail and Business Banking — restructured advances and impairments BALANCE SHEET ACTUAL ADVANCES Total advances Rm Restructured loans1 Rm Non-restructured loans Rm Home loans VAF Personal loans Card Other loans Total Retail Business Banking Total advances 136 703 118 103 24 274 16 474 2 963 298 517 76 868 Stage 1 Stage 2 Stage 3 113 190 94 781 16 307 12 658 2 468 239 404 57 659 14 268 13 552 3 440 1 545 189 32 994 13 988 9 245 9 770 4 527 2 271 306 26 119 5 221 D3 total advances 31 531 27 389 6 191 2 285 26 131 19 989 3 776 1 092 4 777 5 781 1 364 917 67 396 8 002 50 988 6 136 12 839 1 653 Total RBB 375 385 297 063 46 982 31 340 75 398 57 124 14 492 D3 stage 1 D3 stage 2 D3 stage 3 Non-D3 total advances Non-D3 stage 1 Non-D3 stage 2 Non-D3 stage 3 623 1 619 1 051 276 3 569 213 3 782 105 172 90 714 18 083 14 189 2 963 231 121 68 866 87 059 74 792 12 531 11 566 2 468 188 416 51 523 9 491 7 771 2 076 628 189 20 155 12 335 8 622 8 151 3 476 1 995 306 22 550 5 008 299 987 239 939 32 490 27 558 1 Restructured D3 loans are those that have during 2020 or previously, been restructured as D3 and reflects the staging and balances as at 31 December 2020. BALANCE SHEET ACTUAL IMPAIRMENTS Rm Home loans VAF Personal loans Card Other loans Total Retail Business Banking Total RBB Total impairments Stage 1 Stage 2 Stage 3 D3 Total impairments D3 stage 1 D3 stage 2 D3 stage 3 Non-D3 total impairments Non-D3 stage 1 Non-D3 stage 2 Non-D3 stage 3 2 766 6 250 4 864 2 894 331 17 105 2 008 19 113 257 1 097 697 552 41 2 644 310 2 954 724 1 554 843 766 52 3 939 515 4 454 1 785 3 599 3 324 1 576 238 10 522 1 183 11 705 403 1 534 1 536 775 4 248 119 4 367 63 352 195 89 699 32 731 256 708 465 516 1 945 46 1 991 84 474 876 170 1 604 41 1 645 BALANCE SHEET IMPAIRMENT AS A PERCENTAGE OF BOOK % of total Stage 1 % Stage 2 % Stage 3 % % D3 of total D3 stage 1 % D3 stage 2 % D3 stage 3 % % Non-D3 of total Non-D3 stage 1 % Non-D3 stage 2 % Non-D3 stage 31 % Home loans VAF Personal loans Card Other loans Total Retail Business Banking Total RBB 2,02 5,29 20,04 17,57 11,17 5,73 2,61 5,09 0,23 1,16 4,27 4,36 1,66 1,10 0,54 0,99 5,07 11,47 24,51 49,58 27,51 11,94 3,68 9,48 19,31 36,84 73,43 69,40 77,78 40,28 22,66 37,35 1,28 5,60 24,81 33,92 6,30 1,49 5,79 0,24 1,76 5,16 8,15 1,37 0,52 1,28 5,36 12,25 34,09 56,27 15,15 2,78 13,74 13,48 29,28 83,35 61,59 44,94 19,25 43,50 1 Non-D3 Stage 3 accounts have been in Stage 3 for longer than D3 accounts, and as such further progressed down the LGD2 curve with higher associated coverage 2 363 4 716 3 328 2 119 331 12 857 1 889 14 746 2,25 5,20 18,40 14,93 11,17 5,56 2,74 4,92 194 745 502 463 41 1 945 278 2 223 0,22 1,00 4,01 4,00 1,66 1,03 0,54 0,93 2 463 10 060 468 846 378 250 52 1 994 469 4,93 10,89 18,21 39,81 27,51 9,89 3,80 7,58 1 701 3 125 2 448 1 406 238 8 918 1 142 19,73 38,34 70,43 70,48 77,78 39,55 22,80 36,50 92 NEDBANK GROUP Annual Results 2020 BALANCE SHEET ACTUAL ADVANCES Total advances Rm Restructured loans1 Rm Non-restructured loans Rm advances Stage 1 Stage 2 Stage 3 advances D3 stage 1 D3 D3 stage 2 stage 3 Non-D3 total advances Non-D3 stage 1 Non-D3 stage 2 Non-D3 stage 3 113 190 94 781 16 307 12 658 2 468 239 404 57 659 14 268 13 552 3 440 1 545 189 32 994 13 988 9 245 9 770 4 527 2 271 306 26 119 5 221 26 131 19 989 3 776 1 092 4 777 5 781 1 364 917 67 396 8 002 50 988 6 136 12 839 1 653 105 172 90 714 18 083 14 189 2 963 231 121 68 866 87 059 74 792 12 531 11 566 2 468 188 416 51 523 9 491 7 771 2 076 628 189 20 155 12 335 8 622 8 151 3 476 1 995 306 22 550 5 008 Total RBB 375 385 297 063 46 982 31 340 75 398 57 124 14 492 299 987 239 939 32 490 27 558 Non-D3 total impairments Non-D3 stage 1 Non-D3 stage 2 Non-D3 stage 3 2 363 4 716 3 328 2 119 331 12 857 1 889 14 746 194 745 502 463 41 1 945 278 2 223 468 846 378 250 52 1 994 469 1 701 3 125 2 448 1 406 238 8 918 1 142 2 463 10 060 BALANCE SHEET IMPAIRMENT AS A PERCENTAGE OF BOOK Stage 1 Stage 2 Stage 3 % stage 1 stage 2 stage 3 % % % D3 of total D3 % D3 % D3 % % Non-D3 of total Non-D3 stage 1 % Non-D3 stage 2 % Non-D3 stage 31 % 2,25 5,20 18,40 14,93 11,17 5,56 2,74 4,92 0,22 1,00 4,01 4,00 1,66 1,03 0,54 0,93 4,93 10,89 18,21 39,81 27,51 9,89 3,80 7,58 19,73 38,34 70,43 70,48 77,78 39,55 22,80 36,50 1 Restructured D3 loans are those that have during 2020 or previously, been restructured as D3 and reflects the staging and balances as at 31 December 2020. BALANCE SHEET ACTUAL IMPAIRMENTS impairments Stage 1 Stage 2 Stage 3 impairments stage 1 stage 2 stage 3 D3 D3 D3 Total 136 703 118 103 24 274 16 474 2 963 298 517 76 868 Total 2 766 6 250 4 864 2 894 331 17 105 2 008 19 113 % of total 2,02 5,29 20,04 17,57 11,17 5,73 2,61 5,09 Home loans VAF Card Personal loans Other loans Total Retail Business Banking Rm VAF Home loans Personal loans Card Other loans Total Retail Business Banking Total RBB Home loans Personal loans VAF Card Other loans Total Retail Business Banking Total RBB associated coverage D3 total 31 531 27 389 6 191 2 285 D3 Total 403 1 534 1 536 775 4 248 119 4 367 1,28 5,60 24,81 33,92 6,30 1,49 5,79 257 1 097 697 552 41 2 644 310 2 954 0,23 1,16 4,27 4,36 1,66 1,10 0,54 0,99 724 1 554 843 766 52 3 939 515 4 454 5,07 11,47 24,51 49,58 27,51 11,94 3,68 9,48 1 785 3 599 3 324 1 576 238 10 522 1 183 11 705 19,31 36,84 73,43 69,40 77,78 40,28 22,66 37,35 63 352 195 89 699 32 731 0,24 1,76 5,16 8,15 1,37 0,52 1,28 256 708 465 516 1 945 46 1 991 5,36 12,25 34,09 56,27 15,15 2,78 13,74 623 1 619 1 051 276 3 569 213 3 782 84 474 876 170 1 604 41 1 645 13,48 29,28 83,35 61,59 44,94 19,25 43,50 1 Non-D3 Stage 3 accounts have been in Stage 3 for longer than D3 accounts, and as such further progressed down the LGD2 curve with higher 93 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 Nedbank Wealth HEADLINE EARNINGS HEADLINE EARNINGS (Rm) (Rm) HEADLINE EARNINGS (Rm) RETURN ON EQUITY RETURN ON EQUITY (%) (%) 2 4 0 1 2 4 0 2 6 6 1 2 6 6 1 7 4 1 1 0 7 4 3 1 0 3 9 1 3 1 4 3 9 1 3 1 4 3 2 5 2 2 0 5 2 2 0 2 , 2 5 3 , 5 7 2 , 8 6 2 , 8 4 2 , 3 5 1 Cluster total 2019 Cluster total 2019 2020 2020 Insurance Insurance Asset Management Asset Management Wealth Management Wealth Management FINANCIAL HIGHLIGHTS for the year ended 31 December Headline earnings (Rm) NII (Rm) Impairments charge on financial instruments (Rm) NIR (Rm) Operating expenses (Rm) ROE (%) ROA (%) CLR – banking advances (%) NIR to total operating expenses (%) Cost-to-income ratio (%) Interest margin (%) Assets under management (Rm) Life assurance embedded value (Rm) Life assurance value of new business (Rm) Total assets (Rm) Average total assets (Rm) Total advances (Rm) Average total advances (Rm) Total deposits (Rm) Average total deposits (Rm) Average allocated capital (Rm) 2020 662 897 208 3 303 3 061 15,3 0,81 0,64 107,9 72,9 1,51 374 546 3 606 283 80 244 81 428 31 133 32 134 43 945 45 170 4 327 2019 1 042 1 148 57 3 436 3 113 24,8 1,40 0,18 110,4 67,9 2,17 331 136 3 188 421 77 433 74 302 30 741 31 141 40 060 41 072 4 204 In a complex operating environment exacerbated by the Covid-19 pandemic, Nedbank Wealth’s HE declined by 36,5% to R662m and ROE remained resilient at 15,3%, above cost of equity. Asset Management experienced a good overall performance, attracted positive net flows and delivered strong growth in AUM. Locally, Wealth Management earnings were impacted negatively by a substantial increase in credit impairments due to the difficult macroeconomic environment and Covid-19-related risks, coupled with substantially lower interest rates. The international Wealth Management business experienced a decline in earnings as a result of record-low USD and GBP interest rates. Insurance results were impacted by higher claims in the life portfolio, the negative effect of reduced interest rates on actuarial reserves and lower JSE investment returns on shareholder funds, albeit with a slight recovery in the fourth quarter. 94 2016 2017 2018 2019 2020 NII decreased by 21,9% to R897m due to significantly reduced interest rates both locally and internationally, resulting in NIM contracting to 1,51%. The CLR deteriorated to 64 bps due to a significant increase in credit impairments locally as a result of the unprecedented macroeconomic environment and Covid-19-related risks. Payment relief of R7,8bn was provided to Nedbank Private Wealth clients in good standing to help them through short-term liquidity challenges. NIR declined to R3 303m, down by 3,9% as a result of higher claims in the life portfolio, the impact of reduced interest rates on actuarial reserves, and lower investment returns on shareholder funds in Insurance. NIR was further impacted by lower planner productivity on commission earned due to lockdown restrictions and reduced portfolio management fees in the local Wealth Management business. This was partially offset by higher client trading activity on the back of volatile markets, resulting in growth in brokerage income locally, and an increase in foreign exchange income internationally, as well as solid growth in AUM in Asset Management. The NIR-to-expenses ratio increased to 107,9%, with expenses declining by 1,7% as costs continue to be well managed. The cost-to-income ratio increased to 72,9%, primarily due to the impact of the lower-interest-rate environment on NII. WEALTH MANAGEMENT Wealth Management’s HE declined by 92% to R20m, mainly driven by a substantial increase in credit impairments due to the impact of Covid-19 on the local business, as well as the effect of the low-interest-rate-environment, both locally and internationally. In addition, Covid-19 lockdown restrictions resulted in delays in the winding up of estates and clients continuing to de-risk their portfolios to lower-margin products. The pandemic further impacted new-business volumes in investment management and financial planning, resulting in lower investment advice fees, partially offset by strong growth in brokerage income. During the pandemic digital adoption increased significantly, with 20% more clients using the Nedbank Private Wealth app and the demand for Online Share trading accounts growing by more than 100%. A key focus area for the business is to provide seamless client experiences, with 77% of clients who transferred money between their SA and international accounts, using the Nedbank Private Wealth app. Internationally, earnings were impacted by reduced USD and GBP interest rates, resulting in lower revenue, while lending activity was affected by lower property transaction volumes combined with strong competition from UK ring-fenced banks. Despite the impact of Covid-19 on new investment business volumes and global stock markets, the business showed solid growth in AUA, while AUM remained steady compared to prior year. Nedbank Private Wealth International was named Best Boutique Private Bank at the 2020 WealthBriefing MENA Region Awards. NEDBANK GROUP Annual Results 2020 ASSET MANAGEMENT Asset Management delivered strong HE of R341m, up 7% due to good overall performance, strict expense control and growth in market share. AUM increased by 13,1% to R375bn, benefitting from positive net flows of R28bn, particularly in lower-risk cash and fixed-income funds. The Nedgroup Investments Core Fund range continued to grow and now exceeds R40bn and is the largest low-cost, multi-asset range in the SA market. The international range ranked third in the December 2020 PlexCrown Unit Trust Survey and is well positioned for South African clients to diversify their investments offshore. As part of an ongoing journey to enhance client experiences, Nedgroup Investments increased digital adoption, hosted over 70 online events, significantly increased their social-media following and integrated into several Nedbank platforms, including the Money app and Online Banking. In 2020 Nedgroup Investments launched MyRetirement, an innovative and industry-first retirement solution designed to help with the problem of insufficient retirement savings in SA. INSURANCE Insurance HE declined by 36% to R301m due to an increase in credit life loss-of-income and funeral claims resulting from Covid-19 and the impact of reduced interest rates on actuarial reserves, as well as lower investment returns on shareholder funds. This was offset by an improved non-life claims experience, most notably in the vehicle value-added products. Throughout 2020, Nedbank Insurance provided clients with a Nedbank unsecured loan the opportunity to apply for debt relief and claim for credit life protection through loss-of-income claims, underwritten by the life business amounting to more than R150m. In addition, Nedbank Insurance offered clients up to 10% discount on their premiums if a policy was purchased through a digital channel and the debit order was linked to a Nedbank account. Life EV increased by 13,1% to R3 606m despite higher retrenchment and mortality claims as a result of the Covid-19 pandemic, and the continued weak economic environment. VNB decreased by 33% to R283m due to a reduction in sales volumes across all products as a result of lockdown restrictions, partially offset by higher average premiums. Non-life gross written premiums declined by 8,4% to R1,081m due to a decrease in sales volumes as a result of the constrained economic environment. Insurance reported a significant uptake in digital sales, notably in the funeral product, and continues to deliver numerous digital client solutions through various platforms with the intention of including the entire portfolio on Nedbank digital platforms by the end of 2021. ASSETS UNDER MANAGEMENT (Rbn) ASSETS UNDER MANAGEMENT (Rbn) 4 7 2 0 5 4 2 2 2 1 3 6 5 6 5 2 7 9 2 6 5 1 4 2 1 3 3 7 6 4 6 2 5 7 3 8 7 7 9 2 2016 2017 2018 2019 2020 International Local Looking forward We anticipate a prolonged economic recovery, considering the inextricable link between market conditions and Covid-19 trends. Uncertainty around a possible third wave of Covid-19 infections may result in higher credit impairments in our Wealth Management businesses and loss-of-income and death claims in our Insurance business. Ongoing competition from UK ring-fenced banks and a possible further reduction in the zero-interest rate environment are expected to impede earnings internationally. Nedbank Wealth is committed to providing world-class client service, building data and digital capability, driving new client growth and long-term performance, collaborating within the cluster and the rest of the group, as well as investing in people and culture. While the business continues to invest for the future, it is equally important to ensure operational resilience, improved returns and sustainable growth. The local Wealth Management business will focus efforts on creating an advice-led business that fulfils clients’ needs by delivering simplified solutions and commercialising digital tools. Collaboration within the group will be paramount to increasing client penetration and building an efficient and sustainable business. Our international Nedbank Private Wealth business will focus on new client growth and digital adoption and continue to build on its strategy of moving from an affluent banking-led business to a high-net-worth advice-led business. Asset Management remains committed to delivering long-term fund performance, making it simple, easy and secure to do business as well as taking further steps in their journey towards becoming leaders in responsible investing. Nedgroup Investments will continue to integrate with Nedbank’s online and Money app digital channels. Insurance will focus on enhancing client experiences, improving data capabilities, expanding mobile and digital platforms and collaborating within the group to penetrate the Nedbank client base, while being reliably there for clients during these uncertain times. In 2021 the Nedbank Insurance on-licence personal lines solution will be launched to the broader market and included on numerous Nedbank digital platforms, such as the Money app, in the first half of the year. 95 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020ASSETS UNDER MANAGEMENT Rm Fair value of funds under management – by type Unit trusts Third parties Private clients Fair value of funds under management – by geography SA Rest of the world 2020 2019 314 539 957 59 050 273 243 946 56 947 374 546 331 136 296 971 77 575 264 448 66 688 374 546 331 136 Rm Reconciliation of movement in funds under management – by type Opening balance at 31 December 2019 Inflows Outflows Mark-to-market value adjustment Foreign currency translation differences Closing balance – 31 December 2020 Unit trusts Third party Private clients Total 273 243 617 754 (587 149) 8 266 2 425 314 539 946 235 (292) (14) 82 957 56 947 12 394 (15 062) 4 318 453 331 136 630 383 (602 503) 12 570 2 960 59 050 374 546 Rm Reconciliation of movement in funds under management – by geography Opening balance at 31 December 2019 Inflows Outflows Mark-to-market value adjustment Foreign currency translation differences SA Rest of the world Total 264 448 614 689 (588 846) 6 680 66 688 15 694 (13 657) 5 890 2 960 331 136 630 383 (602 503) 12 570 2 960 Closing balance – 31 December 2020 296 971 77 575 374 546 Favourable Unfavourable • Steady international AUM growth. • Significant decline in local and international interest rates. • Positive netflows in Asset Management. • Substantial growth in credit impairments. • Improved non-life claims experience. • Lending activity impacted by lower property • Costs well-managed. • Significant increase in digital adoption. transaction volumes. • Continued shift towards lower-risk products. • Increase in credit life loss of income and funeral claims in Insurance. 96 NEDBANK GROUP Annual Results 2020 Nedbank Africa Regions HEADLINE EARNINGS (Rm) RETURN ON EQUITY (%) 2 0 7 7 5 4 2 1 2 0 7 , 3 0 1 7 7 , , 2 0 ) 7 8 2 ( ) 0 1 8 ( , ) 6 3 ( , ) 6 2 1 ( 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Although the health impact of the Covid-19 pandemic in Africa has been milder than on other regions, the socioeconomic wellbeing of many Africans has been affected negatively. Especially vulnerable have been those dependent on travel and tourism, and commodity exporting economies, particularly oil. Due to Covid-19 and its lockdown measures, sub-Saharan Africa's GDP is expected to have contracted by 2,6% in 2020, with per capita income declining significantly – the deepest contraction on record. All the countries in which Nedbank operates implemented various measures to curb the spread of the virus, which included: • lockdowns or partial lockdowns by implementing either states of emergency or states of disaster; and • strict social distancing at workplaces (including branches) as well as the implementation of health and safety protocols. With the second wave of infections in late 2020 and in early 2021, stricter measures were implemented to curb the spread of the virus. These included closing borders, imposing curfews (e.g. from 18:00 to 06:00 in Zimbabwe) and introducing strict business trading hours. Regulatory interventions in response to the pandemic in the countries where we operate included: • reducing liquid asset requirements and reserve requirements; • implementing conditions enabling banks to help with credit repayment holidays or restructures for clients affected by the pandemic; • directing banks not to declare and pay dividends; • encouraging banks to reduce merchant fees and pricing for digital channels; • reducing interest rates significantly; • requiring bank employees, who were declared essential workers, to work in rotation and restricting the number of employees working on premises; and • delaying the implementation of key rules and regulations, for example Basel 2.5 in Lesotho. Despite the impact of the Covid-19 pandemic, our NAR business remains resilient on all key balance sheet measures and is well positioned for growth. Highlights include the following: • Our subsidiaries have adequate capital levels above minimum requirements and continue to report strong liquidity. • Through collaboration with our regulators and respective governments, we were able to support our clients with payment holidays and debt restructures. • Key business drivers continue to improve, for instance client growth and growth in digital usage. • Nedbank brand sentiment improved in most subsidiaries in 2020, with Zimbabwe being the leader in its market – a testament to our client-centred response. • West and Central Africa regions of ETI continue to deliver strong returns. OUR STRATEGY ON THE CONTINENT Once we emerge from the Covid-19 pandemic, we expect growth in regions where we operate to be faster than in SA. This will provide opportunities for diversifying earnings and returns over the longer term. Our strategy remains to own, manage and control banking operations in SADC and East Africa, and to give our clients access to a banking network in West and Central Africa through our strategic investment in the pan-African banking group ETI, which has subsidiaries in 33 African countries. As part of portfolio optimisation, we completed our exit from Malawi in H1 2020 and increased our stake in Banco Único to 87,5% as we look to leverage Mozambican growth opportunities for the Group. We are currently integrating the business into the group so that we can leverage our enterprise capabilities to unlock value from our investment. As part of the Zimbabwe business reconfiguration, work is being done to reshape the balance sheet to reduce the impact of monetary loss as a result of hyperinflation. We have reported an improvement in the net monetary loss in 2020 vs 2019. We are also refocusing to be more digital, with a special focus on wholesale, transactional banking, trade finance and cash management. As part of continuing to reimagine the business, we have also reduced our branch footprint. 97 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020BRANCHES BRANCHES ATMS ATMS 7 8 3 9 8 9 3 0 1 4 8 4 8 1 8 0 2 0 2 2 8 1 2 3 9 1 2016 2017 2018 2019 20201 2016 2017 2018 2019 20201 1 Malawi disposed of in H12020. 1 Malawi disposed of in H12020. SADC SUBSIDIARIES PERFORMANCE With our focus on driving workplace banking and rolling out sales squads in our wholesale business, our overall number of clients grew by 10% in 2020 to 334 000. In line with transforming our business for the digital age, we have increased our digitally enabled accounts and digitally active clients by 37% and 75% respectively. We increased our app payment and transfer volumes by 83% and 65% respectively, and increased volume and the value of value-added services (electricity, airtime, instant payments) by 121% and 91% respectively. As part of continuing to invest in our businesses and giving our clients improved offers and better experiences, we rolled out the following in 2020: • Nedbank Namibia launched IDToday, a digital identity management platform for the remote submission of clients' identity documents. IDToday enables clients to open a bank account on their phone by taking and submitting a selfie. • In Zimbabwe we launched a new online and offsite account application process, including offsite activation, which makes us one of only two banks in Zimbabwe with online account-opening capabilities. • We launched Send Money functionality in Namibia, Lesotho and eSwatini. It enables clients to send money to anyone with a valid cellphone number. In Zimbabwe we launched Zimswitch Instant Payment Interchange Technology (Zipit) to Ecocash transfer facility. Clients can now transfer money from Nedbank Mobile Banking (an app) to any Econet cellphone number. • We launched Nedbank Online in Eswatini, Lesotho and Namibia, the new personal online banking that offers clients the same features and benefits as the highly-rated Nedbank Money (Africa) App. • We launched U-Super Salário in Mozambique, a new super account that gives clients a host of benefits for having their salary paid into their Único account. After the third month of depositing their salary into the account, they can get an overdraft facility of up to 50% of their net monthly salary. • We introduced health insurance for Banco Único clients to give them access to a private network of health providers in Mozambique, SA, Portugal and India. All these new products and services were well received in their respective markets. We are continually focusing on improving our client service. Our clear, simple and bold aspiration is to be #1-rated in client experiences in every market where we operate. In 2020 we achieved significant improvements across many key client metrics: our Namibian and Lesotho businesses achieved the highest net promoter scores in their respective markets. As part of managing costs, we reduced our headcount by 9% to 2 352. This was a result of the disposal of the Malawi business, natural attrition and headcount freezes. We are also reimagining our business for a post-Covid-19 world and have been reviewing our distribution strategy. We reduced our branches by 6% to 84, and our ATMs by 2% to 193. As we focus on being a more digital business, new investments into our physical presence are limited to high-growth micro markets and the minimum presence that regulation requires. We have grown the number of point-of-sale (POS) devices by 3% to 8 780, resulting in an increase in merchant turnover of 30% to R11,7bn. Our progress was also acknowledged externally. Key awards won in 2020 include the following: • Nedbank Lesotho was awarded the Best Digital Bank in Lesotho and Best Corporate Governance Bank by the Global Banking & Finance Review. • Nedbank Swaziland won the award for the Most Innovative Digital Bank in Eswatini for 2020 at the International Finance Awards. • Banco Único was awarded Best Digital Bank of Mozambique by the Global Banking & Finance Review, making it the 25th award they have received for their digital offers. Banco Único was also awarded the Fastest Growing Retail Bank in Mozambique for 2020 (Global Banking & Finance Review). • Namibia won a Diamond Arrow Award at the PMR.Africa Namibia Country Survey Business Excellence Awards for Nedbank Private Banking, and was recognised in the category Companies/Institutions held in high esteem as good corporate citizens based on their corporate responsibility initiatives and investments over the past 12 months. • Nedbank Zimbabwe won the Sustainability Award at the 2020 Banks and Banking Survey Awards and was first runner-up in the 2020 Top Companies Awards in Zimbabwe for the banking sector category and first runner-up in the banking category at the 2020 Service Excellence Awards Ceremony category. ETI (WEST AND CENTRAL AFRICA) Adjusting for the impact of a prior-year adjustment and goodwill write off in Nigeria, ETI’s financial recovery continued, albeit with slower earnings growth. The performance for the nine months 98 NEDBANK GROUP Annual Results 2020FINANCIAL HIGHLIGHTS Nedbank Africa Regions SADC ETI Headline earnings (Rm) NII (Rm) Impairments charge on financial instruments (Rm) NIR (Rm) Operating expenses (Rm) Associate income ROE (%)1 ROA (%) Return on cost of ETI investment (%) CLR – banking advances (%) NIR to total operating expenses (%) Cost-to-income ratio (%) Interest margin (%) Total assets (Rm) Average total assets (Rm) Total advances (Rm) Average total advances (Rm) Total deposits (Rm) Average total deposits (Rm) Average allocated capital (Rm) 2020 12 1 274 437 1 454 2 325 337 0,2 0,03 5,6 1,85 62,5 75,9 3,85 41 089 38 739 23 233 22 409 33 294 32 470 6 471 2019 457 1 547 233 1 220 2 427 672 7,7 1,19 10,7 1,01 50,3 70,6 5,01 38 385 37 641 21 678 21 959 30 223 30 780 5 943 2020 (141) 1 549 437 1 454 2 325 (13) (2,6) (0,42) 1,85 62,5 77,8 5,42 38 909 36 004 23 233 22 409 33 294 32 470 5 366 2019 20 1 868 233 1 220 2 427 4 0,4 0,06 1,01 50,3 78,5 7,00 35 711 34 738 21 678 21 959 30 223 30 780 5 094 2020 153 (275) 350 14,0 2,09 5,6 2019 437 (321) 668 52,0 6,20 10,7 2 180 2 735 2 674 2 903 1 105 849 1 ROE on subsidiary and associate incountry statutory capital is 0,5% (2019: 4,9%), with Namibia 4,1% (2019: 13,1%); Eswatini 9,2% (2019: 14,6%); Lesotho 5,1% (2019: 10,7%); Zimbabwe 6,8% (2019: -57,2%) and Banco Único -4,5% (2019: 13,5%). ending 30 September 2020 (ETI results are reported in Nedbank results a quarter in arrear) was driven by the following: • Strong financial performance and solid returns registered in the anglophone and francophone West Africa regions, reflecting the quality of the franchise. (Ecobank is a market leader in six countries and among the top three in 16 countries where they do business.) • Resilient financial performance in the Central, Eastern and Southern Africa (CESA) region, adversely impacted by hyperinflation in Zimbabwe. • Although there has been improvement, Nigeria continues to be a drag on the group’s performance, due to persistently elevated NPLs and ongoing economic headwinds, including a lower oil price and foreign exchange shortages for most of 2020. The collaboration between ETI and Nedbank continued, with more than 245 Nedbank client accounts having been opened at Ecobank businesses across the continent. We have also continued to grow treasury activities. It was encouraging that Ecobank Nigeria (ENG) was able to issue a NGN50bn (equating to approximately USD125m) 10-year subordinated Tier 2 bond during December 2020, while also placing a USD300m five-year Eurobond in January 2021 at a spread of 7,125%. Due to the prolonged decline of ETI’s listed share price below its carrying value, at 30 June 2020, Nedbank reviewed its impairments provisions. Various scenarios had supported VIU calculations above the carrying value of the investment, but to be prudent, we decided to impair the investment by R750m in the first half of the year. Our position was reassessed in December 2020 and no additional impairment was required. FINANCIAL HIGHLIGHTS Given the difficult macroeconomic environment, exacerbated by the effects of the Covid-19 pandemic, the HE of the Nedbank Africa Regions business declined by 97% to R12m, resulting in ROE of 0,2%. The performance reflects higher impairments and lower NII in our SADC businesses, and two once-offs items reported by ETI. Our SADC subsidiaries produced a loss of R141m from HE of R20m in 2019. The loss was driven by lower revenue, higher impairments due to the Covid-19 pandemic and a R205m net monetary loss as inflationary pressure persisted in Zimbabwe, a reduction from R296m in 2019. HE impact of net monetary loss was R89m (2019: R142m). Revenues were impacted by lower NII (down 11%) and slower growth in advances as the subsidiary performances were affected by the deteriorating macroeconomic conditions due to Covid-19 and a decline in interest rates (especially in common monetary countries). NIR grew by 19% (down 4%, excluding Zimbabwe) as transactional volumes, especially digital, driven by investments made and accelerated digital client usage due to the lockdowns, climbed. Average gross advances and average deposits were up from the prior year by 2,4% and 5,5% respectively. Policy uncertainty and a lack of foreign direct investments continue to damage the Zimbabwean economy, contributing to hyperinflationary conditions. According to the Zimbabwe National Statistics Agency, Zimbabwe’s annual inflation was 363% in January 2021, with monthly CPI standing at nearly 5,43% (Zimbabwe officially adopted hyperinflationary accounting with effect from 1 July 2019). Zimbabwe's inflation has been on a downward trend since August 2020, following the introduction of a foreign exchange auction trading system that brought some stability to the foreign exchange market. 99 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 The CLR increased to 185 bps from 101 bps in 2019 due to a significant increase in impairments from R233m to R437m. This is above our board-approved CLR target limit of 100 bps due to increased pressure on clients because of the pandemic. Altogether, 16,1% of the NAR loan book has been restructured, with the sector exposure broadly aligned to key economic drivers. As at year-end, 2 116 accounts had been restructured across the NAR portfolios with a total exposure of R3,9bn. Although, 86% have matured and of those that have matured 90% have resumed repayment. Overall impairments are decreasing as the economies are starting to recover but will likely continue to be under pressure if more restrictions and lockdown measures are implemented because of new waves of infections. Expenses decreased by 4,2% to R2 325m, underpinned by the good management of overall costs, including headcount reduction, reduced marketing spend, lower travel costs and a decline in other non-essential costs. Nedbank’s HE from ETI declined by 65% from the prior year, to R153m. ETI’s performance was adversely affected by the restatement the previous year, our share of that being R236m and a goodwill impairment relating to the Oceanic acquisition, both relating to the Nigerian business. Given the impact of the one-off items, Nedbank recognised a loss from associates of R178m. As our share of the goodwill impairment of R528m is excluded from HE, Nedbank reported HE of R153m, after deducting R198m of after-tax funding costs. Excluding the effects of the one-off items, associate income was down 12%, at R587m (from the R668m reported in FY2019), while HE was 11% lower, at R388m (FY2019: R437m). Looking forward Following the devastating health and economic crisis caused by the pandemic, economies appear to be emerging from one of the deepest recessions and beginning a subdued recovery. We expect Covid-19 and the potential lockdowns due to increased infections to continue to impact African economies in 2021 until a significant percentage of the population is inoculated. Growth in sub-Saharan Africa is expected to rebound to 3,2% in 2021, which is slightly weaker than previously projected, before firming to 3,9% in 2022. Performance in the SADC region for 2021 is expected to improve year on year, but the Covid-19 pandemic will still impact the overall economy and business performance. We are continuing to reimagine our businesses for the new post-Covid-19 normal and are ensuring that they get a fair share of market profit pools. Our focus areas for 2021 are the following: • Accelerating the digitisation and automation of our business to be more competitive, and continuing to build our transactional franchise. • Completing the reconfiguration of the Zimbabwe business. • Leveraging our increased investment in Mozambique to address opportunities, including in the energy, agriculture and agro-processing sectors. • Transforming our business model for overall efficiency, while driving overall growth to achieve scale. In ETI, our focus is on increasing the value of our investment. We are working through our representation on the board to ensure continued growth of the business for sustainable long-term value, including addressing the persistent challenges in Ecobank Nigeria to unlock shareholder value. Through our investment we are continuing to work on the commercialisation of collaboration initiatives and increasing business flows. Nedbank is committed to long-term and profitable growth in our Africa Regions business and seeks to leverage these growth opportunities and improve returns on equity. Our ambition is to give our clients access to the best financial services network on the continent. Despite a challenging macroeconomic environment, we expect the Africa Regions business in the medium to long term to grow its overall contribution to group earnings and returns. Favourable Unfavourable • Strong liquidity and capital positions across subsidiaries. • Earnings severely impacted by the Covid-19 lockdowns across • Good cost management and operational effectiveness. all countries. • 10% growth in number of clients with strong transactional growth and POS usage. • Launched new digital offers for clients (Send Money) with significant increase in adoption and usage. • Strong returns from ETI's West & Central African subsidiaries. • Recognised and won awards for Most Innovative Digital Bank in Eswatini, Best Digital Bank in Lesotho and Mozambique and Best Bank for Corporate Governance in Lesotho. • Improving brand sentiment across markets with leadership position in Zimbabwe. • Leading NPS scores in Namibia and Lesotho, with top 3 performance in Eswatini and Mozambique. • Improved client online client sales and onboarding processes (IDToday onboarding with selfie). • Trading income increased strongly given increased market volatility and higher client volumes. • Difficult macro and socio-economic environment driving increase in impairments and worsening credit loss ratio. • Negative endowment due to lower interest rates especially in CMA countries. • Tourism and resource sectors negatively affected but lockdown and pandemic. • Zimbabwe continued to be affected by hyperinflation resulting in a monetary loss albeit with an improvement from 2019. • Associate income from ETI negatively impacted by Ecobank Nigeria related once-offs: the restatement of 2018 earnings (our share: R236m) and the impairment of goodwill from the Oceanic acquisition (our share: R528m). • Weak return on equity. 100 NEDBANK GROUP Annual Results 2020Geographical segmental reporting for the year ended 31 December Rm Summarised statement of financial position Assets Cash and cash equivalents Other short-term securities Derivative financial instruments Government and other securities Loans and advances Other assets Intragroup assets Nedbank Group SA1 Nedbank Africa Regions2 Rest of world 2020 2019 2020 2019 2020 2019 2020 2019 41 382 52 605 80 325 132 221 843 303 78 301 – 37 635 64 451 35 243 100 557 824 786 80 677 – 32 642 27 702 80 173 131 277 777 395 68 589 (2 733) 29 655 42 562 35 075 126 171 722 532 70 739 (499) 6 813 3 639 33 827 23 233 3 811 2 733 6 341 4 083 38 848 21 678 4 898 499 1 927 21 264 119 117 42 675 5 901 1 639 17 806 130 1 491 52 623 5 040 Total assets 1 228 137 1 143 349 1 115 045 1 026 235 41 089 38 385 72 003 78 729 Equity and liabilities Total equity Derivative financial instruments Amounts owed to depositors Provisions and other liabilities Long-term debt instruments Intragroup liabilities 100 444 65 130 953 715 49 078 59 770 – 98 449 27 991 904 382 52 814 59 713 – 81 974 65 004 854 767 46 924 59 452 6 924 81 926 27 913 812 008 49 922 59 396 (4 930) 6 471 39 33 294 967 318 5 943 11 30 223 1 891 317 11 999 87 65 654 1 187 10 580 67 62 151 1 001 (6 924) 4 930 Total equity and liabilities 1 228 137 1 143 349 1 115 045 1 026 235 41 089 38 385 72 003 78 729 Summarised statement of comprehensive income (Rm) NII Impairments charge on financial instruments Income from lending activities NIR Operating income Total operating expenses Zimbabwe hyperinflation Indirect taxation Profit/(Loss) from operations Share of gains of associate companies Profit before direct taxation Direct taxation Profit after taxation Profit attributable to non-controlling interest 30 081 30 167 27 703 27 548 1 274 13 127 6 129 11 815 5 824 16 954 24 140 41 094 31 772 205 1 148 24 038 25 997 50 035 32 179 296 1 096 15 888 21 559 37 447 28 576 21 724 23 598 45 322 28 940 1 065 1 014 437 837 1 454 2 291 2 325 205 64 1 547 233 1 314 1 220 2 534 2 427 296 58 7 969 16 464 7 806 15 368 (303) (247) 452 8 421 1 994 793 17 257 3 942 115 7 921 1 986 121 15 489 3 885 6 427 13 315 5 935 11 604 987 809 935 777 337 34 (30) 64 52 12 672 425 (64) 489 32 457 1 104 1 072 875 229 1 127 1 356 871 19 466 466 38 428 72 1 000 1 179 2 179 812 24 1 343 1 343 121 1 222 428 1 222 Headline earnings 5 440 12 506 5 000 10 827 1 Includes all group eliminations. 2 The Nedbank Africa Regions geographical segmental income statement and balance sheet consist of the SADC banking subsidiaries and the investment in ETI. These statements do not include transactions concluded with clients resident in the rest of Africa by other group entities within CIB nor transactional-banking revenues. For example, CIB has credit exposures to clients resident in the rest of Africa of R34,0bn (2019: R31,8bn). 101 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISRESULTS PRESENTATIONSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020 INCOME STATEMENT ANALYSIS. 103 Net margin analysis 107 Impairments 112 Non-interest revenue 114 Expenses 116 116 117 Headline earnings Taxation charge Preference shares 102 NEDBANK GROUP Annual Results 20201 Net margin analysis Nedbank Group Bps Rm Bps Rm 2020 2019 Closing-average interest-earning banking assets Opening NIM/NII Growth in banking assets Endowment Capital, net of working capital Deposits Asset margin pricing and mix Impact due to pricing Impact due to mix change Liability margin pricing and mix Deposits pricing and mix Impact due to pricing Impact due to mix change Impact of changes in the funding profile Prime—JIBAR basis HQLA IFRS 16: Leases1 Other Closing NIM/NII for the year 1 No impact in 2020. NET INTEREST MARGIN (YOY) (Bps) 352 (24) (9) (15) 14 15 (1) (9) (9) (10) 1 (4) 7 895 880 30 167 1 333 (2 128) (812) (1 316) 1 237 1 357 (120) (788) (742) (851) 109 (46) (305) 610 (45) 857 981 28 819 2 465 (268) (226) (42) (357) (555) 198 31 62 123 (61) (31) 77 (204) (293) (103) 365 (3) (3) (4) (6) 2 1 (1) 1 (2) (4) (1) 336 30 081 352 30 167 (24) 15 (1) (10) 1 (4) 7 352 336 2019 Endowment impact Asset pricing Asset mix Liability pricing Liability mix Prime—JIBAR basis HQLA 2020 103 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 NET INTEREST INCOME (Rm) NET INTEREST INCOME (Rm) INTEREST MARGIN TRENDS VERSUS PRIME RATE (%) NET INTEREST MARGIN (Rm) 10,4 10,4 10,1 10,1 6 2 4 6 2 4 2 6 7 2 9 1 8 8 2 7 6 1 0 3 1 8 0 0 3 4 5 3 , 2 6 3 , 5 6 3 , 2 5 3 , 7,8 6 3 3 , 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Nedbank Group NIM Average prime rate NET INTEREST INCOME Favourable Unfavourable • Positive asset pricing due to improved risk-based pricing. • Negative endowment due to lower interest rates, following • Positive deposit mix impact due to faster growth in deposits with higher margins versus wholesale sources of funding. • Positive impact of yield optimisation strategies on banking book HQLA portfolios and lower levels of low yielding HQLA held in the banking book. interest rate cuts of 300 bps. • Liability margin deteriorated due to aggressive competitor pricing across wholesale and retail term and demand deposits. • A squeeze in prime—JIBAR-basis spread as prime-linked assets repriced immediately for changes in the repo rate, while term funding post-hedging, repriced over three months. NII SENSITIVITY ANALYSIS • At December 2020 the NII sensitivity of the group’s banking book for a 1% parallel reduction in interest rates, measured over 12 months, was 1,47% of total group ordinary shareholders’ equity, which is below the board’s approved risk limit of < 2,25%. • This exposes the group to a decrease in NII of approximately R1 310m before tax, should interest rates decrease by 1% across the yield curve, measured over a 12-month period. Nedbank London branch and Wealth International NII sensitivities are, however, measured at a 0,5% instantaneous decrease in interest rates. • The group’s NII sensitivity exhibits very little convexity and will therefore also result in an increase in pretax NII of approximately similar amounts should interest rates increase by 100 bps. • The group’s NII sensitivity is actively managed through on- and off-balance-sheet interest rate risk management strategies for the group’s expected interest rate view and impairment sensitivity over the cycle. • Nedbank Limited’s economic value of equity (EVE) for a 100-bps-decline in interest rates remains at a low level of 0,24% (-R165m) of ordinary shareholders’ equity, which is below the board’s approved risk limit of 1%. 104 NEDBANK GROUP Annual Results 2020 LENDING SPREAD VERSUS CREDIT LOSS RATIO (INCLUDING TARGET RANGE) OF NEDBANK GROUP (Bps) 238 231 240 241 Δ = 170 Δ = 182 Δ = 187 68 2016 49 2017 53 2018 Δ = 162 79 2019 265 Δ = 104 161 2020 Lending spread (banking financial assets) Credit loss ratio (CLR) Current CLR target range (60-100 bps) • The group’s lending spread improved by 24 bps in the current year to 265 bps. This was primarily due to improved pricing, noting that improved residential mortgage pricing was largely driven by an alignment in the period over which mortgage commission is amortised to net interest income (R135m, 2 bps). • The group’s CLR increased by 82 bps yoy to 161 bps at 31 December 2020, breaching the upper-end of the target range of 60—100 bps. The CLR was impacted by stage migrations in both retail and wholesale, adjustments to macroeconomic forecasts, the forward-looking provisioning requirements of IFRS 9 and heightened risk due to the Covid-19 pandemic. During the period loans and advances were restated to include listed corporate bonds (previously disclosed as government and other securities) to align with industry practice, and this reduced the group CLR by 3 bps and 6 bps in 2019 and 2020 respectively. 105 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Average banking statement of financial position and related interest 2020 2019 Average balance Margin statement interest1 Average balance Margin statement interest1 Rm Assets Received Average prime rate Assets Loans and advances Home loans (including properties in possession) Commercial mortgages Instalment debtors Credit card balances Overdrafts Term loans and other2 Personal loans Impairment of loans and advances Government and other dated securities Short-term funds and trading securities Interest-earning banking assets Other3 165 603 186 240 128 006 16 752 23 554 236 647 25 963 (21 268) 93 022 41 361 895 880 141 385 12 234 13 834 12 559 2 256 1 933 15 147 5 330 7 535 1 472 72 300 % 7,80 7,39 7,43 9,81 13,47 8,21 6,40 20,53 8,10 3,56 8,07 Assets Received 159 406 170 087 121 231 17 378 22 954 229 811 23 907 (16 297) 84 501 45 003 857 981 106 974 15 073 16 369 14 277 2 581 2 373 18 358 5 151 7 162 2 336 83 680 Total assets 1 037 265 72 300 6,97 964 955 83 680 Equity and liabilities Deposit and loan accounts Current and savings accounts Negotiable certificates of deposit Other interest-bearing liabilities1 Long-term debt instruments Interest-bearing banking liabilities Other4 Liabilities Paid % Liabilities Paid 483 084 127 150 114 620 104 982 61 035 890 871 146 394 22 943 663 7 212 6 683 4 718 42 219 4,75 0,52 6,29 6,37 7,73 4,74 456 578 111 379 117 088 85 887 57 306 828 238 136 717 30 628 1 074 9 259 7 214 5 338 53 513 Total shareholders’ equity and liabilities 1 037 265 42 219 4,07 964 955 53 513 Interest margin on average interest-earning banking assets 895 880 30 081 3,36 857 981 30 167 % 10,14 9,46 9,62 11,78 14,85 10,34 7,99 21,55 8,48 5,19 9,75 8,67 % 6,71 0,96 7,91 8,40 9,31 6,46 5,55 3,52 1 Yields are before incorporating the impact of hedging derivatives. 2 Includes term loans, preference shares, factoring debtors, interest on derivatives and other lending-related instruments. 3 Includes cash and banknotes, derivative financial instruments, insurance assets, associates and investments, property and equipment, mandatory reserve deposits with central banks, intangible assets and other assets. 4 Includes derivative financial instruments, investment contract liabilities, other liabilities and elimination entries. 106 NEDBANK GROUP Annual Results 2020 2 Impairments NEDBANK GROUP IMPAIRMENTS CHARGE NEDBANK GROUP IMPAIRMENTS CHARGE (Rm) (Rm) NEDBANK GROUP CREDIT LOSS RATIO TRENDS GROUP CREDIT LOSS RATIO TRENDS (%) (Rm) 4 0 3 3 8 8 6 3 4 5 5 4 9 2 1 6 7 2 1 3 1 9 6 0 , 9 4 0 , 1,00 0,60 3 5 0 , 9 7 0 , 1 6 , 1 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 CLR TTC Upper range TTC Lower range RESTRUCTURED CREDIT EXPOSURES IN TERMS OF D3/2020 AND D7/2015 AT YEAR END Restructured credit exposure transactions D3 restructures D7 restructures GLAA held at amortised cost (Stage 1, 2 and 3) D3 restructures as % of cluster/ business unit GLAA Total number Exposure (Rm) Impairments (Rm) Total number Exposure (Rm) Impairments (Rm) Exposure (Rm) % 53 19 34 15 241 61 15 180 1 138 25 355 18 160 7 195 2 051 179 1 872 4 333 281 250 31 189 4 185 3 24 6 18 2 061 1 792 269 59 073 10 540 257 58 816 73 143 448 10 092 249 144 516 433 83 2 196 51 2 145 14 34 331 769 166 127 165 642 375 385 76 868 298 517 30 566 24 186 376 7,64 10,93 4,34 0,55 0,23 0,63 0,01 1,38 Nedbank cluster/business unit 2020 Corporate and Investment Banking CIB excl Property Finance Property Finance Retail and Business Banking Business Banking Retail Wealth Nedbank Africa Regions Centre Group 15 433 27 743 473 59 313 12 994 2 760 762 282 3,64 Favourable Unfavourable • Nedbank provided D3/2020 payment relief on a total of more than R120bn of client loans across the portfolio during 2020. • At 31 December 2020, this had declined to R28bn as payment • Impairments increased 114%, due to the impact of Covid-19 on consumers and businesses and the difficult SA macroeconomic environment. holidays matured and clients resumed payment plans. • The charge includes R3,9bn of Covid-19-related overlays and • The H2 CLR reduced to 134 bps from 187 bps in H1 2020 resulting in the CLR of 161 bps at year end as the economic outlook improved and lockdown eased. judgemental estimates. • CLR of 161 bps was above the upper end of the CLR TTC target range of 100 bps. 107 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 NEDBANK GROUP INCOME STATEMENT IMPAIRMENT CHARGE AND CREDIT LOSS RATIO Stage 1 Stage 2 Stage 3 Off- balance- sheet Non-LAA and FVOCI Impairments charge, net of recoveries (excl non- LAA) Average banking advances 2020 (Rm) Rm Rm Rm Rm Rm Rm % CLR % Target % Corporate and Investment Banking (CIB) CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail1 Wealth Nedbank Africa Regions Centre 271 138 133 519 11 508 22 101 435 136 299 1 533 366 1 167 31 54 500 1 941 1 463 478 6 619 415 6 204 155 267 (1) 305 305 75 62 13 9 293 293 6 (8) 3 245 2 335 910 8 746 854 7 892 208 437 491 48,4 0,82 0,15-0,45 29,6 18,8 44,7 9,5 35,2 4,0 2,9 1.03 0,54 2,40 1,10 2,75 0,64 1,85 0,15-0,35 1,30-1,80 0,50-0,70 1,60-2,40 0,20-0,40 0,75-1,00 Nedbank Group 913 2 553 8 981 389 291 13 127 100,0 1,61 0,60-1,00 1 For further disaggregation refer to the RBB segmental report on pages 79 to 93. Stage 1 Stage 2 Stage 3 Off- balance- sheet Non-LAA and FVOCI Impairments charge, net of recoveries (excl non- LAA) Mix of average banking advances 2019 (Rm) Rm Rm Rm Rm Rm Rm % CLR % Target % Corporate and Investment Banking (CIB) 1 254 CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail1 Wealth Nedbank Africa Regions Centre (30) 31 476 (21) 497 (1) 71 179 75 102 3 99 4 23 99 616 693 (77) 4 241 400 3 841 54 129 46 45 1 4 4 6 Nedbank Group 547 482 5 040 56 1 For further disaggregation refer to the RBB segmental report on pages 79 to 93. 917 887 30 4 823 382 4 441 57 233 99 46,3 0,25 0,15-0,45 27,2 19,1 46,5 10,2 36,3 4,2 3,0 0,45 (0,02) 1,38 0.50 1.63 0,18 1,01 0,15-0,35 1,30-1,80 0,50-0,70 1,60-2,40 0,20-0,40 0,75-1,00 6 129 100,0 0,79 0,60-1,00 4 4 108 NEDBANK GROUP Annual Results 2020 IMPAIRMENTS CHARGE ON FINANCIAL INSTRUMENTS 2020 (Rm) Balance at the beginning of the year Stage 1 ECL allowance Stage 2 ECL allowance Stage 3 ECL allowance Statement of comprehensive income charge net of recoveries Stage 1 ECL allowance Stage 2 ECL allowance Stage 3 ECL allowance Off-balance-sheet allowance Non-loans and advances FVOCI loan impairment charge Adjusted for: Recoveries Interest in suspense Amounts written off Foreign exchange and other transfers Non-loans and advances ECL allowance – closing balance Stage 1 Stage 2 Stage 3 Split by measurement category Loans and advances Loans and advances in FVOCI Off-balance-sheet allowance Corporate and Investment Banking Retail and Business Banking Nedbank Group Nedbank Africa Regions Wealth Centre 18 152 3 428 3 931 10 793 13 127 913 2 553 8 981 389 (2) 293 (5 202) 1 165 1 059 (7 419) (9) 2 26 077 4 237 6 772 15 068 26 077 24 804 609 664 2 745 658 767 1 320 3 245 271 435 1 941 305 293 (1 352) 6 74 (1 378) (54) 4 638 935 1 306 2 397 4 638 3 539 609 490 14 144 2 507 2 819 8 818 8 746 519 1 533 6 619 75 (3 633) 1 077 855 (5 979) 414 19 257 3 015 4 504 11 738 19 257 19 113 144 229 24 25 180 208 22 31 155 (3) (3) 434 46 56 332 434 434 771 240 72 459 437 101 54 267 9 6 (225) 82 130 (59) (372) (6) 983 241 158 584 983 953 30 263 (1) 248 16 491 500 (1) (8) 11 3 8 765 748 17 765 765 NEDBANK GROUP CREDIT LOSS RATIO PER CLUSTER (%) NEDBANK GROUP CREDIT LOSS RATIO PER CLUSTER (%) 1,12 0,98 0,34 0,08 2016 1,06 1,02 0,09 0,06 2017 1,06 0,51 0,13 0,04 2018 2,40 1,85 0,82 0,64 1,38 1,01 0,25 0,18 2019 2020 CIB RBB Wealth Africa Regions 109 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 2019 (Rm) Balance at the beginning of the year Stage 1 ECL allowance Stage 2 ECL allowance Stage 3 ECL allowance Statement of comprehensive income charge net of recoveries Stage 1 ECL allowance Stage 2 ECL allowance Stage 3 ECL allowance Off-balance-sheet allowance Non-Loans and advances Adjusted for: Recoveries Interest in suspense Amounts written off Foreign exchange and other transfers Non-loans and advances Balance at the end of the year Stage 1 ECL allowance Stage 2 ECL allowance Stage 3 ECL allowance Split by measurement category Loans and advances Loans and advances in FVOCI Off-balance-sheet allowance Corporate and Investment Banking Retail and Business Banking Nedbank Group Nedbank Africa Regions Wealth Centre 15 826 2 878 3 586 9 362 6 129 547 482 5 040 56 4 (3 803) 1 247 723 (5 491) (278) (4) 18 152 3 428 3 931 10 793 18 152 17 541 340 271 1 865 591 549 725 917 1 254 616 46 (37) 20 83 (117) (23) 2 745 658 767 1 320 2 745 2 224 340 181 12 795 2 042 2 791 7 962 4 823 476 102 4 241 4 (3 474) 1 196 640 (5 275) (35) 14 144 2 507 2 819 8 818 14 144 14 075 69 187 25 22 140 57 (1) 4 54 (15) (15) 229 24 25 180 229 229 814 219 76 519 233 71 23 129 6 4 (276) 31 (84) (219) (4) 771 240 72 459 771 749 22 165 1 148 16 99 99 (1) (1) 263 (1) 248 16 263 264 (1) NEDBANK GROUP IMPAIRMENT DRIVERS (Rm) 3 941 333 287 2 071 366 6 129 2019 Stage 1 Stage 2 Stage 3 Off- balance-sheet FVOCI and non-LAA 110 13 127 2020 NEDBANK GROUP Annual Results 2020 111 NotesRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 20203 Non-interest revenue NON-INTEREST REVENUE (Rm) NON-INTEREST REVENUE (Rm) NON-INTEREST REVENUE TO TOTAL OPERATING EXPENSES NON-INTEREST REVENUE TO TOTAL OPERATING EXPENSES (%) (%) 3 0 5 3 2 3 6 0 4 2 6 7 9 5 2 7 9 9 5 2 0 4 1 4 2 , 9 2 8 , 7 0 8 1 , 2 8 , 8 0 8 , 0 6 7 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Nedbank Group Corporate and Investment Banking Retail and Business Banking Wealth Nedbank Africa Regions Centre Rm Commission and fees income Administration fees Card income Cash-handling fees Exchange commission Guarantees income Insurance commission Other commission3 Other fees4 Service charges Insurance income Fair-value adjustments Fair-value adjustments Hedge-accounted portfolios Trading income Commodities Debt securities Equities Foreign exchange Private-equity income Realised gains, dividends, interest and other income5 Unrealised losses1 Investment income Sundry income2 2020 17 137 1 327 3 178 1 017 707 311 406 3 910 1 989 4 292 1 622 352 (338) 690 5 252 53 3 142 642 1 415 (1 038) 659 (1 697) 212 603 2019 18 739 1 252 3 743 1 136 652 267 516 4 391 2 239 4 543 1 837 60 (49) 109 4 524 99 2 708 426 1 291 262 723 (461) 198 377 2020 2 907 57 17 202 200 229 1 420 724 58 (357) (373) 16 5 094 53 3 142 642 1 257 (861) 818 (1 679) 154 292 Total non-interest revenue 24 140 25 997 7 229 2019 3 256 53 222 198 185 1 508 1 034 56 (13) (23) 10 4 390 99 2 708 426 1 157 267 727 (460) 174 101 8 175 1 Unrealised losses relate to equity investments in associates and joint ventures, which are estimated and converted to realised or dividends once earned. 2 Sundry income, includes fair value movements on equity instruments and foreign currency translation losses. 3 Includes internal commission from the Wealth Cluster to RBB cluster. 4 Other fees includes internal advisory fees from the Centre Cluster to CIB cluster. 5 Realised gains includes accounting adjustments for owner occupied properties managed by CIB but ‘owner occupied’ at a Group level. 112 2020 11 268 525 3 065 785 216 51 245 2 386 98 3 897 329 29 29 74 74 (19) (19) 12 137 2019 12 622 522 3 652 880 259 44 309 2 715 96 4 145 460 41 41 73 73 – 13 109 2020 2 099 664 1 120 156 (110) 1 221 47 1 250 – – – 4 2019 2 045 588 3 88 200 (65) 1 188 43 1 352 – – (1) (1) 4 11 830 13 318 3 303 (50) 36 3 436 2020 839 67 95 29 96 31 5 201 25 290 70 8 8 84 84 (15) (15) 13 455 1 454 2019 872 70 90 31 102 38 7 213 22 299 70 4 4 61 61 – 1 212 1 220 2020 24 14 1 75 13 (79) (27) 672 27 645 – (143) (144) 1 29 (231) 324 2019 (56) 19 1 5 20 (101) (45) 28 (30) 58 – (4) (4) 6 (81) (152) NEDBANK GROUP Annual Results 2020 Nedbank Group Corporate and Investment Banking Retail and Business Banking Wealth Nedbank Africa Regions Centre Rm Commission and fees income Administration fees Card income Cash-handling fees Exchange commission Guarantees income Insurance commission Other commission3 Other fees4 Service charges Insurance income Fair-value adjustments Fair-value adjustments Hedge-accounted portfolios Trading income Commodities Debt securities Equities Foreign exchange Private-equity income Unrealised losses1 Investment income Sundry income2 Realised gains, dividends, interest and other income5 2020 17 137 1 327 3 178 1 017 707 311 406 3 910 1 989 4 292 1 622 352 (338) 690 5 252 53 3 142 642 1 415 (1 038) 659 (1 697) 212 603 2019 18 739 1 252 3 743 1 136 652 267 516 4 391 2 239 4 543 1 837 60 (49) 109 4 524 99 2 708 426 1 291 262 723 (461) 198 377 2020 2 907 57 17 202 200 229 1 420 724 58 (357) (373) 16 5 094 53 3 142 642 1 257 (861) 818 (1 679) 154 292 2019 3 256 53 222 198 185 1 508 1 034 56 (13) (23) 10 4 390 99 2 708 426 1 157 267 727 (460) 174 101 8 175 2020 11 268 525 3 065 785 216 51 245 2 386 98 3 897 329 29 29 74 74 (19) (19) 12 137 2019 12 622 522 3 652 880 259 44 309 2 715 96 4 145 460 41 41 73 73 – 13 109 2020 2 099 664 1 120 156 (110) 1 221 47 1 250 – – – 4 (50) Total non-interest revenue 24 140 25 997 7 229 11 830 13 318 3 303 1 Unrealised losses relate to equity investments in associates and joint ventures, which are estimated and converted to realised or dividends once earned. 2 Sundry income, includes fair value movements on equity instruments and foreign currency translation losses. 3 Includes internal commission from the Wealth Cluster to RBB cluster. 4 Other fees includes internal advisory fees from the Centre Cluster to CIB cluster. 5 Realised gains includes accounting adjustments for owner occupied properties managed by CIB but ‘owner occupied’ at a Group level. 2019 2 045 588 3 88 200 (65) 1 188 43 1 352 – – (1) (1) 4 36 3 436 2020 2019 2020 839 67 95 29 96 31 5 201 25 290 70 8 8 84 84 (15) (15) 13 455 1 454 872 70 90 31 102 38 7 213 22 299 70 4 4 61 61 – 1 212 1 220 24 14 1 75 13 (79) (27) 672 27 645 – (143) (144) 1 29 (231) 324 2019 (56) 19 1 5 20 (101) (45) 28 (30) 58 – (4) (4) 6 (81) (152) 113 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 4 Expenses TOTAL OPERATING EXPENSES (Rm) TOTAL OPERATING EXPENSES (Rm) COST-TO-INCOME RATIO (%) COST-TO-INCOME RATIO (%) 6 6 3 8 2 2 1 8 9 2 2 3 6 1 3 9 7 1 2 3 2 7 7 1 3 , 9 6 5 , 6 8 5 , 2 7 5 , 5 6 5 1 , 8 5 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Rm Staff costs Salaries and wages Total incentives Short-term incentives Long-term incentives Other staff costs Computer processing5 Depreciation of computer equipment Depreciation of right-of-use assets: computer equipment Amortisation of intangible assets Operating lease charges for computer processing Other computer processing expenses Fees and insurances Occupation and accommodation1,2 Marketing and public relations Communication and travel Other operating expenses3 Activity-justified transfer pricing Nedbank Group 2020 16 829 15 171 1 741 1 455 286 (83) 5 830 760 88 1 436 224 3 322 4 094 2 304 1 077 717 921 – 2019 17 322 15 089 2 550 1 980 570 (317) 4 878 746 79 1 167 217 2 669 4 152 2 274 1 455 845 1 253 – Corporate and Investment Banking 2020 2 721 2019 2 783 Retail and Business Banking Wealth Nedbank Africa Regions Centre 2020 7 486 2019 7 940 2020 1 608 2019 1 608 2020 1 084 2019 1 068 2020 3 930 2019 3 923 501 503 2 267 1 771 365 321 379 83 2 318 2 200 664 233 43 287 58 1 925 667 231 89 304 55 1 972 Total operating expenses 31 772 32 179 6 432 6 604 20 384 3 061 3 113 2 325 2 427 2 494 1 933 562 317 462 4 640 20 161 2 509 1 954 677 327 555 4 651 207 156 54 27 45 599 210 149 89 52 69 615 260 179 42 64 18 299 437 180 60 68 188 343 469 (197) 376 22 338 (7 463) (207) 329 (240) 540 94 386 (7 581) (349) Analysis of total IT-related function spend included in total expenses IT staff-related costs within Group Technology Depreciation and amortisation of computer equipment, software and intangibles Other IT costs (including licensing, development, maintenance and processing charges)4 Total IT-related functional spend 2020 2 094 2 284 3 613 7 991 2019 2 110 1 993 2 923 7 026 1 Includes depreciation of right-of-use assets of R827m (2019: R813m). 2 Includes building depreciation charges of R422m (2019: R451m). 3 Includes furniture depreciation charges of R352m (2019: R358m), consumables and sundry expenses. 4 Includes consulting and professional fees (that are embedded in fees and insurance), communication and travel, and other IT-related spend (embedded in computer processing). 5 During the year the was a refinement to allocation of internal costs and recoveries with NAR resulting in higher computer processing costs and lower fees and insurances costs. 114 NEDBANK GROUP Annual Results 2020 GROSS OPERATING INCOME GROWTH RATE LESS EXPENSES GROWTH RATE (JAWS RATIO) (%) TOTAL EMPLOYEES (Permanent staff) TOTAL EMPLOYEES (Permanent staff) 2,7 1,3 (1,5) (3,0) (2,7) 1 0 4 2 3 1 3 5 1 3 7 8 8 0 3 3 1 2 9 2 1 7 2 8 2 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 Nedbank Group Corporate and Investment Banking 2020 2 721 2019 2 783 Retail and Business Banking Wealth Nedbank Africa Regions Centre 2020 7 486 2019 7 940 2020 1 608 2019 1 608 2020 1 084 2019 1 068 2020 3 930 2019 3 923 501 503 2 267 1 771 365 321 379 83 2 318 2 200 2 494 1 933 562 317 462 4 640 20 161 2 509 1 954 677 327 555 4 651 207 156 54 27 45 599 210 149 89 52 69 615 260 179 42 64 18 299 437 180 60 68 188 343 20 384 3 061 3 113 2 325 2 427 469 (197) 376 22 338 (7 463) (207) 329 (240) 540 94 386 (7 581) (349) Favourable Unfavourable • Employee numbers decreased by 1 079 largely through natural • Computer-processing costs increased, driven by an increase in attrition. the amortisation charge of 23,0%. • STIs have been impacted by the group’s financial performance, and LTIs, impacted as expected vesting ratios, have decreased due to underperformance against corporate performance targets. • Good management of discretionary spend during the crisis contributed to savings being recorded across travel, communication, marketing and training. • Optimisation initiatives delivering cost savings, including cumulative run-rate savings from our target operating model of R1,8bn. The incremental savings under TOM (R675m) have more than offset the incremental amortization (R291m). • The base effect of the PRMA pretax credit amounted to R354m in 2019. • The leave expense increased R121m as locked-down employees took less leave. • Covid-19-related spend of R81m includes the provision of personal protective equipment, additional spend to comply with health and safety regulations, and international consulting support relating to impairment model development and provisioning. 115 Rm Staff costs Salaries and wages Total incentives Short-term incentives Long-term incentives Other staff costs Computer processing5 Depreciation of computer equipment Depreciation of right-of-use assets: computer equipment Amortisation of intangible assets Operating lease charges for computer processing Other computer processing expenses Fees and insurances Occupation and accommodation1,2 Marketing and public relations Communication and travel Other operating expenses3 Activity-justified transfer pricing Analysis of total IT-related function spend included in total expenses IT staff-related costs within Group Technology Depreciation and amortisation of computer equipment, software and Other IT costs (including licensing, development, maintenance and intangibles processing charges)4 Total IT-related functional spend 1 Includes depreciation of right-of-use assets of R827m (2019: R813m). 2 Includes building depreciation charges of R422m (2019: R451m). 2020 16 829 15 171 1 741 1 455 286 (83) 5 830 760 88 1 436 224 3 322 4 094 2 304 1 077 717 921 – 2020 2 094 2 284 3 613 7 991 2019 17 322 15 089 2 550 1 980 570 (317) 4 878 746 79 1 167 217 2 669 4 152 2 274 1 455 845 1 253 – 2019 2 110 1 993 2 923 7 026 Total operating expenses 31 772 32 179 664 233 43 287 58 1 925 6 432 667 231 89 304 55 1 972 6 604 3 Includes furniture depreciation charges of R352m (2019: R358m), consumables and sundry expenses. 4 Includes consulting and professional fees (that are embedded in fees and insurance), communication and travel, and other IT-related spend (embedded in 5 During the year the was a refinement to allocation of internal costs and recoveries with NAR resulting in higher computer processing costs and lower fees and computer processing). insurances costs. RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 5 Headline earnings reconciliation Rm Profit attributable to ordinary equity holders Non-trading and capital items IAS 16 loss on disposal of property and equipment IAS 36 impairment of associate: ETI IAS 36 impairment of goodwill IAS 36 impairment of property and equipment IAS 36 impairment of intangible assets IAS 40 loss/(profit) on revaluation of investment properties IFRS 5 impairment of non-current assets held for sale IFRS 16 impairment of right-of-use assets Share of (losses)/gains of associate companies IAS 36 share of associate (ETI) impairment of goodwill 2020 2019 Gross 1 562 89 750 345 207 2 17 152 528 Net of taxation 3 467 1 445 72 750 345 149 2 17 110 528 Gross 651 18 117 148 289 (2) 48 33 Net of taxation 12 001 505 13 117 107 198 (2) 48 24 Headline earnings 5 440 12 506 6 Taxation charge Direct taxation Taxation rate reconciliation (excluding non-trading and capital items) (%) Standard rate of SA normal taxation Reduction of taxation rate: – Non-taxable income – Capital items – Foreign income and section 9D attribution – Share of gains of associate companies – Additional tier 1 taxation on interest paid – Revenue losses not recognised – Non-deductible expenses1 – Zimbabwe hyperinflation – Prior-year adjustments Total taxation on income as percentage of profit before taxation Effective tax rate excluding ETI associate income/(loss) 2020 1 994 2019 3 942 28,0 28,0 (3,1) 0,4 (1,1) (1,5) (2,5) 1,2 2,3 0,7 (0,7) 23,7 24,7 (1,8) (0,1) (1,0) (1,3) (0,8) 0,2 0,5 0,3 (1,2) 22,8 24,0 1 Non-deductible expenses include the impact of share-based payments due to forfeitures and lower allocation prices, as well as non-recognition of income losses provided for. 116 NEDBANK GROUP Annual Results 2020 7 Preference shares Dividends declared Number of shares Cents per share Amount Rm 2021 Nedbank – Final (dividend number 36) declared for 2020 – payable April 2021 358 277 491 29,45696 105,5 2020 Nedbank – Final (dividend no 34) declared for 2019 – paid April 2020 Nedbank – Interim (dividend no 35) declared for 2020 – paid September 2020 358 277 491 358 277 491 42.11186 35.94033 Total of dividends declared Nedbank (MFC) – Participating preference shares1 Less: Dividends declared in respect of shares held by group entities 2019 Nedbank – Final (dividend no 32 ) declared for 2018 – paid March 2019 Nedbank – Interim (dividend no 33) declared for 2019 – paid September 2019 358 277 491 358 277 491 42,23172 42,35729 Total of dividends declared Nedbank (MFC) – Participating preference shares1 Less: Dividends declared in respect of shares held by group entities 1 Share in economic profit/(loss), calculated semiannually. 150,9 128,8 279,7 (58,0) (29,1) 192,6 151,3 151,8 303,1 41,7 (31,6) 313,2 117 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 118 NotesNEDBANK GROUP Annual Results 2020STATEMENT OF FINANCIAL POSITION ANALYSIS. 120 134 135 136 138 142 Loans and advances Investment securities Investments in associate companies Intangible assets Amounts owed to depositors Liquidity risk and funding 145 Equity analysis 146 Capital management 119 NEDBANK GROUP Annual Results 2020Retail and Business Banking 2020 2019 144 512 24 879 50 16 584 16 089 24 954 11 562 909 206 130 423 133 5 084 138 811 23 668 44 16 958 17 871 22 663 10 028 1 270 170 125 285 140 6 563 2020 17 135 9 014 13 188 2019 16 988 8 814 11 171 46 168 62 186 Wealth Nedbank Africa Regions Centre1 5 003 4 738 244 (259) 2020 7 220 1 550 86 137 3 308 1 962 5 146 585 2 228 1 914 46 4 2019 6 941 1 721 95 131 3 148 2 166 4 087 597 1 172 2 364 5 22 427 (749) 2020 124 2019 (512) (4) 9 (439) 4 061 907 4 438 (765) 3 673 3 673 3 673 (307) (264) (571) (571) (571) 356 269 349 394 3 2 356 272 349 396 28 027 3 106 31 133 28 393 2 348 30 741 20 012 3 221 23 233 20 324 1 354 21 678 8 Loans and advances SEGMENTAL BREAKDOWN Rm Home loans Commercial mortgages Properties in possession Credit cards Overdrafts Personal loans Term and other loans Overnight loans Foreign client lending Instalment debtors Preference shares and debentures Factoring accounts Listed corporate bonds2 Fair-value hedge-accounted portfolios Trade, other bills and bankers' acceptances Loans and advances before impairments Impairment of advances Nedbank Group Corporate and Investment Banking 2020 2019 2020 2019 168 900 190 583 149 16 721 23 593 26 916 175 489 10 175 5 580 135 269 12 274 5 130 21 910 4 163 4 162 238 179 801 150 17 089 26 747 24 829 199 040 14 945 6 508 130 067 12 766 6 563 27 960 941 5 33 155 016 10 145 602 4 008 5 557 153 534 8 681 3 146 2 877 11 973 21 910 102 180 446 13 078 5 166 2 795 12 440 27 960 34 796 856 (24 804) 809 649 (17 541) 361 280 (3 539) 393 088 (2 224) 375 385 (19 113) 363 471 (14 075) 31 567 (434) 30 970 (229) 24 186 (953) Total banking loans and advances 772 052 792 108 357 741 390 864 356 272 349 396 31 133 30 741 23 233 21 678 Comprises: – Loans and advances to clients – Loans and advances to banks 731 214 40 838 769 859 22 249 323 233 34 508 372 319 18 545 Total loans and advances after impairments 772 052 792 108 357 741 390 864 Trading loans and advances 71 251 32 678 71 251 32 678 1 Centre includes the group’s centrally managed macro fair-value hedge accounting adjustment, intercluster adjustments relating to deferred revenue recognised in LAA, a central impairment provision and an impairment on other assets. 2 During 2020, the group reviewed the presentation of corporate bonds. As a result of the review, the group reclassified listed corporate bonds from ‘government and other securities’ into ‘loans and advances’. The measurement basis of these instruments has not changed from prior years. Total equity as presented in prior statements of financial position was not impacted by this reclassification. Market share according to BA900 HOME LOANS (2017–2020) (%) COMMERCIAL MORTGAGE LOANS (2017–2020) (%) , 4 4 1 , 3 0 2 , 5 4 3 , 2 3 2 6 7 , , 5 8 3 8 6 , , 8 6 1 , 3 5 1 , 6 2 2 Nedbank FirstRand Standard Bank Absa Other Nedbank FirstRand Standard Bank Absa Other 120 NEDBANK GROUP Annual Results 2020 Wealth Nedbank Africa Regions Centre1 Nedbank Group Corporate and Investment Banking 2020 2019 2020 2019 168 900 190 583 149 16 721 23 593 26 916 175 489 10 175 5 580 135 269 12 274 5 130 21 910 4 163 4 162 238 179 801 150 17 089 26 747 24 829 199 040 14 945 6 508 130 067 12 766 6 563 27 960 941 5 33 155 016 10 145 602 4 008 5 557 153 534 180 446 8 681 3 146 2 877 11 973 21 910 102 13 078 5 166 2 795 12 440 27 960 34 Retail and Business Banking 2020 2019 144 512 24 879 50 16 584 16 089 24 954 11 562 909 206 130 423 133 5 084 138 811 23 668 44 16 958 17 871 22 663 10 028 1 270 170 125 285 140 6 563 8 Loans and advances SEGMENTAL BREAKDOWN Rm Home loans Commercial mortgages Properties in possession Credit cards Overdrafts Personal loans Term and other loans Overnight loans Foreign client lending Instalment debtors Preference shares and debentures Factoring accounts Listed corporate bonds2 Fair-value hedge-accounted portfolios Trade, other bills and bankers' acceptances Loans and advances before impairments Impairment of advances Comprises: – Loans and advances to clients – Loans and advances to banks Total loans and advances after impairments 772 052 792 108 357 741 390 864 Trading loans and advances 71 251 32 678 71 251 32 678 1 Centre includes the group’s centrally managed macro fair-value hedge accounting adjustment, intercluster adjustments relating to deferred revenue recognised in LAA, a central impairment provision and an impairment on other assets. 2 During 2020, the group reviewed the presentation of corporate bonds. As a result of the review, the group reclassified listed corporate bonds from ‘government and other securities’ into ‘loans and advances’. The measurement basis of these instruments has not changed from prior years. Total equity as presented in prior statements of financial position was not impacted by this reclassification. 796 856 (24 804) 809 649 (17 541) 361 280 (3 539) 393 088 (2 224) 375 385 (19 113) 363 471 (14 075) 31 567 (434) 30 970 (229) 24 186 (953) Total banking loans and advances 772 052 792 108 357 741 390 864 356 272 349 396 31 133 30 741 23 233 21 678 731 214 40 838 769 859 22 249 323 233 34 508 372 319 18 545 356 269 3 349 394 2 356 272 349 396 28 027 3 106 31 133 28 393 2 348 30 741 20 012 3 221 23 233 20 324 1 354 21 678 2020 17 135 9 014 13 188 2019 16 988 8 814 11 171 5 003 4 738 46 168 62 186 2020 7 220 1 550 86 137 3 308 1 962 5 146 585 2 228 1 914 46 4 2019 6 941 1 721 95 131 3 148 2 166 4 087 597 1 172 2 364 5 22 427 (749) 2020 124 2019 (512) (4) 244 (259) 9 (439) 4 061 907 4 438 (765) 3 673 3 673 3 673 (307) (264) (571) (571) (571) CREDIT CARDS (2017–2020) (%) PERSONAL LOANS (2017–2020) (%) , 6 2 1 , 7 4 2 , 3 5 2 , 7 5 2 7 , 1 1 2 , 1 1 1 , 3 2 , 3 7 1 6 , 1 1 , 8 6 3 Nedbank FirstRand Standard Bank Absa Other Nedbank FirstRand Standard Bank Absa Other CORE CORPORATE LOANS (2017–2020) (%) INSTALMENT SALES AND LEASES (2017–2020) (%) , 9 0 2 , 3 0 2 , 8 0 2 6 , 1 2 , 4 6 1 , 2 9 2 , 7 5 2 , 2 9 1 9 , 1 2 0 4 , Nedbank FirstRand Standard Bank Absa Other Nedbank FirstRand Standard Bank Absa Other 121 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 STAGE 1 AND STAGE 2 COVERAGE (%) STAGE 3 ADVANCES AND COVERAGE RATIO (Rm) (%) 5,30 0,48 Dec 2019 6,61 0,65 Dec 2020 37,9 37,9 4 4 9 9 5 5 7 7 2 2 31,5 31,5 3 3 4 4 2 2 5 5 4 4 Dec 2019 Dec 2019 Dec 2020 Dec 2020 Stage 1 coverage Stage 2 coverage Stage 3 coverage Stage 3 coverage Stage 3 loans and advances Stage 3 loans and advances SUMMARY OF LOANS AND ADVANCES AND COVERAGE RATIOS GLAA, ECL and coverage ratios, by cluster, by stage Stage 1 Stage 2 Stage 3 TOTAL GLAA ECL Coverage GLAA ECL Coverage Coverage Coverage trading book total GLAA Rm 272 163 125 566 146 597 297 063 57 659 239 404 28 511 20 489 382 Rm 812 504 308 2 954 310 2 644 46 217 – % Rm Rm 0,30 0,40 0,21 0,99 0,54 1,10 0,16 1,06 48 642 32 918 15 724 46 982 13 988 32 994 735 2 072 1 093 485 608 4 454 515 3 939 56 152 748 % 2,25 1,47 3,87 9,48 3,68 11,94 7,62 7,34 618 608 4 029 0,65 98 431 6 503 6,61 31,5 762 282 24 804 3,25 796 856 5,89 12 501 71 251 11 599 4 164 – 54 154 4 599 71 198 718 123 4 237 103 030 6 772 46 954 15 068 868 107 26 077 868 107 GLAA Rm 10 964 7 643 3 321 31 340 5 221 26 119 1 320 1 625 (6) 45 243 1 711 ECL Rm 1 634 993 641 11 705 1 183 10 522 332 584 17 14 272 484 312 % 14,9 13,0 19,3 37,3 22,7 40,3 25,2 35,9 GLAA Rm 331 769 166 127 165 642 375 385 76 868 298 517 30 566 24 186 376 18 811 71 251 11 599 4 164 ECL Rm 3 539 1 982 1 557 19 113 2 008 17 105 434 953 765 609 664 GLAA Stage 3 excluding GLAA as % of % 3,51 4,78 2,00 8,35 6,79 8,75 4,18 6,72 % 1,07 1,19 0,94 5,09 2,61 5,73 1,42 3,94 Rm 361 280 195 536 165 744 375 385 76 868 298 517 31 567 24 186 4 438 71 251 2020 Corporate and Investment Banking (CIB) CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail Wealth Nedbank Africa Regions Centre Gross loans and advances/ ECL held at amortised cost GLAA/ECL for assets held at FVOCI Trading GLAA held at FVTPL Banking Book GLAA held at FVTPL GLAA for fair-value hedge-accounted portfolios Off-balance-sheet ECL Total GLAA/ ECL 122 NEDBANK GROUP Annual Results 2020 NEDBANK GROUP COVERAGE (%) STAGE 3 ADVANCES AS A PERCENTAGE OF GROSS BANKING LOANS AND ADVANCES (Rm) 5,82 3,46 1,15 2 4 0 8 2 8,35 5,89 3,51 4 5 9 6 4 6 2 2 , 5 2 3 , Dec 2019 Dec 2020 Dec 2019 Dec 2020 RBB Total Nedbank Group CIB Stage 3 loans and advances SUMMARY OF LOANS AND ADVANCES AND COVERAGE RATIOS GLAA, ECL and coverage ratios, by cluster, by stage Stage 1 Stage 2 Stage 3 TOTAL GLAA ECL Coverage GLAA ECL Coverage % Rm Rm 2020 Corporate and Investment Banking (CIB) CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail Wealth Centre Nedbank Africa Regions Gross loans and advances/ ECL held at amortised cost GLAA/ECL for assets held at FVOCI Trading GLAA held at FVTPL Banking Book GLAA held at FVTPL GLAA for fair-value hedge-accounted portfolios Off-balance-sheet ECL Total GLAA/ ECL Rm 272 163 125 566 146 597 297 063 57 659 239 404 28 511 20 489 382 12 501 71 251 11 599 4 164 – Rm 812 504 308 2 954 310 2 644 46 217 – 54 154 0,30 0,40 0,21 0,99 0,54 1,10 0,16 1,06 48 642 32 918 15 724 46 982 13 988 32 994 735 2 072 % 2,25 1,47 3,87 9,48 3,68 11,94 7,62 7,34 1 093 485 608 4 454 515 3 939 56 152 748 198 618 608 4 029 0,65 98 431 6 503 6,61 4 599 71 GLAA Rm 10 964 7 643 3 321 31 340 5 221 26 119 1 320 1 625 (6) 45 243 1 711 ECL Rm 1 634 993 641 11 705 1 183 10 522 332 584 17 14 272 484 312 Coverage % 14,9 13,0 19,3 37,3 22,7 40,3 25,2 35,9 GLAA Rm 331 769 166 127 165 642 375 385 76 868 298 517 30 566 24 186 376 GLAA excluding trading book Stage 3 GLAA as % of total GLAA Coverage % 1,07 1,19 0,94 5,09 2,61 5,73 1,42 3,94 Rm 361 280 195 536 165 744 375 385 76 868 298 517 31 567 24 186 4 438 % 3,51 4,78 2,00 8,35 6,79 8,75 4,18 6,72 ECL Rm 3 539 1 982 1 557 19 113 2 008 17 105 434 953 765 31,5 762 282 24 804 3,25 796 856 5,89 18 811 71 251 11 599 4 164 609 664 71 251 718 123 4 237 103 030 6 772 46 954 15 068 868 107 26 077 868 107 Favourable Unfavourable • Total GLAA increased to R868,1bn (2019: R842,3bn). The GLAA • was restated to include listed corporate bonds in line with market, which were previously classified as 'government and other securities'. Strong growth in Trading Book advances, has been offset by negative growth in CIB Banking Loans and Advances (LAA) and muted growth in RBB LAA. In H2 2020, D3 renewals in Retail were classified and treated as Stage 2 GLAA, to account for anticipated elevated risk. Since August 2020, we pro-actively discouraged further/new payment holidays to enable a risk-read on this population by year end. Subsequent relief was classified as D7. 123 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 2019 Corporate and Investment Banking (CIB) CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail Wealth Nedbank Africa Regions Centre Gross loans and advances/ ECL held at amortised cost Stage 1 Stage 2 Stage 3 TOTAL ECL Coverage GLAA ECL Coverage Coverage Rm 549 375 174 2 455 226 2 229 24 220 (1) % 0,17 0,20 0,12 0,81 0,33 0,96 0,08 1,12 Rm 29 860 12 350 17 510 40 471 6 315 34 156 452 1 305 Rm 675 366 309 2 807 179 2 628 25 68 248 % 2,26 2,96 1,76 6,94 2,83 7,69 5,53 5,21 GLAA Rm 328 209 187 740 140 469 301 839 69 277 232 562 29 589 19 700 (1 217) 678 120 3 247 0,48 72 088 3 823 5,30 37,9 777 802 2,26 809 649 3,46 GLAA/ECL for held at FVOCI Trading GLAA held at FVTPL Banking Book GLAA held at FVTPL GLAA for fair-value hedge-accounted portfolios 16 558 32 678 13 323 941 67 115 577 38 Off-balance-sheet ECL Total GLAA/ECL 741 620 3 429 72 665 70 3 931 28 042 10 792 842 327 842 327 GLAA, ECL AND COVERAGE, BY PRODUCT 2020 Residential mortgages Commercial mortgages Instalment debtors Credit cards and overdrafts Term loans1 Other loans to clients Other GLAA Rm 141 082 161 287 108 290 21 031 113 252 41 950 31 716 Stage 1 Stage 2 Stage 3 TOTAL ECL Coverage GLAA ECL Coverage Coverage Coverage Rm 352 376 1 160 834 1 093 114 100 % 0,25 0,23 1,07 3,97 0,97 0,27 Rm 15 988 18 367 16 511 7 581 23 204 9 598 7 182 Rm 798 694 1 626 1 094 1 268 866 157 % 4,99 3,78 9,85 14,43 5,46 9,02 GLAA/ECL held at amortised cost 618 608 4 029 0,65 98 431 6 503 6,61 45 243 14 272 31,5 762 282 24 804 3,25 1 FVOCI is deducted from 'term loans'. 2019 Residential mortgages Commercial mortgages Instalment debtors Credit cards and overdrafts Term loans1 Other loans to clients Other GLAA Rm 140 062 154 801 105 416 29 216 152 020 55 337 41 268 Stage 1 Stage 2 Stage 3 TOTAL ECL Coverage GLAA ECL Coverage Coverage Coverage Rm 288 218 802 859 887 102 91 % 0,21 0,14 0,76 2,94 0,58 0,18 Rm 14 181 18 713 18 043 5 209 12 929 1 944 1 069 Rm 539 338 1 321 524 775 283 43 % 3,80 1,81 7,32 10,06 5,99 14,56 GLAA/ECL held at amortised cost 678 120 3 247 0,48 72 088 3 823 5,30 37,9 777 802 1 FVOCI is deducted from 'term loans'. 124 GLAA excluding GLAA as % of Coverage trading book total GLAA Stage 3 % 1,15 1,44 0,73 5,82 4,30 6,24 3,00 6,34 Rm 393 088 233 915 159 173 363 471 78 988 284 483 30 970 22 427 (307) 32 678 GLAA Rm 4 079 2 919 1 160 21 161 3 396 17 765 929 1 422 3 27 594 448 GLAA Rm 11 656 5 644 10 468 4 277 7 606 1 524 4 068 GLAA Rm 7 826 2 488 6 607 3 081 6 503 293 796 27 594 ECL Rm 1 001 786 215 8 813 925 7 888 180 461 16 10 471 235 86 ECL Rm 2 319 999 3 874 2 476 3 869 227 508 ECL Rm 1 571 504 2 704 1 913 3 212 271 296 10 471 % 24,6 27,0 18,5 41,6 27,2 44,4 19,4 32,3 % 19,9 17,7 37,0 57,9 50,9 14,9 % 20,1 20,3 40,9 62,1 49,4 92,5 GLAA Rm 362 148 203 009 159 139 363 471 78 988 284 483 30 970 22 427 (1 214) 17 583 32 678 13 323 941 GLAA Rm 168 726 185 298 135 269 32 889 144 062 53 072 42 966 GLAA Rm 162 069 176 002 130 066 37 506 171 452 57 574 43 133 ECL Rm 2 225 1 527 698 14 075 1 330 12 745 229 749 263 17 541 340 271 18 152 ECL Rm 3 469 2 069 6 660 4 404 6 230 1 207 765 ECL Rm 2 398 1 060 4 827 3 296 4 874 656 430 17 541 % 0,61 0,75 0,44 3,87 1,68 4,48 0,74 3,34 % 2,06 1,12 4,92 13,39 4,32 2,27 % 1,48 0,60 3,71 8,79 2,84 1,14 2,26 NEDBANK GROUP Annual Results 2020 GLAA, ECL AND COVERAGE, BY PRODUCT ECL Coverage GLAA ECL Coverage 2019 Corporate and Investment Banking (CIB) CIB excluding Property Finance Property Finance Retail and Business Banking (RBB) Business Banking Retail Wealth Centre Nedbank Africa Regions Gross loans and advances/ ECL held at amortised cost GLAA/ECL for held at FVOCI Trading GLAA held at FVTPL Banking Book GLAA held at FVTPL GLAA for fair-value hedge-accounted portfolios Off-balance-sheet ECL Total GLAA/ECL 2020 Residential mortgages Commercial mortgages Instalment debtors Credit cards and overdrafts Term loans1 Other loans to clients Other 1 FVOCI is deducted from 'term loans'. 2019 Residential mortgages Commercial mortgages Instalment debtors Credit cards and overdrafts Term loans1 Other loans to clients Other 1 FVOCI is deducted from 'term loans'. ECL Coverage GLAA ECL Coverage 678 120 3 247 0,48 72 088 3 823 5,30 577 38 GLAA Rm 328 209 187 740 140 469 301 839 69 277 232 562 29 589 19 700 (1 217) 16 558 32 678 13 323 941 GLAA Rm 141 082 161 287 108 290 21 031 113 252 41 950 31 716 GLAA Rm 140 062 154 801 105 416 29 216 152 020 55 337 41 268 Rm 549 375 174 2 455 226 2 229 24 220 (1) 67 115 Rm 352 376 1 160 834 1 093 114 100 Rm 288 218 802 859 887 102 91 % 0,17 0,20 0,12 0,81 0,33 0,96 0,08 1,12 Rm 29 860 12 350 17 510 40 471 6 315 34 156 452 1 305 % 0,25 0,23 1,07 3,97 0,97 0,27 % 0,21 0,14 0,76 2,94 0,58 0,18 Rm 15 988 18 367 16 511 7 581 23 204 9 598 7 182 Rm 14 181 18 713 18 043 5 209 12 929 1 944 1 069 Rm 675 366 309 2 807 179 2 628 25 68 248 70 3 931 Rm 798 694 1 626 1 094 1 268 866 157 Rm 539 338 1 321 524 775 283 43 % 2,26 2,96 1,76 6,94 2,83 7,69 5,53 5,21 % 4,99 3,78 9,85 14,43 5,46 9,02 % 3,80 1,81 7,32 10,06 5,99 14,56 ECL Coverage GLAA ECL Coverage GLAA/ECL held at amortised cost 678 120 3 247 0,48 72 088 3 823 5,30 Stage 1 Stage 2 Stage 3 TOTAL GLAA Rm 4 079 2 919 1 160 21 161 3 396 17 765 929 1 422 3 27 594 448 ECL Rm 1 001 786 215 8 813 925 7 888 180 461 16 10 471 235 86 Coverage % 24,6 27,0 18,5 41,6 27,2 44,4 19,4 32,3 GLAA Rm 362 148 203 009 159 139 363 471 78 988 284 483 30 970 22 427 (1 214) 37,9 777 802 17 583 32 678 13 323 941 741 620 3 429 72 665 28 042 10 792 842 327 Coverage GLAA excluding trading book Stage 3 GLAA as % of total GLAA % 0,61 0,75 0,44 3,87 1,68 4,48 0,74 3,34 Rm 393 088 233 915 159 173 363 471 78 988 284 483 30 970 22 427 (307) % 1,15 1,44 0,73 5,82 4,30 6,24 3,00 6,34 2,26 809 649 3,46 32 678 842 327 ECL Rm 2 225 1 527 698 14 075 1 330 12 745 229 749 263 17 541 340 271 18 152 Stage 1 Stage 2 Stage 3 TOTAL GLAA Rm 11 656 5 644 10 468 4 277 7 606 1 524 4 068 ECL Rm 2 319 999 3 874 2 476 3 869 227 508 Coverage % 19,9 17,7 37,0 57,9 50,9 14,9 GLAA Rm 168 726 185 298 135 269 32 889 144 062 53 072 42 966 ECL Rm 3 469 2 069 6 660 4 404 6 230 1 207 765 Coverage % 2,06 1,12 4,92 13,39 4,32 2,27 GLAA/ECL held at amortised cost 618 608 4 029 0,65 98 431 6 503 6,61 45 243 14 272 31,5 762 282 24 804 3,25 Stage 1 Stage 2 Stage 3 TOTAL GLAA Rm 7 826 2 488 6 607 3 081 6 503 293 796 27 594 ECL Rm 1 571 504 2 704 1 913 3 212 271 296 10 471 Coverage % 20,1 20,3 40,9 62,1 49,4 92,5 GLAA Rm 162 069 176 002 130 066 37 506 171 452 57 574 43 133 37,9 777 802 ECL Rm 2 398 1 060 4 827 3 296 4 874 656 430 17 541 Coverage % 1,48 0,60 3,71 8,79 2,84 1,14 2,26 125 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 ECONOMIC SCENARIOS AS AT 31 DECEMBER 2020 Probability weighting (%) Scenario Total ECL allowance Difference to weighted scenarios Percentage difference to weighted scenarios Economic measures GDP Base case 50% 25 949 (128) (0,49%) Prime Mild stress 21% 26 466 389 1,49% Prime HPI GDP HPI GDP Positive outcome 21% 25 613 (464) (1,78%) Prime High stress 8% 27 034 957 3,67% Prime HPI Weighted scenarios 100% 26 077 HPI GDP Economic forecast (%) 2021 3,04 7,00 2,10 2,84 7,25 1,81 3,85 7,00 3,60 2,14 7,42 1,51 2022 2023 2,22 7,38 2,30 1,65 8,00 2,12 2,44 7,00 4,10 1,68 8,46 1,94 1,52 7,50 3,50 1,15 8,00 3,08 1,57 7,00 4,80 0,92 8,50 2,66 GROSS ADVANCES AND ECL MOVEMENT Reconciliation of loss allowance relating to financial assets measured at amortised cost and FVOCI because changes in the associated ECL is recognised in impairment charges. The reconciliation excludes loans measured at FVTPL and fair-value hedge-accounted portfolios because changes in fair values are recognised in NIR. Stage 1 Stage 2 Stage 3 Total Loans and advances (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Total credit and zero balances Balance at 31 December 2020 GLAA/ECL for assets held at FVOCI Loans and advances at FVTPL GLAA for fair-value hedge-accounted portfolios Off-balance-sheet impairment allowance ECL credit and other balances2 GLAA 671 267 209 531 (188 166) 38 912 (103 931) (20 520) 3 996 ECL 3 362 2 234 4 692 840 (2 749) (4 294) 98 Amortised cost 667 905 207 297 (192 858) 38 072 (101 182) (16 226) 3 898 611 089 4 183 606 906 7 519 (49) 7 568 618 608 4 134 614 474 12 501 82 850 4 164 12 501 82 850 4 164 664 (61) (154) 49 GLAA ECL cost GLAA ECL cost GLAA ECL Amortised Amortised 72 071 3 893 68 178 27 605 10 557 17 048 770 943 209 531 (7 419) (223 025) 17 812 2 234 (7 419) 12 518 Amortised cost 753 131 207 297 (235 543) (33 545) (35 521) 103 251 (11 064) 409 34 91 742 4 599 (7 419) (5 069) (2 701) (2 102) 34 699 172 58 1 711 (29 790) (36 211) 106 033 (14 179) 485 98 409 22 98 431 4 599 3 755 (690) 2 782 (3 115) 76 6 701 (12) 6 689 (198) 12 23 4 653 323 4 330 91 708 45 185 14 584 30 601 754 683 25 468 729 215 45 243 14 584 30 659 762 282 25 407 736 875 58 7 599 (61) 7 660 1 711 18 811 82 850 4 164 18 811 82 850 4 164 664 (61) (664) 61 (312) – (7 419) 4 071 (150) (33) 7 409 149 (9 140) (2 551) (2 069) 27 290 Loans and advances at 31 December 2020 718 123 4 029 714 592 103 030 6 503 96 341 46 954 14 272 32 370 868 107 24 804 843 303 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 2 Total credit and zero balances throughout this note refer to the loss allowance on balances that became liabilities to the group during the financial year. The group however still has credit risk exposure on these facilities. 126 NEDBANK GROUP Annual Results 2020 Probability weighting (%) Scenario AS AT 31 DECEMBER 2019 Total ECL allowance Difference to weighted scenarios Percentage difference to weighted scenarios Economic measures GDP Base case 50% 18 073 (79) (0,44%) Prime Mild stress 21% 18 657 505 2,78% Prime HPI GDP Positive outcome 21% 17 352 (800) (4,41%) Prime HPI GDP High stress 8% 19 362 1 210 6,67% Prime HPI Weighted scenarios1 100% 18 152 1 Note: The R18 152m excludes non-loans and advances of R34m for 2019. HPI GDP Economic forecast (%) 2020 1,09 10,00 1,69 0,59 10,46 0,34 1,69 9,58 7,93 0,02 10,83 0,00 2021 1,32 10,00 5,00 0,66 10,42 1,69 1,97 9,50 9,38 (0,06) 11,00 1,74 2022 1,49 10,00 5,56 1,23 10,25 5,00 2,14 9,50 10,00 1,07 10,83 4,27 Stage 1 Stage 2 Stage 3 Total GLAA ECL Amortised cost GLAA ECL Amortised cost 72 071 3 893 68 178 27 605 10 557 17 048 (33 545) (35 521) 103 251 (11 064) 409 (7 419) (5 069) (2 701) (2 102) 34 699 172 (7 419) 4 071 (150) (33) 7 409 149 (9 140) (2 551) (2 069) 27 290 23 GLAA ECL 770 943 209 531 (7 419) (223 025) 17 812 2 234 (7 419) 12 518 Amortised cost 753 131 207 297 (235 543) 4 653 323 4 330 91 708 45 185 14 584 30 601 754 683 25 468 729 215 34 91 742 4 599 58 58 7 599 (61) 7 660 45 243 14 584 30 659 762 282 25 407 736 875 1 711 1 711 (312) – 18 811 82 850 4 164 18 811 82 850 4 164 664 (61) (664) 61 (29 790) (36 211) 106 033 (14 179) 485 98 409 22 98 431 4 599 3 755 (690) 2 782 (3 115) 76 6 701 (12) 6 689 (198) 12 Loans and advances at 31 December 2020 718 123 4 029 714 592 103 030 6 503 96 341 46 954 14 272 32 370 868 107 24 804 843 303 127 GROSS ADVANCES AND ECL MOVEMENT Reconciliation of loss allowance relating to financial assets measured at amortised cost and FVOCI because changes in the associated ECL is recognised in impairment charges. The reconciliation excludes loans measured at FVTPL and fair-value hedge-accounted portfolios because changes in fair values are recognised in NIR. Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Loans and advances (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Total credit and zero balances Balance at 31 December 2020 GLAA/ECL for assets held at FVOCI Loans and advances at FVTPL GLAA for fair-value hedge-accounted portfolios Off-balance-sheet impairment allowance ECL credit and other balances2 GLAA 671 267 209 531 (188 166) 38 912 (103 931) (20 520) 3 996 12 501 82 850 4 164 ECL 3 362 2 234 4 692 840 (2 749) (4 294) 98 Amortised cost 667 905 207 297 (192 858) 38 072 (101 182) (16 226) 3 898 611 089 4 183 606 906 7 519 (49) 7 568 618 608 4 134 614 474 12 501 82 850 4 164 664 (61) (154) 49 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 2 Total credit and zero balances throughout this note refer to the loss allowance on balances that became liabilities to the group during the financial year. The group however still has credit risk exposure on these facilities. RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Stage 1 Stage 2 Stage 3 Total CIB, excluding Property Finance (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 GLAA/ECL for assets held at FVOCI Banking Book GLAA held at FVTPL GLAA 187 740 75 098 (96 945) 16 781 (55 851) (5 760) 4 503 125 566 12 501 10 598 ECL 418 241 370 481 (557) (389) 9 573 54 Amortised cost 187 322 74 857 (97 315) 16 300 (55 294) (5 371) 4 494 124 993 12 447 10 598 Loans and advances at 31 December 2020 148 665 627 148 038 37 517 698 36 819 9 354 1 756 7 598 195 536 3 081 192 455 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Property Finance (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 GLAA 140 469 38 724 (29 569) 8 252 (11 138) (135) (6) 146 597 ECL 174 59 9 106 (38) (2) Amortised cost 140 295 38 665 – (29 578) 8 146 (11 100) (133) (6) 308 146 289 15 724 608 15 116 3 321 2 680 165 642 1 557 164 085 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Business Banking (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Balance at 31 December 2020 Loans and advances at 31 December 2020 GLAA 69 213 23 491 (20 369) 1 329 (13 420) (2 585) 57 659 57 659 ECL 232 317 (10) 49 (184) (94) 310 310 Amortised cost 68 981 23 174 (20 359) 1 280 (13 236) (2 491) 57 349 57 349 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 128 GLAA 12 350 (18 280) (16 164) 55 851 (920) 81 32 918 4 599 GLAA 17 510 (2 404) (8 120) 11 146 (2 408) GLAA 6 238 (3 762) (1 232) 13 770 (1 026) 13 988 13 988 ECL 420 364 (396) 394 (156) 1 627 71 Amortised cost 11 930 (18 644) (15 768) 55 457 (764) 80 32 291 4 528 GLAA 2 919 (1 349) (20) (617) 6 680 30 7 643 1 711 ECL 309 512 (101) 38 (150) ECL 184 172 (29) 227 (39) 515 515 Amortised cost GLAA 17 201 1 160 (2 916) (8 019) 11 108 (2 258) (29) (213) (132) (8) 2 543 Amortised cost 6 054 (3 934) (1 203) 13 543 (987) 13 473 13 473 GLAA 3 397 (128) (1 212) (97) (350) 3 611 5 221 5 221 ECL 869 (1 349) 1 119 (85) 163 545 10 1 272 484 ECL 215 (29) 308 (5) 152 641 ECL 929 (128) 312 (20) (43) 133 1 183 1 183 Amortised cost GLAA ECL 2 050 203 009 Amortised cost 201 302 74 857 (117 098) – – – – 4 594 1 707 241 (1 349) 1 853 – – – 20 166 127 2 472 163 655 18 811 10 598 609 – 18 202 10 598 75 098 (1 349) (115 245) – – – 4 614 (1 139) (532) (163) 6 135 20 6 371 1 227 Amortised cost 945 (521) (127) (8) 2 391 GLAA 159 139 38 724 (29) (32 186) – – – (6) ECL 698 59 (29) 829 – – – – Amortised cost 158 441 38 665 (33 015) – – – – (6) Amortised cost GLAA ECL Amortised cost (1 524) (25 343) 2 468 (77) (307) 3 478 78 848 23 491 (128) – – – 4 038 76 868 4 038 76 868 1 345 317 (128) 474 – – – 2 008 2 008 77 503 23 174 (25 817) – – – – 74 860 74 860 NEDBANK GROUP Annual Results 2020 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Stage 1 Stage 2 Stage 3 Total GLAA 12 350 (18 280) (16 164) 55 851 (920) 81 32 918 4 599 ECL 420 364 (396) 394 (156) 1 627 71 Amortised cost 11 930 (18 644) (15 768) 55 457 (764) 80 32 291 4 528 GLAA 2 919 (1 349) (20) (617) 6 680 30 7 643 1 711 ECL 869 (1 349) 1 119 (85) 163 545 10 1 272 484 Amortised cost 2 050 (1 139) (532) (163) 6 135 20 6 371 1 227 GLAA ECL Amortised cost 203 009 75 098 (1 349) (115 245) – – – 4 614 1 707 241 (1 349) 1 853 – – – 20 201 302 74 857 – (117 098) – – – 4 594 166 127 2 472 163 655 18 811 10 598 609 – 18 202 10 598 Loans and advances at 31 December 2020 148 665 627 148 038 37 517 698 36 819 9 354 1 756 7 598 195 536 3 081 192 455 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 GLAA 17 510 (2 404) (8 120) 11 146 (2 408) ECL 309 512 (101) 38 (150) Amortised cost 17 201 (2 916) (8 019) 11 108 (2 258) GLAA 1 160 (29) (213) (132) (8) 2 543 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 146 597 308 146 289 15 724 608 15 116 3 321 ECL 215 (29) 308 (5) 152 641 Amortised cost 945 (521) (127) (8) 2 391 GLAA 159 139 38 724 (29) (32 186) – – – (6) ECL 698 59 (29) 829 – – – – Amortised cost 158 441 38 665 – (33 015) – – – (6) 2 680 165 642 1 557 164 085 Stage 1 Stage 2 Stage 3 Total CIB, excluding Property Finance (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 GLAA/ECL for assets held at FVOCI Banking Book GLAA held at FVTPL Property Finance (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 Business Banking (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Balance at 31 December 2020 Loans and advances at 31 December 2020 GLAA 187 740 75 098 (96 945) 16 781 (55 851) (5 760) 4 503 125 566 12 501 10 598 GLAA 140 469 38 724 (29 569) 8 252 (11 138) (135) (6) GLAA 69 213 23 491 (20 369) 1 329 (13 420) (2 585) 57 659 57 659 ECL 418 241 370 481 (557) (389) 9 573 54 ECL 174 59 9 106 (38) (2) ECL 232 317 (10) 49 (184) (94) 310 310 Amortised cost 187 322 74 857 (97 315) 16 300 (55 294) (5 371) 4 494 124 993 12 447 10 598 Amortised cost 140 295 38 665 – (29 578) 8 146 (11 100) (133) (6) Amortised cost 68 981 23 174 (20 359) 1 280 (13 236) (2 491) 57 349 57 349 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. GLAA 6 238 (3 762) (1 232) 13 770 (1 026) 13 988 13 988 ECL 184 172 (29) 227 (39) 515 515 Amortised cost 6 054 (3 934) (1 203) 13 543 (987) 13 473 13 473 GLAA 3 397 (128) (1 212) (97) (350) 3 611 5 221 5 221 ECL 929 (128) 312 (20) (43) 133 1 183 1 183 Amortised cost 2 468 (1 524) (77) (307) 3 478 78 848 23 491 (128) (25 343) – – – GLAA ECL Amortised cost 4 038 76 868 4 038 76 868 1 345 317 (128) 474 – – – 2 008 2 008 77 503 23 174 – (25 817) – – – 74 860 74 860 129 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Stage 1 Stage 2 Stage 3 Total Retail — Home Loans (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Total credit and zero balances Balance at 31 December 2020 GLAA 110 772 6 051 1 347 4 961 (7 925) (2 179) 113 027 163 113 190 ECL 226 22 451 18 (185) (275) Amortised cost 110 546 6 029 – 4 943 (7 740) (1 904) – 257 112 770 (1) 164 256 112 934 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Amortised cost 13 069 (4 416) 8 559 (2 799) – 2 4 GLAA 5 938 (200) (535) (531) (863) 5 427 9 ECL 1 192 (200) 117 (4) (44) 724 Amortised cost GLAA ECL 4 746 130 284 Amortised cost 128 361 6 029 6 051 (200) 392 – – – – 176 1 923 22 (200) 1 023 – – – (2) (1) – – – – – 2 177 13 540 9 236 1 785 7 451 136 527 2 766 133 761 14 268 724 13 544 9 245 1 785 7 460 136 703 2 765 133 938 Stage 1 Stage 2 Stage 3 Total Retail — Instalment Debtors (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Balance at 31 December 2020 GLAA 89 814 38 637 (26 021) 6 560 (8 954) (5 255) ECL 761 468 1 241 142 (576) (939) Amortised cost 89 053 38 169 – (27 262) 6 418 (8 378) (4 316) 94 781 1 097 93 684 11 998 9 770 6 171 118 103 6 250 111 853 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Retail — Card, term and other (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Net balances Total credit and zero balances Balance at 31 December 2020 GLAA 25 540 13 889 (8 147) 613 (4 063) (3 755) 24 077 7 356 31 433 ECL 1 285 935 2 553 41 (1 122) (2 402) Amortised cost 24 255 12 954 (10 700) 572 (2 941) (1 353) 1 290 22 787 (48) 1 242 7 404 30 191 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 130 GLAA 13 574 (420) (4 430) 8 788 (3 248) 14 264 4 GLAA 17 027 (3 065) (5 381) 9 437 (4 466) 13 552 GLAA 3 538 (578) (538) 4 394 (1 660) 5 156 18 5 174 ECL 505 455 (14) 229 (449) (2) 724 ECL 1 305 751 (112) 627 (1 017) 1 554 ECL 822 823 (34) 1 177 (1 127) 1 661 (12) 1 649 (527) (819) 4 703 – – 9 – – (3 574) (1 149) (432) 7 765 cost 1 521 – – (1 145) (68) (276) 1 886 Amortised Amortised cost GLAA ECL cost GLAA ECL 15 722 6 115 2 554 3 561 112 956 38 637 (2 102) (31 388) 4 620 468 (2 102) 3 264 – – (3 816) (5 269) 8 810 (3 449) (2 102) (2 302) (1 179) (483) 9 721 Amortised cost 108 336 38 169 (34 652) – – – – Amortised cost 28 492 12 954 (13 246) – – – – – – – – – – – – – – – – GLAA ECL 34 742 13 889 (3 550) (8 792) 6 250 935 (3 550) 4 454 1 918 36 289 8 089 28 200 49 1 967 7 422 43 711 (61) 7 483 8 028 35 683 (2 102) 1 272 (30) (51) 1 956 3 599 ECL 4 143 (3 550) 1 078 (7) (55) 3 529 5 138 (1) 5 137 cost 2 716 – – (1 401) (504) 3 217 (533) 3 495 30 3 525 GLAA 5 664 (3 550) (67) (75) (331) 5 415 7 056 48 7 104 Amortised Amortised NEDBANK GROUP Annual Results 2020 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Stage 1 Stage 2 Stage 3 Total GLAA 13 574 (420) (4 430) 8 788 (3 248) 14 264 4 ECL 505 455 (14) 229 (449) (2) 724 Amortised cost 13 069 – (4 416) 8 559 (2 799) 2 GLAA 5 938 (200) (535) (531) (863) 5 427 ECL 1 192 (200) 117 (4) (44) 724 Amortised cost GLAA ECL Amortised cost 4 746 – (527) (819) 4 703 – 130 284 6 051 (200) 392 – – – – 1 923 22 (200) 1 023 – – – (2) 128 361 6 029 – – – – – 2 13 540 9 236 1 785 7 451 136 527 2 766 133 761 4 9 9 176 (1) 177 14 268 724 13 544 9 245 1 785 7 460 136 703 2 765 133 938 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 94 781 1 097 93 684 GLAA 17 027 (3 065) (5 381) 9 437 (4 466) 13 552 ECL 1 305 751 (112) 627 (1 017) 1 554 Amortised cost 15 722 – – (3 816) (5 269) 8 810 (3 449) GLAA 6 115 (2 102) (2 302) (1 179) (483) 9 721 11 998 9 770 ECL 2 554 (2 102) 1 272 (30) (51) 1 956 3 599 Amortised cost GLAA ECL Amortised cost 3 561 – – (3 574) (1 149) (432) 7 765 112 956 38 637 (2 102) (31 388) – – – 4 620 468 (2 102) 3 264 – – – 108 336 38 169 – (34 652) – – – 6 171 118 103 6 250 111 853 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total GLAA 3 538 (578) (538) 4 394 (1 660) 5 156 18 5 174 ECL 822 823 (34) 1 177 (1 127) 1 661 (12) 1 649 Amortised cost 2 716 – – (1 401) (504) 3 217 (533) 3 495 30 3 525 GLAA 5 664 (3 550) (67) (75) (331) 5 415 7 056 48 7 104 ECL 4 143 (3 550) 1 078 (7) (55) 3 529 Amortised cost GLAA ECL Amortised cost 1 521 – – (1 145) (68) (276) 1 886 34 742 13 889 (3 550) (8 792) – – – 6 250 935 (3 550) 4 454 – – – 28 492 12 954 – (13 246) – – – 5 138 1 918 36 289 8 089 28 200 (1) 5 137 49 1 967 7 422 43 711 (61) 7 483 8 028 35 683 GLAA 110 772 6 051 1 347 4 961 (7 925) (2 179) 113 027 163 113 190 GLAA 89 814 38 637 (26 021) 6 560 (8 954) (5 255) GLAA 25 540 13 889 (8 147) 613 (4 063) (3 755) 24 077 7 356 31 433 ECL 226 22 451 18 (185) (275) Amortised cost 110 546 6 029 – – 4 943 (7 740) (1 904) 257 112 770 (1) 164 256 112 934 ECL 761 468 1 241 142 (576) (939) Amortised cost 89 053 38 169 – (27 262) 6 418 (8 378) (4 316) ECL 1 285 935 2 553 41 (1 122) (2 402) Amortised cost 24 255 12 954 (10 700) 572 (2 941) (1 353) 1 290 22 787 (48) 1 242 7 404 30 191 Retail — Home Loans (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Total credit and zero balances Balance at 31 December 2020 Retail — Instalment Debtors (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Balance at 31 December 2020 Retail — Card, term and other (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Net balances Total credit and zero balances Balance at 31 December 2020 131 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Wealth (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Banking Book GLAA held at FVTPL Balance at 31 December 2020 Stage 1 Stage 2 Stage 3 Total GLAA 29 589 5 134 (5 260) 270 (1 443) (475) 696 28 511 ECL 24 20 66 1 (34) (31) Amortised cost 29 565 5 114 (5 326) 269 (1 409) (444) 696 46 28 465 – 29 512 46 28 465 679 1 320 332 988 31 567 434 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. Stage 1 Stage 2 Stage 3 Total Nedbank Africa Regions (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 Off-balance-sheet ECL Loans and advances at 31 December 2020 GLAA 19 700 8 459 (5 187) 144 (1 137) (376) (1 114) 20 489 20 489 ECL 240 172 (43) 1 (55) (162) 88 241 (21) 220 Amortised cost 19 460 8 287 (5 144) 143 (1 082) (214) (1 202) 20 248 21 20 269 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 132 Amortised cost 749 (214) (61) (61) 563 12 988 GLAA 30 970 5 134 (3) (6 248) – – – 713 1 001 ECL 229 20 (3) 187 – – – 1 Amortised cost 30 741 5 114 (6 435) – – – – 712 1 001 31 133 1 320 332 30 566 434 30 132 GLAA 452 (756) (209) 1 505 (261) 4 735 735 GLAA 1 305 (447) (138) 1 142 (190) 400 2 072 2 072 ECL 25 139 (1) 35 (142) 56 56 ECL 72 (12) (1) 56 (35) 78 158 (6) 152 Amortised cost 427 (895) (208) 1 470 (119) 4 679 Amortised cost 1 233 (435) (137) 1 086 (155) 322 1 914 6 1 920 GLAA 929 (3) (232) (61) (62) 736 13 GLAA 1 485 (58) (485) (6) (5) 566 128 1 625 1 625 ECL 180 (3) (18) (1) 173 1 ECL 459 (58) (151) (1) 197 138 584 (3) 581 Amortised cost GLAA Amortised cost 22 490 8 459 (58) (6 119) – – – (586) 1 026 (334) (6) (4) 369 (10) 3 1 041 24 186 1 044 24 186 ECL 771 172 (58) (206) – – – 304 983 (30) 953 21 719 8 287 (5 913) – – – – (890) 23 203 30 23 233 NEDBANK GROUP Annual Results 2020 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. 29 512 46 28 465 Stage 1 Stage 2 Stage 3 Total GLAA 452 (756) (209) 1 505 (261) 4 735 735 ECL 25 139 (1) 35 (142) 56 56 Amortised cost 427 (895) (208) 1 470 (119) 4 679 GLAA 929 (3) (232) (61) (62) 736 13 ECL 180 (3) (18) (1) 173 1 Amortised cost 749 (214) (61) (61) 563 12 GLAA 30 970 5 134 (3) (6 248) – – – 713 ECL 229 20 (3) 187 – – – 1 Amortised cost 30 741 5 114 – (6 435) – – – 712 1 320 332 988 30 566 434 30 132 679 1 320 332 988 31 567 434 1 001 1 001 31 133 Stage 1 Stage 2 Stage 3 Total Wealth (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Net balances Banking Book GLAA held at FVTPL Balance at 31 December 2020 Nedbank Africa Regions (Rm) Net balance at 31 December 2019 New loans and advances originated Loans and advances written-off Transfers to stage 1 Transfers to stage 2 Transfers to stage 3 Foreign exchange and other movements Balance at 31 December 2020 Off-balance-sheet ECL Loans and advances at 31 December 2020 GLAA ECL Amortised cost 29 589 5 134 (5 260) 270 (1 443) (475) 696 28 511 GLAA 19 700 8 459 (5 187) 144 (1 137) (376) (1 114) 20 489 20 489 24 20 66 1 (34) (31) 29 565 5 114 (5 326) 269 (1 409) (444) 696 – 46 28 465 ECL 240 172 (43) 1 (55) (162) 88 241 (21) 220 Amortised cost 19 460 8 287 (5 144) 143 (1 082) (214) (1 202) 20 248 21 20 269 Repayments net of readvances, capitalised interest, fees and ECL remeasurements1 1 Includes credit risk changes as a result of significant increases in credit risk, changes in credit risk that did not result in a transfer between stages, changes in model inputs and assumptions and changes due to drawdowns of undrawn commitments. GLAA 1 305 (447) (138) 1 142 (190) 400 2 072 2 072 ECL 72 (12) (1) 56 (35) 78 158 (6) 152 Amortised cost 1 233 (435) (137) 1 086 (155) 322 1 914 6 1 920 GLAA 1 485 (58) (485) (6) (5) 566 128 1 625 1 625 ECL 459 (58) (151) (1) 197 138 584 (3) 581 Amortised cost 1 026 (334) (6) (4) 369 (10) 1 041 24 186 3 1 044 24 186 22 490 8 459 (58) (6 119) – – – (586) GLAA ECL Amortised cost 771 172 (58) (206) – – – 304 983 (30) 953 21 719 8 287 – (5 913) – – – (890) 23 203 30 23 233 133 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 9 Investment securities Rm Private-equity investments Private-equity associates – Property Partners Private-equity associates – Investment Banking Private equity – Property Partners Private equity – Investment Banking Listed investments Unlisted investments Taquanta asset managers portfolio Strate Limited Other Total listed and unlisted investments Listed policyholder investments at market value Unlisted policyholder investments at directors' valuation Net policyholder liabilities Total policyholder investments Total investment securities EQUITY RISK IN THE BANKING BOOK Total equity portfolio Disclosed at fair value Equity-accounted, including investment in ETI Percentage of total assets Percentage of group minimum economic-capital requirement 2020 7 380 1 842 1 128 1 339 3 071 136 3 150 470 143 2 537 2019 7 315 1 885 898 1 559 2 973 896 2 758 468 143 2 147 10 666 10 969 13 129 2 641 (11) 15 759 26 425 13 253 4 750 (11) 17 992 28 961 2020 2019 13 988 10 666 3 322 1,1 4,8 14 886 10 969 3 917 1,3 4,8 Rm Rm Rm % % • Equity risk in the banking book is primarily assumed in CIB, which actively makes investments with clearly defined strategies. • Additional investments are undertaken as a result of operational requirements or strategic decisions, or as part of debt restructuring. • The equity portfolio that is held at fair value declined by R303m. The sale of a protected equity structure and negative revaluation adjustments as a result of Covid-19 was offset by additional investment assets. • The value of the portfolio that is equity-accounted decreased by R595m to R3 322m (2019: R3 917m). This was largely due to a decline in the ETI strategic investment value by R494m since 2019. ETI reported a solid operational performance for the nine months to end-September 2020, with positive movements in other comprehensive income amounts for fair value through OCI instruments and foreign exchange movements in FCTR. However, the decline in the investment value was due to a R750m impairment in H1 and Nedbank’s share of ETI’s own goodwill impairment of R528m, relating to Ecobank Nigeria’s purchase of Oceanic Bank. • The ETI strategic investment is accounted for under the equity method of accounting and is therefore not carried at fair value. • The board sets the overall risk appetite and strategy of the group for equity risk, and business develops portfolio objectives and investment strategies for its investment activities. These address the types of investment, expected business returns, desired holding periods, diversification parameters and other elements of sound investment management oversight. 134 NEDBANK GROUP Annual Results 2020 10 Investments in associate companies Name of company and nature Equity-accounted earnings Rm Carrying amount Rm Net exposure to associates1 Rm 2020 20192 2020 2019 2020 2019 of business Associates Listed ETI3 Unlisted Private equity: Tracker Technology Holdings Proprietary Limited Private equity: Other investments Other strategic investments Total (178) 668 2 180 2 674 (7) 56 37 9 (76) 49 33 43 793 570 156 416 3 322 549 285 409 3 917 69 874 774 767 943 1 Includes on-balance-sheet and off-balance-sheet exposure. 2 Equity-accounted earnings included a R25m profit in 2019 related to SBV Services Proprietary Limited. 3 Ecobank Transnational Incorporated is a pan-African bank and its shares are listed on the stock exchanges of Nigeria, Ghana and Ivory Coast. The percentage holding in ETI at 31 December 2020 was 21,2% (31 December 2019: 21,2%). ACCOUNTING RECOGNITION OF ETI Rm Opening carrying value IFRS 9 transitional adjustment Opening carrying value Share of associate (losses)/gains1,2 Share of other comprehensive income/(losses)1,2 Foreign currency translation3 Closing carrying value (pre-impairment provision) Impairment provision Closing carrying value 2020 3 674 3 674 (178) 207 227 3 930 (1 750) 2 180 2019 4 245 4 245 668 (1 169) (70) 3 674 (1 000) 2 674 1 Applicable period: 1 October 2018 – 30 September 2020, and the group's share of ETI's 2018 restatement. 2 Applicable average exchange rate: 1 January 2020 – 31 December 2020. 3 Applicable period: 1 January 2020 – 31 December 2020, ie the cumulative difference at each quarter of the earnings and other comprehensive income converted at an average USD/ZAR rate, compared with the related US dollar balances converted at the quarter-end spot rate. The USD/ZAR exchange rate depreciated from R14,01 on 31 December 2019 to R14,70 on 31 December 2020. The market value of the group’s investment in ETI, based on its quoted share price, was R1,2bn on 31 December 2020 and R1,0bn on 12 March 2021. The ETI share trades in low volumes, given its low free float, while also being listed in an illiquid market. The difference between market value and carrying value is significant and prolonged, which has represented evidence of an impairment indicator at 31 December 2020. Where an impairment indicator exists, IAS 36 requires that an impairment test is computed, which compares the higher of the fair value less costs of disposal (fair value) or its VIU and the carrying value of the investment. The computation of the VIU in accordance with IFRS is subject to significant judgement as it is, among other things, based on economic estimates, macro assumptions and the discounting of future cashflow estimates. At 30 June 2020 management computed the VIU based on a number of scenarios. While various scenarios supported a value-in-use calculation above the carrying value of our investment, in the prevailing environment more weight was given to downside scenarios and an additional impairment of R750m was raised at 30 June 2020. This reduced the carrying value of the group’s investment to R2,4bn at 30 June 2020. The group's position was reassessed at 31 December 2020 year-end and, based on this reassessment, no further impairment provision was raised. 135 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 11 Intangible assets Rm Computer software and capitalised development costs Goodwill1 Client relationships, contractual rights and other 2020 8 981 4 747 23 13 751 2019 8 254 5 057 55 13 366 1 The group's annual impairment test indicated that the goodwill relating to a cash-generating unit in Nedbank Wealth was impaired as a result of the negative macroeconomic environment. This resulted in an impairment of goodwill totalling R345m (2019: R117m), which is not recognised in headline earnings. Rm Computer software1 Core product and client systems Support systems Digital systems Payment systems Amortisation periods 2–10 years Development costs not yet commissioned none Core product and client systems Support systems Digital systems Payment systems Computer software Opening balance Additions Commissioned during the year Foreign exchange and other moves Amortisation charge for the year Impairments Closing balance Development costs not yet commissioned Opening balance Additions Commissioned during the year Impairments Closing balance 2020 7 352 1 724 2 438 2 492 698 1 629 523 343 578 185 2019 6 502 1 689 2 435 1 721 657 1 752 447 326 869 110 8 981 8 254 6 502 475 1 949 18 (1 436) (156) 7 352 1 752 1 877 (1 949) (51) 1 629 5 310 378 2 082 (2) (1 167) (99) 6 502 1 941 2 025 (2 082) (132) 1 752 136 NEDBANK GROUP Annual Results 2020 137 NotesRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 202012 Amounts owed to depositors SEGMENTAL BREAKDOWN Rm Current accounts Savings accounts Other deposits and loan accounts Call and term deposits Fixed deposits Cash management deposits Other deposits Foreign currency liabilities Negotiable certificates of deposit Macro fair-value hedge accounting adjustments Deposits received under repurchase agreements Nedbank Group 2020 2019 98 886 44 233 675 363 337 197 63 429 111 832 162 905 21 146 100 405 1 415 12 267 86 199 32 586 614 909 325 730 66 735 75 748 146 696 25 734 118 984 326 25 644 Corporate and Investment Banking 2020 8 105 389 077 123 311 16 404 97 678 151 684 13 597 2019 6 628 1 328 434 114 658 13 680 61 782 138 314 19 244 12 267 25 349 Retail and Business Banking Wealth Nedbank Africa Regions Centre – 2020 2019 79 768 12 300 255 150 192 121 43 562 11 748 7 719 7 025 69 996 10 661 252 231 187 061 49 079 10 979 5 112 6 013 2020 1 874 31 083 10 957 9 311 614 424 608 31 2019 1 838 21 130 17 070 12 964 677 1 384 2 045 22 Total amounts owed to depositors 953 715 904 382 423 046 379 656 354 243 338 901 43 945 40 060 33 294 30 223 99 187 115 542 Comprises: – Amounts owed to clients – Amounts owed to banks 905 081 48 634 846 625 57 757 378 581 44 465 324 888 54 768 Total amounts owed to depositors 953 715 904 382 423 046 379 656 353 315 928 339 359 (458) 354 243 338 901 43 945 – 43 945 40 054 6 40 060 32 240 1 054 33 294 28 827 1 396 30 223 2020 9 052 850 18 947 12 451 2 857 1 893 1 746 493 3 952 2019 7 645 794 17 335 11 044 3 299 1 524 1 468 455 3 699 295 2020 87 – 1 232 3 (8) 89 1 148 96 453 1 415 – – 97 000 2 187 99 187 2019 92 (161) 3 79 (243) 115 285 326 113 497 2 045 115 542 DEPOSITS BY CLUSTER (Rbn) 43,4 904,4 15,3 3,9 3,1 (16,4) 5,5% 953,7 11,4% 4,5% 9,7% 10,2% (14,2%) 2019 CIB RBB Wealth Africa Regions Centre 2020 • Deposits grew by 5,5% to R953,7bn, with total funding-related liabilities increasing by 5,1% to R1 013,5bn. » With 94,1% of all funding-related liabilities emanating from client deposits, Nedbank’s loan-to-deposit ratio was 88,4%. » All client-facing clusters grew faster than nominal GDP growth. 138 NEDBANK GROUP Annual Results 2020 12 Amounts owed to depositors SEGMENTAL BREAKDOWN Rm Current accounts Savings accounts Other deposits and loan accounts Call and term deposits Fixed deposits Cash management deposits Other deposits Foreign currency liabilities Negotiable certificates of deposit Comprises: – Amounts owed to clients – Amounts owed to banks Macro fair-value hedge accounting adjustments Deposits received under repurchase agreements Nedbank Group 2020 2019 Corporate and Investment Banking 98 886 44 233 675 363 337 197 63 429 111 832 162 905 21 146 100 405 1 415 12 267 86 199 32 586 614 909 325 730 66 735 75 748 146 696 25 734 118 984 326 25 644 2020 8 105 123 311 16 404 97 678 151 684 13 597 2019 6 628 1 114 658 13 680 61 782 138 314 19 244 12 267 25 349 905 081 48 634 846 625 57 757 378 581 44 465 324 888 54 768 Retail and Business Banking Wealth Nedbank Africa Regions Centre 389 077 328 434 – 2020 2019 79 768 12 300 255 150 192 121 43 562 11 748 7 719 7 025 69 996 10 661 252 231 187 061 49 079 10 979 5 112 6 013 2020 1 874 31 083 10 957 9 311 614 424 608 31 2019 1 838 21 130 17 070 12 964 677 1 384 2 045 22 2020 9 052 850 18 947 12 451 2 857 1 893 1 746 493 3 952 2019 7 645 794 17 335 11 044 3 299 1 524 1 468 455 3 699 295 Total amounts owed to depositors 953 715 904 382 423 046 379 656 354 243 338 901 43 945 40 060 33 294 30 223 Total amounts owed to depositors 953 715 904 382 423 046 379 656 353 315 928 339 359 (458) 354 243 338 901 43 945 – 43 945 40 054 6 40 060 32 240 1 054 33 294 28 827 1 396 30 223 2020 87 – 1 232 3 (8) 89 1 148 – 96 453 1 415 – 99 187 97 000 2 187 99 187 2019 92 (161) 3 79 (243) 115 285 326 115 542 113 497 2 045 115 542 DEPOSITS BY PRODUCT (Rbn) CONTRIBUTION (%) 60,4 11,5 (3,3) (14,7) 5,5% (4,6) 953,7 904,4 31,1% 3,5% (5,0%) (5,0%) (17,8%) 2019 Current accounts, cash management and savings deposits Call and term deposits Fixed deposits NCDs and other deposits Foreign currency liabilities 2020 R953,7bn 2,2 26,7 29,0 6,7 35,4 2020 Current accounts, cash management and savings deposits Call and term deposits Fixed deposits NCDs and other deposits Foreign currency liabilities » Transactional deposits grew by 31,1%, while non-transactional investment deposits increased by 4,7%. CIB transactional deposits increased by 54,6% while non-transactional investment deposits grew by 9,3%. Transactional deposits grew faster than non-transactional deposits, driven by increased short-term operational cash requirements by businesses impacted by Covid-19. RBB transactional deposits increased by 13,3% as clients opted to hold more short-term operational deposits given the impact of Covid-19 on the economy, noting that there was an increase in shorter-term savings while non-transactional term investment deposits grew by only 0,9%. Nedbank Wealth transactional deposits increased by 37,1%, due mainly to foreign exchange translation gains, while non-transactional deposits decreased by 32,8%, due mainly to a decrease in Nedbank Wealth international volumes because of the record-low interest rate environment (ie near 0% returns). » Call and term deposits increased by 3,5%, while fixed deposits decreased by 5,0% as retail clients opted to keep their cash in short-term or notice deposits due to the uncertain economic environment, noting that fixed deposits were subject to some domestic competitors pricing fixed deposits above the wholesale cash curve. NCDs and other deposits decreased by 5,0%, driven by a decrease in NCD funding of 15,6% as clients placed cash in higher-yielding government bonds and treasury bills, preferring other, more structured deposits, which grew by 11,8% offset by a decrease in deposits under repo of 52,2%. The demand for other, more structured deposits was also linked to client appetite for increased deposit duration in an environment of slow growth and lower interest rates. 139 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 » Foreign currency liabilities, which represent only 2,2% of Nedbank’s total deposits, decreased by 17,8%, due to the prepayment of foreign currency lending facilities which resulted in a decrease in foreign currency liabilities. It should be noted that foreign currency liabilities are matched against foreign currency assets, resulting in an insignificant foreign currency mismatch when expressed as a percentage of the total balance sheet. » During 2020 Nedbank maintained a strong balance sheet position, as observed through the funding profile, liquidity buffers and key liquidity risk metrics. Nedbank’s three-month average long-term funding ratio was 25,4%. » Nedbank Group remains committed to growing its retail and commercial deposits, while managing the funding profile. Market share according to BA900 HOUSEHOLD DEPOSITS1 (2017–2020) (%) NON-FINANCIAL CORPORATE DEPOSITS2 (2017–2020) (%) , 7 5 1 , 5 2 2 , 7 8 1 8 , 1 2 3 , 1 2 , 0 6 1 , 3 5 2 , 2 7 2 , 8 7 1 , 7 3 1 Nedbank FirstRand Standard Bank Absa Other Nedbank FirstRand Standard Bank Absa Other WHOLESALE DEPOSITS3 (2017–2020) (%) FOREIGN CURRENCY LIABILITIES4 (2017–2020) (%) , 3 3 2 , 4 4 1 , 9 2 2 8 , 1 2 , 6 7 1 , 5 2 1 , 4 6 1 , 2 9 2 , 4 2 1 , 5 9 2 Nedbank FirstRand Standard Bank Absa Other Nedbank FirstRand Standard Bank Absa Other 1 Includes households according to the BA900 return. 2 Includes private non-financial corporate-sector deposits, unincorporated businesses as well as non-profit organisations and charities according to the BA900 return. 3 Includes insurers, pension funds, private financial corporate-sector deposits, collateralised borrowings and repurchase deposits according to the BA900 return. 4 Includes foreign currency deposits and foreign currency funding according to the BA900 return. 140 NEDBANK GROUP Annual Results 2020 • In 2020 our funding mix tilted towards decreased funding contributions from wholesale deposits, household deposits and foreign funding. Our funding mix tipped towards increased funding contributions from commercial deposits and capital markets funding. Our quarterly average long-term funding ratio of 25,4% compared favourably with the industry average of 22,0% in an environment of increased financial market volatility as a result of the Covid-19 pandemic. • We currently source 36,1% of total funding from wholesale deposits, and this has decreased by 2,3% versus December 2019. The overall objective is to reduce wholesale funding reliance through increases in retail and commercial deposits, while wholesale deposits are typically a source of long-term funding, playing an important part in managing the overall term funding profile and reducing short-term contractual funding reliance. • We remain focused on growing retail and commercial deposits, with an emphasis on offering competitive and innovative transactional and investment products, as well as an ongoing emphasis on meeting client needs through product, pricing, innovation and digital client experiences. NEDBANK GROUP’S DEPOSIT MIX (%) 6,4 6,4 19,3 R904,4bn 38,4 6,0 6,7 36,1 18,6 R953,7bn 29,5 2019 32,6 2020 Wholesale Commercial Household Capital markets Foreign funding1 1 Foreign funding comprises deposits denominated in foreign currency, foreign currency funding and the foreign sector. 141 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Liquidity risk and funding SUMMARY OF NEDBANK GROUP LIQUIDITY RISK AND FUNDING PROFILE Total sources of quick liquidity Total HQLA Other sources of quick liquidity Total sources of quick liquidity (as a percentage of total assets) Long-term funding ratio (three-month average) Senior unsecured debt, including green bonds —Green bonds Total capital market issuance (excluding additional tier 1 capital) Reliance on NCDs (as a percentage of total deposits) Reliance on foreign funding currency deposits (as a percentage of total deposits) Loan-to-deposit ratio Basel III liquidity ratios LCR1 Minimum regulatory LCR requirement2 NSFR3 Minimum regulatory NSFR requirement 2020 2019 254 400 227 713 206 943 47 457 20,7 25,4 41 649 2 628 59 770 10,5 2,2 88,4 125,7 80,0 112,8 100,0 177 985 49 728 19,9 30,2 42 295 2 644 59 713 13,2 2,8 91,2 125,0 100,0 113,0 100,0 Rm Rm Rm % % Rm Rm Rm % % % % % % % 1 Only banking and/or deposit-taking entities are included in the group LCR. The group ratio represents an aggregation of the relevant individual net cash outflows (NCOF) and the individual HQLA portfolios across all banking and/or deposit-taking entities, where surplus HQLA holdings in excess of the minimum requirement of 100% have been excluded from the aggregated HQLA number in the case of all non-SA banking entities. The above figures reflect the simple average of daily observations over the quarter ending December 2020 for Nedbank Limited and the simple average of the month-end values at 31 October 2020, 30 November 2020 and 31 December 2020 for all non-SA banking entities. 2 On 31 March 2020 the PA issued Directive 1/2020, reducing the minimum LCR requirement from 100% to 80% with effect from 1 April 2020. The revised minimum LCR requirement will remain in force until financial markets normalise. 3 Only banking and/or deposit-taking entities are included in the group NSFR and the group data represents a consolidation of the relevant individual assets, liabilities and off-balance-sheet items. • Nedbank Group remains well funded, with a strong liquidity position underpinned by a significant quantum of long-term funding, an appropriately sized surplus liquid-asset buffer, a strong loan-to-deposit ratio consistently below 100% and a low reliance on interbank and foreign currency funding. • The group's quarterly average LCR exceeded the revised minimum regulatory requirement of 80% applicable from 1 April 2020, with the group maintaining appropriate operational buffers designed to absorb seasonal, cyclical and systemic volatility observed in the LCR in 2020. On 31 March 2020 the PA issued Directive 1/2020, reducing the minimum LCR requirement from 100% to 80% with effect from 1 April 2020. The reduction in the LCR minimum requirement was in direct response to financial market volatility brought on by the Covid-19 pandemic and the resulting national lockdown, which caused financial and non-financial corporates to tilt towards increased holdings of short-term deposits during March 2020 and April 2020, when financial market volatility was at its highest. » The LCR (calculated using the simple average of daily observations over the quarter ending December 2020 for Nedbank Limited and the simple average of the month-end values at 31 October 2020, 30 November 2020 and 31 December 2020 for all non-SA banking entities) was 125,7%. — Nedbank's portfolio of LCR-compliant HQLA (mainly comprising government bonds and treasury bills) increased to a quarterly average of R206,9bn, up from 2019 when the portfolio amounted to R178,0bn. — Despite the higher quarterly arithmetic average in the LCR net cashflows driven by increased financial market volatility introduced by the Covid-19 pandemic, Nedbank proactively managed its HQLA liquidity buffers resulting in a year-on-year increase in the LCR. — Nedbank will continue to manage the HQLA portfolio within risk appetite targets, taking balance sheet growth into account while maintaining appropriately sized surplus liquid-asset buffers based on market conditions. NEDBANK GROUP LCR EXCEEDS MINIMUM REGULATORY REQUIREMENTS 125,0 125,7 2 4 0 1 , 0 8 7 1 , 4 2 4 1 2019 , 9 6 0 2 , 6 4 6 1 2020 HQLA (Rbn) Net cash outflows (Rbn) LCR (%) 4 1 7 6 142 NEDBANK GROUP Annual Results 2020 » In addition to the HQLA portfolio maintained for LCR purposes, Nedbank also identifies other sources of quick liquidity, which can be accessed in times of stress. Nedbank Group has significant sources of quick liquidity, as is evident in the combined portfolio of HQLA and other sources of quick liquidity, collectively amounting to R254,4bn at December 2020 and representing 20,7% of total assets. TOTAL SOURCES OF QUICK LIQUIDITY (Rbn) 11,7% 254,4 OTHER SOURCES OF QUICK LIQUIDITY CONTRIBUTION (%) (4,6%) 47,5 13 227,7 49,7 178,0 16,3% 206,9 2019 2020 Total HQLA Other sources of quick liquidity R47,5bn 45 38 4 2020 Unencumbered trading securities Price-sensitive overnight loans Other banks’ paper and unutilised bank credit lines Other assets • Nedbank exceeded the minimum NSFR regulatory requirement of 100% effective from 1 January 2018, with a December 2020 ratio of 112,8% (December 2019: 113,0%). The structural liquidity position of Nedbank remained relatively the same as a result of well-managed balance sheet growth. The key focus in terms of the NSFR is to achieve ongoing compliance within the context of balance sheet optimisation. NEDBANK GROUP NSFR EXCEEDS MINIMUM REGULATORY REQUIREMENTS NEDBANK GROUP NSFR EXCEEDS MINIMUM REGULATORY REQUIREMENTS (Rm) 113,0 112,8 2 4 0 1 , 7 9 0 7 , 3 8 2 6 2019 , 7 9 4 7 , 5 4 6 6 2020 4 1 7 6 Available stable funding (Rbn) Required stable funding (Rbn) NSFR (%) 143 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 » A strong funding profile was maintained in 2020, and Nedbank recorded a three-month average long-term funding ratio of 25,4% in the last quarter of the year. The focus on proactively managing Nedbank’s long-term funding profile contributed to a strong balance sheet position and sound liquidity risk metrics. Nedbank has continued to run a more prudent long-term funding profile when compared with the industry average of 22,0%. — Nedbank successfully issued R3,1bn in senior unsecured debt, while R3,6bn matured during the year. — Nedbank issued tier 2 capital instruments of R4,1bn and redeemed R2,3bn during the year, in line with the group’s capital plan. » While foreign currency funding reliance remains small at 2,2% of total deposits, Nedbank continues to focus on growing this funding source in support of funding base diversification where the proceeds can be applied to meet funding requirements for foreign advances growth at attractive interest rates. » The group’s 2020 Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) reports were approved by the board and submitted to the PA, in accordance with annual business-as-usual processes. The group’s recovery plans, which incorporate Nedbank London, were updated and approved by the board on 19 February 2020. Nedbank is currently awaiting the promulgation of the Financial Sector Laws Amendment Bill (FSLAB), which will give rise to the Resolution Regime, where Nedbank’s recovery plans will be required to dovetail into the resolution plans. The latest feedback received is that the FSLAB may be promulgated only towards the end of Q2 2021. The promulgation of FSLAB in Q2 2021 and insights from various discussion papers to be released by SARB will be a key part of the updates of the various recovery plans during H2 2021. NEDBANK GROUP FUNDING AND LIQUIDITY PROFILE, UNDERPINNED BY STRONG LIQUIDITY RISK METRICS 92,8 92,1 29,6 27,0 89,2 26,5 91,2 30,2 88,4 25,4 1 , 9 , 6 5 3 2016 , 0 0 1 0 0 , 2017 , 2 4 5 0 4 , 2018 , 6 8 7 1 , 3 2019 , 3 9 4 0 0 , 2020 Loan-to-deposit ratio (%) Three-month average long-term funding ratio (%) Annual growth in deposits (Rbn) Annual growth in capital market issuance, excluding additional tier 1 capital (Rbn) 144 NEDBANK GROUP Annual Results 2020 Equity analysis ANALYSIS OF CHANGES IN NET ASSET VALUE Balance at the beginning of the year Additional shareholder value Profit attributable to ordinary equity holders Currency translation movements Exchange differences on translating foreign operations – foreign subsidiaries1 Exchange differences on translating foreign operations – ETI1 Share of other comprehensive income of investments accounted for using the equity method – ETI2 Fair-value adjustments Fair-value adjustments on debts instruments Share of other comprehensive income of investments accounted for using the equity method2 Defined-benefit fund adjustment Share of other comprehensive income of investments accounted for using the equity method (included in other distributable reserves) Property revaluations Transactions with ordinary shareholders Dividends paid Equity-settled share-based payments Other transactions Change (%) (60,4) 2020 98 449 4 358 3 467 146 672 (526) 456 119 337 (80) 395 (26) 2019 90 613 11 017 12 001 (855) 2 (70) (787) (470) (232) (238) 300 (145) 186 55,0 (2 952) (6 565) (3 451) 292 207 (372) – (372) 972 (11) (7 112) 591 (44) (134) (91) (43) 3 500 18 2,0 100 444 98 449 Transaction with non-controlling shareholders >(100) Exchange differences on translating foreign operations1 Other transaction with non-controlling shareholders Additional tier 1 capital instruments Other movements Balance at the end of the year 1 Exchange differences on translating foreign operations disclosed in the statement of other comprehensive income of R1444m (2019: R159m). 2 Share of other comprehensive losses of investments accounted for using the equity method as disclosed in the statement of comprehensive income of R246m (2019: R1 025m). 3 Represents non-controlling interest's share of profits and other comprehensive income less dividends paid and the net change in equity related to the acquisition of additional shares in subsidiary. MOVEMENTS IN GROUP FOREIGN CURRENCY TRANSLATION RESERVE Balance at the beginning of the year Foreign currency translation reserve (FCTR) ETI Banco Único Other subsidiaries FCTR on transactions with non-controlling interests Balance at the end of the year EXCHANGE RATES Change (%) >100 2020 2019 (2 244) 146 (299) (118) 563 103 (1 389) (855) 2 (70) (787) 11,1 (1 995) (2 244) UK pound to rand US dollar to rand US dollar to naira Rand to naira Average Closing Change (%) 8,5 3,0 5,4 6,3 2020 19,99 14,87 381,21 26,64 2019 Change (%) 2020 2019 18,43 14,44 361,64 25,05 8,9 23,9 4,6 (0,4) 20,07 14,70 381,20 25,94 18,43 14,01 364,47 26,05 145 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 Capital management REGULATORY CAPITAL ADEQUACY AND LEVERAGE CET1 CAPITAL RATIO (%) CET1 CAPITAL RATIO (%) 0,3 (0,5) 0,2 (0,1) (0,8) 0,5 (0,2) (0,1) 0,1 CET1 target: 10,0-12,0% PA minimum CET1: 7,5%1 11,5 10,6 10,9 Dec 2019 Profits 2019 final dividends FCTR ETI impairment RWA increase Jun 2020 Profits FCTR ETI goodwill RWA decrease Dec 2020 1 PA minimum at December 2019 excludes idiosyncratic buffer and D-SIB capital requirements. PA minimum at December 2020 excluding idiosyncratic buffer, including D-SIB capital requirements with the Pillar 2A revised to nil. RISK-WEIGHTED ASSETS (Rbn) 8,3 17,4 26,7 (3,3) 4,4 0,1 (8,0) (0,7) 629 678 674 Dec 2019 Counterparty credit risk Credit risk Market risk Other RWA Jun 2020 Counterparty credit risk Credit risk Market risk Other RWA Dec 2020 Nedbank Group maintained a capital adequacy position well above regulatory minima having absorbed the 2019 final ordinary dividend of R3,5bn, further impairment of the ETI investment of R750m, our share of ETI's own goodwill impairment of R528m, further investment in software development as part of the ME programme, and increased RWA largely due to credit risk migration and the effects of volatility in the market risk RWA, as a result of the impact of the Covid-19 pandemic and asset growth. Nedbank manages capital levels within the board-approved risk appetite, expectations of the rating agencies, requirements of the regulators and the returns expected by shareholders. Nedbank further seeks to ensure that its capital structure uses the full range of capital instruments and capital management activities available to optimise the financial efficiency and loss absorption capacity of its capital base. Nedbank performs extensive and comprehensive stress testing to conclude that the group remains well capitalised relative to its business activities, the board’s strategic plans, risk appetite, risk profile and the external environment in which the group operates. 146 NEDBANK GROUP Annual Results 2020In H1 2020 the PA supported the banking industry through Directive 2/2020 (capital directive) and Directive 3/2020 (credit directive), which were designed to provide temporary relief. Directive 2/2020 provided capital relief through the temporary relaxation of the Pillar 2A capital requirements to nil, thereby reducing the minimum requirements for the CET1, tier 1 and total capital ratios by 50 bps, 75 bps and 100 bps, respectively. The PA also issued Guidance Note 4/2020, which encouraged banks to preserve capital and not distribute ordinary dividends out of 2020 earnings. Dispensations provided by the PA allowed the capital ratios of banks to absorb movements in the balance sheet, driven by increased drawdowns and a change in repayment patterns by clients, adverse backbook migration and the impact of illiquid and dislocated markets, which recovered in H2 2020. Earnings generation improved in H2 2020 and balance sheet growth slowed, which together with RWA optimisation initiatives resulted in stronger capital ratios for the full year 2020. In February 2021 the PA published Guidance Note 3/2021, which replaced Guidance Note 4/2020. The guidance note encourages boards of banks to be prudent when making decisions relating to distributions of dividends on ordinary shares and the payment of cash bonuses to executive officers and material-risktakers in 2021. Despite our strong capital and liquidity position at 31 December 2020, having considered the spirit of Guidance Notes 4/2020 and 3/2021 and noting growth opportunities and our responsibility to support clients and the economy, in the midst of the current uncertainty about the progression of the virus, possible third waves, and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on our current forecasts, the group expects to resume dividend payments when reporting interim results in 2021. Nedbank Group Including unappropriated profits Total CAR Total tier 1 CET1 Surplus tier 1 capital Leverage Dividend cover Cost of equity Excluding unappropriated profits Total CAR Total tier 1 CET1 Nedbank Limited Including unappropriated profits Total CAR Total tier 1 CET1 Surplus tier 1 capital Excluding unappropriated profits Total CAR Total tier 1 CET1 PA minimum1 Internal targets 2020 2019 % % % Rm times times % % % % % % % Rm % % % > 13,00 > 11,25 10,00–12,00 < 25 < 20 1,75–2,25 11,50 9,25 7,50 11,50 9,25 7,50 > 13,00 > 11,25 10,00–12,00 14,9 12,1 10,9 19 462 15,4 N/A 14,5 14,8 12,1 10,8 15,3 12,0 10,4 15 219 15,0 11,8 10,1 15,0 12,8 11,5 22 245 15,0 1,84 14,1 14,8 12,6 11,4 15,5 12,8 11,2 18 202 15,1 12,4 10,8 1 PA minimum at December 2019 excludes idiosyncratic buffer and D-SIB capital requirements. PA minimum at December 2020 excluding idiosyncratic buffer, including D-SIB capital requirements with the Pillar 2A revised to nil. 147 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 OVERVIEW OF RISK-WEIGHTED ASSETS Rm Credit risk Standardised Approach (TSA) Supervisory Slotting Approach Advanced Internal Ratings-based Approach Counterparty credit risk Current-exposure method Credit valuation adjustment Equity positions under Simple Risk Weight Approach Securitisation exposures in banking book Internal Ratings-based Approach External Ratings-based Approach, including Internal-assessment Approach Market risk Standardised Approach Internal Model Approach Operational risk Standardised Approach Advanced Measurement Approach (AMA) Floor adjustment Amounts below the thresholds for deduction (subject to 250% risk weighting) Other assets (100% risk weighting) Nedbank Group Nedbank Limited 2020 RWA MRC1 2019 RWA 2020 RWA MRC1 2019 RWA 436 948 50 249 419 286 364 557 41 924 348 376 36 951 7 287 4 249 838 35 052 10 234 134 6 375 15 733 133 9 290 392 710 45 162 374 000 358 048 41 176 338 953 16 613 16 613 22 279 42 291 445 91 354 40 916 3 024 37 892 73 665 7 318 63 973 2 374 13 989 26 542 1 910 1 910 2 562 4 863 51 10 41 4 706 348 4 358 8 472 842 7 357 273 1 609 3 052 9 713 9 713 16 476 41 021 589 285 304 22 199 1 487 20 712 74 139 7 208 63 539 3 392 15 228 30 074 14 898 14 898 21 620 25 841 445 91 354 39 322 1 624 37 698 61 818 1 59 848 1 969 1 633 20 514 1 713 1 713 2 486 2 972 51 10 41 4 522 187 4 335 7 109 6 883 226 188 2 360 9 456 9 456 15 668 26 534 589 285 304 20 971 699 20 272 62 795 1 60 059 2 735 1 633 24 867 Total 673 688 77 474 628 725 550 648 63 325 510 889 1 Total minimum required capital (MRC) is measured at 11,5%, including 1% for the D-SIB requirement, and excludes the bank-specific Pillar 2b requirement. • The group's total RWA/total assets density improved marginally from 55,0% in 2019 to 54,9% in 2020, driven by an increase of 7,2% in RWA relative to a change in total assets of 7,4%. The increase in total RWA is attributable mainly to the following: » Credit risk migration, driven by the impact of the Covid-19 pandemic and asset growth, resulted in a credit RWA increase of R17,5bn (4,2%) for the year, offset by strategic optimisation initiatives. » Counterparty credit risk and credit valuation adjustment RWA increased by R6,9bn (71,0%) and R5,8bn (35,2%) respectively, due to increased deal volume and an adjustment in the fair value of hedges, which was driven by currency volatility against major currencies. » Trading market RWA increased by R18,7bn (84,3%), driven mainly by the stressed conditions affecting both global and local financial markets that were characterised by a sharp increase in March 2020 on the back of unprecedented volatility. This volatility, observed in the FX and the interest-rate markets to which the bank is primarily exposed, resulted in a direct increase in the bank’s value at risk (VaR) used for the regulatory capital model. Nedbank's derivatives valuation adjustment optimisation initiative in H2 2020 resulted in a reduction of the overall increase in trading market RWA, to close the year at R40,9bn (June 2020: R48,9bn), this reduction is expected to continue into 2021. » Other RWA decreased by R4,0bn, due to a combination of balance sheet changes supported by optimisation initiatives. 148 NEDBANK GROUP Annual Results 2020 SUMMARY OF REGULATORY QUALIFYING CAPITAL AND RESERVES1 Rm Including unappropriated profits Total tier 1 capital CET1 Share capital and premium Reserves Minority interest: Ordinary shareholders Deductions Additional tier 1 capital Preference share capital and premium Perpetual subordinated debt instruments Regulatory adjustments Tier 2 capital Subordinated debt instruments Excess of downturn expected loss over eligible provisions General allowance for credit impairment Regulatory adjustments Nedbank Group Nedbank Limited 2020 2019 2020 2019 81 779 73 455 19 067 69 925 463 (16 000) 8 324 1 063 7 822 (561) 18 574 15 604 2 626 391 (47) 80 401 72 506 18 577 68 534 848 (15 453) 7 895 1 594 6 850 (549) 13 840 13 810 300 (270) 66 154 57 269 20 111 49 771 65 459 57 015 19 221 50 521 (12 613) (12 727) 8 885 1 063 7 822 18 014 15 604 2 408 2 8 444 1 594 6 850 13 812 13 810 2 Total capital 100 353 94 241 84 168 79 271 Excluding unappropriated profits Tier 1 capital CET1 capital Total capital 81 380 73 056 99 954 79 315 71 420 93 155 64 769 55 884 82 783 63 532 55 088 77 344 1 For comprehensive 'composition of capital' and 'capital instruments main features' disclosure please refer to https://www.nedbank.co.za/content/nedbank/desktop/gt/en/investor-relations/information-hub/capital-and-risk-management-reports.html. • The group’s tier 1 capital position was positively impacted by the issuance of new-style additional tier 1 instruments of R972m in 2020, offset by a further grandfathering of preference shares in January 2020, in line with the Basel III transitional arrangements. • The group’s total capital was further impacted by the redemption of new-style tier 2 capital instruments of R2,3bn and the issuance of new-style tier 2 capital instruments of R4,1bn during 2020, in line with the group’s capital plan. » The focus remains on issuing fully loss-absorbent capital, with Basel III fully compliant capital making up 99% of the group’s total capital structure, with the group having issued R15,6bn of new-style tier 2 capital and R7,8bn of new-style additional tier 1 capital since the implementation of Basel III in 2013. • The group’s gearing (including unappropriated profits) remains below the Regulatory Leverage Ratio Framework requirement of less than 25 times, at 15,4 times. 149 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 REGULATED BANKING SUBSIDIARIES Nedbank Group banking subsidiaries are well capitalised for the environments in which they operate, with CARs well in excess of respective host regulators’ minimum requirements. Total capital requirement (host country) % 12,0 11,0 8,0 8,0 12,0 13,0 2020 2019 RWA Rm 3 697 14 419 5 549 2 033 1 184 8 986 Total capital ratio % 17,4 13,1 14,8 28,1 21,1 16,2 RWA Rm 3 863 13 047 4 966 2 051 1 042 7 627 Total capital ratio % 16,7 15,0 17,3 26,4 21,3 15,7 Africa Regions Banco Único Nedbank Namibia Limited Nedbank (Swaziland) Limited Nedbank (Lesotho) Limited Nedbank (Zimbabwe) Limited Isle of Man Nedbank Private Wealth (IOM) Limited Economic capital adequacy NEDBANK GROUP ECONOMIC CAPITAL REQUIREMENT Credit risk Market risk Business risk Operational risk Insurance risk Other assets risk Minimum economic capital requirement Add: Stress-tested capital buffer (10%) Total economic capital requirement AFR Tier A capital Tier B capital Total surplus AFR AFR: Total economic capital requirement (%) 2020 2019 Rm Mix % Rm Mix % 45 101 5 852 6 601 4 020 505 3 301 65 380 6 538 71 918 105 111 80 669 24 442 33 193 146 69 9 10 6 < 1 5 100 100 77 23 43 847 8 088 7 960 4 770 472 3 166 68 303 6 830 75 133 97 184 74 977 22 207 22 051 129 64 12 12 7 < 1 5 100 100 77 23 • Nedbank Group’s minimum economic capital requirement decreased by R2,9bn during the year, driven primarily by the following: » The annual model parameter updates, which were carried out before Covid-19, resulted in a decrease of R2,2bn, R1,4bn and R750m in market risk economic capital, business risk economic capital and operational-risk economic capital respectively. » The decrease was offset by an increase of R1,3bn in credit risk economic capital, largely due to drawdowns of unutilised facilities, a weaker ZAR impacting USD-denominated facilities in the CIB portfolio, and lower growth in the RBB portfolio as a result of the impact of the lockdown regulations. • Nedbank Group’s AFR increased by R7,9bn in 2020, mainly as a result of the following: » A R5,7bn increase in tier A capital and a R2,2bn increase in tier B capital following the issuance of R972m new-style additional tier 1 capital and R4,1bn of new-style tier 2 capital instruments, which was offset by the grandfathering of old-style preference shares of R531m and the redemption of new-style tier 2 capital instruments of R2,3bn, in line with the group’s capital plan. 150 NEDBANK GROUP Annual Results 2020 External credit ratings Outlook Foreign currency deposit ratings Long-term Short-term Local currency deposit ratings Long-term Short-term National scale rating Long-term deposits Short-term deposits Standard & Poor’s Moody’s Investors Service Nedbank Limited Sovereign rating SA Nedbank Limited Sovereign rating SA Jul 2020 Nov 2020 Nov 20202 Nov 20201 Stable Stable Negative Negative BB- B BB B BB- B BB B Ba2 Not prime Ba2 Not prime Ba2 Not prime Ba2 N/A zaAA zaA-1+ zaAAA zaA-1+ Aa1/NP P-1.za 1 On 24 November 2020 Moody's downgraded SA to subinvestment grade. 2 On 27 November 2020 Moody's downgraded Nedbank Limited to subinvestment grade. External rating agencies still view the SA banking sector as resilient, with stable core earnings, sophisticated risk management and good levels of capitalisation and liquidity. 151 RESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISMESSAGE FROM OUR CHIEF EXECUTIVERESULTS PRESENTATIONSEGMENTAL ANALYSISSUPPLEMENTARY INFORMATIONNEDBANK GROUP Annual Results 2020 SUPPLEMENTARY INFORMATION. 153 Earnings per share and weighted-average shares 154 Nedbank Group employee incentive schemes 155 Long-term debt instruments 155 Additional tier 1 capital instruments 156 Shareholders’ analysis 158 Basel III balance sheet credit exposure by business cluster and asset class 160 Nedbank Limited consolidated statement of comprehensive income 161 Nedbank Limited consolidated statement of financial position 161 Nedbank Limited consolidated financial highlights 162 Definitions 165 Abbreviations and acronyms IBC Company details 152 NEDBANK GROUP Annual Results 2020Earnings per share and weighted-average shares Earnings per share 2020 Earnings for the year Basic Diluted basic Headline Diluted headline 3 467 3 467 5 440 5 440 Weighted-average number of ordinary shares 483 208 526 488 738 145 483 208 526 488 738 145 Earnings per share (cents) 2019 Earnings for the year 717 709 1 126 1 113 12 001 12 001 12 506 12 506 Weighted-average number of ordinary shares 479 960 027 487 478 442 479 960 027 487 478 442 Earnings per share (cents) 2 500 2 462 2 605 2 565 Basic earnings and headline earnings per share are calculated by dividing the relevant earnings amount by the weighted-average number of shares in issue. Fully diluted basic earnings and fully diluted headline earnings per share are calculated by dividing the relevant earnings amount by the weighted-average number of shares in issue after taking the dilutive impact of potential ordinary shares to be issued into account. 2020 2019 Weighted- average dilutive shares Weighted- average dilutive shares Potential shares1 3 840 2 846 994 1 690 1 690 1 690 9 627 7 286 2 341 1 723 1 690 1 690 33 11 350 5 530 5 808 4 200 1 608 1 711 1 703 1 690 12 1 8 7 519 Number of shares 582 024 859 449 1 861 524 3 302 997 (962 360) 2 340 637 994 119 Number of weighted-average dilutive potential ordinary shares (000) Traditional schemes Nedbank Group Restricted-share Scheme (2005) Nedbank Group Matched-share Scheme Total BEE schemes BEE schemes – SA Community Black executives Black management BEE schemes – Namibia Total 1 Potential shares are the total number of shares arising from historic grants, schemes or awards, available for distribution. Matched shares Instrument expiry date 1 April 2021 1 April 2022 1 April 2023 Matched shares outstanding not exercised at 31 December 2019 Movements due to shares exercised/forfeited during the year Total potential shares Weighted-average dilutive shares applicable for the year The obligation to deliver the matched shares issued under the voluntary and compulsory share scheme is subject to time and other performance criteria. This obligation existed over 31 December 2020 and therefore has a dilutive effect. Matched shares are not issued and are therefore not recognised as treasury shares. However, until they are issued, there remains a potential dilutive effect. 153 NEDBANK GROUP Annual Results 2020RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSIS Nedbank Group employee incentive schemes for the year ended 31 December Nedbank Group employee incentive schemes 2020 2019 Summary by scheme Nedbank Group Restricted-share Scheme (2005) Nedbank Group Matched-share Scheme (2005) Instruments outstanding at the end of the year Analysis Performance-based – restricted shares Non-performance-based – restricted shares Performance-based – matched shares (CBSS1) Non-performance-based – matched shares (VBSS2) Instruments outstanding at the end of the year Movements Instruments outstanding at the beginning of the year Granted Accelerated Exercised Surrendered Instruments outstanding at the end of the year 1 Compulsory Bonus Share Scheme. 2 Voluntary Bonus Share Scheme. Nedbank Group (2005) restricted- and matched-share schemes Restricted shares1 Details of instruments granted and not exercised at 31 December 2019 and the resulting dilutive effect: Instrument expiry date 16 March 2021 15 March 2021 17 August 2021 18 August 2021 15 March 2022 16 March 2022 16 August 2022 17 August 2022 20 March 2023 21 March 2023 Restricted shares not exercised at 31 December 2020 Unallocated shares Treasury shares Average shares exercised or forfeited during the year Total potential shares Weighted-average dilutive shares applicable for the year 11 054 244 3 302 997 9 067 832 2 235 442 14 357 241 11 303 274 6 319 602 4 734 642 2 216 960 1 086 037 5 094 706 3 973 126 1 544 042 691 400 14 357 241 11 303 274 11 303 275 7 298 988 (2 675) (3 584 901) (657 446) 11 548 674 4 421 294 (4 265 176) (401 518) 14 357 241 11 303 274 Number of shares 1 375 460 P 1 135 994 99 624 P 82 981 1 791 468 P 1 304 969 55 253 P 55 235 2 997 797 2 155 463 P 11 054 244 442 525 11 496 769 (4 211 211) 7 285 558 2 845 852 1 Restricted shares are issued at a market price for no consideration to participants, and are held by the scheme until the expiry date (subject to achievement of performance conditions). Participants have full rights and receive dividends. P Performance-based instruments. 154 NEDBANK GROUP Annual Results 2020 Long-term debt instruments Instrument code Subordinated debt Callable notes (rand-denominated) Long-term debenture (Namibian dollar-denominated) Green bonds (rand-denominated) Securitised liabilities – callable notes (rand-denominated) Senior unsecured debt – senior unsecured notes (rand-denominated) Unsecured debentures (rand-denominated) Senior unsecured green bonds (rand-denominated) Total long-term debt instruments in issue 2020 15 994 13 665 317 2 012 2 084 39 021 43 2 628 59 770 2019 14 229 13 912 317 3 152 39 651 37 2 644 59 713 Further information can be accessed on our group website: https://www.nedbank.co.za/content/nedbank/desktop/gt/en/investor-relations/information-hub/capital-and-risk-management-reports.html https://www.nedbank.co.za/content/nedbank/desktop/gt/en/investor-relations/debt-investor/debt-investors-programme.html Additional tier 1 capital instruments The group issued new-style (Basel III-compliant) additional tier 1 capital instrument as follows: Instrument code Instrument terms 2020 2019 Subordinated Callable notes (rand-denominated) NEDT1A NEDT1B NGLT1A NGLT1B NGT103 NGT104 NGT105 NGT106 NGT107 3-month JIBAR + 7,00% per annum 3-month JIBAR + 6,25% per annum 3-month JIBAR + 5,65% per annum 3-month JIBAR + 4,64% per annum 3-month JIBAR + 4,40% per annum 3-month JIBAR + 4,50% per annum 3-month JIBAR + 4,25% per annum 3-month JIBAR + 4,95% per annum 3-month JIBAR + 4,55% per annum 1 500 500 600 750 671 1 829 1 000 1 500 500 600 750 671 1 829 1 000 500 472 Total non-controlling interest attributable to additional tier 1 capital instruments 7 822 6 850 The additional tier 1 notes represent perpetual, subordinated instruments, with no redemption date. The instruments are redeemable, subject to regulatory approval, at the sole discretion of the issuer from the applicable call date and following a regulatory or tax event. The payment of interest is at the discretion of the issuer and interest payments are non-cumulative. In addition, in certain conditions the regulator may prohibit Nedbank from making interest payments. Accordingly, for accounting purposes the instruments are classified as equity instruments and disclosed as part of the non-controlling interest. 155 NEDBANK GROUP Annual Results 2020RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSIS Shareholders’ analysis Register date: Authorised share capital: Issued share capital: 31 December 2020 600 000 000 shares 502 054 496 shares Major shareholders/managers Old Mutual Life Assurance Company (SA) Limited and associates (includes funds managed on behalf of other beneficial owners)1 Nedbank Group treasury shares BEE trusts Eyethu scheme – Nedbank SA Omufima scheme – Nedbank Namibia Nedbank Group (2005) Restricted- and Matched-share Schemes Nedbank Namibia Limited Public Investment Corporation (SA) Allan Gray Investment Council (SA) Coronation Fund Managers (SA) BlackRock Incorporated (International) Lazard Asset Management (international) The Vanguard Group Incorporated (international) Sanlam Investment Management Proprietary Limited (SA) GIC Asset Management Proprietary Limited (international) Dimensional Fund Advisors (US, UK and AU) Major beneficial shareholders Old Mutual Life Assurance Company (SA) Limited and associates (SA)1 Government Employees Pension Fund (SA) Allan Gray Balanced Fund (SA) Geographical distribution of shareholders Domestic SA Namibia Unclassified Foreign United States of America Asia Europe United Kingdom and Ireland Other countries Total shares listed Less: Treasury shares held Net shares reported Number of shares 2020 % holding 2019 % holding 110 244 073 18 161 729 6 617 448 6 466 786 150 662 11 496 769 47 512 52 179 569 44 923 743 43 059 294 20 930 707 14 010 027 12 577 779 10 869 310 8 496 798 7 623 141 107 789 952 57 048 786 28 832 304 381 130 548 359 973 691 15 402 387 5 754 470 21,96 3,62 1,32 1,29 0,03 2,29 0,01 10,39 8,95 8,58 4,17 2,79 2,51 2,16 1,69 1,52 21,47 11,36 5,74 75,91 71,70 3,06 1,15 120 923 948 24,09 24,12 3,19 1,33 1,30 0,03 1,85 0,01 10,76 5,44 7,53 3,59 2,13 3,00 2,36 2,10 2,13 24,09 10,88 1,81 73,79 70,65 1,83 1,31 26,21 13,26 4,49 4,46 2,05 1,95 12,67 3,56 3,51 2,47 1,88 100,00 100,00 63 601 013 17 867 624 17 634 097 12 383 228 9 437 986 502 054 496 18 161 729 483 892 767 1 Old Mutual Limited retains a strategic minority shareholding of 19,9% in Nedbank Group, held through its shareholder funds, under the terms of the relationship agreement. The above shareholding is inclusive of funds held on behalf of other beneficial owners and increased after the Old Mutual Managed Seperation had been completed as a result of the subsequent odd-lot offer and due to movements in shares held on behalf of policyholders. The relationship agreement with Old Mutual Limited is available at https://www.nedbank.co.za/content/dam/nedbank/site-assets/AboutUs/About%20Nedbank%20 Group/Old%20Mutual/Nedbank%20Old%20Mutual%20Limited%20Relationship%20Agreement%202018.pdf. INDEX CLASSIFIED SHAREHOLDING (December, %) FOREIGN SHAREHOLDING (December, %) INDEX CLASSIFIED SHAREHOLDING (December, %) FOREIGN SHAREHOLDING (December, %) , 0 2 1 5 , 1 1 , 8 9 1 3 , 1 2 1 , 1 2 , 8 7 1 1 , 8 1 , 3 9 2 , 2 6 2 1 , 4 2 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 156 NEDBANK GROUP Annual Results 2020 157 NotesNEDBANK GROUP Annual Results 2020RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISBasel III balance sheet credit exposure by business cluster and asset class AIRB Approach Corporate Specialised lending – HVCRE4 Specialised lending – IPRE5 Specialised lending – project finance SME – corporate finance Public sector entities Local governments and municipalities Sovereign Banks Securities firms Retail mortgage Retail revolving credit Retail – other SME – retail Securitisation exposure TSA6 Corporate SME – corporate Public sector entities Local government and municipalities Sovereign Banks Retail mortgage Retail revolving credit Retail – other SME – retail PiPs Non-regulated entities Nedbank CIB Property Finance Nedbank Retail and Business Banking Nedbank Wealth Rest of Africa Centre Nedbank Group 2020 Mix % Change Risk % weighting1 Downturn expected loss (dEL)2 Nedbank Group December expected loss Downturn BEEL3 2019 (dEL)2 BEEL3 481 535 170 447 372 364 22 004 – 81 207 7 268 9 993 54 117 5 437 105 764 4 961 193 170 5 437 105 806 47 001 7 177 19 395 10 084 7 853 85 440 4 168 – 168 – 279 2 528 123 8 17 1 143 77 100 9 – 15 052 1 447 32 288 97 954 2 134 299 16 783 138 251 33 017 174 147 59 5 536 2 020 30 229 1 721 10 309 71 160 1 722 126 24 322 38 226 126 1 501 10 621 4 778 6 639 783 10 518 614 27 7 699 3 509 7 393 565 4 180 3 721 16 685 50 265 13 86 Total Basel III balance sheet exposure7 498 220 170 447 372 805 46 339 38 312 81 207 1 036 883 100,0 – 7 700 963 329 7 268 dEL (AIRB Approach) Expected-loss performing book BEEL on defaulted advances IFRS impairment on AIRB loans and advances Excess of downturn expected loss over eligible provisions8 1 Risk weighting is shown as a percentage of exposure at default (EAD) for the AIRB Approach and as a percentage of total credit extended for The Standardised Approach (TSA). 2 dEL is in relation to performing loans and advances. 3 Best estimate of expected loss (BEEL) is in relation to defaulted loans and advances. 4 High-volatility commercial real estate. 5 Income-producing real estate. 6 A portion of the legacy Imperial Bank book in Nedbank RBB, Nedbank Private Wealth (UK) and the non-SA banking entities in Africa are covered by TSA. 7 Balance sheet credit exposure includes on-balance-sheet, repurchase and resale agreements and derivative exposure. 8 Excess impairments compared to downturn expected loss for IRB exposures totalled R3 317m at December 2020. However, in accordance with the Bank’s Act regulations the total amount that may be included in tier 2 unimpaired reserve funds is limited to 0,6% of total IRB risk-weighted-assets, which amounts to R2 626m at December 2020. 158 7 700 1 480 62 225 119 233 70 8 17 48 746 789 3 388 515 13 626 1 030 52 469 103 418 207 16 1 947 1 619 6 837 928 1 108 124 316 168 238 118 5 19 66 706 776 3 130 494 867 133 88 289 15 1 348 1 318 5 182 753 (46,3) 130,4 – – – – 957 110 208 648 5 496 115 317 47 124 41 493 19 539 12 181 85 184 87 161 144 608 16 854 138 411 34 752 342 62 674 10 518 1 627 614 27 18 320 8 287 14 032 565 4 963 3 721 149 16 950 40,4 50,5 109,7 29,3 54,7 48,6 49,3 33,5 11,3 39,6 26,2 62,1 48,9 42,9 50,8 99,5 82,2 94,3 96,6 58,3 19,5 40,0 38,5 74,0 73,4 92,1 20,1 0,5 11,1 4,5 4,0 1,9 1,2 8,2 8,4 13,9 1,6 13,3 3,4 6,3 1,0 0,2 0,1 1,8 0,8 1,4 0,1 0,5 0,4 1,6 8,4 (0,8) (32,5) 6,7 1,3 12,9 15,0 0,3 1,8 118,5 3,8 (1,3) 6,7 2,7 3,3 0,1 10,7 (24,5) (10,0) 23,1 (10,30) 8,6 (22,7) (16,7) (10,10) (0,7) (12,2) 7,6 883 170 210 389 8 145 108 068 46 505 36 758 16 987 12 151 83 672 39 894 139 305 17 079 129 729 33 851 637 60 701 10 513 1 470 813 30 14 880 9 240 12 925 731 5 961 4 138 150 19 308 13 626 21 326 7 700 13 626 (24 643) (3 317) 9 993 17 261 7 268 9 993 (17 358) (97) NEDBANK GROUP Annual Results 2020 Nedbank CIB Finance Banking Wealth Africa Centre Property Business Nedbank Rest of Nedbank Group 2020 Mix % Change % Risk weighting1 957 110 208 648 5 496 115 317 47 124 41 493 19 539 12 181 85 184 87 161 144 608 16 854 138 411 34 752 342 62 674 10 518 1 627 614 27 18 320 8 287 14 032 565 4 963 3 721 149 16 950 92,1 20,1 0,5 11,1 4,5 4,0 1,9 1,2 8,2 8,4 13,9 1,6 13,3 3,4 6,3 1,0 0,2 0,1 1,8 0,8 1,4 0,1 0,5 0,4 1,6 Total Basel III balance sheet exposure7 498 220 170 447 372 805 46 339 38 312 81 207 1 036 883 100,0 8,4 (0,8) (32,5) 6,7 1,3 12,9 15,0 0,3 1,8 118,5 3,8 (1,3) 6,7 2,7 (46,3) 3,3 0,1 10,7 (24,5) (10,0) 23,1 (10,30) 8,6 (22,7) (16,7) (10,10) (0,7) (12,2) 7,6 Nedbank Retail and 97 954 2 134 299 16 783 138 251 33 017 174 126 481 535 170 447 372 364 22 004 – 81 207 54 117 5 437 15 052 147 59 105 806 105 764 1 447 5 536 4 961 32 288 193 170 5 437 47 001 7 177 19 395 10 084 7 853 85 440 4 168 – 168 – 24 322 38 226 126 1 501 279 2 528 123 8 17 1 143 77 100 9 – 2 020 30 229 1 721 10 309 71 160 1 722 10 621 4 778 6 639 783 10 518 614 27 7 699 3 509 7 393 565 4 180 3 721 16 685 50 265 13 86 AIRB Approach Corporate Specialised lending – HVCRE4 Specialised lending – IPRE5 Specialised lending – project finance SME – corporate finance Public sector entities Local governments and municipalities Sovereign Banks Securities firms Retail mortgage Retail revolving credit Retail – other SME – retail Securitisation exposure TSA6 Corporate SME – corporate Public sector entities Sovereign Banks Retail mortgage Retail revolving credit Retail – other SME – retail PiPs Non-regulated entities Local government and municipalities dEL (AIRB Approach) Expected-loss performing book BEEL on defaulted advances IFRS impairment on AIRB loans and advances Excess of downturn expected loss over eligible provisions8 1 Risk weighting is shown as a percentage of exposure at default (EAD) for the AIRB Approach and as a percentage of total credit extended for The Standardised Approach (TSA). 2 dEL is in relation to performing loans and advances. 3 Best estimate of expected loss (BEEL) is in relation to defaulted loans and advances. 4 High-volatility commercial real estate. 5 Income-producing real estate. 6 A portion of the legacy Imperial Bank book in Nedbank RBB, Nedbank Private Wealth (UK) and the non-SA banking entities in Africa are covered by TSA. 7 Balance sheet credit exposure includes on-balance-sheet, repurchase and resale agreements and derivative exposure. 8 Excess impairments compared to downturn expected loss for IRB exposures totalled R3 317m at December 2020. However, in accordance with the Bank’s Act regulations the total amount that may be included in tier 2 unimpaired reserve funds is limited to 0,6% of total IRB risk-weighted-assets, which amounts to R2 626m at December 2020. BEEL3 9 993 867 133 88 289 15 1 348 1 318 5 182 753 1 108 124 316 168 238 118 5 19 66 706 776 3 130 494 – – Downturn expected loss (dEL)2 BEEL3 Nedbank Group December 2019 Downturn expected loss (dEL)2 7 700 13 626 883 170 7 268 40,4 50,5 109,7 29,3 54,7 48,6 49,3 33,5 11,3 39,6 26,2 62,1 48,9 42,9 130,4 50,8 99,5 82,2 94,3 96,6 58,3 19,5 40,0 38,5 74,0 73,4 1 480 62 225 119 233 70 8 17 48 746 789 3 388 515 1 030 52 469 103 418 207 16 1 947 1 619 6 837 928 – – 210 389 8 145 108 068 46 505 36 758 16 987 12 151 83 672 39 894 139 305 17 079 129 729 33 851 637 60 701 10 513 1 470 813 30 14 880 9 240 12 925 731 5 961 4 138 150 19 308 963 329 7 268 – 7 700 13 626 21 326 7 700 13 626 (24 643) (3 317) 9 993 17 261 7 268 9 993 (17 358) (97) 159 NEDBANK GROUP Annual Results 2020RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSIS Nedbank Limited Consolidated statement of comprehensive income for the year ended 31 December Rm Interest and similar income Interest expense and similar charges Net interest income Impairments charge on financial instruments Income from lending activities Non-interest revenue Operating income Total operating expenses Indirect taxation Profit from operations before non-trading and capital items Non-trading and capital items Profit from operations Share of gains of associate companies Profit before direct taxation Total direct taxation Direct taxation Taxation on non-trading and capital items Profit for the year Other comprehensive (losses)/income net of taxation Items that may subsequently be reclassified to profit or loss Exchange differences on translating foreign operations Debt investments at FVOCI – net change in fair value Items that may not subsequently be reclassified to profit or loss Remeasurements on long-term employee benefit assets (Losses)/Gains on property revaluations Total comprehensive income for the year Profit attributable to: – Ordinary shareholders – Preference shareholders in joint ventures – Non-controlling interest – ordinary shareholders Profit for the year Total comprehensive income attributable to: – Ordinary shareholders – Preference shareholders in joint ventures – Non-controlling interest – ordinary shareholders Total comprehensive income for the year Headline earnings reconciliation Profit attributable to ordinary and preference equity holders Less: Non-headline earnings items net of taxation Non-trading and capital items Taxation on non-trading and capital items 2020 2019 68 654 41 146 27 508 12 425 15 083 19 026 34 109 27 705 1 017 5 387 (417) 4 970 115 5 085 1 164 1 283 (119) 3 921 256 199 96 (40) 1 79 240 51 888 27 352 5 953 21 399 20 905 42 304 27 891 961 13 452 (424) 13 028 121 13 149 3 076 3 205 (129) 10 073 144 (37) (294) 330 145 4 177 10 217 3 977 (58) 2 3 921 4 233 (58) 2 4 177 3 977 (298) (417) 119 10 087 (14) 10 073 10 231 (14) 10 217 10 087 (295) (424) 129 Headline earnings attributable to ordinary and preference equity holders 4 275 10 382 160 NEDBANK GROUP Annual Results 2020 Nedbank Limited Consolidated statement of financial position at 31 December Rm 2020 2019 Assets Cash and cash equivalents Other short-term securities Derivative financial instruments Government and other dated securities Loans and advances to clients Trading loans and advances Loans and advances to banks Other assets Current taxation assets Investment securities Non-current assets held for sale Investments in associate companies Deferred taxation assets Investment property Property and equipment Long-term employee benefit assets Mandatory reserve deposits with central banks Intangible assets Total assets Total equity and liabilities Ordinary share capital Ordinary share premium Reserves Total equity attributable to ordinary equity holders Preference share capital and premium Holders of participating preference shares Holders of additional tier 1 capital instruments Non-controlling interest attributable to ordinary shareholders Total equity Derivative financial instruments Amounts owed to depositors Provisions and other liabilities Current taxation liabilities Deferred taxation liabilities Long-term employee benefit liabilities Long-term debt instruments Total liabilities Total equity and liabilities Nedbank Limited Consolidated financial highlights for the year ended 31 December ROE (%) ROA (%) NII to average interest-earning banking assets (%) CLR – banking advances (%) Cost-to-income ratio 8 115 27 082 79 933 131 380 729 807 71 251 34 510 10 407 75 8 269 69 1 037 346 9 661 5 709 24 482 10 225 8 199 42 395 34 923 127 662 735 886 32 678 18 546 10 544 213 9 007 90 1 229 42 56 10 403 5 505 21 424 9 508 1 152 358 1 068 310 28 20 073 53 512 73 613 3 561 (58) 7 822 11 84 949 64 649 929 761 12 359 516 155 2 366 57 603 28 19 182 53 582 72 792 3 561 7 6 850 9 83 219 27 621 881 297 13 473 42 645 2 401 59 612 1 067 409 985 091 1 152 358 1 068 310 2020 6,0 0,39 3,35 1,61 59,4 2019 15,1 1,04 3,45 0,81 57,7 161 NEDBANK GROUP Annual Results 2020RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSIS Definitions 12-month ECL This expected credit loss represents an ECL that results from default events on financial instruments occurring within the 12 months after the reporting date (or a shorter period if the expected life of the financial instrument is less than 12 months), weighted by the probability of the defaults occurring. Assets under administration (AUA) (Rm) Market value of assets held in custody on behalf of clients. Assets under management (AUM) (Rm) Market value of assets managed on behalf of clients. Central Counterparty (CCP) A clearing house that interposes itself between counterparties for contracts traded in one or more financial markets, becoming the buyer to every seller and the seller to every buyer and thereby ensuring the future performance of open contracts. Common-equity tier 1 (CET1) capital adequacy ratio (%) CET1 regulatory capital, including unappropriated profit, as a percentage of total risk-weighted assets. Cost-to-income ratio (%) Total operating expenses as a percentage of total income, being net interest income, non-interest revenue and share of profits or losses from associates and joint arrangements. Coverage (%) On-balance-sheet ECLs divided by on-balance-sheet gross banking loans and advances. Coverage excludes ECLs on off-balance-sheet amounts, ECL and gross banking loans and advances on the fair value through other comprehensive income (FVOCI) portfolio, and loans and advances measured at fair value through profit or loss (FVTPL). Credit loss ratio (CLR) – (% or bps) income statement impairment charge on banking loans and advances as a percentage of daily average gross banking loans and advances. Includes the ECL recognised in respect of the off-balance-sheet portion of loans and advances. Default In line with the Basel III definition, default occurs in respect of a client in the following instances: • When the bank considers that the client is unlikely to pay their credit obligations to the bank in full without the bank having recourse to actions such as realising security (if held). • When the client is past due for more than 90 days on any material credit obligation to the bank. Overdrafts will be considered as being past due if the client has breached an advised limit or has been advised of a limit smaller than the current outstanding amount. • In terms of Nedbank‘s Group Credit Policy, when the client is placed under business rescue in accordance with the Companies Act, 71 of 2008, and when the client requests a restructure of their facilities as a result of financial distress, except where debtor substitution is allowable in terms of the regulations. At a minimum a default is deemed to have occurred where a material obligation is past due for more than 90 days or a client has exceeded an advised limit for more than 90 days. A stage 3 impairment is raised against such a credit exposure due to a significant perceived decline in the credit quality. For retail portfolios this is product-centred, and a default would therefore be for a specific advance. For all other portfolios, except specialised lending, it is client- or borrower-centred, meaning that should any transaction with a legal-entity borrower default, all transactions with that legal-entity borrower would be treated as having defaulted. To avoid short-term volatility, Nedbank employs a six-month curing definition where subsequent defaults will be an extension of the initial default. Diluted headline earnings per share (DHEPS) (cents) Headline earnings divided by the weighted-average number of ordinary shares, adjusted for potential dilutive ordinary shares. Directive 1 of 2020 A directive from the Prudential Authority (PA) that provides temporary measures to aid compliance with the liquidity coverage ratio during the Covid-19 pandemic stress period. The PA has deemed it appropriate to amend the minimum liquidity coverage ratio (LCR) requirement temporarily to 80%, effective from 1 April 2020. Directive 2 of 2020 A directive from the PA provides temporary capital relief to alleviate risks posed by the Covid-19 pandemic. The PA has implemented measures to reduce the specified minimum requirement of capital and reserve funds to be maintained by banks, in order to provide temporary capital relief to enable banks to counter economic risks to the financial system as a whole, and to individual banks. These measures are intended to provide relief to banks in response to the Covid-19 pandemic, thereby enabling banks to continue providing credit to the real economy during this period of financial stress. Directive 3 of 2020 A directive from the PA that implemented measures to ensure that various types of relief to qualifying borrowers that were up to date at 29 February 2020, such as payment holidays, do not result in unintended consequences such as inappropriate higher capital requirements. The PA has provided temporary relief for qualifying loans from portions of Directive 7/2015 dealing with distressed restructures. Importantly, this relief covers retail, small and medium enterprises (SMEs) and corporate loans, including all specialist asset classes such as commercial property. Directive 7 of 2015 A directive from the PA that provides clarity on how banks should identify restructured credit exposures and how these exposures should be treated for purposes of the definition of default. Dividend cover (times) Headline earnings per share divided by dividend per share. 162 NEDBANK GROUP Annual Results 2020Economic profit (EP) (Rm) Headline earnings less the cost of equity (total equity attributable to equity holders of the parent, less goodwill, multiplied by the group's cost-of-equity percentage). Effective taxation rate (%) Direct taxation as a percentage of profit before direct taxation, excluding non-trading and capital items. Earnings per share (EPS) (cents) Earnings attributable to ordinary shareholders, divided by the weighted-average number of ordinary shares in issue. Forward-looking economic expectations The impact of forecast macroeconomic conditions in determining a significant increase in credit risk (SICR) and ECL. Gross operating income growth rate less expenses growth rate (JAWS ratio) (%) Measure of the extent to which the total income growth rate exceeds the total operating expenses growth rate. Guidance Note 4 of 2020 A guidance note from the South African Reserve Bank that recommends that banks no longer make dividend distributions on ordinary shares in order to conserve capital, in light of the negative economic impact of the Covid-19 pandemic and the temporary regulatory-capital relief provided. Guidance Note 3 of 2021 A guidance note from the South African Reserve Bank that recommends banks be prudent and consider the adequacy of their current and forecasted capital and profitability levels, internal capital targets and risk appetite as well as current and potential future risks posed by the ongoing pandemic when making distributions of dividends on ordinary shares and the payment of cash bonuses to executive officers and material risk takers. Guidance Note 3 of 2021 replaces Guidance Note 4 of 2020. Headline earnings (Rm) The profit attributable to equity holders of the parent, excluding specific separately identifiable remeasurements, net of related tax and non-controlling interests. Headline earnings per share (HEPS) (cents) Headline earnings divided by the weighted-average number of ordinary shares in issue. Lifetime ECL The ECL of default events between the reporting date and the end of the lifetime of the financial asset, weighted by the probability of the defaults occurring. Life insurance embedded value (Rm) The embedded value (EV) of the covered business is the discounted value of the projected future after-tax shareholder earnings arising from covered business in force at the valuation date, plus the adjusted net worth. Life insurance value of new business (Rm) A measure of the value added to a company as a result of writing new business. Value of new business (VNB) is calculated as the discounted value, at the valuation date, of projected after-tax shareholder profit from covered new business that commenced during the reporting period, net of frictional costs and the cost of non-hedgeable risk associated with writing new business, using economic assumptions at the start of the reporting period. Net asset value (NAV) (Rm) Total equity attributable to equity holders of the parent. Net asset value (NAV) per share (cents) NAV divided by the number of shares in issue, excluding shares held by group entities at the end of the period. Net interest income (NII) to average interest-earning banking assets (AIEBA) (%) NII as a percentage of daily average total assets, excluding trading assets. Also called net interest margin (NIM). Net monetary gain/(loss) (Rm) Represents the gain or loss in purchasing power of the net monetary position (monetary assets less monetary liabilities) of an entity operating in a hyperinflation environment. Non-interest revenue (NIR) to total income (%) NIR as a percentage of operating income, excluding the impairments charge on loans and advances. Number of shares listed (number) Number of ordinary shares in issue, as listed on the JSE. Off-balance-sheet exposure Undrawn loan commitments, guarantees and similar arrangements that expose the group to credit risk. Ordinary dividends declared per share (cents) Total dividends to ordinary shareholders declared in respect of the current period. 163 RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020Performing stage 3 loans and advances (Rm) Loans that are up to date (not in default) but are classified as defaulted due to regulatory requirements, ie Directive 7 of 2015 or the curing definition. Preprovisioning operating profit (PPOP) (Rm) Headline earnings plus direct taxation plus impairment charge on loans and advances. Profit attributable to equity holders of the parent (Rm) Profit for the period less non-controlling interests pertaining to ordinary shareholders, preference shareholders and additional tier 1 capital instrument noteholders. Profit for the period (Rm) Income statement profit attributable to ordinary shareholders of the parent, before non-controlling interests. Return on equity (ROE) (%) Headline earnings as a percentage of daily average ordinary shareholders’ equity. Return on equity (ROE) (excluding goodwill) (%) Headline earnings as a percentage of daily average ordinary shareholders’ equity, less goodwill. Return on cost of ETI investment (%) Headline earnings from the group’s ETI investment pre-funding costs divided by the group’s original cost of investment (R6 265m) Return on tangible equity (%) Headline earnings as a percentage of daily average ordinary shareholders' equity, less intangible assets. Return on risk-weighted assets (RWA) (%) Headline earnings as a percentage of monthly average Risk-weighted assets (RWA). Risk-weighted assets (RWA) (Rm) On-balance-sheet and off-balance-sheet exposures after applying prescribed risk weightings according to the relative risk of the counterparty. SME loan guarantee scheme An initiative by National Treasury and the South African Reserve Bank, in partnership with participating commercial banks, aimed at giving financial support to SMEs affected by the lockdown. Stage 1 Financial assets for which the credit risk (risk of default) at the reporting date has not significantly increased since initial recognition. Stage 2 Financial assets for which the credit risk (risk of default) at the reporting date has significantly increased since initial recognition. Stage 3 Any advance or group of loans and advances that has triggered the Basel III-definition of default criteria, in line with the SA banking regulations. At a minimum a default is deemed to have occurred where a material obligation is past due for more than 90 days or a client has exceeded an advised limit for more than 90 days. A stage 3 impairment is raised against such a credit exposure due to a significant perceived decline in the credit quality. Stage 3 ECL (Rm) ECL for banking loans and advances that have been classified as stage 3 advances. Tangible net asset value (Rm) Equity attributable to equity holders of the parent, excluding intangible assets. Tangible net asset value per share (cents) Tangible NAV divided by the number of shares in issue, excluding shares held by group entities at the end of the period. Tier 1 capital adequacy ratio (CAR) (%) Tier 1 regulatory capital, including unappropriated profit, as a percentage of total risk-weighted assets. Total capital adequacy ratio (CAR) (%) Total regulatory capital, including unappropriated profit, as a percentage of total risk-weighted assets. Value in use (VIU) (Rm) The present value of the future cashflows expected to be derived from an asset or cash-generating unit. Weighted-average number of shares (number) The weighted-average number of ordinary shares in issue during the period listed on the JSE. Year-to-date annualised or ytd annualised The growth rate for the six-month period to 30 June annualised by 366 days, divided by 182 days. 164 NEDBANK GROUP Annual Results 2020Abbreviations and acronyms AFR available financial resources AGM annual general meeting AI artificial intelligence AIEBA average interest-earning banking assets AIRB Advanced Internal Ratings-based AMA Advanced Measurement Approach AML anti-money-laundering API application programming interface AUA assets under administration AUM assets under management BBBEE broad-based black economic empowerment BEE black economic empowerment bn billion bps basis point(s) CAGR compound annual growth rate CAR capital adequacy ratio CCP Central counterparty CET1 common-equity tier 1 CIB Corporate and Investment Banking CIPC Companies and Intellectual Property Commission CLR credit loss ratio COE cost of equity CPI consumer price index CPF commercial-property finance CSI corporate social investment CVP client value proposition D1/2020 or D1 Directive 1 of 2020 issued by the Prudential Authority D2/2020 or D2 Directive 2 of 2020 issued by the Prudential Authority D3/2020 or D3 Directive 3 of 2020 issued by the Prudential Authority D7/2015 or D7 Directive 7 of 2015 issued by the Prudential Authority DHEPS diluted headline earnings per share D-SIB domestic systemically important bank ECL expected credit loss EE employment equity ELB entry-level banking EP economic profit EPS earnings per share ESG environmental, social and governance EV embedded value ETI Ecobank Transnational Incorporated FCTR foreign currency translation reserve FSC Financial Sector Code FSCA Financial Sector Conduct Authority FVOCI fair value through other comprehensive income FVTPL Fair value through profit or loss GDP gross domestic product GFC great financial crisis GLAA gross loans and advances GLC great lockdown crisis G4/2020 Guidance Note 4 of 2020 issued by the Prudential Authority G3/2021 Guidance Note 3 of 2021 issued by the Prudential Authority GOI gross operating income group Nedbank Group Limited HE headline earnings HEPS headline earnings per share HQLA high-quality liquid asset(s) IAS International Accounting Standard(s) ICAAP Internal Capital Adequacy Assessment Process IFRS International Financial Reporting Standard(s) ILAAP Internal Liquidity Adequacy Assessment Process IMF International Monetary Fund JIBAR Johannesburg Interbank Agreed Rate JSE JSE Limited LAA loans and advances LAP liquid-asset portfolio LCR liquidity coverage ratio LIBOR London Interbank Offered Rate LTI long-term incentive m million M&A mergers and acquisitions MFC Motor Finance Corporation (vehicle finance lending division of Nedbank) MRC minimum required capital MZN Mozambican metical N/A not applicable NAFEX The Nigerian Autonomous Foreign Exchange Rate Fixing Methodology NAR Nedbank Africa Regions NCA National Credit Act, 34 of 2005 NCD negotiable certificate of deposit NCOF net cash outflows NGN Nigerian naira NII net interest income NIM net interest margin NIR non-interest revenue NPL non-performing loan(s) NPS Net Promoter Score NSFR net stable funding ratio nWoW New Ways of Work OCI other comprehensive income OM Old Mutual PA Prudential Authority PAT profit after tax PayU Pay-as-you-use account Plc public listed company PPOP preprovisioning operating profit PRMA postretirement medical aid R rand RBB Retail and Business Banking Rbn South African rands expressed in billions REITs real estate investment trusts Rm South African rands expressed in millions ROA return on assets ROE return on equity RORWA return on risk-weighted assets RPA robotic process automation RRB Retail Relationship Banking RTGS real-time gross settlement RWA risk-weighted assets SA South Africa SAcsi The South African Customer Satisfaction Index SADC Southern African Development Community SAICA South African Institute of Chartered Accountants SARB South African Reserve Bank SDGs Sustainable Development Goals SICR Significant increase in credit risk SME small to medium enterprise STI short-term incentive TSA The Standardised Approach TTC through the cycle UK United Kingdom USA United States of America USD United States dollar (currency code) USSD unstructured supplementary service data VAF vehicle and asset finance VaR value at risk VIU value in use VNB value of new business YES Youth Employment Service yoy year on year ytd year to date ZAR South African rand (currency code) 165 RESULTS PRESENTATIONRESULTS COMMENTARYFINANCIAL RESULTSINCOME STATEMENT ANALYSISSTATEMENT OF FINANCIAL POSITION ANALYSISSUPPLEMENTARY INFORMATIONMESSAGE FROM OUR CHIEF EXECUTIVESEGMENTAL ANALYSISNEDBANK GROUP Annual Results 2020166 NotesNEDBANK GROUP Annual Results 2020Company details NEDBANK GROUP LIMITED Incorporated in the Republic of SA Registration number 1966/010630/06 REGISTERED OFFICE Nedbank Group Limited, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, 2196 PO Box 1144, Johannesburg, 2000 TRANSFER SECRETARIES IN SA JSE Investor Services (Pty) Limited, 19 Ameshoff Street, Braamfontein, Johannesburg, 2001, SA. PO Box 4844, Marshalltown, 2000, SA. NAMIBIA Transfer Secretaries (Proprietary) Limited Robert Mugabe Avenue No 4, Windhoek, Namibia PO Box 2401, Windhoek, Namibia INSTRUMENT CODES Nedbank Group ordinary shares JSE share code: NSX share code: ISIN: JSE alpha code: ADR code: ADR CUSIP: NED NBK ZAE000004875 NEDI NDBKY 63975K104 Nedbank Limited non-redeemable non-cumulative preference shares JSE share code: ISIN: JSE alpha code: NBKP ZAE000043667 BINBK FOR MORE INFORMATION CONTACT Investor Relations Email: NedGroupIR@nedbank.co.za Mike Davis Chief Financial Officer Tel: +27 (0)10 234 4296 Alfred Visagie Executive Head, Investor Relations Tel: +27 (0)10 234 5329 Email: alfredv@nedbank.co.za This announcement is available on the group’s website at nedbankgroup.co.za, together with the following additional information: • Financial results presentation to investors. • Link to a webcast of the presentation to investors. For further information please contact Nedbank Group Investor Relations at NedGroupIR@nedbank.co.za. Company Secretary: J Katzin Sponsors in SA: Merrill Lynch SA Proprietary Limited Nedbank CIB Sponsor in Namibia Old Mutual Investment Services (Namibia) (Proprietary) Limited DISCLAIMER Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as ‘forward-looking statements’ within the meaning of United States securities legislation. Forward-looking statements may be identified by words such as ‘believe’, ‘anticipate’, ‘expect’, ‘plan’, ‘estimate’, ‘intend’, ‘project’, ‘target’, ‘predict’ and ‘hope’. Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance. No assurance can be given that forward-looking statements will be correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation. Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage. NEDBANK GROUP Annual Results 2020 NEDBANKGROUP.CO.ZA

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