Nedbank has upped its interim dividend by more than three quarters to above pre-pandemic levels, saying both households and the economy have held up well despite the backdrop of Russia’s invasion of Ukraine.
SA’s fifth-biggest lender by market value reported on Wednesday that headline earnings rose 27% to R6.7bn in the six months to end-June, about 3% below the same period of 2019, while its interim dividend jumped 81% to 783c per share, about 8.7% ahead of its pre-pandemic payout.
Household finances had remained relatively healthy and SA’s terms of trade — driven by high commodity prices — provided support despite a deteriorating global backdrop, Nedbank said.
Net interest income climbed 9% to R17.2bn, bolstered by rising interest rates, while impairment charges rose 3% to R3.39bn, driven largely by a 4% increase in average gross loans.
The bank said in June that SA’s economy had fared better than most had expected in early 2022, including an encouraging acceleration in fixed investment as Covid-19 receded. Loans to companies rebounded, while those to households were supported by increased demand for vehicles and mortgages.
There were, however, signs of modest strain emerging amid surging inflation and the concern that major global economies are heading for recession as well as consumers dipping into savings to sustain spending and maintain living standards, Nedbank said.
Nedbank’s shares have already risen by almost a quarter so far in 2022, and it, like other lenders, has benefited from rising interest rates. This creates an endowment effect, or higher loan repayments due to higher rates, though this can ultimately also weigh on economic activity, hitting both demand for loans and clients’ ability to repay existing ones.
SA’s prime lending rate has risen by 1.75 percentage points so far in 2022 to 9%, with Nedbank expecting it increase to 9.75% by the end of the year. Inflation is expected to peak in the third quarter at about 7.8% and average 6.8% for 2022, the lender said.
The Nedbank Group Economic Unit expects the economy to expand by about 1.8% in 2022, which is below the 2% forecast given by the Reserve Bank after its July meeting.
Nedbank has also guided low double-digit net interest income growth for its full year, and it expects loan growth to continue to recover in its second half.
“Conditions in the banking industry are likely to remain relatively robust, supported by the normalisation of economic activity,” the bank said.
“Demand for credit is forecast to improve marginally throughout 2022, underpinned by continued growth in consumer spending and firmer fixed investment,” its results read.
gernetzkyk@businesslive.co.za
