Nedbank Group Earnings Call: Strategy Gains vs. EPS Hit

Nedbank Group ((NDBKF)) has held its Q4 earnings call. Read on for the main highlights of the call.

Nedbank Group’s latest earnings call struck a cautiously optimistic note, as management balanced solid strategic progress with underwhelming headline numbers. Leadership highlighted strong capital, client and digital growth, and successful integrations, while openly acknowledging margin pressure, muted earnings growth, and a sharp basic EPS drop driven by a large one‑off disposal loss.

Strategic Reorganization and Execution

Nedbank has completed a major restructuring, effective 1 July, creating new Personal & Private Banking and Business & Commercial Banking clusters. Management said the reorganization, which touched more than 16,000 employees, is already showing improving second‑half momentum and early client‑focused wins across the business.

Acquisitions and M&A Activity

The group reported a first full year of Eqstra integration and the December acquisition of iKhokha to deepen SME merchant and payments capabilities. It also announced plans to acquire around 66% of NCBA in Kenya, a roughly ZAR 13.9 billion transaction for which a key Kenyan regulatory exemption has already been secured.

Capital Strength and Shareholder Returns

Nedbank ended the year with a CET1 ratio of 12.9%, comfortably above its updated 11%–12.5% target range, underlining a robust capital base. The bank completed a ZAR 2.4 billion buyback at about ZAR 229 per share and declared a total dividend of ZAR 21.32 per share, translating into a dividend yield of roughly 7%.

Client and Digital Growth

Group client numbers climbed 7% to 8 million, with Personal & Private Banking clients up 9% to 7.5 million and African regional clients also rising 9% to above 430,000. Digital usage is surging, with 73% of PPB sales now via digital channels, strong adoption of Nedbank Business Hub, and app users logging in about 24.5 times per month.

Strong Payments and New Revenue Streams

The bank’s payments franchise is gaining traction, with PayShap revenues jumping 183% and strong growth in contactless, e‑commerce, value‑added services, and money app payments. Management wants insurance and payments to become major new profit engines, targeting more than 50% growth in insurance premiums and raising product penetration well above 30% over time.

Asset and Deposit Growth

Gross banking advances rose 6% year on year, with private sector loans growing 7.8% and home loans and vehicle finance expanding 6% and 9% respectively. Deposits were a standout, climbing 11% overall, driven by a 10% rise in franchise call and term balances and a 23% increase in other deposit categories.

Improved Impairments and Asset Quality Trends

Credit quality indicators improved, with the group credit loss ratio dropping to 68 basis points, reflecting an 18% decline in impairment charges. Stage 1 loans grew 10%, while more stressed Stage 2 and Stage 3 loans fell 5% and 2%, helped by better recoveries and collections across several lending books.

Cluster Earnings Momentum

Personal & Private Banking delivered 9% headline earnings growth and a return on equity of 15.6%, signaling solid traction in retail and affluent segments. Corporate & Investment Banking posted 2% headline earnings growth with an ROE of 21.4%, while African operations increased headline earnings by 15% despite still‑subdued returns in the SADC region.

Brand and Employer Recognition

Beyond the numbers, Nedbank emphasized progress on brand and people metrics, with brand value up 24% to ZAR 20 billion. The group maintained Level 1 B‑BBEE status and ranked as the second‑best South African company, and within the global top 50, on Forbes’ World’s Best Employers list.

Identified Productivity Opportunities

Management has identified more than ZAR 1.5 billion in productivity opportunities to be realized over roughly three years, aiming to offset revenue pressures. The bank plans to leverage AI and automation to enhance staff productivity, streamline processes, and contain cost growth without sacrificing service levels.

Muted Overall Financial Performance

Despite these strategic gains, financial performance was described as unsatisfactory, with headline earnings up only 2% and diluted HEPS rising 3%. Return on equity slipped to 15.4% from 15.8%, although it still exceeded the estimated 14.6% cost of equity, underlining a modest but positive value‑creation spread.

Material One‑off Accounting Loss from ETI Disposal

A major drag on reported results came from the disposal of a 21% stake in ETI, which forced ZAR 8.6 billion of historic losses through the income statement. This non‑headline item, mostly prior foreign exchange and OCI losses plus an IFRS 5 adjustment, drove a 53% plunge in basic earnings per share despite an otherwise profitable year.

Margin Compression and NII Pressure

Net interest income grew only 3% as the net interest margin compressed 24 basis points to 3.81%, hurt by endowment effects, funding mix, and lower rates. With NII sensitivity around ZAR 1.5 billion per 100 basis‑point rate move and about 38% of the endowment hedge in place, the bank remains exposed to rate‑cycle swings.

Revenue Growth Below Desired Levels

Non‑interest revenue increased 4%, below management’s mid‑single‑digit ambition, as trading and fair‑value income fell 6% combined. Commission and fee income grew 6%, but overall revenue momentum lagged the bank’s targets, putting pressure on profitability metrics and limiting operating leverage.

Costs and Cost‑Income Pressure

Operating expenses rose 7%, with underlying growth at 5%, driven largely by an 8% increase in salaries and the consolidation of Eqstra. Management conceded that the cost‑to‑income ratio remains under strain, with inflationary wage pressure outpacing lackluster revenue, even as new efficiency programs are rolled out.

Delayed Deal Closures and CIB Execution Lags

In Corporate & Investment Banking, several large deal drawdowns and closures were slower than expected, shifting fee and trading income into later periods. Management warned this delay weighed on 2025 non‑interest income and could make first‑half 2026 results lumpy as the transaction pipeline eventually converts.

Mixed Credit Performance by Segment

While the group credit loss ratio improved, some retail segments remain fragile, with PPB’s credit loss ratio still high at 163 basis points despite progress. Personal loan impairments remain elevated, though trending better, and card book impairments increased from a low base, highlighting pockets of consumer stress.

Capital Impact from Future Transactions and Regulations

Looking ahead, capital ratios face modest headwinds from both regulation and inorganic growth, including a new D2 buffer expected from 2026. The planned NCBA acquisition is estimated to trim CET1 by 30–40 basis points, which could constrain further buybacks unless earnings and risk‑weighted assets move supportively.

Non‑recurrence of Associate Income

Associate income declined 8%, and following the ETI exit, Nedbank will lose this stream entirely, removing a previously meaningful profit contributor. Management expects this gap to be more visible in 2026, with other growth initiatives and acquisitions targeted to offset the loss and restore momentum by around 2027.

Basic EPS Volatility due to One‑off Items

Investors were reminded that the 53% fall in basic EPS is largely accounting‑driven and not reflective of underlying operations, which stayed profitable. Even so, the sharp volatility in reported EPS underscores the sensitivity of headline metrics to one‑off items, complicating short‑term valuation comparisons.

Forward‑Looking Guidance and Outlook

For 2026, Nedbank guided to mid‑single‑digit net interest income growth with slight margin compression, and upper‑single‑digit non‑interest revenue growth. The bank targets expenses growing below mid‑single digits, a credit loss ratio around the mid‑70 basis‑point mark, ROE above 15%, and a pathway to 17% ROE and a 54% cost‑to‑income ratio over the medium term.

Nedbank’s earnings call painted a picture of a bank in strategic transition, pairing strong capital, digital momentum, and payments growth with softer near‑term financials. For investors, the key takeaway is that while one‑offs and margin pressure cloud current results, management is betting that restructuring, acquisitions, and productivity gains will unlock stronger, more sustainable returns beyond 2026.