The big four banks are huge oil tankers rather than dynamic speedboats. So they are unlikely to deliver the best performance on the JSE in any given year — though more focused banks such as Capitec and Investec might.
Nedbank has been the forgotten bank in terms of headlines for the past few years. While it is much smaller, both in assets and market cap, than FirstRand and Standard Bank, it has not had the revolving door of CEOs that has kept Absa in the news.
Nedbank had solid leadership under Tom Boardman and Mike Brown for 20 years. It needed to re-establish its reputation after the 2004 crisis, when Old Mutual had to intervene to turn the bank around. It was in trouble, in part because it had underestimated the effect of bad debts.
The market hasn’t rewarded the bank for its consistency and reliability. In a very poor economic environment it still increased earnings by a modest 2.6% on a like-for-like basis in the six months to June. Yet Nedbank has an undemanding earnings multiple of 7.7, which isn’t much of a premium on Absa, on 6.9 — a bank that’s been rudderless for the past six years.
Nedbank’s interim results were ahead of guidance and expectations. Return on equity (ROE) ticked up from 15% to 15.2% and the dividend was up 6%, ahead of inflation, to R10.28 a share. In a flat economy, gross banking advances were up 6% to R969bn and deposits by 10% to R1.23-trillion.
Superficially, Absa might look more of a bargain than Nedbank, but Absa is also potentially a value trap if it continues to lurch from crisis to crisis — though the outlook seems better since the appointment of veteran corporate banker Kenny Fihla as CEO. Fihla was previously Standard Bank’s deputy CEO.
Under Jason Quinn, Nedbank isn’t content to be the “steady as she goes” bank. Quinn, the former CFO of Absa, took over as group CEO in May 2024. And since then he has been bold.
He has exited the underperforming minority investment in the West Africa-based Ecobank. Quinn says the Nigerian economy never reached its potential, and many of Nedbank’s clients pulled out of the country. Nedbank had got only R400m in dividends since it bought into the group, though on paper it had received R6.8bn in associate income.
Nedbank followed Standard Bank’s lead by restructuring the private and business banking unit into focused personal and private banking (PPB) and business and commercial banking (BCB) units. Quinn poached Andiswa Bata from FNB to run BCB. She is already being called a potential future Nedbank CEO.
On August 13 Nedbank bought fintech iKhokha for R1.65bn, which Quinn says marks a significant milestone in the bank’s strategy to deepen its support for SMEs through digital innovation and inclusive financial services. The deal is subject to regulatory approval.
iKhokha offers keenly priced SME payment and business management tools. It will still operate autonomously under its own brand. PPB managing executive Ciko Thomas says its innovative technology, along with Nedbank’s banking experience, should provide small businesses with competitive products. Nedbank has a 24% market share in the SME market, substantially higher than its 14% of the affluent banking market, for example.
Quinn says Nedbank and iKhokho can drive growth and financial inclusion in South Africa and possibly outside the country. iKhokha processes more than R20bn a year in digital payments and has distributed more than R3bn in working capital into the SME sector.
Nedbank has the smallest retail footprint of the big four, and a pedestrian ROE of 14% in PPB. It is relatively more dependent on corporate and investment banking (CIB) than the other “cheap” bank, Absa. CIB, headed by Anél Bosman, accounts for about half of group headline earnings of R7.8bn.
CIB will be a more diversified business with the introduction of its successful asset management business into the cluster. It’s moving after the dissolution of the former Nedbank Wealth cluster. This is called Nedgroup and offers best of breed, index and multimanager unit trusts.
While Standard Bank has one of the largest asset managers in South Africa through Stanlib, Absa has largely exited the business after selling its fund management businesses to Sanlam, while FirstRand’s asset manager, Ashburton, is surprisingly small for such a large financial services group.
Nedbank is acutely aware of the need for a legacy bank to remain relevant and continues to invest in technology as clients move away from traditional channels such as branches. About 70% of sales are now digital and it would take many years for a fintech coming into the market to build the bank’s footprint — even though at 3.8-million main banked clients it is substantially smaller than Capitec and its three traditional rivals. In client numbers (though not in assets), Nedbank is also smaller than fintech TymeBank, which has about 11-million clients.
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