Lender's credit loss ratio increased to 95 basis points from 81 the previous year.
Picture: Gallo Images/ Papi Moake
Nedbank’s ability to keep a lid on costs despite continued investment in its business is one of the clearest signs that its turnaround strategy is beginning to gain traction.
But with credit losses rising, the bank now faces the tougher task of proving that its recent loan growth has not come at the expense of asset quality.
Keagan Higgins, investment analyst at Anchor Capital, says cost discipline was probably the clearest sign of progress in the lender’s results for the six months to 30 June 2026.
“Expenses increased only 3% despite ongoing investment in technology and restructuring,” he says.
In addition, fees, insurance and digital payments – all non-interest revenue – grew well, giving Nedbank a better-quality and more diversified revenue mix.
However, Higgins believes credit quality is now the main area of execution risk.
“Nedbank has grown parts of the loan book relatively quickly, particularly in retail, and it now needs to show that those market-share gains have not come at the expense of asset quality.”
The second risk, according to Higgins, is “converting the improved operating performance into a sustainably higher return on equity [ROE]”.
ROE target
The group said in its interim results it expects ROE to remain above 15% in 2026.
In the medium term, it is focused on delivering an ROE of around 17% in 2028, “underpinned by stronger revenue growth and continued operational efficiency gains”.
The results were well received by investors, with Nedbank’s share price closing 6.3% higher on Tuesday at R294.23.
“Getting from 15% to the 17% medium-term target requires Nedbank to maintain positive jaws,” says Higgins.
That translates into keeping revenue growth ahead of cost growth, while also replacing the earnings lost after selling its Ecobank stake and successfully integrating NCBA.
Nedbank disposed of its 21% stake in Ecobank Transnational Incorporated in December for $100 million, or about R1.6 billion at the time of the transaction.
The group also expects to receive the remaining regulatory approvals for its acquisition of a majority stake in Kenyan lender NCBA towards the end of the third quarter or early in the fourth quarter.
Impairments and credit loss ratio
Even if those strategic priorities are successfully concluded, Higgins says the sustainability of stronger earnings growth will also hinge on whether impairments remain under control as the loan book expands.
Nedbank’s credit loss ratio increased to 95 basis points from 81 basis points the previous year.
“The group credit loss ratio remains within Nedbank’s 60 basis points to 100 basis points through-the-cycle range, but it is now close to the top end and was worse than expected.”
Higgins says most of the pressure came from Personal & Private Banking, where the credit loss ratio rose to 205 basis points.
“[However] there are some important offsets. Stage 2 and Stage 3 loans both declined, so the result does not point to a broad increase in the stock of bad loans.
“A meaningful part of the impairment increase looks to have come from more conservative macroeconomic assumptions.”
Although he believes the deterioration reflects a normalisation in credit costs rather than the start of a challenging credit environment, Higgins says it warrants keeping an eye on.
“I would not call this the start of a credit cycle yet, but it may be the end of a pretty benign period. We will need to see how this progresses in the second half.”
This article was republished from Moneyweb. Read the original here.
