Nedbank still seeing ‘pent-up demand’ for credit

Interest income has remained robust for the 10-month period through to the end of October 2022, Nedbank noted in an investor update on Monday. This it said moved in tandem with an increased demand for credit.

Nedbank CFO Mike Davis said during the update that the bank has experienced pent-up demand for home loans, vehicle finance, and overdrafts – which has helped to lift its net interest income.

The bank’s commercial banking and small business banking segments also saw strong growth during the period.

It said average loans and advances to its customers increased by mid-single digits, which was slightly up from the 4% it reported during the first half of 2022. The bank added that the increases were boosted by “mid-single digit” growth in loans and advances in its corporate and investment banking as well as its retail and business banking units.

Nedbank’s net interest margin also increased from the 385 basis points during the first half of this year, boosted by interest rates rises, which it said will continue to run into 2023.

The bank’s increased interest earnings mirror other groups in the financial services sector that are benefiting from the SA Reserve Bank (Sarb) aggressively hiking interest rates to tame high inflation.

This year alone, the Sarb has raised the repurchase rate by a cumulative 325 basis points, to fight inflation that peaked at 7.8% in July.

After receding somewhat in August and September, headline inflation picked up again in October with CPI coming in at 7.6%.

Read:
Interest rates are up 325bps this year; how this affects your debt
Sarb ratchets repo rate by another 75bps [Nov 2022]
SA’s CPI rises to 7.6% in October

Nedbank’s economic unit now projects South Africa’s GDP growth will moderate to 1.9% for 2022, from the 4.9% growth rebound in 2021.

“Economic activity likely recovered some lost ground in Q3 2022 and the modest recovery is expected to continue during the remaining months of this year,” the bank said.

“However, relatively high domestic inflation, the rapid rise in interest rates, severe load shedding and the anticipated downturn in the global economy are expected to weigh on confidence, credit demand and economic growth, and pressure on household finances is increasing,” Nedbank warned.

Read: Surprise growth makes SA’s economy bigger than pre-Covid

Meanwhile, Nedbank said its diluted headline earnings per share will be higher than the 2 565 cents per share it reported for FY 2019. This, it added, is in line with previous estimates.

The banking group’s share price was buoyed by the investor update, trading over 3% up by around 14:00 on Tuesday, at R219.96 a share.