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Nedbank pumps R10bn into IT strategy

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Raisibe Morathi, Nedbank’s chief financial officer.
Raisibe Morathi, Nedbank’s chief financial officer.

Faced with a drop in profit, big four bank Nedbank has invested R10 billion in digital technologies.

This was revealed by Raisibe Morathi, Nedbank’s chief financial officer, during an interview with ITWeb yesterday after the bank announced its results for the year ending 31 December 2019.

The bank says headline earnings declined 7% in a difficult economic environment, impacted by several items, including hyperinflation accounting in Zimbabwe; negative private equity revaluations; cost of option to increase shareholding in Banco Unico from 50% to 87.5%; and increase in credit loss ratio off low prior year base to mid-point of the cycle target range.

Nonetheless, Nedbank says it is making good progress on its digital strategy and aims to be Africa’s number one digital financial services player.

“We started our digital journey a number of years ago with our programme called Managed Evolution, where we reduced the number of our operating systems to make them more agile,” Morathi said.

“We have spent R10 billion on technology. We invested in a number of technology programmes,” she added.

Through the Managed Evolution strategy, Nedbank says it is enabling core banking system rationalisation, standardisation and simplification.

Among other issues, the strategy aims to provide 24/7, real-time systems; agile, flexible multi-layered architecture; as well as a digitally fit and analytically strong organisation. It also targets platforms that are innovative and responsive to change.

According to Nedbank, the Managed Evolution programme is 70% complete and is forecast to be materially complete by the end of 2020.

Morathi also indicated that unlike competitors that have closed branches as a result of digitisation, Nedbank will continue investing in its branches to make them digital.

As an example, Nedbank recently opened a digital branch called the NZone at the Gautrain station, which was a temporary “concept”, self-service branch which had four members of staff supporting clients in learning how to be more self-sufficient in their banking.

“It was a pop-up branch which we have since closed,” Morathi said.

Earnings decline

In its results, Nedbank says it made good strategic and operational progress and delivered solid underlying growth in advances (+7%), deposits (+9.5%) and assets under management (+11%) for the year ending 31 December 2019 in a difficult macro-economic environment.

Headline earnings, which declined 7.3% to R12.5 billion, were impacted by the effect of the challenging macro-economic environment on clients as well as a number of additional items that arose in the second half, the bank says.

Nedbank chief executive Mike Brown says SA’s economic growth in 2019 at an estimated 0.3% was much slower than initially expected due to severe and frequent power outages, the unsustainable fiscal trajectory and ongoing policy uncertainty combined with a deteriorating global outlook.

“Nedbank made good strategic and operational progress as we continued our focus on delivering on our strategic focus areas and digital innovations, which are designed to create market-leading client experiences and support growth in selected value-creating areas,” Brown says.

“This focus enabled us to grow new revenue streams and unlock operating efficiencies. A key highlight for 2019 was the operationalisation of Eclipse, our new platform that enables simplified digital client onboarding for individual clients by allowing them to open a FICA-compliant account through our staff-assisted and self-service channels.”

Morathi explained that client and transactional product onboarding for individual clients are now following the full end-to-end process on this platform and resulted in the following benefits: client-centred onboarding, single onboarding foundation for most of core products, automated front-, middle- and back-office processes, digital FICA, biometrics and signing of contracts, all contributing to easier client onboarding.

“As our clients began to experience the value from our digital journey and improved service levels, Nedbank ended the year as the only South African bank to have improved its net promoter score, and on client satisfaction metrics became the second highest-rated bank in SA,” she said.

“Impairments increased strongly off the low prior-year base, impacted by the deteriorating South African macro-economic environment. Pre-provisioning operating profit growth of 3% reflects good cost management offsetting slower revenue growth.”

Optimisation initiatives

Total banking loans and advances increased by 7.2% to R764.2 billion, driven by continued growth in retail and business banking and an increase in corporate investment banking advances growth pointing to solid underlying growth, Morathi said.

According to Nedbank, expenses grew 1.7% to R32 179 million. It says higher levels of amortisation from the ongoing investment in technology as part of the bank’s Managed Evolution IT strategy were offset by ongoing optimisation initiatives and a 24% reduction in variable pay.

The impact of buying back and cancelling seven million shares as a result of the odd-lot offer in December 2018 (following the conclusion of the Old Mutual Managed Separation process) resulted in a diluted headline earnings per share decline of 6.3%, which was slightly lower than the decline in headline earnings, says the bank.

“In December 2019, following a strategic review, we announced the disposal of our 100% shareholding in Nedbank Malawi to MyBucks, a wholly-owned subsidiary of a Frankfurt-listed fintech. All conditions precedent for the sale have been fulfilled and the transaction is on course for completion during the first half of 2020,” Morathi says.

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