Nedbank’s share price falls in wake of trading slump
Pandemic and lower oil prices devastate economies and batter banking sector, group says
NEDBANK Group’s share price fell more than 6 percent on the JSE on Friday after the bank released a trading update expecting its earnings to decline by 20 percent for the six months to the end of June.
On Friday morning, the stock fell to its lowest level, R81.27 a share, after it signalled that its headline earnings per share (Heps) and earnings per share (Eps) for the current period would decline by 20 percent compared with last year’s Heps of 1 435 cents a share and Eps of 1 419c. Later in the day, the share recovered to close to 2 percent lower at R88.33.
The group said a further trading statement would be released later to provide specific guidance once there was reasonable certainty about the extent of the decline and the Heps and Eps for the current period.
“The impacts of the Covid-19 pandemic and lower oil prices on economies are material and evolving. As a result, the impact on the banking industry and Nedbank Group’s results in 2020 remains uncertain. We will update investors on our revised 2020 financial guidance and medium to long-term prospects once we have more clarity,” the group said.
In mid-april, Nedbank withdrew its earnings’ guidance released in January that was based on expected gross domestic product (GDP) growth of 0.7 percent for this year and flat interest rates.
The group said its 2020 financial guidance was based on economic forecasts completed in January before the outbreak of the pandemic.
“Economic forecasts today are materially different from January. While forecasting in the current environment is complex and subject to a much higher degree of forecast risk than usual, in April Nedbank’s economic unit revised their forecast of South African GDP growth for 2020 to minus 7 percent.
“After the cumulative 225 basis points (bps) of interest rate cuts up to April, the South African Reserve Bank Monetary Policy Committee cut interest rates by a further 50 bps in May,” the group said.
The group said its performance in the quarter to the end of March reflected the impact of a difficult macroeconomic environment in South Africa, and in its Africa operations.
Its loan and advances’ growth in the period was in the high single digits year on year.
“Corporate and investment banking growth was just above double digits, driven primarily by wholesale term loans and commercial property finance as we supported clients in good standing to draw down on existing credit facilities as they prepared for the uncertainty ahead, and foreign currency loans increased as a result of rand depreciation,” the banking group said.
Despite these challenges, Nedbank said it was well prepared to respond to and manage the emerging risks.
Nedbank expects to release its interim results in August.
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