Capital preservation our main priority presently

NEDBANK Group, which published its interim 2020 results end of August says it has remained resilient, with capital and liquidity ratios well above prudential requirements in a period of unprecedented health, economic and social challenges. Nedbank’s financial performance in the first half of 2020 reflected the impact of the Covid-19 pandemic and resultant lockdown from the end of March 2020 as headline earnings (HE) declined 69,2% to R2,1 billion (US$126,47 million). Business reporter Melody Chikono (MC) this week spoke to group managing executive Nedbank Africa Regions Terence Sibiya (TS, pictured) who says the bank remained optimistic despite the current challenges. Below are the excerpts of the interview:

MC: What steps have you taken for the bank to navigate through this difficult period?

TS: We have responded to this as the virus was soaring across the region and the countries in which we operate in. We set up specific committees within the bank at a regional level that were monitoring on a daily basis, every two days, biweekly, right through to the board level and making sure that we monitor all the key market entities as to what signs we are seeing in our nonperforming loans, in our liquidity and other ratios.

We also monitored the signs our clients were showing us in the credit front so that we identify specifically those that were being affected by Covid-19 and we appreciated the specifics almost immediately. For example, when the borders were shut, those who were immediately affected were attended to. Then with time as government declared Covid-19 a state of emergency we would then focus on other sectors and react to those.

We are now in a position which we call the transition stage. In other words we have somewhat stabilised all our key metrics and we have done some projections as to what may still flow through this transition and what impact impairments we may have in particular as clients might also work though reopening their businesses and work though their own debtors and creditors.

Post this transition period that we are in, by no means are we are out of the woods in terms of Covid- 19 as we do not know when our lives will return to some semblance of humanity. We are beginning to reimagine our business because this disruption has meant that we are forced to relook at whether our business can continue to survive under very difficult circumstances and to that effect we are ramping up our automation and digitisation efforts because that is what the direction the world is taking.

Steady migration is reimagining our business as our clients also turn to use their mobile phones to receiving money to pay for utilities, water bills and other things. The second half of the year has seen so much focus on data, digital offerings through mobile apps and other products.

MC: Any expansion plans for the group into the region?

TS: Under the current circumstances what we are seeing across the banking financial services is strong preservation of capital. So, in other words, as we navigate the particular pandemic we are seeing that it is safer to hold on to capital so that we can continue supporting our clients through this difficult period.

Inherently, when you preserve capital it is difficult to concurrently look for expansion plans in the region. However, that having been said, Nedbank is clear on its focus on the continent and the evolution of Nedbank as a group on the continent and its business prospects.

So we will not leave any opportunities that present themselves. But at the moment, to see our clients through this difficult period, we are likely to focus more on capital preservation and liquidity preservation so that if any opportunity should present themselves we will take it beyond the borders of South Africa.

MC: You made reference to how the economy of South Africa and how it has impacted on your operations. What is your comment on Zimbabwe’s economic situation and how it has affected your operations?

TS: With respect to South Africa you would appreciate that the economy was already in recession when Covid-19 and the great lockdown crisis took effect. Prior to this we had the global crisis of 2008-2009 which we call the GFC (global financial crisis). This one we dubbed the GLC, the great lockdown crisis. This time around banks were far more capitalised to deal with crisis which is the inherent impact of Covid -9 unlike during the GFC.

However, the South African economy was already in the ICU. We were in technical recession. This pandemic will not help us. We see that regionally, typically when South Africa catches a cold, there is some contagion to our neighbouring countries that have strong ties with South Africa. So when borders closed, with the South African economy already struggling, there is bound to be some contagion effect on our clients that operate across the border.

But at the same time we see recovery going into the third half of 2021, 2022 to 2023. It’s going to be a slow painful recovery and also not just on the SA economy. We have seen some downgrades ratings and several regional reserve banks revise downwards their growth forecasts and GDP growth numbers, Zimbabwe also notwithstanding.

Business environment in Southern Africa, and specifically in Zimbabwe, will remain challenging as we have seen hyperinflation persisting in Zimbabwe. Although we have also seen some stability on the forex market returning, we are still not sure when this will end.

There is some policy uncertainty and some political instability but we will continue to reconfigure the business and the balance sheet to continue to absorb some of the macro-economic factors that continually affect Zimbabwe.

MC: You indicated that you had negotiations with the Reserve Bank of Zimbabwe (RBZ). Kindly take us through how these negotiations are going to have an impact on your Zimbabwean unit?

TS: The context that I was mentioning the Zimbabwe bank is in the tripartite collaborations that are necessary to help our clients through this crisis. So our negotiations with RBZ and the response, which we appreciate, was how we would assist our neighbour through this period and the conversations were through the Bankers Association of Zimbabwe. This was particularly in respect to how we classify non-performing loans and those particular loans or particular instruments that have been affected and can be clearly defined as impacted by Covid 19.

So it was imperative for us to have an open line and a continuous discussion with our regulator so that as we restructure loans for our clients, as we develop products that will assist our clients to navigate through this difficult period, so that we do not fall out of our existing regulatory requirements by breaching particular levels of credit metrics.

That was the communication that we have enjoyed so far. Hopefully we will continue to enjoy it with the RBZ.

MC: What would be your comment on the state of capital markets in Africa or counties that you operate in?

TS: What we have seen in the countries we operate in is that the response of the capital markets or the response of the key players in the capital markets has been remarkable.

As I have reiterated that we are not out of the woods yet, we have seen similar impact of Covid-19 on already struggling markets or macro-economic conditions. Headwinds in Nigeria, which brought about the collapse of the oil price and on other commodity and resource-based country, we have seen a strain on in those economies, which have been exacerbated by Covid-19 responses.

But through the various government interventions and with some stimulus packages coming in we have seen the interventions sustaining economies and buffered the agility of the capital markets to respond to this shock.

The capital markets have responded relatively well though I must add that in other geographies, capital markets are relatively shallow.

MC: So basically how long do you think it will be before you are finally out of the woods?

TS: Well it is very difficult to project how long really. If you look at current projections and looking at some of the IMF numbers and other economic facts, we predicted that we will see a 3,4% GDP growth on average across sub-Saharan Africa. That is an encouragement that we will be crawling out of the woods of the Covid-19 impact beginning 2021, with some of the aggressive numbers coming in 2022 and 2023.

Of course, the growth numbers will be varying from country to country with others experiencing faster growth, but in other areas it will be relatively challenging.