its business. This is an opportunity
to grow the current earnings base.
PRUDENT AFRICAN
EXPANSION STRATEGY
Figure 5
of safety for the bank to weather
tougher times in future, adding to
the resilience of the franchise.
(See: Figure 4)
Having established that Nedbank
has a strong franchise, and that
it is conservatively run and well
capitalised, we now need to assess
its current earnings base and its
ability to continue to maintain
its growth rate. When one looks
at the rates of return on equity
(ROE) generated per division in the
following table, it becomes clear
that there are two divisions within
the group that are not yet delivering
to their potential. Any normalisation
of earnings in these divisions will
be important in driving structural
growth in the group’s earnings.
(See: Figure 5)
Nedbank Retail is the largest
division in the group, contributing
almost a third of Nedbank’s
earnings. However, it currently
generates an ROE of only 13.3%,
well below its own potential and
only barely exceeding the cost of
capital. A normalisation of returns
from this division will be material to
the group’s earnings power.
Capitec, which is growing customer
numbers strongly. To interrogate
Nedbank’s position in the retail
market, we commissioned an
independent marketrepresentative
survey of bank customers,
segmenting the results by income.
The results demonstrated that while
Nedbank’s overall market share of
core transactional customers was in
the mid-teens in percentage terms,
it had a disproportionately large
share of the middle- to high-income
segments, and is underrepresented
in the lower-income segment –
a legacy of the pre-2003 retail
strategy, which focused exclusively
on the higher-income segment.
Since 2003 and under the current
management team, the retail
business has been repositioned
to be more relevant and to
capture market share across all
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