Denker Capital’s banking oracle Kokkie Kooyman is the go to man when it comes to the financial services industry, on a day that South Africa’s fifth largest bank by market capitalisation, Nedbank, released its interim results. Nedbank, along with all the major banks, have enjoyed a great run over the last twelve months or so as one of the industries most adversely affected by the onset of the coronavirus pandemic. Business and consumer confidence has recovered somewhat, but Kooyman believes this is key to enable the banks to continue the momentum of the past year despite the lenders being ‘cheap’ on a fundamental basis. BizNews founder Alec Hogg and Kokkie also touch on Quilter’s interim results (ex-Old Mutual Asset Management) and the new talking point within the South African financial services space, Michael Jordaan’s baby Bank Zero. – Justin Rowe-Roberts
Kokkie Kooyman on Nedbank’s underlying numbers and whether these set of results will be supportive of the share price:
I think it has had a good run. ABSA are reporting tomorrow with Standard Bank reporting next week, so we going to see quite a few results. These results was more or so in line with what we expected, except operational expenditures were a bit of a disappointment, growing at 6% – which meant that their pre-provision operating results before bad debts was actually negative. The costs grew a bit more than income but remember income was still under pressure. So going forward it’s going to depend more on the economy. Confidence and spending are very important for the banks and when the interest rates go up. So stronger growth would mean higher interest rates, which is very good for banks – we’ve seen that in the US at the moment. As interest rates go up, the banks should do very well. Nedbank is cheap, it’s at 1.1 times price to net asset value (NAV). I think it can get to 14% or 15% return on equity (ROE) and return on capital by the end of next year. It’s not expensive but it’ll go further (the share price) along with economy.
On who is winning the banking war in South Africa:
So if you look at the last 10 years, then the losers have been ABSA and Standard Bank, mainly as a result of losing clientele to Capitec. FirstRand initially lost (market share) as well, took action and are actually winning this space almost on most fronts. FirstRand is the leader. Nedbank have always been the smaller bank, focusing more on commercial corporate, especially property based lending. And that’s obviously been hit badly by Covid. The price fell as much because of their big exposure to commercial real estate – which, by the way – was very conservatively done – very low loan to value (LTV) ratios. Nedbank is the smaller of the four and I think what they’ve done post Old Mutual – with more focus on technology, on making sure the bank ranks high in terms of client service. Your apps doing business directly and also on the lower end of the market – retail lending – which is high NIM (net interest margin). So they’re trying to rebalance a bit away from corporate to net interest margin. But the bottom line to your question – it’s the smallest of the four banks (FirstRand, Standard Bank, ABSA and Nedbank). I think the clients that use them, like them. But it’s very tough for them to to actually grow now because you’ve got to fight for market share. So they trying to do that with client service, but they’re the smallest of the four. It’s the hardest battle for them to pull clients away from from the big guys.
On the ‘challenger banks’ and the competitive environment in the banking sector:
Your so-called FinTech or challenger banks globally all start more or less, actually funny enough, where Capitec started – on the retail lending side. You’ll recall Capitec in 2001, 2002 and 2003 was really a bank lending to a higher risk client where it made very good margins and it provided the service to those clients that other banks weren’t. Slightly different where FinTech banks all over the world are using newer, smarter, cheaper and better technology to attack banks and on their weakest spots.
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