Creating value by using our financial expertise to do good · 2019. 11. 22. · Nedbank Group...

Creating value by using our financial expertise

to do good

Pillar 3 risk and capital management reportfor the quarter ended 30 September 2019

Nedbank Group Limited and Nedbank Limited │ Pillar 3 September 2019 1

PILLAR 3 BASEL III CAPITAL ADEQUACY, LEVERAGE AND LIQUIDITY RATIOS AT 30 SEPTEMBER 2019 This quarterly Pillar 3 disclosure covers the operations of Nedbank Group Limited (group) as well as Nedbank Limited (bank) and complies with

the Basel Committee on Banking Supervision’s (BCBS) revised Pillar 3 disclosure requirements and the Prudential Authority (PA) Directive 1/2019.

KM1: KEY METRICS1

Nedbank Group

Sep 2019 Jun 2019 Mar 2019 Dec 2018 Sep 2018

Available capital

1 Common-equity tier 1 (CET1) (Rm) 68 400 67 665 64 687 65 170 64 205

2 Tier 1 (Rm) 75 396 73 707 69 888 70 068 68 552

3 Total capital (Rm) 89 529 87 749 83 416 83 496 82 205

Risk-weighted assets (RWA)

4 Total RWA (Rm) 636 886 618 608 596 612 586 626 581 286

Risk-based capital ratios as a percentage of RWA

5 CET1 ratio (%) 10,7 10,9 10,8 11,1 11,0

6 Tier 1 ratio (%) 11,8 11,9 11,7 11,9 11,8

7 Total capital ratio (%) 14,1 14,2 14,0 14,2 14,1

Additional CET1 buffer requirements as a percentage of RWA

8 Capital conservation buffer requirement (%) 2,500 2,500 2,500 1,875 1,875

9 Countercyclical buffer requirement2 (%) 0,020 0,020 0,023 0,021

11 Total of bank CET1 specific buffer requirements (row 8 + row 9) (%) 2,520 2,520 2,523 1,896 1,875

12 CET1 available after meeting the bank’s minimum capital requirements (%) 3,2 3,4 3,3 3,7 3,7

Basel III leverage ratio

13 Total Basel III leverage ratio exposure measure (Rm) 1 174 404 1 133 224 1 094 712 1 082 603 1 108 579

14 Basel III leverage ratio (row 2/row 13) (%) 6,4 6,5 6,4 6,5 6,2

Liquidity coverage ratio (LCR)

15 Total high-quality liquid assets (HQLA) (Rm) 177 676 171 909 168 996 162 678 155 766

16 Total net cash outflows (NCOF) (Rm) 146 632 148 985 155 901 148 693 142 242

17 LCR (%) 121,2 115,4 108,4 109,4 109,5

Net stable funding ratio (NSFR)3

18 Total available stable funding (ASF) (Rm) 695 536 683 878 646 067 664 468

19 Total required stable funding (RSF) (Rm) 620 914 624 077 607 937 582 691

20 NSFR (%) 112,0 109,6 106,3 114,0

1 On 1 January 2018 the group adopted IFRS 9 – Financial Instruments (IFRS 9), the capital disclosure is based on the fully loaded expected credit loss (ECL) accounting model and

excludes unappropriated profits.

2 Nedbank effectively implemented the countercyclical capital buffer materiality threshold treatment to private sector credit exposures in foreign jurisdictions, for the first time in

December 2018.

3 Per the PA Directive 1/2019 issued in May 2019, NSFR is disclosed with two data-sets covering the latest and previous quarter-ends.


Basel III capital adequacy Both the group and bank remain well capitalised at levels above the minimum regulatory requirements, with common-equity tier 1 (CET1) ratios

including unappropriated profits of 10,9% (June 2019: 11,3%) and 10,6% (June 2019: 11,1%), respectively. The CET1 ratios are reflective of

organic capital generation after accounting for the impact of the full interim dividend paid, growth in risk-weighted assets (RWA) during the

period and the full impact of IFRS 16 implemented on 1 January 2019. The total tier 1 and total capital adequacy ratios were impacted by

grandfathering of preference shares (R531m) in January 2019, in line with the Basel III transitional arrangements and the issuance of additional

tier 1 capital of R2,5bn as at September 2019.

The following table sets out the IFRS 9 fully-phased in capital ratios including unappropriated profits at 30 September 2019:

% Nedbank Group Nedbank Limited

Including unappropriated profits

CET1 capital 10,9 10,6

Tier 1 capital 12,0 12,1

Total capital 14,2 14,8

OV1: OVERVIEW OF RISK-WEIGHTED ASSETS

Rm

Nedbank Group Nedbank Limited1

Sep 2019 Jun 2019 Sep 2019 Jun 2019

RWA MRC2 RWA RWA MRC2 RWA

1 Credit risk 423 099 48 656 409 626 351 144 40 382 339 839

2 Standardised Approach (TSA) 37 936 4 363 36 319 124 14 145

4 Supervisory Slotting Approach 10 989 1 264 9 223 9 819 1 129 9 223

5 Advanced Internal Ratings-based Approach (AIRB) 374 174 43 029 364 084 341 201 39 239 330 471

6 Counterparty credit risk 7 748 891 7 798 7 493 862 7 499

9 Current Exposure Method 7 748 891 7 798 7 493 862 7 499

10 Credit valuation adjustment 14 012 1 611 13 901 13 177 1 515 13 132

11 Equity positions under Simple Risk-weight Approach 43 780 5 035 46 087 26 036 2 994 25 411

16 Securitisation exposures in banking book 448 52 454 448 52 454

17 Internal Ratings-based Approach 273 32 272 273 32 272

18 External Ratings-based Approach, including Internal Assessment Approach 175 20 182 175 20 182

20 Market risk 28 424 3 269 24 592 22 566 2 595 19 273

21 Standardised Approach 5 865 675 5 658 460 53 662

22 Internal Model Approach 22 559 2 594 18 934 22 106 2 542 18 611

24 Operational risk 73 569 8 460 73 569 61 909 7 120 61 909

Standardised Approach 6 827 785 6 827 3 < 1 3

Advanced Measurement Approach 63 051 7 251 63 051 59 550 6 848 59 550

26 Floor adjustment 3 691 424 3 691 2 356 271 2 356

25 Amounts below the thresholds for deduction (subject to 250% risk-weighting) 15 124 1 739 14 992 1 758 202 1 761

Other assets (100% risk-weighting) 30 682 3 529 27 589 23 396 2 690 22 084

29 Total 636 886 73 242 618 608 507 927 58 412 491 362

1 Nedbank Limited refers to the SA reporting entity in terms of regulation 38 (BA700) of the regulations relating to banks issued in terms of the Banks Act (Act No 94 of 1990). 2 Total minimum required capital (MRC) is measured at 11,5% in line with the transitional requirements and excludes bank-specific Pillar 2b and D-SIB capital requirements.

Credit RWA

93,4% of the total credit extended by Nedbank Group is subject to the AIRB Approach. Private Wealth International and the non-SA

subsidiaries credit portfolios and some of the legacy Imperial Bank portfolio in Retail and Business Banking (RBB) remain on TSA.

CR8: RWA FLOW STATEMENT OF CREDIT RISK EXPOSURES UNDER THE INTERNAL RATINGS-BASED APPROACH

Rm RWA1

1 RWA at 30 June 2019 373 307

2 Asset size 2 458

3 Asset quality 4 924

4 Model updates 7 800

5 Methodology and policy (4 104)

7 Foreign exchange movements 778

9 RWA at 30 September 2019 385 163

1 Includes credit RWA under the AIRB and Supervisory Slotting Approaches as reported in the OV1 table.


Market RWA Trading activity in Nedbank Corporate and Investment Banking (CIB) is primarily focused on client activities and flow trading. This includes market

making and the facilitation of client business in the foreign exchange, interest rate, equity, credit and commodity markets. There were no

incremental or comprehensive risk capital charges.

MR2: RWA FLOW STATEMENT OF MARKET RISK EXPOSURES UNDER THE INTERNAL MODEL APPROACH

Rm VaR Stressed VaR Total RWA

1 RWA at 30 June 2019 5 879 13 055 18 934

2 Movement in risk levels 697 2 502 3 199

6 Foreign exchange movements 272 154 426

8 RWA at 30 September 2019 6 848 15 711 22 559

Leverage ratio The leverage ratio is a supplementary measure to risk-based capital requirements. The leverage ratios of both the group and bank are well

above minimum regulatory requirements.

LR1: SUMMARY COMPARISON OF ACCOUNTING ASSETS VERSUS LEVERAGE RATIO EXPOSURE MEASURE

Item Sep 2019

1 Total consolidated assets as per financial statements 1 145 115

4 Adjustments for derivative financial instruments (17 293)

5 Adjustment for securities financing transactions (ie repos and similar secured lending) (11 571)

6 Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures) 67 109

7 Other adjustments (8 956)

8 Leverage ratio exposure 1 174 404

LR2: LEVERAGE RATIO COMMON DISCLOSURE TEMPLATE

Item Sep 2019 Jun 2019

On-balance sheet exposures

1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 1 098 413 1 064 371

2 Asset amounts deducted in determining Basel III Tier 1 capital (15 698) (15 449)

3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2) 1 082 715 1 048 922

Derivative exposures

4 Replacement cost associated with all derivatives transactions (ie net of eligible cash variation margin) 28 837 20 156

5 Add-on amounts for PFE associated with all derivatives transactions 22 541 18 726

6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework 1 132 1 634

7 Deductions of receivables assets for cash variation margin provided in derivatives transactions (3) (213)

8 Exempted CCP leg of client-cleared trade exposures (21 829) (20 040)

9 Adjusted effective notional amount of written credit derivatives (5 230) (3 116)

10 Credit derivatives (protection bought) (same reference name with equal to or greater remaining maturity) (4 501) (2 559)

11 Total derivative exposures (sum of lines 4 to 10) 20 947 14 588

Securities financing transaction exposures

12 Gross SFT assets (with no recognition of netting), after adjusting for sale accounting transactions 13 807 9 705

13 Netted amounts of cash payables and cash receivables of gross SFT assets (12 059) (7 987)

14 CCR exposure for SFT assets 1 748 1 719

15 Agent transaction exposures 137 304

16 Total securities financing transaction exposures (sum of lines 12 to 15) 3 633 3 742

Other off-balance sheet exposures

17 Off-balance sheet exposure at gross notional amount 243 408 231 618

18 Adjustments for conversion to credit equivalent amounts (176 299) (165 645)

19 Off-balance sheet items (sum of lines 17 and 18) 67 109 65 973

Capital and total exposures

20 Tier 1 capital 75 396 73 707

21 Total exposures (sum of lines 3, 11, 16 and 19) 1 174 404 1 133 224

Leverage ratio1

22 Basel III leverage ratio (%) 6,4 6,5

1 Basis of preparation for the leverage ratio is quarterly averaging.


Liquidity coverage ratio (LCR) In accordance with the provisions of section 6(6) of the Banks Act (Act No 94 of 1990), banks are directed to comply with the relevant LCR

disclosure requirements, as set out in Directive 6/2014, Directive 11/2014 and Directive 1/2018.

The LCR aims to ensure that a bank holds an adequate stock of unencumbered high-quality liquid assets (HQLA) to cover total net cash outflows

over a 30-day period under a prescribed stress scenario. Based on the final revisions announced by the Basel Committee the LCR was phased-in

by 10% each year and reached the minimum requirement of 100% on 1 January 2019.

The figures below reflect the simple average of daily observations over the quarter ending 30 September 2019 for Nedbank Limited and the

simple average of the month-end values at 31 July 2019, 31 August 2019 and 30 September 2019 for all non-SA banking entities. The figures are

based on the regulatory submissions to the Prudential Authority.

LIQ1: LIQUIDITY COVERAGE RATIO

Nedbank Group1 Nedbank Limited

Rm

Total unweighted

value2 (average)

Total weighted

value3 (average)

Total unweighted

value2 (average)

Total weighted

value3 (average)

1 Total HQLA 177 676 171 249

Cash outflows

2 Retail deposits and deposits from small-business clients, of which 202 154 20 033 183 603 18 360

3 stable deposits 3 658 183

4 less stable deposits 198 496 19 850 183 603 18 360

5 Unsecured wholesale funding, of which 270 502 135 127 232 806 115 719

6 operational deposits (all counterparties) and deposits in institutional networks of cooperative banks 131 605 32 901 113 355 28 339

7 non-operational deposits (all counterparties) 138 274 101 603 118 828 86 757

8 unsecured debt 623 623 623 623

9 Secured wholesale funding 28 540 28 212

10 Additional requirements, of which 140 095 18 611 125 762 15 712

11 outflows related to derivative exposures and other collateral requirements 1 593 1 593 1 542 1 542

12 outflows related to loss of funding on debt products

13 credit and liquidity facilities 138 502 17 018 124 220 14 170

14 Other contractual funding obligations

15 Other contingent funding obligations 171 311 8 691 166 467 8 460

16 Total cash outflows 812 602 182 462 736 850 158 251

Cash inflows

17 Secured lending 11 769 17 11 769 17

18 Inflows from fully performing exposures 51 327 36 542 34 647 21 235

19 Other cash inflows 4 401 4 338 176 176

20 Total cash inflows 67 497 40 897 46 592 21 428

21 Total HQLA 177 676 171 249

22 Total net cash outflows4 146 632 136 823

23 LCR (%) 121,2 125,2

1 Only banking and/or deposit-taking entities are included and the group data represents an aggregation of the relevant individual net cash outflows and the individual HQLA portfolios,

where surplus HQLA holdings in excess of the minimum requirement of 100% for 2019 have been excluded from the aggregated HQLA number in the case of all non-SA banking entities.

2 Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows).

3 Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows).

4 Note that total cash outflows less total cash inflows may not be equal to total net cash outflows to the extent that regulatory caps have been applied to cash inflows as specified by the

regulations.

The group's quarterly average LCR exceeded the minimum regulatory requirement of 100% applicable in 2019, as the group maintains

appropriate operational buffers designed to absorb seasonal and cyclical volatility in the LCR. Nedbank's portfolio of LCR-compliant HQLA

(comprising mainly of government bonds and treasury bills) increased to a quarterly average of R177,7bn, up from June 2019 where the

portfolio amounted to R171,9bn. Nedbank will continue to procure additional HQLA to support balance sheet growth while maintaining

appropriately sized surplus liquid-asset buffers. The higher LCR observed in the current quarter (121,2%), compared with the previous quarter

(115,4%), relates to business-as-usual movements over the period, lengthening of the funding profile, as well as an increase in HQLA.


As per Basel Pillar 3 disclosure requirements, Nedbank’s NSFR for the consolidated banking and/or deposit-taking entities as well as at a bank

solo level are reflected in the respective tables below.

LIQ2: NEDBANK GROUP NET STABLE FUNDING RATIO

September 2019

Rm

Unweighted value by residual maturity

Weighted

value No

maturity < 6 months 6 months to

< 1 year ≥ 1 year

ASF item

1 Capital 95 867 95 867

2 Regulatory capital 91 949 91 949

3 Other capital instruments 3 918 3 918

4 Retail deposits and deposits from small-business clients 53 747 184 981 13 670 21 719 249 044

5 Stable deposits 3 335 1 3 170

6 Less stable deposits 53 747 181 646 13 670 21 718 245 874

7 Wholesale funding 89 031 353 061 133 595 111 239 346 115

8 Operational deposits 84 915 49 759 7 67 340

9 Other wholesale funding 4 116 303 302 133 588 111 239 278 775

10 Liabilities with matching interdependent assets

11 Other liabilities 4 806 4 537 824 21 545 4 510

12 NSFR derivative liabilities 17 447

13 All other liabilities and equity not included in the above categories 4 806 4 537 824 4 098 4 510

14 Total ASF 695 536

RSF item

15 Total NSFR HQLA 16 585

16 Deposits held at other financial institutions for operational purposes

17 Performing loans and securities 170 017 77 084 546 282 543 164

18 Performing loans to financial institutions secured by level 1 HQLA 15 105 1 510

19 Performing loans to financial institutions secured by non-level 1 HQLA and unsecured performing loans to financial institutions 41 496 11 447 22 989 34 937

20

Performing loans to non-financial corporate clients, loans to retail and small-business clients and loans to sovereigns, central banks and PSEs, of which: 102 539 60 539 379 456 400 918

21

with a risk-weight of less than or equal to 35% under the

Basel II Standardised Approach for credit risk 15 793 10 265

22 Performing residential mortgages, of which: 2 848 2 963 138 663 96 319

23


Basel II Standardised Approach for credit risk 2 848 2 963 122 248 82 367

24 Securities that are not in default and do not qualify as HQLA, including exchange-traded equities 8 029 2 135 5 174 9 480

25 Assets with matching interdependent liabilities

26 Other assets 29 036 340 52 602 50 158

27 Physical traded commodities, including gold

28 Assets posted as initial margin for derivative contracts and contributions to default 2 2

29 NSFR derivative assets 16 388

30 NSFR derivative liabilities before deduction of variation margin posted 17 492 1 749

31 All other assets not included in the above categories 29 036 338 18 722 48 407

32 Off-balance-sheet items 330 427 11 007

33 Total RSF 620 914

34 NSFR (%) 112,0


LIQ2: NEDBANK LIMITED NET STABLE FUNDING RATIO

September 2019

Rm

Unweighted value by residual maturity

Weighted

value

No

maturity < 6 months 6 months to

< 1 year ≥ 1 year

ASF item

1 Capital 87 984 87 984

2 Regulatory capital 84 378 84 378

3 Other capital instruments 3 606 3 606

4 Retail deposits and deposits from small-business clients 53 747 163 725 13 058 21 597 229 074

5 Stable deposits

6 Less stable deposits 53 747 163 725 13 058 21 597 229 074

7 Wholesale funding 89 031 333 321 123 056 102 125 317 740

8 Operational deposits 84 915 32 309 58 612

9 Other wholesale funding 4 116 301 012 123 056 102 125 259 128

10 Liabilities with matching interdependent assets

11 Other liabilities 4 806 2 563 791 20 621 3 929

12 NSFR derivative liabilities 17 088

13 All other liabilities and equity not included in the above categories 4 806 2 563 791 3 533 3 929

14 Total ASF 638 727

RSF item

15 Total NSFR HQLA 15 830

16 Deposits held at other financial institutions for operational purposes

17 Performing loans and securities 146 421 73 480 519 198 514 132

18 Performing loans to financial institutions secured by level 1 HQLA 15 105 1 510

19 Performing loans to financial institutions secured by non-level 1 HQLA and unsecured performing loans to financial institutions 30 712 13 756 33 633 45 118

20

Performing loans to non-financial corporate clients, loans to retail and small-business clients and loans to sovereigns, central banks and PSEs, of which: 90 688 55 475 351 785 369 151

21


Basel II Standardised Approach for credit risk 14 742 9 582

22 Performing residential mortgages, of which: 2 397 2 434 128 625 89 304

23


Basel II Standardised Approach for credit risk 2 397 2 434 112 210 75 532

24 Securities that are not in default and do not qualify as HQLA, including exchange-traded equities 7 519 1 815 5 155 9 049

25 Assets with matching interdependent liabilities

26 Other assets 29 036 340 49 984 48 129

27 Physical traded commodities, including gold

28 Assets posted as initial margin for derivative contracts and contributions to default 2 2

29 NSFR derivative assets 16 123

30 NSFR derivative liabilities before deduction of variation margin posted 17 133 1 713

31 All other assets not included in the above categories 29 036 338 16 728 46 414

32 Off-balance-sheet items 310 282 10 000

33 Total RSF 588 091

34 NSFR (%) 108,6

DISCLAIMERNedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as ‘forward-looking statements’ within the meaning of United States securities legislation.

Forward-looking statements may be identified by words such as ‘believe’, ‘anticipate’, ‘expect’, ‘plan’, ‘estimate’, ‘intend’, ‘project’, ‘target’, ‘predict’ and ‘hope’.

Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance.

No assurance can be given that forward-looking statements will be correct and undue reliance should not be placed on such statements.

The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to IFRS and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes in the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation.

Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage.

NEDBANK GROUP LIMITEDIncorporated in the Republic of SA Registration number 1966/010630/06

Registered officeNedbank Group Limited, Nedbank 135 Rivonia Campus, 135 Rivonia Road, Sandown, Sandton, 2196PO Box 1144, Johannesburg, 2000

Transfer secretaries in SALink Market Services South Africa Proprietary Limited, 19 Ameshoff Street, Braamfontein, Johannesburg, 2001, SA.

PO Box 4844, Marshalltown, 2000, SA.

NamibiaTransfer Secretaries (Proprietary) Limited Robert Mugabe Avenue No 4, Windhoek, Namibia PO Box 2401, Windhoek, Namibia

INSTRUMENT CODESNedbank Group ordinary sharesJSE share code: NED NSX share code: NBK ISIN: ZAE000004875 ADR code: NDBKY ADR CUSIP: 63975K104

Nedbank Limited non-redeemable non-cumulative preference sharesJSE share code: NBKP ISIN: ZAE000043667

FOR MORE INFORMATION CONTACTINVESTOR RELATIONSEmail: [email protected]

RAISIBE MORATHIChief Financial Officer Tel: +27 (0)11 295 9693

ALFRED VISAGIEExecutive Head, Investor Relations Tel: +27 (0)11 295 6249 Email: [email protected]

COMPANY DETAILS

Nedbank says ‘Yes’ to YESThe Youth Employment Service (YES) was launched by President Cyril Ramaphosa in 2018 as an initiative between government, business, labour and civil society to tackle a national plan to build economic pathways for the youth with the aim of reducing the youth unemployment rate in SA through the creation of one million work opportunities over three years. At Nedbank we are committed to our role in the broader SA society and to delivering on our purpose of using our financial expertise to do good. On 26 April Nedbank signed the YES CEO Pledge, committing to go beyond business as usual by creating meaningful job opportunities for our youth, thereby becoming the biggest corporate contributor to the YES initiative to date. Of the more than 3 300 YES recruits for 2019 Nedbank is onboarding 250 into the organisation and the balance will be placed with our sponsored implementation partners.

Creating value by using our financial expertise to do good · 2019. 11. 22. · Nedbank Group...

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Transcript of Creating value by using our financial expertise to do good · 2019. 11. 22. · Nedbank Group...