UPDATE 2-Bank fees boost S.Africa's Nedbank FY profit
* FY diluted headline EPS 1,340 cents vs 1,069 cents
* Non-interest revenue up more than 16 percent
* Shares at 11-year high (Adds details, analyst)
JOHANNESBURG, Feb 29 (Reuters) - Nedbank, South Africa's fourth-largest lender, posted a 25 percent rise in full-year earnings following a big jump in fees, the latest sign its turnaround plan is gaining traction.
South African banks have been focusing on non-interest revenues to grow earnings after a 2009 recession knocked credit demand back and left lenders struggling with bad debts.
Loan growth is now starting to improve as the lenders turned to high-margin unsecured personal loans.
"They came in much stronger on the non-interest income line than we had expected. The net interest income line was also slightly better than we expected," said Avior Research analyst Faizal Moolla.
Nedbank's shares rose to 11-year highs as investors factored in a 26 percent increase in dividend payout. The shares are up over 10 percent so far this year, compared with a 7 percent rise by the Top-40 index, and were 1.2 percent up on the day by 1017 GMT.
Nedbank, which is majority owned by insurer Old Mutual , grew fee income by over 16 percent and interest from loans by nearly 9 percent.
"These are the highest level of earnings Nedbank has ever delivered," Chief Operating Officer Graham Dempster told Reuters in a telephone interview.
The lender's retail unit suffered losses on its mortgage business after the recession caused job cuts and left many borrowers unable to service mortgage payments but returned to profitability in 2010.
Nedbank took on new business from 27 new large corporate clients in 2011 and increased retail clients to 5.3 million by adding 425,000 new users.
Total operating expenses rose as the bank grew its branch network, head count and automated teller machines. They totalled 18.9 billion rand ($2.5 billion), a 14 percent increase from the previous year.
Dempster said Nedbank added nearly 1,000 new staff and over 120 branches in 2011.
Bad debts costs fell to 5.33 billion rand from 6.19 billion in the previous year.
But some analysts said that wasn't enough.
"They disappointed on the impairment line, especially retail banking impairments were a disappointment," Avior's Moolla said.
Nedbank said diluted headline earnings per share totalled 1,340 cents in the year to end-December, up from 1,069 cents a year earlier. Headline earnings, the main measure of profit in South Africa, exclude certain one-time items. The lender said earlier this month they would be up to 28 percent higher.
The lender posted a 16.6 percent rise in non-interest income to 15.4 billion rand. Net interest income, the measure of earnings from lending, rose by a narrow margin of 8.6 percent to 18 billion rand.
The $10.7 billion bank's bigger competitor Absa Group reported a 21 percent increase in full-year earnings earlier this month. FirstRand, South Africa's second-largest lender, posted a 26 percent increase in interim earnings on Tuesday. ($1 = 7.5305 South African rand) (Editing by David Dolan and Jodie Ginsberg)