(corrects seventh paragraph, Nedbank S.Africa's No.4 bank, not
* Non-interest revenue up 14 pct
* Net interest income up 9 pct
* Shares flat
By David Dolan
JOHANNESBURG, Oct 29 Nedbank Group
announced on Monday that it is on track for double-digit
earnings growth this year, the latest South African bank to
benefit from a rise in higher-risk lending.
Hampered by weak corporate demand for credit, the country's
big banks have ramped up unsecured lending - the profitable but
riskier practice of giving loans that are not backed by
Unsecured loans in Africa's top economy surged 21 percent in
the year to June and now total a $43 billion, the central bank
said last week, as Nedbank and its rivals continue to push
profitable credit cards and personal loans.
"It's probably the key risk facing South African banks,"
Johann Scholtz, banking analyst at Afrifocus Securities in Cape
Town, said of unsecured lending.
"We've seen this movie before. Everyone is saying, 'No, it's
not as problematic as the media is making it out to be.' I still
feel that somewhere along the line somebody is going to get
Unsecured lending has helped South African banks to overcome
relatively lacklustre economic growth and book double-digit
Investors have noticed. Shares of FirstRand, South
Africa's second-largest lender, have climbed 43 percent in the
past 12 months. Nedbank, the country's No.4 bank and majority
owned by insurer Old Mutual , has jumped 30
South African banks are now trading at lofty multiples.
Nedbank's forward 12-month price-to-book ratio of 1.46 makes it
more expensive than Wells Fargo & Co, Goldman Sachs
Group and HSBC Holdings.
But the growth may not be sustainable, given the wobbly
state of household finances.
Household debt totals 76 percent of disposable income,
according to government statistics, while the unemployment rate
is stuck at about 25 percent.
One positive for Nedbank has been its focus on writing
shorter-term unsecured loans, said Afrifocus's Scholtz. That
lowers the risk of bad loans staying on the book for a longer
time and allows the bank to react quickly to changes in the
market, he said.
Nedbank said in a trading statement that it expects to meet
its full-year target for earnings growth - about 13 percent,
according to Reuters calculations.
The bank derives its earnings target by adding 5 percent to
the sum of the growth in gross domestic product and the consumer
Net interest income, the measure of earnings from lending,
increased 9 percent to 14.5 billion rand ($1.7 billion) in the
nine months to September 30, the bank said.
Non-interest revenue, which includes fees and commissions,
rose 14 percent to 12.4 billion rand.
Total loans were up by 7 percent, while the ratio of bad
debt charges decreased.
Shares in the bank were little changed at 182.40 rand at
($1 = 8.6517 South African rand)
(Editing by David Goodman)