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Nedbank Net Rises 26% as Expansion Drives Retail Banking

Nedbank Group Ltd., the South African bank controlled by Old Mutual Plc, said full-year profit rose 26 percent after expanding its retail banking network and charging clients more fees for transactions.

Net income climbed to 6.5 billion rand ($870 million) in the year ended in December from 5.14 billion rand a year earlier, the Johannesburg-based lender said in a statement today. Earnings per share excluding one-time items climbed 25 percent to 13.40 rand, beating the 13.34 rand median estimate for adjusted earnings per share from 15 analysts. The company increased its full-year dividend 26 percent to 6.05 rand.

Chief Executive Officer Mike Brown said Nedbank would slow its pace of expansion to contain costs after acquiring 160,000 retail customers, adding 121 outlets and 400 automated teller machines and extending banking hours in 60 branches during the year. Nedbank, the third-largest lender in South Africa, hasn’t sought growth through acquisitions on the rest of the continent, unlike larger rivals Standard Bank Group Ltd. and FirstRand Ltd.

“The net interest income and margins were higher than I expected,” Faizal Moolla, a banking analyst at Avior Research Ltd. in Cape Town, said in a telephone interview today. “It was a fair set of results, but I’m still concerned about the operating expenses.”

The stock rose as much 3.4 percent and was 1.1 percent higher at 161.22 rand at 10:55 a.m. in Johannesburg trading.

Slowing Expansion

Nedbank, which said it will meet its medium- to long-term earnings growth target in 2012, was the second-best performing stock on the six-member FTSE/JSE Africa Banks Index last year after RMB Holdings Ltd., gaining more than 11 percent.

Brown said Nedbank’s slower expansion should reduce the ratio of expenses to non-interest income to “mid to high single digits” this year from 14 percent in 2011.

Nedbank’s return on equity, excluding goodwill, grew to 15.3 percent in 2011 from 13.4 percent a year earlier. Brown said there’s “more work ahead” to meet the bank’s target ratio of 18 to 19 percent, and more room to reduce bad debts.

“What was disappointing was that credit impairments and retail impairments didn’t improve as much as expected,” Avior’s Moolla said.

Nedbank has an alliance with Ecobank Transnational Inc., Africa’s most geographically diverse retail lender. Last year, Nedbank provided the Togo-based company with a three-year, $285 million loan in an agreement that will allow it to take a stake of as much as 20 percent in Ecobank in the next two years.

Brown said Nedbank is looking at the potential cost of buying that stake, which could be equal to 1 percent of its core Tier 1 capital adequacy ratio. If the lender takes a 20 percent stake in the West African bank after December 2013, it will have access to that institution’s profits, Brown said.

Through Ecobank, Nedbank has access to 36 African countries with over 2,000 outlets.

While South African rivals may make profit from African operations faster, “we unashamedly run this bank for the long term,” Brown said.

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