Nedbank Sees Credit Losses Edging Up From Lowest Level in Years

(Bloomberg) -- This is about as good as it's gonna get.

Nedbank Group Ltd., the South African lender with the lowest credit-loss ratio among its peers, expects impairments as a percentage of total loans to start increasing from the best levels in years. The 49 basis-point credit-loss ratio achieved in 2017 has probably reached its turning point and will edge higher to within the “bottom half” of Nedbank's 60 to 100 basis-points target range, Chief Executive Officer Mike Brown said by phone.

The Johannesburg-based lender is sticking with less risky customers by providing personal loans with a maximum term of 60 months, shorter than competitors who extend credit over as many as 84 months, and a minimum duration of 12 months where others offer one month, according to an emailed copy of an earnings presentation in the city on Friday. Non-performing loans in the lender's retail banking business declined for a fifth straight year in 2017.

Nedbank, controlled by London-based insurer Old Mutual Plc, is predicting earnings growth this year will outstrip that in 2017 as South Africa's economy improves. The company is targeting a return on equity greater than or equal to 18 percent by 2020, from 16.4 percent in 2017, and an efficiency ratio of less than or equal to 53 percent, compared with 58.6 percent last year.

The stock rose 1.3 percent as of 2:06 p.m. in Johannesburg on Friday, the only lender to post gains on the six-member FTSE/JSE Africa Banks Index, which dropped 0.7 percent.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Keith Campbell

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