Nedbank Group Limited (NED) Earnings Call Transcript & Summary

Good afternoon to everybody on the phone lines and those on the webcast, and welcome to the 2020 Nedbank Group Full year Results presentation. 2020 was a roller coaster year. In human terms, one filled with uncertainty, health challenges, economic hardship and stress for millions of people. In statistical terms, it was a one in 100 year event. Pleasingly, we've seen a recovery in the second half after a very difficult H1, and in particular, the peak COVID stress in the second quarter. In my section today, I will briefly touch on the difficult environment for our clients and banks in 2020. I'll then reflect on the excellent outcomes on our resilience metrics and the good strategic progress we have made as we transitioned out of the more severe levels of lockdown. I believe the Nedbank teams have done an outstanding job in navigating 2020, and I trust this will be evident to all of you in our presentation today. I thank our committed Nedbank employees for remaining resilient during the extraordinary difficult period and for continuing to observe COVID-19 health protocols while diligently supporting our clients and the economy throughout the crisis. Also extend my deepest condolences to the families, friends and communities of employees and clients who succumbed to COVID-19 and related illnesses. As we did in our interim results presentation, Trevor Adams, our Chief Risk Officer, will speak on our approach to risk management through the crisis and give insightful data on our approach to credit risk, in particular, given its importance in the current environment. Mike Davis, our Chief Financial Officer, will follow with a more detailed analysis of the group's financial performance in 2020. Our cluster managing executives will then present virtually from their homes and offices on the strategic growth drivers in each cluster. Before I close at the end with our prospects for the year ahead and set out our new medium-term targets through to 2023. As we all know, 2020 was a very difficult and volatile operating environment. And we are fortunate that the banking system entered this period from a position of strength. Forward-looking visibility, in particular, in the second quarter was very limited. And the full year GDP reduction of 7% was significantly better than many estimates in the second quarter that ranged somewhere between minus 10% and minus 15%. I believe that looking back, the South African banking system navigated 2020 very well, appropriately balancing supporting clients and the economy with ensuring that the safety and soundness of the financial system was never at any risk. At Nedbank, we achieved excellent outcomes on our resilience metrics that became our key strategic focus in the second quarter. Our focus shifted in Q2 to the health and safety of our stakeholders, including staff and clients, as well as helping our clients in good standing to successfully navigate the financial challenges that arose in their businesses and personal finances as a result of the lockdowns. IT uptime and stability was exceptional. We maintained strong balance sheet metrics throughout the crisis. Our key capital and liquidity ratios finished the year at higher levels than reported in June and all are in line with board targets and well above regulatory minimum. In addition, our overall impairment coverage increased from 2.26% in 2019 to 3.25% at year-end. The group remains solidly profitable, albeit at lower levels than the prior period. Our financial performance improved in the second half, with full year headline earnings declining by 57% to ZAR 5.4 billion compared to the 69% decline that we reported in the first half. We performed in line with the guidance provided to the market on all key line items despite the challenges of accurate forecasting in such complex and volatile environment. Headline earnings for the year was impacted by higher impairments and lower revenues. The latter mainly from lower levels of client activity and the impact on endowment of lower interest rates. Expenses were well-managed and declined on the prior year, and the group's return on equity of 6.2% improved from the 4.8% reported in the first half. Improving the ROE from these levels to back above our cost of equity is a key focus of management to improve shareholder value. Our credit loss ratio was up to 161 basis points inclusive of ZAR 3.9 billion of judgmental overlays, and Trevor Adams will unpack these later and the impact of the IFRS 9 macro forward looking assumptions. And we ended the year lower than the peak H1 credit loss ratio of 187 basis points and slightly higher than the global financial crisis peak of 152 basis points. A highlight for me was the excellent progress we've made on our strategic goal of delivering market-leading client experiences. This is evident in our improved client satisfaction rankings, where we are now ranked as the second best rated bank in South Africa on customer satisfaction. During the lockdown, our digital capabilities were vital as we launched various innovations and further rolled out our digital onboarding called Eclipse to include new products and to include juristic clients. Reflecting on the operating environment. In South Africa, the COVID-19 pandemic quickly turned like it did globally from a health crisis to an economic crisis to a social crisis. Our unsustainably high unemployment levels increased even further with the country's weak fiscal position, preventing any material long-term increase in the cost of the social safety net. After a second wave of infections from December, the good news on the health front is that new daily infections have reduced to enable return to lockdown Level 1 in late February. But we remain wary of third waves and future waves of infections during the coming months and are closely tracking the progress being made on vaccine rollouts. Simply put, vaccination is the best economic policy any country can follow in 2021. GDP for 2020 declined by 7%. And after the Q2 GDP year-on-year decline of around 17.8%, we saw some recovery in the second half off a low base. Turning our focus to insights from our own high-frequency data on how the COVID pandemic played out over the last 11 months. In these graphs, we show client's turnover data from our point-of-sale devices and digital channels. With our more than 25% market share of acquiring devices, we believe these trends to be broadly representative of the underlying economy and industry trends. The dark green bar in March represents the turnover in total and for each industry at the start of the crisis. With red colored bars highlighting where turnover declined by more than levels of 50% and 80%, respectively. Gray bars indicate a moderate recovery, but levels still below March, while green bars show levels at or above March. A few key highlights. Total turnover across all industries, reflected in the graph on the left, showed that as we entered the hard lockdown in Q2, total turnover fell to less than half of March levels. Pleasingly, this recovered steadily into the second half of the year. In the middle graph, we show you year-on-year growth by month, returning to positive levels from August, although on a full year basis overall growth still declined by 1%. On the right-hand side in the top rows, we show you the industries that have proven more resilient, primarily being telecoms, retail and health care. The industries in the lower part of the graph have taken longer to recover. And although in some cases, they are back to March levels, year-on-year growth is still negative. Industries that were most impacted and still remain under pressure, include restaurants, entertainment, hotels and airlines, all of which are disproportionately affected in our card business in the SAA and AMEX portfolios. From a corporate perspective, we have also seen some recovery into the second half. Operational activity improved as evident in mining and manufacturing production being above 2019 levels for the most part of H2, as shown on the left-hand side of this slide. However, commitment to long-term fixed investment is still low, and this is evident in the correlation between confidence and fixed investment in the right hand graph. For Nedbank, while client pipelines remain robust, timing of execution is uncertain as there are still many well-known structural issues that need to be addressed to improve the attractiveness of South Africa as an investment destination, in particular, with respect to energy security. As I said earlier, at the start of the crisis, we tilted our strategic response towards resilience with a key focus on supporting our staff, clients and society. For staff, we transitioned to working from home wherever possible, and this has been seamless, with more than 75% of our campus staff enable to work from home. We've supported all staff with full salaries regardless of their ability to work from home or not. In the second half, we reopened all branches that were not part of previously planned closures relating to physical footprint optimization as clients transact more digitally. For our clients, a key part of our client value proposition was to support clients in good standing in their time of need, and in so doing, help support the economy. And our teams have done an amazing job here in communicating and supporting the restructuring of over 400,000 client accounts and at a peak of just over ZAR 120 billion of loans to provide suitable cash flow relief in the crisis. It really was pleasing to see Nedbank was recently announced winner of both the most helpful bank in Africa during COVID-19 and the most helpful bank in South Africa during COVID-19 by the Asian banker as part of their consumer survey. For society, we have contributed in many ways to COVID relief and have been active participants in various business organizations seeking to help the South African economy both remain resilient and grow. In the second half, we signed up to the #PayIn30 commitment and to date, we have supported this initiative by paying 92% of our more than 1,700 SME suppliers within 30 days. As I noted at the interims, we work closely with our regulators, national treasury and the banking association to ensure the safety and soundness of the financial system. Many commentators in hindsight have expressed surprise at how resilient our banking system has been. This slide shows the key regulatory responses, directives and guidance notes, released by the SARB as well as the key resilience metrics that illustrate Nedbank weathered this 1 in 100-year event extremely well. From a liquidity perspective, our LCR is well above the revised 80% minimum requirement and, in fact, stronger than both before the crisis and what we reported in June. As I said earlier, we provided cash flow restructures on more than ZAR 120 billion of loans to help clients with temporary cash flow shortfalls as a result of COVID. And pleasingly, most of these clients have now regained their footing. And at year-end, only ZAR 28 billion remained active, of which only ZAR 2 billion is in respect of our retail clients. Capital levels remain strong with our CET1 ratio of 10.6% in June, improving to 10.9% at the year-end. Despite these strong capital and liquidity positions at the 31st of December, having considered the spirit of guidance notes 4 of 2020 and 3 of 2021 and noting growth opportunities as well as our responsibility to support our clients alongside the current uncertainty on the progression of the virus, possible future waves and the vaccine rollout and its effectiveness, the group has decided not to declare a final dividend for 2020. Based on our current forecasts, the group expects to resume dividend payments when reporting interim results in 2021. On the strategy front, investors will recall this slide that I refer to as the spine of our strategy. Our central focus is to create great client experiences, and I will unpack the good progress we've made in this regard on the next slide. We enable this through our investments in technology, our managed evolution and digital fast lane programs as well as the changes we are making to our people practices and brand. Given the strategic importance of technology and digital innovation, in the next few slides, I'll highlight some of our successes during 2020, while Ciko Thomas will show you later how for personal loans, one of the first products of client journeys that we digitized this is now delivering significant value on multiple fronts. Our target operating model, or TOM 1.0 being the first program of efficiencies enabled by our IT investments has delivered in excess of the expected benefits. At the half year, we noted that our planning for TOM 2, that's the second wave of these efficiencies was well underway, with benefits expected to be larger than TOM 1 and we have now set an initial target of ZAR 2.5 billion to be achieved over the next 3 years. Ciko will also touch briefly on what RBB is doing under this banner of TOM 2.0 as we optimize our physical footprint, Project Phoenix, and reorganize RBB project imagine to be more client centric. As I said, a key highlight for me of 2020 was the outcomes we achieved on various independently measured client satisfaction metrics. As the significant investments we've made in technology, digital innovation, people and client value propositions are starting to make a real difference to client experiences. On the South African client satisfaction index and Net Promoter Score, Nedbank continued an upward trajectory. And in 2020, we rated #2 among the big 5 South African banks on client satisfaction with Net Promoter Score at a new high and also now at number two. Our apps continue to be rated highly by clients and remain in the top-tier of ratings as per the Apple and Google stores. These are significant achievements at delivering market-leading client experiences will lead over time to high levels of cross-sell, higher levels of client growth as well as building stronger client relationships and higher levels of brand value. On the technology front, we made solid progress on our tech strategy, notwithstanding having to work from home. Our new digital capabilities, such as AVO our super app and Tap on Phone, shown on the right-hand side, have been very beneficial during the crisis. Avo was built on the ecosystem platform work we did in 2019 and now we have more than 5,000 businesses that the 145,000 clients who have signed up for AVO can procure from and easily affect payment to in a secure manner using a Nedbank wallet. Our Tap on Phone capability was a first for Africa and merchants can now use their smartphones to accept payments without physical contact. We made ongoing progress on our ME or Managed Evolution journey despite the lockdown and are now 78% complete quite close to our pre COVID target of being 80% complete in 2020 with our foundational programs materially complete. On Eclipse, with end-to-end digital onboarding in place, we have completed the full rollout of juristic onboarding in retail and business banking and started pilots in CIB. We have now fully digitized 5 products or client journeys being transactional accounts, personal loans, card, investments and overdrafts. During the year, we delayed the rollout of digitizing home loans and vehicle finance to implement everyday banking and retail relationship banking solutions as we reprioritized these in the context of COVID-19, home loans and vehicle finance will now be completed in 2021. Digital sales as a percentage of total sales increased from 21% a year ago to 49%, including MobiMoney. Excluding MobiMoney, digital sales increased from 12% to 26% of total sales. Digitally active clients accelerated strongly, reaching 30% of total clients and 57% of main-banked clients. The volume and value of app transactions in 2020 increased by 70% and 53%, respectively. We also continued to digitize our banking services and reached 171 digitized services up from 114 a year ago. This has been hugely beneficial during the lockdown as clients could use their app or internet banking rather than go into a branch for these services. Lastly, it's always good to get some independent acknowledgment, and we were pleased to have won awards for South Africa's Best banking app, best technology implementation and most innovative digital branch design at the recent Global Banking and Finance Awards ceremony. ESG is becoming an increasing focus for investors and rightly so, and we look to build on our strong ESG track record and to deliver on our purpose of using our financial expertise to do good. I will highlight a few ESG-related achievements from the slide and leave the rest for you to read. From an environment perspective, on the left of the slide, we continue to support our clients with environmentally friendly solutions and lead through example, as evident in the finance we've provided for the likes of renewable energy and the green bonds we've issued. On the back of our climate change resolutions at our last AGM, which received 100% votes of approval we will be publishing our inaugural TCFD report in April this year. Given its importance, we have also constituted a climate resilience board subcommittee. From a social perspective, we strive to make a positive difference in the societies in which we operate as part of our adoption of the United Nations Sustainable Development Goals. Our transformation agenda continues to focus on black and female staff while we assisted SMEs, underbanked individuals and broader society as a whole. We were pleased to maintain our BBBEE Level 1 status. From a governance perspective, on the right, our culture metrics continue to be strong and improve, and we have a strong and independent board who have engaged actively with us over the COVID period. And with that, I hand over to Trevor Adams to take you through a second line of defense lens on risk management in general and credit risk, in particular.

Thank you, Mike, and good afternoon, everybody. There is nothing like a 1 in 100 year crisis event to stress test the agility and effectiveness of Nedbank's risk management, and it has come out in excellent shape. Business and country risks reside as #1 on Nedbank's top 10 risks and are very much driven by external factors such as COVID-19 or the great lockdown crisis and so local and macroeconomic and political risks and then the unprecedented level of change underpinned by the fourth industrial revolution. This has heightened inherent risk across the entire risk universe as shown in the colored bars in the middle of the slide. However, residual risk or the net risk outcomes internally at Nedbank was very favorable as summarized on the right of the slide, and we ended 2020 with a much improved outlook than was the case at the half year. The extra focus remains on credit risk, and this I will cover on the following slides. I shared with you at the half year the comprehensive COVID-19 credit program we developed in quarter 2. This, we have executed well on, and the outcome has been a great success. I also spoke of additional complexity of account for credit risk in light of the unprecedented economic crisis and uncertainty. With the benefit of hindsight, I believe we struck the right balance at the half year between being forward-looking under IFRS 9 and the regulatory guidance to avoid excessive procyclicality. Our economic forecast at the half year have largely played out as we had expected. And we ended 2020 with impairments and coverage ratios at the top end of conservatism and prudence. Appropriate in the economic climate and against our updated macroeconomic forecasts. And that conservatism and prudence has been independently assured across the 3 lines of defense including our joint external auditors. The credit loss ratio ended the year at 161 basis points better than was forecast at the half year and only marginally higher than the peak of the global financial crisis, despite the great lockdown crisis being a dramatically worse economic event. And with an improving outlook with the second half credit loss ratio reducing to 134 basis points from 187 basis points in the first half, as you can see in the graph. The total coverage ratio has increased significantly as a consequence of COVID-19, which I will discuss shortly in more detail. But for now, just to say, that when comparing coverage ratios between banks, it is important to consider, amongst other things, the following: firstly, the underlying quality of the book, which is positively impacted by selective origination. Secondly, asset mix, in particular, secured versus unsecured lending portfolios with lower versus higher coverage requirements. Thirdly, specific loans or client migrations across stages with lower or higher coverage requirements, particularly in non homogeneous portfolios like CIB; and finally, IFRS 9 classifications and treatments, some of which vary materially amongst banks, including SICR, for example, the low-risk exemption allowed by IFRS 9, but discouraged by regulators, D3 and D7 loans, COVID-19 overlays and the timing of write-offs and the extent of post write-off recoveries. Impairments increased by 114% to ZAR 13.1 billion, but this was much improved from the 202% increase year-on-year at the half year and positively, second half impairments reduced to ZAR 5.4 billion from $7.7 billion in the first half. While we revised some of our credit models in the second half of the year, and so now incorporate some of the IFRS 9 macroeconomic adjustments in model at the year-end, the unprecedented economic impact of COVID-19 required an abnormal level of expert judgment. And so 30% or ZAR 3.9 billion of total impairments comprise COVID-19 related adjustments or overlays as summarized on the right-hand side of the slide. And some of the key features of this are, we increased the central provision to ZAR 750 million and have allocated most of that to bolster some specific stage 2 loans as well as for other risks that have been incurred but not yet emerged. In CIB, the forward-looking macro adjustment declined from ZAR 1 billion at the half year to ZAR 389 million due to the improved GDP outlook into 2021. And this is now incorporated in the CIB credit model, while ZAR 386 million was added for certain industry sector stresses and the commercial property finance overlay was increased to ZAR 440 million. In RBB, the ZAR 1.1 billion job loss overlay at the half year is also now incorporated into our retail models. We are still neutralizing the benefits of the 300 basis point interest rate reductions in 2020, and but now done within our home loans and RRB models, except for MFC, for which a ZAR 370 million overlay was raised. An additional ZAR 1.8 billion of COVID-19 overlays were booked as summarized on the bottom right-hand side of the slide, including just over ZAR 1 billion for any longer-term forward-looking impacts of COVID-19, which were based on a high stress scenario across all the RBB portfolios. The D3 payment holiday loans reduced to ZAR 28 billion at year-end from the ZAR 119 billion we reported at the half year and a peak of ZAR 121 billion in July. Of the ZAR 28 billion, ZAR 25 billion is in CIB and only ZAR 2 billion remains in RBB. We ceased granting D3 payment holidays from September, and this enabled us to obtain a good read on the updated credit health of our clients and their payment behavior by the year-end. We are pleased with the payment success of the matured Retail D3 book. As illustrated on this slide, 88% of clients are repaying and 79% have already made 3 or more payments. Non D3 loan repayments continued to perform better than expected levels. With stage 1 loans above 90% and approximately 2% better than pre COVID-19 levels, in line with the benefit of the 300 basis points of interest rate reductions in 2020. D7 loans increased by ZAR 6.4 to ZAR 13 billion at the year-end as we had anticipated. Comprising 1.7% of gross loans and advances and mostly residing in MFC, home loans and personal loans. In gross loans and advances, stage 1, shown on the left of the slide, declined mainly due to the reduction in the CIB lending book and migrations to stages 2 and 3. Key drivers of the stage 2 increase in the middle of the slide are, firstly, an increase in the number of wholesale watch list clients who triggered SICR, in particular, in CIB. Importantly, Nedbank conservatively does not apply IFRS 9's low-risk exemption, whereby investment-grade loans could be classified in stage 1 regardless of any SICR. And in Nedbank's case, this amounts to ZAR 22 billion in CIB loans. And secondly, all D3 renewals were treated as stage 2. Key drivers of the Stage 3 increase are: firstly, the D7 book, which increased by ZAR 6.4 billion year-on-year, as set out in the previous slide; and secondly, the book migration increases into stage 3 year-on-year of 169% in CIB and 48% in RBB. In assessing coverage ratios, I mentioned one of the key factors is the mix of loans across secured and unsecured lending. And this slide illustrates Nedbank's greater share of secured lending both in wholesale and retail, which requires lower coverage compared to unsecured lending. Additionally, our selective origination over the past 3 years has positively impacted on book quality. The total coverage ratio increased from 2.26% to 3.25%. And within that, stage 2 coverage increased to 6.6%, and includes, firstly, the majority of the ZAR 3.9 billion COVID-19 overlays, including the central provision. Secondly, the ZAR 22 billion CIB investment-grade loans I mentioned earlier, which if rather classified in stage 1 as some banks do, would see the stage 2 coverage ratio increasing further to 8.4%. Thirdly, the D3 loans, which are classified as stage 2, and finally, some specific CIB watch list clients who migrated to stage 2 and having high coverage. Stage 3 coverage, however, decreased to 31.5%, and this is mainly due to, firstly, the much higher migration into stage 3 of CIB loans increasing 169% year-on-year versus RBB increasing 48% year-on-year, which I mentioned earlier. With secured wholesale loans requiring lower coverage than retail, but also within the RBB stage 3 loans increasing by 48% year-on-year, 85% of the retail loan book is secured in the form of home loans and MFC, which again require lower coverage. Secondly, specific CIB clients classified in stage 3, which are highly secured, requiring lower coverage compared to the year-end 2019 list of clients as well as the positive trend generally on client restructuring outcomes in CIB. And then finally, the ZAR 6.4 billion increase in the D7 book, as I mentioned earlier, which requires lower coverage as D7 restructures demonstrate much better payment performance than other nonperforming loans. To illustrate this point, if the D7 book was excluded, stage 3 coverage would increase to 37%. On this slide we highlight from publicly reported data how Nedbank typically writes off nonperforming loans earlier than peers, also impacting coverage ratio comparisons as Nedbank's default book is younger and accordingly, also has higher levels of post write-off recoveries. And finally, on commercial property finance. On the left-hand side of the slide, we highlight how the commercial property sector is performing better-than-expected in the wake of the COVID-19 crisis. We remain comfortable as before with our commercial property finance portfolio, which ended 2020 with a credit loss ratio of 54 basis points, also only marginally above its peak of 53 basis points in the global financial crisis. And that, due to it being a high-quality, well diversified and collateralized portfolio. With a low average loan-to-value of 50%, which we updated for the year-end 2020. And in respect of which we completed the revaluation of 4,500 properties in the second half of the year, representing 65% of all exposures, and that included our top 20 largest deals with a loan-to-value, greater or equal to 50% and all deals with greater than ZAR 250 million in exposure and a loan-to-value greater or equal to 65%. And finally, a very low level of client arrears. Nevertheless, to ensure we remain appropriately conservative and prudent in our provisioning and informed by our stress testing, we increased the commercial property finance overlays to $440 million at the year-end. Thank you, and I'll now hand over to Mike Davis.

Thank you, Trevor, and good afternoon, everyone. As you have heard from Mike and Trevor, Nedbank has navigated the COVID-19 crisis well. And from a financial perspective, I'm pleased to report that our balance sheet remains robust and liquidity and solvency position strong with profitability metrics impacted by lower revenues and increased impairments. Expenses were well managed. 2020 was a very difficult period for banks and our shareholders. Looking at the key drivers of value creation in our bank, net asset value per share increased by 1%. The group's ROE declined to 6.2%, well below our cost of equity, but improved from the 4.8% reported in half 1. And as Mike noted, no dividends have been declared from our 2020 earnings. We are actively managing these drivers and expect an improvement on each of these, in line with the guidance that Mike will provide at the end of the presentation. Profitability metrics were under pressure during the year, as mentioned earlier, primarily as a result of lower revenues and increased impairments. Headline earnings and DHEPS both decreased by 57%. Basic earnings per share were down 71%, reflecting the ZAR 750 million impairment we took on our ETI investments in Half 1 accounting for our share of ETI's own goodwill impairment in Nigeria to the value of ZAR 528 million, as announced in the September results and a $355 million goodwill write-off relating to our SA Wealth businesses given the difficult environment. These ranges are in line with the trading statement we released on 5th March 2021. Total comprehensive income declined by 60%, impacted by these drivers, but partially offset by foreign currency translation gains, given the weakening of the rand. Our balance sheet metrics remained resilient. Deposits grew ahead of advances and liquidity and capital position -- and well above regulatory requirements, having absorbed a significant stress event. The credit loss ratio decreased to 161 basis points, and our total coverage ratio increased to 3.25%, a multiyear high. Turning to our usual waterfall graph, where we show the key drivers of headline earnings decline. NII declined marginally, but NIR was down 7% from the prior period. Impairments increased by 114% and was the key driver of HE decline. Associate income also declined as we accounted in 2020 for our share of the ETI interest related restatement included in the 2019 results. Again, expenses were well managed. Looking at our results across the halves. HE declined less than half 2 when compared to half 1. This was driven by higher second half NII, lower impairments in half 2 and higher associate income given the improved financial performance from ETI in quarters 2 and quarter 3. Pleasingly, for the full year, we performed in line with the guidance we provided with NII and NIR at the top end of our guidance range, impairments, just below the midpoint and expenses towards the upper end. Turning to the balance sheet. Gross advances declined by 2%, impacted by the 8% decline in CIB banking advances. The graph on the right provides more insight into the monthly developments during the crisis. With CIB initially benefiting from increased client drawdowns on existing credit facilities, while RBB was negatively impacted as secured lending came to hold, particularly in April. In the second half of the year, RBB's momentum accelerated, but CIB experienced lower client use of existing facilities, lower levels of demand for new loans and higher levels of repayment as the need for liquidity declined. These trends are more evident when reflecting on the quarters. New loans have decreased in quarter 2 and quarter 3 with a small uptick in quarter 4. Existing balances were initially driven higher by client search for liquidity buffers at the heart of a crisis at the end of March, supporting strong growth in the first half. In the latter part of the year, we also increased our focus on RWA optimization, and you will later see the benefit thereof coming through our capital ratios. Lastly, the increase in currency devaluation reduced in the second half of the year as the rand strengthened. Providing a little more insight on RBB lending developments and starting with the top 2 graphs, home loans and motor vehicle loans growth slowed materially during the lockdown level 5 period as the deeds office and motor dealerships closed. Since then, growth in applications have been robust given the pent-up demand rates and lower asset prices. Recent application volumes have also been higher than 2019 averages shown in the dotted lines on the graphs. On the bottom, personal loan application volumes declined in Q2, but recovered in half 2, driven mainly by our digital sales capabilities and higher take-up rates while card also recovered nicely in the second half. Deposits grew by 6% ahead of advances growth, improving the group's loan-to-deposit ratio to 88%. Current accounts and savings accounts and cash management saw solid increases of over 30% as clients built up short-term cash surpluses rolling maturing term deposits into the short end. As a result, growth in term deposits and fixed deposits was muted as the shift to short-term deposits took place. NCDs and other deposits also declined year-on-year. Turning to the income statement. NII declined slightly, driven by a 4% growth in average interest-earning banking assets, but this was offset by a lower year-on-year margin. The decline in NII was better than expected, coming in at the upper end of the guidance we provided. Given the deep interest rate cuts of a cumulative 300 basis points, our NIM declined by 24 basis points over the year as a result of the loss of endowment income. Liability pricing reduced NIM by a further 10 basis points as a result of very competitive pricing in the market. Pleasingly, we have seen the benefit of asset repricing in half 2 increase NIM by 16 basis points in the second half, and this will partially support NIM in 2021. High-quality liquid asset strategies also added a further 7 basis points to the group's NIM. Turning to NIR. Growth declined 7%, also at the upper end of our guidance. The key drivers, commission and fees declined by 9% given subdued client activity. Trading income increased 16% as we benefited from volatile markets and increased client volumes although growth slowed in the second half. Insurance income declined 12%, impacted by higher loss of income and funeral claims. Private equity declined by more than 100%, and I will unpack this in the next slides. Fair value income increased by more than 100% as a result of gains from the group's fair value hedge accounting solution, and this benefit partially unwound in half 2 as we had expected. A deeper dive into the RBB transactional drivers highlights the negative impact of lockdown, particularly in Q2. Volumes, however, recovered into the second half across POS devices, ATMs and digital channels although branch volumes remain below March levels, and this can be seen in the 4 graphs on the left. Pleasingly, cross-sell on new sales increased to 1.9% compared to 1.2% a year ago on the back of digital innovations and our core plus focused cross-sell program. Main bank client numbers increased from the levels we reported in half 1, given the dependency in our definition on clients doing a certain minimum or minimal level of transactional activity. Trading income grew off a strong 2019 base with a very good performance in half 1 across all asset classes, while trading activity was more normalized in the second half. Private equity income was significantly impacted by negative equity revaluations to unrealized portfolio investments following weakened client profitability and lower listed market prices in our investment banking business. In addition, in property finance, the decline was driven by equity valuation overlays to reflect expected reductions in valuations over time. The negative revaluations did not repeat to the same extent in half 2. Our insurance businesses experienced a substantial increase in claims, volumes, in particular, loss of income and funeral claims due to the COVID-19 related support we provided to our clients. The peak and claims volumes was experienced during the third quarter of 2020. However, we noted lower levels of loss of income claims during the fourth quarter. Ned Group investments delivered a strong overall performance with growth in market share, particularly in lower-risk products such as cash and fixed income funds. The business attracted positive net flows with a 13% increase in assets under management to ZAR 375 billion. Impairments increased to 114%, down from the 202% reported in half 1. The increase was primarily driven by increases in Stage 2 and Stage 3 exposures, as Trevor noted earlier. Our credit loss ratio increased year-on-year, but was down on the half 1 level of 187 basis points, restated by 6 basis points for listed corporate bonds now included in advances to align with industry practice. At 161 basis points for the full year, our credit loss ratio was below the midpoint of the guidance we had provided. Similarly, all our cluster credit loss ratios increased year-on-year with CIB, RBB and Nedbank Africa regions reducing from the first half. Expenses declined by 1% and came in at the upper end of our guidance range. The decline was driven by lower staff costs as headcount declined by just over 1,000 people, largely through natural attrition. A strong focus on discretionary spend and incentives were adjusted downward due to the decline in profitability. Computer processing costs, however, continued to increase as a result of new ways of work, but we are seeing the benefits come through in efficiency gains from our digital channels and savings from TOM 1.0, as referred to earlier by Mike. The decline in discretionary spend included marketing, communication and travel expenses, although we did have to incur additional spend to ensure the health and safety of our staff and clients. With respect to capital, our CET1 ratio increased from the 10.6% reported at June, given high levels of profitability in half 2, a slowdown in advances growth as well as higher levels of RWA optimization. At year-end, we had a ZAR 23 billion surplus capital position above the regulatory minimum. Under various downside stress scenarios, we also test for downside risk and under these scenarios, capital levels remained well above regulatory requirements. Before I hand over to the cluster MEs, a quick overview of the cluster performances CIB, RBB and Nedbank Africa regions all recorded better performances when compared to half 1, while wealth, which had recorded a better half 1 performance when compared to the other clusters, saw a higher earnings decline in half 2 versus half 1, but still maintained its ROE above cost of equity. The earnings in the center reflect the impact of increasing our central provision to ZAR 750 million, and the base impact of the PRMA credit in the 2019 base. Thank you. I now hand over to Anél, who's dialing in from home.

Thank you, Mike, and good afternoon, everyone. As outlined before, 2020 was an incredibly challenging environment, manifesting in high impairments and lower equity valuations, particularly in aviation, hospitality, property, consumer goods and construction and cement sectors. This resulted in increase of CLR to 82 basis points, as noted in the last bullets. CIB's gross income declined 6.4% to ZAR 14.7 billion. NII decreased by 1% to ZAR 7.3 billion despite banking advances growing 6% as clients drew down in H1 on liquidity facilities. While a revised credit backdrop meant asset margins expanded, lower endowments and increased cost of liquidity resulted in NIM decreasing by 12 bps. On the NIR side, trading income grew by 16%. With most of the growth in H1 and the expected normalization to 2019 levels in H2 as volatility fell and the curves compressed. Transactional services saw growth of 5%, with 37 new primary bank clients during 2020. These were offset by lower equity valuations and lower fee income with a 12% decline in NIR to ZAR 7.2 billion. Adjusting for the impact of equity revaluations in both 2020 and 2019, NIR growth was 3%. Expenses were well contained, declining 2% over the year, resulting with the above factors in a headline earnings decline of 41% to ZAR 3.6 billion. We focused on capital, producing RWA savings in excess of ZAR 60 billion through actively managing the portfolio, which partially offset increased capital as credit deteriorated leading to an ROE of 9.4%. We reworked our strategy in 2020 to introduce agile [indiscernible] gaining more strategic control and mobilize our people to adapt to the fast-changing environments. We believe our credentials will strengthen ESG have an important part to play in creating a sustainable and growing franchise. Climate change is the defining battle of our generation, and we will use our financial expertise to play a part in achieving a sustainable future. We followed up our successful green renewable issuance in 2019 by raising ZAR 2 billion through a first of its kind ESG linked bond instruments listed on the green segment of the JSE. We also established a dedicated sustainable finance solutions team. Our contribution to sustainable growth remains the key focus and we will look for opportunities to support the government's economic reconstruction and recovery plan with focus on infrastructure and using our strong sector expertise and market leadership in renewable energy. This requires building strong mutually beneficial partnerships with our clients. And to this end, we benchmarked our coverage model against best practice and confirm that we are set up to identify client needs and drive cross sell-through sector-specific RMs and developing deep detailed client insights through data analytics. Detailed cross-sell metrics and maximizing client service through digitally, tracking pre and post-transaction interaction. We are committed to Africa. Our strategy and portfolio will continue to show momentum in that direction. Globally, our industry is increasingly seeing technology as a core capability of product delivery and innovation with our digital strategy is aligned to. There is also a growing focus on client experience. We still take the view that deep quality client relationships are paramount, but acknowledge the importance of our digital ambitions to fulfill on a warm digital and seamless operational engagement. We are piloting other digital business, where clients will be able to onboard and self service. Optimization, as shown in the middle of the slide, is another theme which we plan to continue focusing on. Last year, we managed our capital proactively, and we'll continue to do so by enhancing the optimization of our portfolio in line with global trends focusing on delivering our ROE ambitions. We will ensure we are focused on the right sectors, clients, products, all with the consideration to ESG. On people, 2020 was a challenging year for all our staff, but it has been gratifying to see how resilient and hard-working our teams have been. As we go into 2021 COVID-19 and its socioeconomic impact will remain challenging. We are focusing on accelerating our digital change agenda as well as leadership programs to build the right skill sets to lead an agile organization of the future. We will continue to drive to ensure that we build a culture with diversity, equality and inclusion at its heart. Our vision of the future is a CIB, which focuses on its strategic advantages. A balanced and optimized portfolio, which leverages our strengths and adds true value to our clients. This will mean transitioning to be more ROE focused, which will require greater focus on transactional relationships, cross-sell and sector leadership as we look to grow NIR. Our underlying business is solid with a robust pipeline, and we will continue to build out our market-leading position in various sectors. We are continuing our efforts to assist clients, protect business and save jobs by providing highly focused client service and assistance we needed. We expect improvement in our CLR over 2022 as emphasis on providing proactive risk management continues. We believe that any success in our transactional services business will depend on our ability to deliver our digital revolution building in a strong transactional franchise. While we acknowledge that data growth is dependent on an improvement in business and consumer confidence and an enabling economy, our key strategic focus areas will ensure that CIB will play its role in building a strong, equitable and inclusive South Africa and believe this is critical to the success of Nedbank. Thank you. And I will now hand over to Ciko.

Thank you very much, Anel, and good afternoon, everyone. Retail and business banking's financial performance was severely impacted by the COVID-19 pandemic as well as lockdown measures in 2020. Headline earnings for the full year declined by 70% from ZAR 595 billion. The HE decline of 49% for the second half was an improvement on the 91% reduction seen in the first half of the year. The main drivers behind the decline are an 81% higher impairment charge as well as a 5% drop in revenue. NII, although underpinned by moderate growth in advances and deposits decreased as a result of higher funding costs and lower endowment income, given the cumulative 300 bps decline in interest rates. Lower NIR was driven mainly by a reduction in client's transactional activities and lower client acquiring revenue, particularly in the travel and leisure sectors, where we have a large market share. Impairments increased as claims felt the effect of earnings reductions on their cash flows due to the pandemic. This was partially offset by concerted collections efforts towards the end of 2020, which resulted in a better-than-expected financial impairment charge for the year. Expenses were well controlled as we continue to extract structural efficiencies on top of reducing discretionary spend due to the COVID restrictions. Capital allocation remained flat and coupled with a much lower earnings resulted in an ROE of 5.4%, well below our aspirations in the prior year, but up from the 1.5% reported in June 2020. Mike covered the progress we have made in our digital journey earlier. On this slide, I demonstrate the tangible benefits now being achieved as a result of the digitization of personal loans as the first product or client journey that we fully digitized under the Managed Evolution program. Starting on the left, the digitization and automation of products and processes enabled us to expand to new channels. We have now launched our fully digital personal loans API solution, which enables both Nedbank, and Nedbank clients to take out personal loans or pay for goods and services with just a few clicks ending under 10 minutes. The shift to digital continues to gain momentum as evidenced by the 43% mix of business now coming from direct channel, which are call centers and digital solutions, and the impact on client satisfaction levels has been significant as we improved both our FSC as well as our Net Promoter Score ratings in personal loans from #3 to #1 one. This, along with digitization has resulted in our personal loans market share increasing from 10.2% to 11.2% in a year without relaxing credit criteria. In fact, approval rates have declined, but because of more efficient and effective processes, we were able to increase disbursal rates of approved loans. So in essence, growing our share of high-quality business. This is also evident in improved cross-sell. Transactional cross-sell post the sale of a personal loan including Nedbank has increased from 1 in 10 to 4 in 10, and it remains a key lever in growing our main-banked client base. We also now pay a personal loan into a Nedbank account, 70% of the time, up from 50%. Becoming more efficient and embedding the client centered operating model are a key part of the overall group TOM 2 program referred to earlier. We are busy implementing our newly launched and more efficient operating model as we digitize our business to ensure we are structured to be responsive to the digital future in how we operate and transforming our physical channel infrastructure to be relevant in the digital future. This is our Project Imagine. We are currently piloting different distribution channels like the easy access branch, which is designed for our high-volume township markets. In these branches, we have streamlined the product offerings to the dynamics of the market focusing on 4 key products: transaction of ZERO fee pay-as-you-use; simple credit card; personal loans; funeral cover as well as to offer value-added services that clients might be interested in. This is an example of the unit distribution for [ Nedgroup ] exploring to align to clients' needs. In addition to this, we are pivoting the RBB organization towards the primarily client-centered structure. This will focus on strengthening the focus on segment value delivery and improve client interaction. This pivot will build on the consolidation of operations, particularly focused on client servicing, product admin and risk, but also including supporting the enterprise-wide TOM 2 work and alignment with the group's efforts. This was called Project Phoenix. Growth factors in RBB will help us to look for sizable growth opportunities in new areas and will offer us alternative sources of revenue over and above what we have already in place. These include entering new markets, such as the Township Economy as well as seeking to further penetrate existing markets through our Core Plus cross sell initiatives, thereby diversifying our offering and creating new solutions and capabilities to best service our clients. We will also be focusing on expanding and fully commercializing its existing offerings, such as: Avo, our super app; the new Greenbacks programme; and the API marketplace with key focus on lending. Whilst, also launching new innovations, including MoneyTracker, which is Nedbank's integrated personal financial management tool; international payment features on online banking and money app; and the business hub portal to enable self-service for larger businesses. We will also be expanding our product development on simple insurance offerings as well as on value-added services. And finally, topics for the rest of 2021 and beyond, we anticipate a partial rebound in 2021. The rebound will be driven by continued momentum in the growth of advances as we land our digital capabilities in lending as part of Managed Evolution and in line with our SPT 2 aspirations. Secondly, a recovery in the credit loss ratio of the high base of 220 bps in this period. Thirdly, a continued focus on diversifying our NIR revenue streams as we recover from the impact of the COVID pandemic and as we invest in our growth sectors, as mentioned earlier. And finally, by continuing to focus on driving optimization of expenses further through Project Phoenix analytical engine as well as the TOM 2 group-wide effort. To support our clients in the endless age, new normal, we remain committed to delivering on our client set up growth strategy and on broadly executing our plans to deliver delightful client experiences through digital transformation. RBB has a big focus on restoring ROE to above the cost of equity. From the current loan levels of 5.4%, brought about by the adverse impact of the COVID pandemic, through both robust revenue growth across traditional lines of business, as well as from the identified vectors of growth and also from continuing to run a cost effective business that leverages strongly of the investments we continue to make in digitization and in a motivated commercially savvy and client-centered country of people. Thank you very much, and I'd like to hand you over to Iolanda in Cape Town.

Thank you, Ciko, and good afternoon, everyone. Nedbank Wealth headline earnings declined 36.5% to ZAR 662 million and ROE remain resilient above the cost of capital at 15.3%. Asset management delivered strong overall performance with net inflows and good AUM growth of 13%. This was offset by a substantial increase in credit impairments in the local wealth management business and low interest rates, both locally and internationally as well as higher claims in the life portfolio in insurance. Nedbank Wealth is committed to ensuring operational resilience and sustainable growth and with this in mind, we have identified a number of growth vectors. Wealth management will be positioned integrated offering, focused on active cross-selling into the wider Nedbank Group, drive digital enablement and establish our international business as a high net worth advice less business. In asset management, we want to focus on maintaining momentum in cash and passive, grow our institutional offering locally and internationally and leverage our access to the group's distribution and digital integration. And lastly, in insurance, we want to drive the execution of strategic initiatives such as the launch of the personal line solutions to the broader market, which will also be included to a number of the Nedbank digital platforms such as the Money app during the first half of 2021. In addition, we will further improve their capabilities, accelerate mobile and digital delivery and commercialize existing assets. One of our key focus areas is to provide simple, easy and secure solutions for our clients. By leveraging our strengths, which include a holistic high net worth wealth offering, best-of-breed exclusivity and a fully comprehensive personal lines offering, we aim to grow new clients, deliver long-term performance and expand our mobile and digital capabilities. Our 2021 headline earnings will be influenced by lower credit impairments and improving upsell and cross-sell initiatives in the local wealth management business, partially offset by the negative impact of the record low interest rate environment in the international wealth management business. Growth in market share and cost efficiencies as a result of automation in asset management as well as increased penetration into the Nedbank Group and normalized credit life claims in insurance. In support of the group's medium to long-term ROE target, Nedbank Wealth is committed to delivering strategic initiatives that will increase returns, which includes the collaboration into the border Nedbank Group. The business will focus efforts on cost containment and will continue to drive capital optimization initiatives. Throughout the crisis, we have continued to deliver ROE above the cost of capital and are focused on improving this back towards pre crisis levels as quickly as possible. Thank you, and I'll now hand over to Terence at 135.

Thank you, Iolanda, and good afternoon, everyone. You would have all heard how this terrible pandemic and the resultant economic impact has affected our South Africa business. The Nedbank Africa Regions business has been no different. Our headline earnings from the Nedbank Africa Regions business declined 97% to ZAR 12 billion, resulting in an ROE of 0.2%. The SADC subsidiaries produced a loss of ZAR 141 million from a headline earnings of ZAR 20 million in 2029. The loss was driven by lower revenue payments due to the COVID-19 impact as well as an ZAR 89 million net monetary loss at an HE level as hyperinflationary pressures persisted in Zimbabwe. The credit loss ratio increased 185 basis points from 101 basis points in 2019. Revenues were impacted by lower NIR, down 11% as advances growth slowed while pleasingly, NIR grew 19% as transaction volumes and digital usage increased. Expenses decreased by 5%, underpinned by the good management and overall cost containment. Nedbank's HE from ETI declined 65% from the prior year to ZAR 153 million, and ETI's performance was adversely affected by adjustments in Nigeria beginning being the prior year interest rate accrual restatement, which we booked in the first half of this year amounted to ZAR 236 million, and their goodwill impairment in Q3 relating to the Oceanic acquisition. Excluding the effects of these items, associate income from underlying operations was down 12% at ZAR 587 million while HE was lower by 11% at ZAR 388 million. Notwithstanding these adjustments and the difficult environment with weak oil prices the West and Central African regions continued to deliver strong results above their cost of capital, and ETI continues to report strong ROEs in 3 out of their 4 regions. Turning to reimagining our NAR business. While the NAR contribution to the group is currently small, we are investing in the franchise for the future, as GDP on the rest of the continent is expected to grow significantly faster than that of South Africa. In this context, turning to key segments in our NAR business, the pandemic has accelerated our digitization and automation rollout. In Namibia, we launched IDToday, a digital identity management service, which allows our clients to open a bank account on their phone by taking and sending a cell fee. And to submit their identity documents remotely. We launched trended Send Money in Namibia Lesotho and Eswatini. So clients can now send money to anyone with a valid cellphone number, while in Zimbabwe clients can now transfer money from the Nedbank from the Nedbank mobile banking app to any Ecocash mobile number. We are proud that our progress has also been acknowledged externally. In 2020, we received awards for the best digital bank in Lesotho and Mozambique and an award for the most innovative bank in Eswatini. During 2020, we [ grew ] our digitally active clients by 75%. We increased our stake in Banco Unico to 87.5%, meaning we are now well positioned for the future growth opportunity that Mozambique presents. We also completed our exit in Malawi in H1 of 2020. We had a small market share in a small market in itself. As part of Zimbabwe reconfiguration, work is being done to reshape the balance sheet in an effort to reduce the net monetary loss from hyperinflation. We are making the business more digital, while also refocusing on its wholesale opportunities and transactional banking, trade finance and indeed, cash management. From an ETI perspective, on the right-hand side of the slide, we've continued to support the business in our role as a strategic minority shareholder. Our main focus remains optimizing the value of our investment and increasing deal flow between us and our mutual clients. ETI has a very strong franchise in Western Central Africa. They are top 3 in 13 of the 16 countries that they operate in, and ETI and the 2020 very strongly, reflecting an improvement in both its Tier 1 and its total capital adequacy ratios. African economies are emerging from the deep COVID-19 induced recession and beginning a subdued recovery. We expect COVID-19 and the potential lockdowns due to the increase of infections to continue to impact African economies in 2021 until a significant percentage of the population is vaccinated. Growth in Sub-Saharan Africa is expected to rebound to 2.7% in 2021 before firming to 3.3% in 2022. Performance in HE and ROE in the SADC region for 2021 is expected to improve year-on-year, but the COVID-19 pandemic will still impact the overall economy and business performance. Our focus areas are therefore going to be: transforming our business model for overall efficiency; leveraging our increased investment in Mozambique to address opportunities in growth sectors; and accelerating the digitization and automation of our businesses; and completing the reconfiguration of the Zimbabwe business. In ETI, we see more positive prospects for 2021, as evident in their recently released financial year 2020 results. We continue to work with other shareholders to find solutions to challenges faced, in particular by the Nigeria operation, so that we can unlock common shareholder value. In summary, despite a challenging macroeconomic environment, we expect the Africa Regions business in the medium to long-term to grow with overall contribution to group earnings and materially improve its return on equity. Let me now hand over to Mike.

Thank you, Terence. After demonstrating how we remain resilient in 2020 and hearing about the strategic growth drivers from our cluster managing executives, I will conclude by bringing this all together for the group. To start with, it's important but obvious, the environment remains challenging, volatile and uncertain. And as a result, forecast risk remains high, particularly in the shorter-term period, that the development and rollout of vaccines races against new waves of the virus and new variants thereof. As we reflect on 2020, it's remarkable with hindsight, how accurate the Nedbank economic units forecasts on key economic data points at the time of our interim results. That's the left-hand column on the slide. Have turned out to be, with the second column from the left, representing either the latest forecasts or actuals where these have been reported. Our forecast for 2021 highlight a recovery in GDP growth to 3.4% off a low base, and they assume no regression in lockdown levels beyond Level 3, even in the event of further waves. Interest rates and forecast remain flat before increasing 50 basis points in 2022 and inflation increases over the period, but remains moderate. Credit growth is expected to recover towards mid-single digits. But in 2021, growth will likely be more skewed towards the second half. Growth from 2022 will also remain modest. South Africa's fiscal position remains challenging, and the budget deficit is expected to peak at around 14%, and we forecast that government debt to GDP will increase to 94% by 2024. Slightly worse than recent budget estimates. The importance of economic outcomes to our banking industry are highlighted on this slide. Banks are highly integrated into the economies where they operate. Our clients' activities make up the economy. And as banks, we facilitate capital flows into lending and investments and almost all transactional activity. Therefore, it's no surprise that bank earnings are correlated to GDP. We saw this during the global financial crisis. And in 2020, when we saw a significant decline in GDP growth, bank results to date show that the South African earnings of banks of the banks that have the same December reporting period as Nedbank are down between 50% and 68%. Our economic unit currently forecast GDP to get back to 2019 levels by late 2023 or early '24. Our relative share price performance in 2020 was disappointing. On the back of our 3-year economic forecasts, and delivery of our strategy, we have revised our medium-term targets for key metrics for shareholder value creation. By the end of 2023, we are targeting to get both diluted headline earnings per share and return on equity back to or above our 2019 levels of ZAR 25.65 and 15% for these metrics, respectively. These will also become part of the key corporate performance targets for the current year issuance under our long-term incentive scheme. Our focus on lowering our cost-to-income ratio over time remains. And while in the year ahead, we do expect upward pressure on this ratio, we aim to reduce this ratio to below 54% by end 2023 in support of achieving the DHEPS and ROE targets, together with, of course, a reduction in our credit loss ratio back within our 60 to 100 basis points through the cycle target range in 2023. Delivery of these targets, along with the resumption of dividend payment from interim results in 2021, we believe should be value-enhancing for shareholders, given our current price-to-book ratio of around 0.7x. We also thought it appropriate to explicitly set a target for client satisfaction, and here we aim to be #1 in Net Promoter Score by 2023, having improved from being #3 in 2019, and more recently, having achieved the #2 position in 2020. To meet these targets, we have revised our strategic focus areas in the form of what we call value unlocks, and these include a focus on balance sheet optimization and cross-sell to drive transactional growth. We call this SPT or strategic portfolio tilt 2.0. Efficiencies from technology and organizational design, we call this target operating model or TOM 2.0, market-leading client solutions, disruptive market activities and leading sustainably. Going forward, we will report on progress on these, and they will replace the current spine of our strategy. Turning now to our usual format of shorter-term guidance for 2021. For net interest income, we expect growth to improve from the flat outcome in 2020 as loan growth is expected to recover slightly. We expect the net interest margin to contract slightly as a result of the run rate impact of the historic interest rate cuts on endowment, with this being only partially offset by the benefit of improved asset pricing. The credit loss ratio, we expect to reduce from the 161 basis points in 2020 to a range of between 110 and 130 basis points. This is probably the one line with both the largest up and downside risk given the race between vaccines and the virus and the impact the differing levels of lockdown under any third wave could have. Noninterest revenue growth is expected to recover off the low 2020 base, an increase between 5% and 9%. Expenses, as always, will remain tightly under control. But some additional new costs are expected in 2021, like regulatory costs for deposit insurance between [Audio Gap] and some discretionary and incentive costs are expected to return in 2021, resulting in expense growth being higher than more normal expense growth off the lower 2020 base. And as a result, a short-term deterioration in the cost-to-income ratio is expected before returning to lower levels of expense growth and a reducing cost-to-income ratio in 2022. Capital and liquidity levels are expected to remain well above regulatory minima and within our Board targets. With adequate buffers in place to support our clients and the economy. Finally, on dividends, given the group's robust balance sheet and projected levels of earnings growth off the low base, the Board does expect to resume dividend payments when reporting interim results in 2021. In closing, in a period of unprecedented health economic and social challenges that impacted our staff and our clients, in 2020, Nedbank Group remained open for business to support our clients and the economy as well as being both profitable and resilient, reflected in an improved second half financial performance and with capital and liquidity metrics well within Board approved targets, well above all prudential requirements and with these metrics improving in the second half of the year. From this base and given our improving outlook for the economy, while we are in no way complacent and health and lockdown risks remain, I believe we are well positioned for growth into the future. Both in 2021 and beyond and delivering on our strategy and our medium-term targets in 2023, should deliver significant shareholder value creation from current levels. Thank you, and may you and your loved ones stay healthy and safe. All right. Thank you, everybody. We're now going to go into some questions and answers, and we're going to start with, if there are any questions on the telephone lines, and after that, we will go to the webcast where questions have been typed in. So starting with the telephone lines. Are there any questions?

[Operator Instructions] The first question comes from James Starke from SBG Securities.

Just a comment really, initially. First would like to commend you and the team on providing very vivid guidance early on in the case, I think it is quite very much appreciated. The questions are as follows. On dividends, will there be some shape to how you plan on resuming dividends through FY '21 relative to the guided range on your payout? And then regarding -- first one for Ciko, on consumers. I mean, has there been any change in the priority consumers are giving different kinds of loan repayments, particularly on auto, are you seeing that change at all from pre-COVID levels? And then also on some color regarding the application and disbursement rates. I know you gave some feel for it on Slide 79, but if you could flesh that out perhaps with some percentage rates as well. And then lastly, first one for Mike Davis. The RWA density, how do you see that evolving from here?

Okay. Can we see if there are any other questions on the telephone lines?

Okay. The next question comes from Charles Russell from Citi.

And while we are in commendation mode, thanks for the detailed slides. Two questions from my side, if I may. The first one is, if you could please elaborate on the growth opportunities that you mentioned as one of the reasons for not paying a dividend now. And then the second one, if you could also just explain what you specifically attribute the strong improvement in your Net Promoter Score to -- over the past few years. What specifically is delighting the clients?

Okay. Thanks very much. We will take those questions, and then I will cycle back again. So just starting with James. So first, I want to say thank you. We did feel that it was appropriate during the course of last year to significantly increase investor communication and then within our interim results to provide guidance through to the full year, notwithstanding the volatile environment. And certainly, we were pleased to land within all of that guidance. The question on the shape of the dividend. The Board currently assumes that we will begin to repay dividends alongside the interim results in June, as stayed with this, but no thought yet has been given to the shape whether that shape will be within the 175% to 225% range or outside of that range, it will largely be determined by conditions and levels and in particular, I would imagine the outlook for the virus and vaccines at that point in time. Perhaps I'll just jump to Charles Russell's question because it is also related to the dividend. So really what the Board did in thinking through the decision not to declare a dividend. As you heard was certainly, consideration was given to the spirit of the guidance notes. We also looked at the fact that at year-end, our capital liquidity ratios are actually strong enough to have paid a dividend. However, we do know that it's difficult to forecast growth in this current environment. And what opportunities may or may not transpire in my experience, environments like this do throw up opportunities. The second thing from a dividend point of view is clearly the outlook for the virus and its progression. So the Board would have thought through those and knowing that if those growth opportunities don't show up or are less than we think. And if the virus plays out like we currently think, and we do have more capital than we previously thought, that capital can still be returned to shareholders through higher dividends in the future. Ciko, I just want to check that you are online and can answer the question in respect of the priority of payments in the current environment and some data on the application and disbursement volumes.

I'm testing, if I heard Mike. Can you hear me?

We can hear you fine.

Fantastic. Thanks, James. Thanks for the question. I'll start with yours first, and then we can go to Charles's one. Not materially, James, in terms of the change in consumer choice of whether he choose to pay. What is definitely going up before the pandemic hit was, you would know that in kind of over the past 2 to 3 years, we tightened our criteria on personal loans quite materially. So we were always writing a better quality of business already going into the pandemic, certainly in unsecured lending. And we've got a slide that you can share with -- show you our this share of what you refer to as [ Eclipse ] business based on the [indiscernible] that we picked from the credit bureau. And our share of better quality client continues to increase. So we still haven't deteriorated that. Similarly with that, but in the period before the pandemic, we also started taking out some risky profiles in our lending criteria. So we tried [Indiscernible] more downward pressure on repayments on credit cards relative to the other lending platforms, but not so much on the other one. So we do project that we'll see pressure certainly in the web space. But for now, we're not seeing pronounced changing in the choice of where customers choose to spend their repayments money. So hopefully, that deals with that. But we'll stay on top of it, and we'll update you kind of as we go along. And then secondly, to Charles's question around the drivers of NPS. It's probably a game of 2 things, Charles. I think the investments that we've made in the digital experience across the customer-facing interface in the business has delivered great client experience outcomes for clients. So if you think about the pairs that we've done in the entire journey from digital from onboarding to taking a whole lot of services away from seller points in the branch network and digitizing those, putting them into guidances, putting them on the web, really upping the capabilities that we've introduced in our app in the ability to block cards, if you've lost them, et cetera, et cetera. But the cumulative effect of that has been -- and we've had feedback from clients has been that clients like that stuff. And it certainly taken a lot of grit out of the client experience, secondly, in the physical clients interfaces and obviously, for those who love digital as well. The other thing that we've done in the last while, and the last while refers to the 12 months. We've rolled out a program called Service Excellence, which is really about trading our frontline people, about excellence in the client interface. We've rolled it out. Unfortunately, we were disrupted by the pandemic. It's actually a classroom based simulation, which would help to change and pivot and make a digital infection as a consequence of the pandemic hitting us. But certainly, what we've seen, the feedback from staff has been fantastic. They love it. And the energy and the learnings that they take from the FX simulation and other learning exercise has been translated directly to clients. And clients are very happy with the interaction with our frontline staff. So that's been another big contributor as well.

Great. Thanks, Ciko. And then, James, your question on RWA density, I'm going to ask Mike Davis to answer.

Yes. Thanks, James. And you would have seen aslight decrease in the RWA density at the end of 2020. The way we're currently thinking about that modeling that is that, we think slightly lower market risk going into -- towards 2023. And as a result of SPT 2.0, we would expect a slight increase in the relative increase of credit RWA as we have appetite to take on more -- a little bit more unsecured lending in order to leverage together with technology to leverage more main bank clients and cross-sell opportunities. So slightly higher relative credit RWA and lower market risk RWA.

Can we go back and see if there are any more questions on the telephones?

At the moment, there are no further questions on the audio line.

Okay. So I'm going to go to the questions on the web, which I will read out. So we all have the benefit of them. The first series of questions and the three of them come from Ilan Stermer at Rencap. The first question, and again, Mike Davis, if I can ask you to pick this up, Ilan says, RBB deposit growth was only 4.1%. Current and savings were up 14% or 15% in line with peers, but the rest of the line items showed low positive growth or even reduced, yet CIB deposits were up materially, sure [ ecorporate ] is more expensive.

Yes. Thanks, Ilan. So first of all, very pleasing growth across CASA, as you correctly point out, in the RBB franchise. Disappointing growth in the investment space or fixed deposit space in the RBB franchise, largely as a result of very competitive pricing in that particular space. So we weren't happy to [ follow ] the pricing as it related to new fixed deposits. And when we switch to the CI -- or strong growth, relatively strong growth in CIB, I think you need to unpack which lines you saw strong growth in and you'll see that, that was largely again in the current account and particularly in the cash management space. So short-dated transactional type growth in the CIB franchise, which, obviously, when you're looking across an upward sloping yield curve, it doesn't necessarily mean it's more expensive than chasing, for example, term deposits or fixed deposits in the RBB franchise, which we felt were being priced above wholesale market.

Okay. Thanks, Mike. The second question is on commercial property finance. And there's three bits to that question. The first one is does commercial Eco office. Yes, it does. Clearly, within office, there may be some -- within commercial, maybe some mixed-use, but it is largely question. Retail, 34% of the book is in retail. What proportion of that is in regional or super regional shopping centers? And is this where the bulk of the hair took place, given that LTVs have increased versus 2019. So you're right, 34% is in retail. We don't give you the split of exactly how much of that is in regionals and super regionals. However, 40% of our retail exposure is to listed funds and the listed funds are primarily in South Africa, the owners of regionals and super regionals. So that should give you a pretty good idea. And was that where the biggest hair cuts to LTV place? So we valued those properties all individually. And clearly, there would have been haircuts to retail properties. But the biggest haircuts, what we will specialized properties which include, in particular, hospitality and vacant land. Then the last question from Ilan is very similar to the one that we had earlier from James. It's the dividend, is it a gradual rebuild or straight into the 175 million to 225 million range? And I think the answer is exactly the same. The Board has not yet decided and we'll opine on that in June. The second questions we've got are from [indiscernible] [ web portal] is less than 24 and that's directed to me -- at Mike Brown. You've led the bank for 11 years now, and you've steered the ship very well through this 1 in 100 year crisis, but I'm sure that you want to leave on a high, what is Nedbank's succession plan? Obviously, you're still a few years away from reaching retirement age. But as Nedbank started to look at your successor could be or will it wait until you are closer to retirement? So for me, first of all, thanks for the complements. But I certainly still enjoy my role. And hopefully, I'm still contributing, particularly in times of crisis like this and have got lots of energy. But what I can assure you is that the Board, on a very regular basis, looks at all of the succession plans for all of the group Ex Co members. The next question that we've got is from [ Kuni Kalyan ] from Risk Insights. And it goes like this, at Risk Insights, we've been tracking your company's performance in terms of ESG, which we commend you on and your good performance on the ESG factors for the 2019 reporting period. During 2020, how much priority did Nedbank place on tracking environmental issues, particularly with regards to reducing pollution and harnessing clean technologies. I'm going to ask Trevor Adams to answer that.

Thank you. And thanks for the question, and thanks for the compliment. Certainly as the Green bank, we appreciate that. So certainly, COVID did not set us back on our focus on progressing in the environmental and climate space. It's certainly at governance level, one of the significant highlights we made was the establishment of a dedicated board subcommittee, the Group Climate Resilience Committee that is now in place. And I'm sure you would have seen in 2020 at our Annual General Meeting, we had 100% approval on our climate change related resolutions. Linked to that, we are on track to publicly disclose our energy policy in April, together with inaugural TCFD disclosure. So you'll be able to get a lot of detail and in addition to that, we've adopted the United Nations Sustainable Development Goals and built a framework around that against which we measure our progress and delivery. And again, you can find in the analyst booklet we've released with these results on Page 60, 61, a nice summary of our progress against the SDGs and again, in our integrated report, which we'll release in the latter half of April, there will be a lot of detail on our SDGs and just our progress around environmental issues generally. And I think finally, then, you would have seen our businesses talking to their focus on sustainable financing solutions on clean and renewable energy and then, of course, we currently have an issuance, ZAR 7.7 billion of green bonds and loans. So hopefully, that gives you a flavor of the very big emphasis we have and some of the progress we made in 2020.

Great. Trevor, just looking at the further questions, here there are two from Robyn MacLennan at Standard Bank Research around the restatement of growth loans and advances to include listed corporate bonds. So firstly, please indicate the credit loss ratios for H1 '19 and H2 '19 when similarly restated. And then the second one is, please indicate the restated stage 3 to total gross loans ratio for H1 '20 and H1 '19, again, given that the listed corporate bonds are now included under gross loans. So Mike Davis, I'm going to ask you to pick both of those up please.

So Robyn, on the credit loss ratio side for the full year '19, it was 3 basis points. So 82 down to 79. And then from half, it would similarly be approximately 2 to 3 basis points, so down 70 to 67, 68 basis points. And then with regards to the overlay on the staging side, I'll need to get back to you and send that to you.

Okay. Thank you. Then there are a number of questions around cost income and cost-to-income in general. So I'm just going to start with the one from Chris Stewart at 91. And Mike Davis, the question for you is, please elaborate on the mix of revenue and cost growth assumptions underlying your 2023, 54% cost-to-income ratio. It seems ambitious in the context of in ( only 50 basis points of rate hikes). I'm sure Chris is watching the feed tonight.

So Chris, you're right. I mean it is -- it's a tough target. I mean we know we're going to run hard to achieve that. I think forms the question is the fact that you're seeing reasonably strong growth and expenses across in 2021 as a result of base effects and you're run rating that into '22 and '23, but I need to caution against the base effects in terms of 2021 and then when looking across NIR and expenses into '22, '23, I think Mike quite nicely -- he closed with it just now in his presentation, where he highlighted that the 2 big catalysts for that are our successful implementation of TOM 2.0, where, again, we look to take costs out the back end as we incur higher costs and computer processing costs. As a result of initiatives across corporate real estate, across branches, across staff, et cetera, et cetera. And the numbers, as we indicated in the deck are around ZAR 1.8 billion worth of savings over the last 3 years under TOM 1.0 versus an increase in amortization costs of the tech stack that we both adjusted for inflation of around 1.1. We look to leverage out of TOM 2.0, which runs through to 2023 savings in excess of ZAR 2.5 billion versus the ZAR 1.8 million I've just referred to. So that's a big catalyst in delivering our cost-to-income ratio below 54. And then the second part of that, Mike, also closed with is the successful implementation of SPT 2.0, something you and I have been talking about for a while. It's really leveraging the balance sheet, having a bit more appetite for unsecured lending and looking to drive off the back of that. Cross-sell, higher cross-sell metrics and higher main-banked client status. So SPT 2.0, TOM 2.0, very important in getting to a cost-to-income below 54%.

And then Chris, your other question on the progression of the dividend cover, hopefully, we dealt with earlier in saying that no decision has yet been made in respect of the interim dividend. Then there are some questions from Mark du Toit at OysterCatcher Investments, again, on a very similar theme around cost income and cost-to-income targets. Could you unpack how you achieve the medium-term target ratio for cost income of 54%, given that 2021 is guided above 58% and that software amortization is running at a higher rate, up 23%. So again, Mike, I just ask you to then pick up on the cost growth in 2021 in the short-term and what causes that to be on the high side and then reflect the gain on the delta and software amortization and TOM 1 and TOM 2.

Yes. So first of all, in terms of what causes the base effects, we've got us obviously, certain discretionary expenses. We are looking to reintroduce in 2021. So that's the one like [ twin peaks ], things like, yes, things like similar expenses that are not in the base. And then the second issue is, obviously, there is a rebasing of the STI, LTI expenses that come through in 2021. And then, Mike, with regards to your reference to the higher growth in computer processing costs of around 20% or 23%, as I indicated earlier, a big part of that is the increased amortization cost or depreciation costs coming through as a result of that technology stack that we've built and really how do we leverage efficiencies across corporate real estate, branches, structure, et cetera, that offset that additional amortization spend that comes through that particular line.

Okay. Thanks, Mike. And I think that's probably also picks up a little bit on Stephan Potgieter from UBS. Question around operating cost growth guidance at 7% to 9% in '21, looking high, especially considering the revenue outlook piece, could you unpack that. I think Mike has, it has embedded in it, some normalization in incentives and the return of the costs like yes in marketing, together with some new costs from a regulatory point of view, like deposit insurance and twin peaks, are clearly those are all assumptions as to when we think those costs will begin run rating, and we're certainly going to work hard as a management team to try and come in at the low end or below that cost growth that's currently in our targets. Then Matthew Pouncett, I think, from Laurium Capital. Again, given your guidance for 2021, it's likely to cost-to-income ratio will increase first, one would make benefits from TOM off backloaded to '22 and '23, thus, OpEx is likely to see some substantial declines in those years. So again, I'm not sure that OpEx will necessarily decline substantially, but the growth rates in OpEx will be materially lower in '22 and '23, we believe, than 2021 coming off that low base in 2020. And then finally, from Mark de Toy, a comment, the targets in 2023 seem optimistic, are these stretch targets. Mark, they do certainly have an element of stretch built into them, and we think that, that is appropriate. And those will be the targets that are built into the corporate performance targets in our long-term incentive schemes, and we do think that it is appropriate that those targets themselves have stretched in them. So I think we've dealt with all of the questions now on the phone and on the web. Can I just check if there's anything more that we need to do?

We have no further questions on the phone line.

So all that remains is for me to say a really big thank you for listening to us. We hope you found that informative with sufficient detail, and we look forward to catching up later and stay healthy and stay safe. Thank you.