Well, good afternoon, and welcome everyone to Nedbank's group interim results broadcast. It's a great privilege for me to host the group's results for the first time as Chief Executive. The agenda of our presentation today, as shown on the left, will start with me providing an overview of the group's performance in the first half of 2024, a reflection on the operating environment, and the outcomes we achieved on our strategic growth drivers. I'll then hand over to Mfundo, our COO, who will provide an update on the progress we're making on our strategy, and Mike, our CFO, will then follow with an analysis of the group's financial performance, including that of our respective frontline clusters. I'll then return to close out the presentation with the outlook for the remainder of the year and our medium and long-term targets.
Now, you'll notice some slides are marked 'additional info' in the top right corner, and these are slides of additional information and insights, which we'll not speak to directly today, and which are available in our results booklet. Starting with the overview, the operating environment during the first six months of 2024 remained challenging. Economic activity was weak, impacted by high interest rates, persistent inflation, and general uncertainty ahead of the South African national elections. This meant corporates remained cautious, and consumers' finances were strained. However, a peaceful and fair South African election outcome and the swift formation of a Government of National Unity have created space for cautious optimism. On the strategy side, our delivery continues to show results, and we've seen good outcomes across our various strategic value unlocks, with a renewed focus on enhanced execution in support of ongoing value creation.
Mfundo will unpack this in more detail shortly. Despite the difficult operating environment, the group produced a strong financial performance, with diluted headline earnings per share up 12%, and our ROE, which is usually seasonally lower in the first half of the year, increasing to 15%. This performance was driven by lower impairments, good NIR growth, and targeted expense management, underpinned by a very strong balance sheet. Shareholders should also be pleased with the 11.5% increase in the interim dividend to ZAR 9.71 per share. The seamless transition from Mike Brown to myself was well-planned and well-executed. I've got an excellent working relationship with the board and the leadership teams, which has enabled us to get on with business very smoothly.
I've adopted Nedbank's performance targets over the medium term as my own, and our focus as a team is heightened on achieving them. I'm extremely comfortable with the strong foundations that Nedbank has built, including capital and liquidity and an improving financial performance, as well as the group's strong and vibrant culture, its focus on transformation, leading ESG credentials, and significant technology investments. We'll continue to build on these strong foundations as we evolve and refresh our strategy. Next, we reflect a bit on the operating environment that provides important context in which our financial results should be assessed. GDP growth in the first half of the year has been muted, and corporates remain cautious ahead of the national elections. This was evident in slower wholesale advances growth, except for pockets of growth in areas such as renewable energy finance.
On the positive side, the country's electricity supply stabilized in the first half of the year, with Eskom suspending load shedding towards the end of March and improving its energy availability factor, as shown in the graph on the bottom left. The South African election outcome and formation of a Government of National Unity stimulated positive market sentiment, including lower bond yields, stabilization in foreign bond and equity sales, strong equity markets, and a stronger rand. Spreads on credit default swaps, as shown in the next slide, improved markedly and are trending towards levels when South Africa's sovereign credit ratings were at investment grade. We remain cautiously optimistic around the potential benefits associated with an effective GNU and expect better macroeconomic conditions in the second half of 2024. On the consumer front, finances remained under pressure as real household incomes contracted and job prospects remained muted.
Transactional income growth continued to experience pressure due to high interest rates and persistent inflation, albeit trending down, as shown in the top two graphs. Debt service costs remained high, highlighting that the strain on consumer finances is still elevated, and as a result, we have seen continued slowdown in household credit growth. Our strategy outlines our focus and the actions required to achieve our medium and long-term targets, and our strategy is well-positioned for a natural refresh in an evolutionary manner as we build on the strong foundations that have been put in place. I'll unpack the progress we've made on our strategic value drivers, and Mfundo will talk to the group's strategic value unlocks that are enabled by our world-class technology platform and our employees as our most important asset.
Execution has been steady, with further opportunities to improve our growth and productivity initiatives while we maintain very strong risk and capital management metrics. Starting on the left, while we were disappointed with the slow pace of advances gross, growth, we recognize the impact the difficult macro environment has had on the demand for credit. On the upside, RBB grew main bank clients by 7%, and NAR increased their client base by 9%. Digital metrics also continued to grow strongly, with app volumes, the key retail channel, up 13%. In Nedbank Wealth, assets under management increased by 5% to ZAR 463 billion, and trading NIR in CIB increased by 18%. Lastly, in June, we acquired Eqstra to strengthen our position in the fleet management market.
From a productivity perspective, good collection efforts in RBB and the resolution of Stage 3 loans in CIB supported a good impairment outcome. Our TOM 2.0 program has reached cumulative cost benefits of ZAR 2.6 billion, above the ZAR 2.5 billion target we set. Our focus on extracting further value from our technology investments has resulted in the launch of TOM 2.1, which Mfundo will unpack further as we aim to achieve a lower cost income ratio over the medium and long term. On the far right, our key risk and capital management metrics reflect a very strong balance sheet. Our CET 1 ratio at 13.3% remained well above the top end of our board target range of 12%.
Our liquidity metrics, such as LCR and NSFR, remain strong, significantly exceeding the minimum regulatory requirements of 100%. Under credit, our CLR improved to 104 basis points, almost back to within our through the cycle target range, and the group's total impairment coverage ratio remains strong at 3.51%. And lastly, in response to the recent announcement by Transnet and the SIU relating to historic interest rate swap transactions, and as stated in our SENS announcement of 26th of July, I'd like to reiterate the following. Firstly, we remain satisfied that Nedbank's internal governance procedures were followed in respect of these swaps. Secondly, that there is no evidence of any Nedbank employee being dishonest, corrupt, or in collusion.
Thirdly, the claim that Nedbank profited by more than ZAR 2.7 billion is incorrect, as the sales margin we earned was market-related and amounted to less than ZAR 43 million. The swaps were commercially sound, and the ROE earned by Nedbank was fair, reasonable, and appropriate at 15.5% over the life of the transactions. And finally, we will strongly defend litigation against us, and we will pursue counterclaims against Transnet and others. I'll hand over to Mfundo now, who'll talk to our strategy in more detail.
Thank you, Jason, and good afternoon, everyone. In my section today, I will demonstrate how our focus on strategic execution through our strategic value unlocks is creating value and delivering results. Starting with our technology strategy, at the end of June 2024, our Managed Evolution IT build reached 95% completion, and the program is still aiming for full completion by the end of the year, materially within scope, time, and budget. As we finalize this program, we are now shifting our focus to four key areas: completing Managed Evolution, rationalizing and simplifying our product set, commercializing data, and harmonizing or consolidating systems across the group, including our subsidiaries. Under Managed Evolution, in the last stretch to the end of the year, we are refactoring and modernizing our core banking systems and completing the digitization of the two remaining client onboarding and servicing journeys, being home loans and vehicle finance.
We have started rationalizing our product range with a focus on making banking easier and more affordable for our clients. To this end, more than 2.2 million MiGoals transactional accounts have been opened or converted on our new core banking platform. We will continue our focus on reducing the number of transactional products by around 60%, the number of investment products by around 80%, and the number of lending products by a percentage still to be determined. From a data commercialization perspective, we have established a dedicated data and analytics team to spearhead our strategy in this space. The progress we have made on our technology journey is foundational for seamless integration and fast adoption of AI capabilities. Currently, we are investigating more than 50 use cases that will support revenue uplift, cost optimization, and improve lending decisions.
Lastly, our Nedbank Africa region IT systems convergence is underway, with completion set for the end of 2026. Multiple benefits have been derived from our technology platform and market-leading digital capabilities. As we have noted in prior periods, starting on the left, digital onboarding is seamless for both individual and juristic clients, and most of our services have been automated and digitized, enabling our clients to self-service. From a product sales perspective, 64% of all retail sales are now done digitally... and we're making great progress towards our target of more than 75%. As shown on the additional information slide, Money App transactional volumes and values grew by 13% and 19% respectively. The launch of PayShap, a real-time interbank payment offering aimed at reducing the high use of cash in South Africa, has seen steady growth, with Nedbank's share of volumes around 23%.
Benefits for Nedbank are shown on the right of the slide. From a revenue perspective, we continue to unlock higher levels of cross-sell, deliver strong growth in main banked clients, and increase the contribution from value-added services and beyond banking solutions, such as Avo. From an operational efficiency perspective, through our target operating model programs, we have saved more than ZAR 4.5 billion by adopting digital practices, reducing floor space, and reducing headcount, mainly through natural attrition. Reflecting on our progress relating to strategic portfolio tilt, from a lending and deposit-taking perspective, we are pleased to have gained traction in areas that create value. We have increased market share across home loans, vehicle finance, overdrafts, and retail deposits.
While the market share of wholesale term lending decreased, we have a strong deal pipeline in place that will support growth into the second half of 2024 and beyond. In commercial mortgages, where we have a leading market position, we have been more selective, with market share strong at 35.4%. Given ongoing risks in the environment, we have deliberately slowed growth in unsecured lending, and as a result, we reported a market share decline in personal loans. From a retail deposit market share perspective, we're pleased with an increase in market share to 16.7%, while more work is required in growing share in commercial deposits.
As Jason mentioned, our Target Operating Model 2.0 program that focused on optimizing the shape of our infrastructure, shifting our RBB organizational structure to be more client-centered and optimizing our shared services functions, realized benefits of ZAR 2.6 billion at the end of June. To illustrate the progress we have made through Project Imagine, branch floor space has decreased by 60,000 square meters since 2020, and through our strategy of consolidating our own campus buildings, we have saved more than 201,000 sqm since 2016. At the end of June 2024, our total group permanent headcount declined by a net of 17, after absorbing an additional 276 new employees as a result of the acquisition of Eqstra.
Our ongoing focus on extracting value from our technology investments has resulted in the launch of TOM 2.1. We expect further run rate benefits from TOM 2.0 to be unlocked in the period ahead, and TOM 2.1 will additionally focus on extracting benefits from the commercialization of data and analytics capabilities, optimizing key processes, and payment ecosystem modernization. We are in the process of finalizing associated revenue and cost benefits to be realized over the medium term, and more detail will be communicated as part of our 2024 full year results. Fulfilling the purpose of using our financial expertise to do good is best demonstrated through our delivery against the UN Sustainable Development Goals and the progress we have made on our sustainable development finance ambitions.
As at end of June 2024, we provided sustainable development finance support of ZAR 154 billion, representing 17% of the group's gross loans and advances. This represents good progress from the 13% in 2021, when we set our ambition of reaching 20% by the end of 2025. This financing is supported by some of the initiatives we highlight on the right of the slide, including ZAR 16 billion of sustainable finance across multiple sustainable development goals for CIB clients, ZAR 28 billion for farmers and agriculture, and ZAR 23 billion in support of SMEs. A key highlight of the period was the conclusion of a ZAR 4.5 billion term loan facility to support the supply of 75 million cubic meters of water to the Mokolo-Crocodile River Water Augmentation Project in the Lephalale area.
Unpacking renewable energy under SDG 7, the graph on the left shows that we have made good progress in closing a number of renewable energy deals, mostly in private power generation. Exposure has increased by 20% to ZAR 36 billion since December, and limits increased by 27% to ZAR 58 billion, highlighting the very strong pipelines we have in place. We will continue to convert these pipelines in 2024 and deliver strong growth in our renewable energy portfolio, as evident in ZAR 11 billion of further drawdowns expected by CIB in the second half of the year. Lastly, as in prior presentations, I will reflect on a few ESG highlights. In March, we became the first South African bank to disclose financed emissions targets for our thermal coal, oil and gas, and power generation portfolios, and simultaneously, the first SA bank to publish a nature position statement.
These actions build on our leadership in climate change and reaffirm our commitment to carbon neutrality by 2050. We maintained our level one broad-based Black economic empowerment status for the 6th year in a row, and this was supported by improving our African, Colored, and Indian representation to 83% of total employees. We also recruited more than 3,600 Youth Employment Service participants, bringing the total first-time job opportunities we have provided to the youth to more than 13,500, as we continue to make an impact on South African youth, their families, and communities. Finally, from an ESG ratings perspective, we continue to rank at the top end of our local and global peer group across multiple ratings, as shown on the left-hand side of this slide.
I now hand over to Mike to take us through a review of the group's financial performance.
Thank you, Mfundo, and good afternoon, everyone. As highlighted by Jason, the operating environment has been challenging, but as Mfundo demonstrated, we've made good strides in implementing our strategy. This meant that revenue growth for the whole sector has been under pressure from the difficult macroeconomic environment, while at Nedbank, impairments were well managed despite the ongoing pressure on consumers. Against this backdrop, all group profitability metrics continued to improve, evident in relatively strong headline earnings growth of 8%, strong DHEPS growth of 12%, and an improved ROE of 15%. The faster growth in DHEPS when compared to headline earnings is linked to the ZAR 5 billion share buyback we executed in 2023.
Our credit loss ratio pleasingly decreased by 17 basis points to 104 basis points and was almost back to within the group's through-the-cycle target range of 60-100 basis points, in line with the guidance we provided. While balance sheet growth was muted, with advances and deposit growth below mid-single digits, key balance sheet metrics remained strong, evident in our liquidity and capital ratios. Key drivers of shareholder value creation all showed positive momentum, with our ROE, which is seasonally low in the first half of the year, improving to 15%, now equal to the group's cost of equity. Following our relatively strong earnings growth and capital and liquidity positions, we declared an interim dividend of ZAR 9.71 per share. That increased by 11.5% at the top end of our payout ratio.
Net asset value per share of ZAR 230.97 increased by 2% year-on-year and was impacted by negative foreign currency translation reserve movements relating to accounting for our share of these movements in ETI and our non-South African businesses. Reflecting on the primary drivers of the 8% growth in headline earnings, net interest income increased by 2% and non-interest revenue by 7%, while associate income declined by 26%, given the non-repeat of the reversal of the ZAR 175 million estimate we provided for our share of the impact of the ETI-related Ghanaian Sovereign Domestic Debt Restructure program in the first half of 2023. Impairments decreased by 12%, while expenses were well managed, increasing by 8%. Reflecting on the balance sheet, gross banking advances growth was muted.
In RBB, the 5% growth in both average and actual advances was slower than the prior period. Growth was primarily driven by gradual home loan market share gains and good growth in vehicle finance, but we have been deliberately cautious in the unsecured lending market, given elevated risk. CIB's actual banking advances increased by 5%. The increase was driven by growth in term lending, including key growth sectors such as renewable energy, and strong deal pipelines are in place for the remainder of the year and into 2025. Commercial property loans and advances grew slower as clients delayed activity due to the South African election uncertainty and the high interest rate environment. Average CIB advances grew by only 1% after a slow first quarter. On the opposing side of the balance sheet, deposits increased by 3%.
Due to the high interest rate environment, clients continued to term out short-dated cash into longer-dated deposits. As a result, current and savings accounts, along with cash management deposits, decreased by 4% and 14% respectively. In contrast, Call and term deposits increased by 7%. Fixed deposits decreased by 3% as consumers utilized borrowings to meet debt service costs, and NCDs decreased by 5% as slower loans and advances growth reduced the need for marginal deposits. Turning to the income statement, NII increased by 2%, as average interest-earning banking assets growth of 3% was offset by slight NIM contraction, as we had expected. The five basis points decline in NIM to 413 basis points was primarily driven by asset pricing pressure, given increased levels of competition for good quality assets, liability pricing pressure, and the introduction of deposit insurance.
This was partially offset by the positive endowment mix impact due to net capital balances growing faster than interest-earning assets and endowment pricing benefits due to the run rate impact of higher interest rates. NIR growth was good at 7%. Commission and fees income increased by 8%, supported by strong growth in CIB on the back of deal closures, while growth in RBB was more moderate. Continued strong growth in value-added services, higher maintenance fees, and growth in both card issuing and acquiring volumes was offset by slower transactional activity, given the difficult macroeconomic environment. Trading income increased strongly by 14% due to good client flows and strong performances in equities and debt securities. Insurance income declined by 9%, adversely impacted by lower traditional bank insurance volumes, further investment in product and channel initiatives, and lower shareholder returns.
This decline masked strong underlying premium growth in the MyCover suite and stable claims ratios. Lastly, other NIR was slightly higher than the prior year, and this was driven by equity investment income that increased by 14%, driven by higher realization gains from dividends, interest, and distributions. Positive fair value adjustments, including foreign currency and interest rate gains in the CIB banking book, as well as gains relating to the group's hedge accounted portfolios, and these gains were offset with a base effect of ZAR 399 million foreign currency gains on U.S. dollar capital in Zimbabwe, net of the net monetary loss realized in the prior period that did not repeat. Excluding the Zimbabwean base effect and the Eqstra acquisition for June, non-interest revenue growth was 9.5%.
Turning to impairments, the group's impairment charge decreased by 12% to ZAR 4.7 billion. The decrease was primarily driven by a 15% decrease in RBB impairments on the back of focused management interventions in respect of collections and improved loan origination as consumers adjusted to a more stable macroeconomic environment over the past 12 months. Impairments in CIB, Wealth, and NA were well managed. The group's central provision remained at ZAR 150 million, and total overlays increased to ZAR 1.6 billion from ZAR 1.1 billion in December, in anticipation of model regrounds in RBB in the second half of the year. The group's credit loss ratio decreased to 104 basis points, just above the through-the-cycle target range of 60- 100 basis points, in line with guidance.
The CIB credit loss ratio at 19 basis points was within the bottom half of its through-the-cycle target range of 15-45 basis points, reflecting the cluster's high-quality portfolio. The credit loss ratio in RBB at 183 basis points was slightly above its through-the-cycle target range of 120-175 basis points, but declined from the 226 basis points reported in the prior period. Pleasingly, credit loss ratios across all RBB products and segments improved from the levels reported in the first half of last year, with the exception of vehicle finance, given strain experienced in our small taxi portfolio and lower asset realization values at auctions, and this is receiving significant focus.
Wealth reported a credit loss ratio of 17 basis points below its through-the-cycle target range, while NAR reported a credit loss ratio of 91 basis points within its through-the-cycle target range, driven by improved collections and subdued loan growth. The group's total ECL coverage at 3.51% remains strong and reflects prudent provisioning in the current economic environment. The Stage 1 coverage ratio remained steady at 0.67%, and Stage 2 coverage decreased slightly to 6.8% due to stage migrations. Stage 3 coverage increased to 38.2% as RBB loans with higher coverage increased by ZAR 1 billion, and Stage 3 loans in CIB declined by ZAR 8 billion since December, after the resolution of large single name exposures, as we had expected. Shifting our focus to costs, expenses increased by just below 8.5%.
Excluding the Eqstra acquisition, expense growth was 7.9%, reflecting tight cost control. The 9% increase in salaries, wages, and other employee costs reflect the impacts of average annual salary increases of 6%, the use of additional contractors to assist in the completion of Managed Evolution, and additional costs to retain talent and scarce skills. Incentives increased by 7%, aligned to higher levels of profitability and vesting expectations. Computer processing costs increased by 7% and reflect the impact of the rand's devaluation on foreign currency IT contracts, ongoing investment in technology, and higher digital volumes. Accommodation costs decreased by 3% as we continue to benefit from our real estate optimization initiatives and the impact of lower generator-related costs due to lower levels of load shedding.
Other costs include the impact of increased levels of travel and a higher intake of YES participants in 2024. Reflecting on ETI, associate income relating to our 21% shareholding decreased by 32%, primarily given the non-repeat of the base effect of the reversal of the ZAR 175 million in the first half of last year. The carrying value of our investment in ETI is now immaterial at approximately ZAR 600 million, as the increase in associate income was offset by large negative foreign currency translation reserve movements during the period. Our share of the market value of ETI listed on the Nigerian Stock Exchange is now approximately ZAR 1.4 billion.
Turning to capital, our CET 1 ratio at 13.3% remains well above the top end of the board-approved target range of 11%-12%, positioning us well for growth, complementary bolt-on acquisitions such as Eqstra, sustainable dividend payments at attractive payout ratios, and to absorb the possible Basel III PCN countercyclical buffer expected by the end of 2025. Given our strong capital position, we have obtained all necessary approvals to conduct a further share buyback, which we will execute depending on market conditions. Closing with the clusters, CIB produced a strong set of results, with headline earnings growth of 13% and its ROE increasing to almost 21%. Earnings growth was primarily driven by an 18% increase in non-interest revenue, supported by commission and fee, fees on deal closures and strong growth in trading income.
NII was flat as 1% average advances growth was offset by slight margin compression, while expenses increased by 11%, driven by higher incentive costs aligned with performance. CIB's medium- and long-term focus remains on reducing its cost-to-income ratio to below 44% through a focus on top-line revenue growth while maintaining an ROE above 19%. Retail and business banking showed a good recovery, with headline earnings growth of 24% and a higher ROE of 14.6%, driven by the strong improvement in impairments. NII increased by 3%, driven by average loan growth of 5%, partially offset by a slight decrease in NIM due to lower client margins. NIR increased by 6% or 4% when we exclude the Eqstra acquisition.
This growth was mainly driven by strong growth in value-added services, higher maintenance fees, and growth in card issuing and card acquiring volumes, partially offset by slower transactional activity. Expenses were well managed, increasing by just 6.5% or 5.5% when excluding Eqstra. RBB's medium and long-term focus continues to be on reducing its cost-to-income ratio to below 57% through revenue growth and productivity improvements, while increasing its ROE to above 20%. Nedbank Wealth's headline earnings decreased by 18%, but its ROE remained healthy at close to 25%. NII increased by 3%, positively impacted by the benefit of higher local and international interest rates, offset by the exit of the corporate e-gaming sector. NIR decreased by 2% due to the decline in insurance income, as I mentioned earlier. This was partially offset by growth in assets under management.
Credit impairments increased off a low base, and expenses were well controlled, increasing by 5%, notwithstanding the investment in people, brand and digital and data initiatives, as well as the impacts from higher inflation and exchange rates. Of note was the impact of the higher tax charges in the international businesses due to the implementation of the minimum 15% OECD Pillar Two global tax rate. Nedbank Wealth's medium- and long-term focus continues to be on reducing its cost-to-income ratio through fostering revenue growth in areas such as insurance, and maintaining an ROE at least 10% above the group's cost of equity. In the Nedbank Africa regions, headline earnings decreased by 36%, and its ROE declined to 18.2%, largely as a result of base effects. Similarly, the SADC operations headline earnings decreased by 41%, and its ROE decreased to 7.3%.
Excluding the base effect of Zimbabwe, headline earnings were up 65%. NII growth of 8% was driven by improved margins, while NIR decreased by 13% and impairments by a pleasing 24%. Headline earnings relating to our associate investment, ETI, were down 32% on the prior period, largely due to the base effect. The underlying performance of ETI remained robust, with its core regions continuing to show a strong performance, with ROEs of above 25%, while Ecobank Nigeria remains a focus to improve. In the medium and longer term, the cluster remains focused on reducing its SADC cost-to-income ratio by growing the franchise and achieving scale, and as a result, improve its ROE to above cost of equity.
In closing, I am pleased with our performance for the first half, and I'm looking forward to ongoing momentum in the second half as we continue to make progress towards our medium-term targets. Thank you. I'll now hand back to Jason.
Well, thanks, Mike. In closing, I'll provide our outlook for the period ahead, starting with our latest economic forecast, which informs our financial guidance to the market. As noted earlier, we're cautiously optimistic around the potential benefits associated with the South African GNU. Our base case assumes better macroeconomic conditions in the second half of 2024 and into the medium and long term. In this context, we forecast South Africa's GDP to increase by 0.9% in 2024, improving to just below 2% by 2027. Our upside scenario, should the GNU make good progress, suggests that GDP growth could exceed 2% from next year on. Average inflation is expected to ease further, and average 4.9% in 2024, and then progress to the midpoint of the SARB's 3%-6% target range.
As a result, we expect the Prime lending rate to be cut by 25 basis points from September onwards, and for rates to cumulatively reduce by 50 basis points, taking the Prime rate to 11.25 by the end of 2024. We then forecast a further 75 basis point cuts of 25 basis points each in 2025, taking Prime to 10.5%, from where it will then remain stable for the next few years. Credit extension is forecast to remain slow for the rest of 2024, before increasing to above 6% in 2025, supported by a decline in domestic interest rates and improving execution of infrastructure and renewable energy investments. The potential upside scenario is for at least 1% additional growth on top of our base case.
Now, although it's difficult to forecast, the rand is expected to strengthen but remain vulnerable to global developments. Our favorable scenario could see the rand at or below 17 versus the dollar from 2025. Turning to our guidance for 2024, NII growth is now expected to remain below mid-single digits, driven by moderate growth in advances, albeit stronger in half two 2024 than in the first half of the year, and our NIM is expected to continue to contract slightly due to marginally lower endowment income. Our credit loss ratio is still expected to move back to within our target range for the full year, due to the steady progress we've made in RBB and having resolved legacy CIB Stage 3 loans. NIR growth is now expected to be around upper single digits, revised from above mid-single digits, given the impact of the Eqstra acquisition.
In addition, we expect ongoing benefits from deal flow in CIB, higher levels of cross-sell, main bank client gains, and strong growth in value-added services in RBB, while insurance income is expected to show an improved performance in the second half of the year. Our focus on tight expense management remains in place, and we expect growth of upper single digits, mainly driven by the impact of the Eqstra acquisition. Associate income at full year is expected to be slightly lower than 2023. Capital ratios are expected to remain well above board ranges, and our dividend, subject to board approval, at the top end of the payout ratio of around 57%, while we look for market opportunities to execute further share buybacks.
The environment for banks and our clients could become more positive should the GNU be effective and enable an environment that delivers higher levels of GDP growth. The South African national election was fair and peaceful, with continuity in key government positions and suitable changes in other ministries, setting the tone for economic policy execution, enhanced governance, and greater accountability. Higher levels of GDP growth are attainable should the GNU accelerate structural reform and achieve meaningful fiscal consolidation. This will go a long way towards reducing South Africa's risk premium and unlock efficiencies for the private sector, setting the stage for faster economic growth, and as a result, addressing social challenges such as unemployment and inequality. The potential upside for Nedbank would be evident in stronger credit and transactional growth, as well as reduced strain on clients as inflation and interest rates decline.
Lastly, on the back of an improving operating environment, we continue to aspire to deliver ongoing improvements in ROE to increase shareholder value, as we show in more detail on the additional information slide. Our strong financial performance in half one 2024, together with the progress we've made in executing on our strategy and better economic prospects, gives us confidence in making progress towards our stretched medium-term targets, and in particular, our aim to increase our ROE to 17% by 2025, and above 18% in the long term. Thanks very much, and we'll now proceed to your questions and answers. Okay. Thanks, everybody, once again. Now that we've concluded that part, it's probably best to start off on the telephone lines. So if I could ask the operator to lead us through any questions that might exist. Operator?
The first question we have comes from James Starke of RMB Morgan Stanley. Please go ahead, sir.
Hi, good afternoon, Jason, Mfundo, and Mike. Thanks for the opportunity, and well done on a good first half. A few questions from me. The first one, just on your effective tax rate, it came in a bit in the first half. It looks like driven by better dividend flows. How should we think about your effective tax rate into the second half and also into 2025? The second one relates to buybacks, and I guess a few questions here. Any color on the size and timing you have in mind, particularly with regards to what might happen before the end of the year. And then also, your wording on the announcement indicates buybacks are contingent on market conditions.
Does that mean if market conditions are not conducive for a buyback, a return of capital is off the table, i.e., you won't be considering a special dividend? Last question relates to the ROE, but more at a divisional level. Your consumer banking ROE is down at around 6%, I think held back by mortgages and unsecured personal lending. What do you see as the desired outcome for this unit, you know, perhaps into 2025? I would imagine it's quite critical to achieving your 17% objective. Thank you.
Thanks, James. We'll take all of those, now. Mike, do you wanna start off with the effective tax rate?
Yeah. Thanks. Thanks, James. So the effective tax rate, you're 100% right, is for the first half slightly lower than we initially guided or expected. I mean, in terms of where would our model at for the full year 2024 and into 2025 is more around 20%-21%, and it largely relates to higher divvy flows into our CIB business and the resolution of a reasonably small tax issue that we've resolved and enabled the release of ZAR 68 million in effectively provisioning. Hence slightly lower, but model that for the full period somewhere between 20% and 21%.
Thanks, thanks, Mike. James, your questions on buybacks around the additional color you're looking for on sort of timing and size, and how we'd express optionality against that. Well, I guess what we said today was that we've got all the necessary approvals in place to conduct a share buyback. I'd point you to the fact that we already did one not so long ago, and the enduring benefits that a buyback has on your performance metrics like diluted earnings per share and the like, and of course, on return on equity as well. I'd also note that we've got a fairly, you know, ambitious ROE target out there of 17%. We're working towards achieving that, firstly through growth in our business.
In other words, by, you know, originating good business, originating good loans, and improving NIR over time. And I think our results this half make a step towards that. You're absolutely right. We didn't say more with respect to the size of the program or the timing. And when we referred to market conditions, I imagine that's got more to do with, you know, volume in the market and price points. Of course, we would look to execute a buyback at levels that would be attractive to shareholders in terms of generating returns. Mike, do you wanna cover the point on ROE in the-
Yeah
... in the RBB?
Yeah, yeah. So, so, so James, I mean, very valid point, and as you know, in order for us to get to 17% and to 18% in the long term, we've got to get the consumer business to, to effectively deliver, higher risk-adjusted returns. Step one is to move that business towards cost of equity, and then ultimately for it to deliver upward of 18%. And that is largely, as you can see, effectively an impairment issue on one hand, and effectively scale or growth on the other. So it's about leveraging Managed Evolution, in other words, the large tech spend over the last nine years, effectively commercializing that tech asset in order to drive client experience, high levels of cross-sell, and grow main bank clients. So it's both a revenue uplift story as well as an impairment back book story.
... Thanks, Mike. I think that covers it. Can we take the next question?
Of course. The next question we have comes from Keamogetse Konopi of Citi. Please go ahead.
Afternoon, Jason and team. Thank you very much for the opportunity. Two questions from my side. First one is on the origination pipeline that you're seeing since year-end. Can you please touch on that in RBB and CIB? How has this improved, given the improved sentiment post the elections? And second, and following on from that as well, in which sectors or products are you seeing opportunities for further market share gains? And credit losses. On the credit loss ratio, what additional levers are available to improve the ratio for VAF in 2H, and do you see a similar downward trajectory for other products in 2H as well? Thanks.
Great, thanks so much for that. Look, it's only been a month since half year, so we closed the books at June. We're now sitting early August. What I would say, though, is that, you know, our guidance was pretty clear on loan growth in that we thought we'd have a better second half than first half, and I've no doubt that it'll be in similar areas to what we saw in the first half. So in other words, we were able to take a little bit of share in mortgages and vehicles. And I think on the CIB side, we of course covered the strong growth we saw in renewable energy finance and the strong pipeline that we've got against that opportunity does flow quite nicely into the second half and into the following year as well.
As for the loan losses, Mike will come in as well. But yeah, I think clearly in half one, the only retail or only product, in fact, that we had persistently high loan losses in was Vehicle and Asset Finance . I think the firm did well to get the loan losses overall back to only slightly above our through-the-cycle range, and we're saying we can get it back into the range in the second half, and part of that would be a continued improvement across the portfolios. But in VAF, I think the persistency relates probably more to collateral values at this point, and we probably aren't the only ones experiencing that, given it's a market phenomenon. But we'll put big effort into improving that portfolio as well in the second half.
But our guidance is pretty clear for the overall portfolio to improve. Mike, anything to add on that?
No, no, I think, I think overall good story, you know, just above the 175 mark. It's all in VAF. I mean, we're doing tremendous work in the space of collections, and the bottom line is we're seeing lower values at auctions.
Mm.
So, it's pretty much... I think some of that book needs to work its way through. But there's a lot of focus going into VAF.
Mm. Thanks, Mike. Thanks, operator. We can take the next one.
The next question we have comes from Harry Botha of Anchor Stockbrokers. Please go ahead.
Good afternoon, everyone. Thanks very much. I think a couple of my questions have been answered, but maybe just to follow up on the risks around the retail credit impairment charges. What are the key concerns you have going into the second half of the year and where things could maybe surprise us in terms of remaining high for a while? And then secondly, hopefully not too technical, just the reasons we've seen a decline in the net interest income sensitivity to interest rate movements in June.
Great. Thanks, Harry. Yeah, I think we've already covered, you know, the retail credit one pretty well. You ask what are the risks and opportunities against our guidance. I'd suggest that the risk against the guidance probably is the collateral values of the VAF portfolio in particular, should those deteriorate further. Although we're going into the second half with strong levels of coverage, I think in one of the pages, Mike, you covered the fact that we've already done a data reground, or I call it a data refresh, where we've taken our most recent actual experience in the portfolios and built some coverage for that. But Harry, on the other side, we still carry, you know, pretty sufficient macro provisions. So we've still got about ZAR 150 million sitting there of general provision.
What could cause it to be better? Look, I think our team is executing pretty well against that battleground of impairments at the moment. We have thought that rates could come down. I wouldn't suggest we factored all of that potential upside in because, you know, to be honest, we just don't know what consumer behavior will be. But should we have - you know, should we finish the year at, let's call it 11.25 prime, it'll be better than where we're starting the half. So that should be a bit of a tailwind. Between the two is how we've guided, and we're saying we're gonna get back within the range.
Yeah. Then, Harry, in terms of your second question, the sensitivity is slightly down on what we reported at the full period. It largely talks to, you know, what's taking place between non-sensitive assets and liabilities in the longer end of the reprice curve, and effectively, around about 25% of our sensitivity is, sits in the short end basis between call prime JIBAR, and it depends on the shape of what's happening in that three-month bucket, what we refer to as stub. In terms of if rates change, how does that stub, how is it positioned to reprice over the first 91 days? And that does make up about a quarter of our sensitivity, so it depends on where and what buckets, that is sitting in the one, two, and three-month bucket.
Great. Thanks, Mike. Operator, back to you.
There are no further questions on the conference call, sir.
Great. Thanks very much for that, operator. We're gonna go look at the web now. I'm just looking here. I'll direct traffic here and read out the questions for everyone's benefit. So we've got three of them. The first one's from Sam Goodacre from J.P. Morgan. The question's as follows: the four basis points impact on NIM from the deposit insurance, is this the run rate going forward, or could it be a larger impact in the future? Mike, look, I think that came in in April, but do you want to cover that one?
Yeah. So first of all, just for correction, the impact of deposit insurance in the NIM, the five basis point squeeze is not the four, it's one basis point.
Mm.
So we do have a little footnote that talks to that, but I do note, it might be confusing because it does refer to the only footnote on the four basis points. But there is. In the slide deck, you'll find the breakup of that four basis points. So it's one basis point. To Jason's point, the impact of deposit insurance only came in from the 1st of April, so... and the number's about ZAR 60 million. So ZAR 60-odd million for one quarter, so you can get an idea on the size for a full period.
Mm.
If 60 translates in the rounding to a basis point, and we've annualized that effectively, it's about, in the rounding, three basis points for a full, annualized one-year impact.
Mm.
So in terms of what's still to come, you know, I'd model three basis points in total for a full period.
Oh, super. Thanks, Mike. Next is Charles Russell from SBG. Charles has three questions, so I'm going to read them each individually, and then we'll answer them and then conclude with Charles. So there's three. The first one is, "Under the new GNU lower rates, how much would this improve Nedbank's loan growth, perhaps differentiating between RBB and CIB?" Well, I'll start on this one, Charles. So I think the first opening position would be that we, we've already guided on the baseline scenario for stronger loan growth in half two.
In the presentation towards the end there, I spoke of the sort of upside GNU scenario on the economics versus the baseline, and we said that could be by the end of 2027, you know, pushing us closer to 1.5%-2% of GDP, so about 1% there, more or less. I think I spoke to credit extension, where there was about 1%-1.5% upside. I guess those two together would inform the potential upside for the sector in RBB. So that could be the RBB opportunity. On CIB, I imagine it's probably all of that. And then there's, of course, the lumpiness of large renewable trades for us, where we would see pipelines there looking pretty good already.
Some of that may be accelerated in a better executed way. And of course, infrastructure lending is also very lumpy in nature, but we've got quite a strong position there. So you'd suggest that CIB would be higher than the opportunity in RBB, and I think I just covered that. The second one: "Are you reviewing the 21% shareholding in ETI? Would you prefer a control question?" Look, Charles, the way we see ETI now is as a financial investment. It's currently in the books at about ZAR 600 million. I think the market value at the end of June was about ZAR 1.4 billion. We will extract shareholder value in whatever way possible from that investment. We don't have any plans to take control.
Mike, the last one I think is probably for you. It's what are your latest thoughts on interest rate hedging against negative endowment?
Yeah. So, I mean, not an unobvious question... I mean, given yours and my background. But certainly, as an organization, as Nedbank, we've always run endowment or interest rate sensitivity as a natural hedge against impairments. Obviously, that holds true, particularly in a retail portfolio or portfolios that are large, homogeneous-type portfolios. You could argue that in a corporate or CIB-type business where your impairments are lumpy, there's less of a correlation to interest rate movements. And certainly, Jason comes from an environment where Absa ran a large hedging program, where they looked for NIM stability and didn't necessarily look across the two income statement lines. So it's certainly something that the three of us are sharing and comparing notes on.
You'll see I made a particular reference in my section to the fact that we are looking to complementary strategies.
Mm.
We'll keep all of us engaged and informed on the road.
Thanks, Mike. Right, that deals with Charles's questions. We've got Ross Crutchley also from Investec. He's got a number of questions, so I'll probably deal with them, you know, one by one again. "Thanks for the call. Three questions from me, please. First one on loan growth. NII guidance implies an acceleration in H2 retail loan growth. Is there any concern that there will be more of a lag between interest rate cuts and retail loan growth than guidance suggests?" Yeah, Ross, I think we've based that guidance pretty much on our baseline scenario, which includes the rate cuts. So, we've probably factored that in already with respect to how we see loan growth playing out in the second half. There may be a lag effect.
You know, the only thing I could think of that could cause that would be if consumers potentially look at the rate cuts and seek to deleverage themselves. South African consumers have rarely behaved in that way, though, and I don't think that's the way it'll play out. The next one: Are you seeing actual signs of improved drawdown in the corporate segment post-elections, or are clients still waiting on the macros? Look, it's only, like I said, one month since interims and just a little bit longer, I think, since the elections. So I wouldn't say that we see drawdowns like in the month of August or immediately.
But certainly we see the pipeline as one that we've got optimism around, and it probably could be expansionary relative to the GNU upside scenario as well. Just looking at Mfundo and Mike, if there's anything you want to add to the answer there. Looks like-
That covers it. It's not immediate, but certainly it does feed off improved sentiment.
Mm.
You would expect then that over time, corporates come back into the market-
Mm
... relative to the position they've taken, where people were largely sitting on the fence. Yeah.
Mm-hmm. Thanks, Mfundo. I think that's a great addition.
Yeah, I agree.
Okay, let's keep going with with Ross here. Next one is: How do you see the Two-Pot pension system contributing to retail asset quality and loan growth? Could CLR fall faster than you currently expect, or do you incorporate this in your guidance? Yeah, of course, the effect of the Two-Pot system has been on our minds and has been modeled to some extent in that the system should be a receiver or there'd be a huge transmission of liquidity into the environment and into the consumer environment. And that's been in the back of our minds as we kind of think about our posture with respect to loan losses. However, you know, it's hard to kind of quantify the exact impact.
We would see it generally as a positive factor for retail asset quality, loan growth, and CLR. Yeah. Okay, then there's one on the tax rate. Mike, probably for you. Last question, I think.
Yeah, I answered that.
Okay.
Similar, very similar question around the effective tax rate.
Yeah.
Low in the first half.
Yeah.
Likely implications for full period, probably around 20, and in terms of modeling it, around about 21%-
Yeah
... outside of 2024.
Yeah, Ross, I think that's right. Mike covered it on the telephone lines. I'm just gonna refresh quickly, folks, just to make sure we're not missing anyone's questions. But certainly it looks like we've exhausted the web-based questions as well. The refresh isn't showing anything further. No doubts, we'll see many, many of you on the coming days, and in the coming week as we go on roadshow. But thanks very much for all of you for joining us here this afternoon. Thank you.