Welcome to the 2024 Nedbank Annual Results Presentation. Jason Quinn, Nedbank Group Chief Executive, Mfundo Nkuhlu, Nedbank Group COO, and Mike Davis, Nedbank Group CFO, look forward to sharing with you the Group's financial performance as well as our operational and strategic progress. Please welcome our Chief Executive, Jason Quinn.
Good afternoon and welcome to Nedbank's 2024 Annual Results Presentation. It's a great privilege for me to host our Annual Results Presentation for the first time as CEO after eight months in the role. Our presentation today will start with an overview of the Group's performance for the year, a reflection on the operating environment, and the key outcomes we achieved on our strategic growth drivers. I'll then hand over to Mfundo, our COO, who'll provide an update on the progress we're making on our strategic execution, and Mike, our CFO, will then follow with an analysis of the Group's financial performance for the year, including that of the respective frontline clusters. I'll then return to close the presentation with an update on the strategic refresh we're busy with and a summary of our prospects for the short, medium, and long term.
The operating environment for us and our clients remained volatile and uncertain in the last year, impacted by sociopolitical issues and elections across the world, including at home in South Africa. Most financial market indicators still reflect cautious optimism, although rising concerns around the potential impact of U.S. foreign policy have had a more recent negative impact. On structural reforms, we've seen some green shoots and an increase in corporate loan growth, but the consumer remains under pressure and household loan growth muted. From a strategy perspective, we achieved positive outcomes in 2024 and heightened our focus on execution under what we call our Perform Agenda. Under a new Transform Agenda that emerged as part of our strategy refresh in 2024, we've identified exciting new opportunities that will support sustainable growth and returns into the future.
Against this backdrop, we delivered an improved financial performance in 2024 as diluted HEPS increased by 11% and our ROE strengthened to 15.8%. This performance was supported by strong double-digit NIR growth, lower impairments, and targeted expense management, offset by slow balance sheets and resulting NII growth. On the back of this and given our strong balance sheet, the final dividend per share increased by 8%. Reflecting in a bit more detail on the operating environment, as I noted at our interims in August last year, the South African election outcomes and swift formation of a Government of National Unity stimulated positive market sentiment, including lower bond yields, stabilization in foreign bond and equity sales, stronger equity markets, and a stronger rand, while credit default swap spreads improved as well, back to investment-grade levels. Many of these trends continued through half two, although emerging U.S.
Foreign policy positions pose a risk and could lead to rand weakness and higher domestic inflation over the medium term. Economic activity in 2024 was relatively weak, as evidenced in South Africa's GDP growth expectations of only 0.5%, down from the 0.7% growth in 2023 and even below the 0.8% average over the past 10 years. To enable much faster economic growth, we need to see more progress on structural reforms. We do take some comfort from the emergence of green shoots, which has been set out in the matrix on the right-hand side. Pre-election political uncertainty and electricity shortages have stabilized, as shown in the top green blocks. The recent load-shedding events, though, are a stark reminder that there is still a lot of work ahead, including system reforms and accelerating public-private partnerships.
Transport and logistics bottlenecks have eased slightly, but here there is still a long way to go. Although the government is expected to press ahead with fiscal consolidation, the recent South African budget, which was deferred to the 12th of March, showed a concerning acceleration in government spending. And this is a departure from the course set in the October MTBPS, where the primary budget deficit as a percentage of GDP, excluding interest payments, turned positive for the first time in 15 years. Other challenges, such as water supply, crime and corruption, and struggling municipalities, highlighted in the gray and black blocks, will take longer to resolve. Reflecting on infrastructure opportunities, Nedbank's latest capital expenditure project listing shows a sharp rise in investment plans. The value of new projects announced in 2024 rose to $446 billion, more than double the $210 billion published in 2023.
Fixed investment is expected to recover as business confidence improves amid easing structural constraints, firmer domestic demand, and steady global growth. The public sector is likely to lead the turnaround, while private sector capital outlays, apart from renewable energy, may take longer to emerge. Last year, the government announced a $943 billion infrastructure investment plan for the next three years, prioritizing projects that are candidates for public-private partnerships. While we see this as optimistic in both size and time horizon, our teams have identified various financing opportunities across energy, water, transport, and supporting infrastructure that could support stronger loan growth over the next few years. On the consumer front, household finances remained under pressure in 2024, as interest rates and consequently household debt levels stayed high and job prospects limited, creating very muted credit demand.
However, the environment has recently become more conducive for a recovery, given the three 25 basis point rate cuts to date, inflation now at the low end of the target range, and an improvement in real disposable income. The two-part system also added significant liquidity to the consumer segment in Q4, which supported consumer spending towards the end of the year. Turning now back to Nedbank, our strategy outlines our focus and the actions required to achieve our financial targets. I'll unpack the progress we've made on our strategic value drivers, and Mfundo will talk to the Group's strategic execution progress that's enabled by our refreshed and modern technology platform and delivered by our engaged Group of colleagues.
On the back of our strategy refresh in the second half of 2024, we identified various Transform initiatives that will, over time, help us to get to our long-term ROE target of greater than 18% while we still manage the Group efficiently and improve profitability in the near term through what we call our Perform Agenda. You'll hear Mfundo make reference to Transform initiatives in his slides, such as extracting value from our technology investments and portfolio diversification under a new strategic value unlock titled Growth Vectors. At the end of our presentation, I'll bring it all back together again when I reflect on the Group's prospects. As I reflect on our strategy, 2024 was a year of focused execution and seamless leadership transition.
Starting on the left, while we were disappointed with the slow pace of average advances growth of 4%, we have seen improved momentum in the second half of the year, with actual advances increasing by 7%. RBB grew main bank clients by 5%, NAR increased their client base by 14%, and CRB recorded 20 primary client wins. Digital metrics also continued to grow strongly, with app volumes up by 16%, and in June, we acquired Eqstra to strengthen our positioning in the fleet management market in commercial banking. From a productivity perspective, good collection efforts in RBB and the resolution of Stage 3 loans in CRB supported much better impairment outcomes, leading to our credit loss ratio at 87 basis points moving back to within our target range.
Our TOM 2.0 program concluded at the end of the year as we reached cumulative cost benefits of ZAR 3 billion and sales productivity in our branches improved by 9% as more of our service staff now sell products. Unfortunately, given the low average advances growth and subsequent lack of NII growth, our cost income ratio increased to 55.9%, notwithstanding good cost control. On the far right, our key risk and capital management metrics continue to reflect a fortress balance sheet as our set one ratio at 13.3% remained well above our board target range of 11%-12%, and liquidity metrics all significantly exceeded the minimum regulatory requirements of 100%. With that, let me hand over to Mfundo to talk to our strategic execution progress in more detail.
Thank you, Jason, and good afternoon, everyone. In my section, I will cover the progress we have made in executing our strategy under what we call the Perform Agenda, and I will highlight a few new strategic focus areas under the Transform Agenda. A key highlight of the year was the material completion of Managed Evolution IT build, fundamentally within scope, time, and budget. The final deliverables were the refactoring and modernization of our core banking systems completed at the end of last year, and the digitization of the secured lending digital client onboarding and servicing journeys in home loans and vehicle finance to be completed by March 2025. As we reflect on the completion of the program, the total investment spend was ZAR 11.7 billion, with 76% of the initial business case benefits realized so far.
We simplified our core banking systems from 250 to below 60, which reduces complexity and accelerates the time to bring new innovations to market. We also enabled 24 by 7 real-time processing and enhanced system stability to levels that we believe are market-leading. The benefits derived from our technology investment are shown on the left of the slide, and I will highlight a few before commenting on key Transform initiatives going forward. Digital client onboarding is now seamless for both individual and juristic clients, and most of our services have been automated and digitized, enabling our clients to self-service through channels such as our app and Nedbank Business Hub. Digital active clients in retail increased to 3.1 million, representing 70% of main banked clients, while the adoption rate of the Nedbank Business Hub by juristic clients increased from 48%- 65% during the year.
Digital product sales are now at 64% of all retail sales, and we are making good progress towards our target of more than 75%. Our digital capabilities also enabled higher levels of client satisfaction, as demonstrated by our Net Promoter Score, which ranked number one among the large South African banks in the 2024 customer survey. From an operational efficiency perspective, through our Target Operating Model one and two programs, we have saved more than ZAR 5 billion by adopting digital practices, reducing real estate floor space, optimizing back offices, and reducing headcount mainly through natural attrition. Our focus on efficiencies will not stop here, and many of our technology-related Transform initiatives that I will cover shortly come with productivity enhancement objectives. We have also started rationalizing our product range with a focus on making banking easier and more affordable for our clients.
The three My Goals transactional products we released off our new core banking systems have more than 2.4 million active clients. We will continue to focus on reducing the number of transactional investment and lending products in the period ahead. Under our Transform Agenda, we are shifting the focus to three key areas: leveraging artificial intelligence, commercializing data, and harmonizing or consolidating systems across the Group, including our subsidiaries. Through intelligent hyper-automation, we are harnessing the power of AI, GenAI, machine learning, and robotic process automation to drive innovation and sustainable value creation, to further enhance client experience, increase revenue growth, streamline work processes, and optimize costs. We have established a dedicated data and analytics team to spearhead our strategy to monetize data. Equally, we are proactively reviewing the data quality management practices to mitigate data and model risks in our environment.
These initiatives are receiving priority attention as we go forward. The progress we have made on our technology journey is foundational for seamless integration and fast adoption of AI capabilities. We are currently investigating more than 50 use cases that will support revenue uplift, cost optimization, and improve lending decisions. Our IT systems convergence in Nedbank Africa Regions is underway as we seek to leverage the capabilities that we have put in place in South Africa. Lastly, the modernization of our technology systems is accompanied by investment in complementary and critical new capabilities and skills in digital, emerging technologies, data science and predictive analytics, specialized finance, and emerging risk types, including cyber risks. This is underpinned by the creation of a competitive culture that emphasizes the importance of human-centered interactions to enhance the client experience and customer service, ensuring digital convenience when wanted and human conduct when needed.
As part of our strategy refresh in 2024, we identified and are still sizing various new opportunities that will deliver incremental financial benefits in the medium to long term. They include, among others, an attractive insurance, growth, and cross-sale opportunity into the Nedbank client base as we seek to increase client penetration to more than 30% and grow gross end premiums substantially. Jason will elaborate later on how this will be enabled. Through portfolio diversification, we will be growing our presence in East Africa with a CIB-led approach and increase Africa's contribution to gross operating income in CIB from 15% to more than 20%. We will also explore inorganic growth opportunities across the continent that play to our strengths and can contribute to our strategic intent to grow scale in Nedbank Africa Regions.
In addition, the launch of a dedicated new offering to transform how mid-size corporates access financial solutions will see us expand our commercial banking business. Lastly, we will intensify our focus on extracting commercial value from our technology and data investments. As part of strategy execution under strategic portfolio tilt, we increased market share across home loans, vehicle finance, retail deposits, and wholesale term lending last year. In commercial mortgages, where we have a leading market position, we supported our clients, and our market share remained strong around 36%. 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 deposit perspective, we increased our retail market share to 16.8%, while more work is required to grow our share of commercial deposits.
Under our Transform Agenda going forward, we seek to scale our retail lending products and gain further deposit market share with a heightened focus on transactional deposits. Leverage our strengths in CIB to accelerate growth in key sectors and into East Africa, and invest significantly to build out our corporate transactional banking franchise. Under our fifth and final strategic value unlock, we continue to provide loans and finance to clients that are aligned to the UN Sustainable Development Goals. At the end of 2024, we had sustainable development finance exposures of around ZAR 183 billion, representing 19% of the Group's total gross loans and advances, up from the 13% in 2021 when we set our ambition of 20% by 2025.
The financing we provide to clients is highlighted on the right of the slide, including ZAR 33 billion for green buildings and affordable home loans, ZAR 25 billion for small business, ZAR 4 billion for clean water and sanitation, and ZAR 40 billion for clean energy. To give color to SDG 7 in more detail, the graph on the left shows the excellent progress we made in growing our renewable energy book. In 2024, exposures increased by 32% to almost ZAR 40 billion, with growth mostly driven by the financing of private power generation.
Looking ahead, we have a pipeline of around ZAR 30 billion in place that has been enabled by our market-leading team that closed 12 private sector deals in 2024, was appointed joint mandated lead arranger for seven out of eight projects under the REIPPPP Round 7, and also joint mandated lead arranger for seven out of the eight projects under the battery energy storage systems round two. The strong activity in 2024, good pipelines of deals and cross-sale will support strong book growth in CIB over the medium term. Lastly, as in previous presentations, I will reflect on a few ESG highlights, which remain a core part of our strategy going forward. In March, we became the first SA 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 seventh year in a row, supported by ongoing diversity and inclusion improvements in African, colored, and Indian employee representation to 83%, and a 4% increase in African talent representation at both senior and middle management levels. We also recruited more than 3,500 Youth Employment Service participants, bringing the total first-time job opportunities we have provided to the youth to more than 13,500. Finally, we continue to rank at the top end of our local and global peer Group across multiple ESG ratings, as shown on the right-hand side of the 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.
As highlighted earlier by Jason, the operating environment has been difficult and volatile, although we did see some improvement in the second half. It was the particularly slow GDP growth and muted demand for credit that impacted our numbers most. According to the BA900 data, this phenomenon was sector-wide. However, as Mfundo showed, we've made good strides in implementing and executing our strategy, and this has supported our financial performance. Against this backdrop, our key profitability metrics continue to improve, evident in headline earnings growth of 8%, strong DHEPS growth of 11%, and a higher ROE at 15.8%, both benefiting from the share buyback we executed in 2023. The credit loss ratio decreased by 22 basis points to 87 basis points, pleasingly now back within our through-the-cycle target range.
Balance sheet growth improved in the fourth quarter, as evident in gross banking advances and deposit balances increasing by 7% and 8% respectively, while key balance sheet metrics remained strong, evident in our capital and liquidity ratios. The key drivers of shareholder value creation showed positive momentum, with our ROE now sustainably above cost of equity. Following the strong earnings growth and capital and liquidity positions, we declared a final dividend of ZAR 11.04 per share at the top end of our payout ratio. Net asset value per share of just over ZAR 240 increased by 4%, absorbing the negative impact of foreign currency translation movements. Unpacking the numbers, headline earnings was up 8%, and as shown in the large bright green bars, the key drivers were non-interest revenue that increased by 10% and a 17% reduction in impairments. Both these metrics were slightly ahead of management expectations.
Net interest income increased by just 1% and came in at the lower end of the guidance provided during our pre-close call last year. Associate income declined by 11% and includes associate income from our 21% financial investment in ETR that declined by 17%, in part given the non-repeat of the base effect of providing for our share of ETR's Ghanaian sovereign debt restructure program in 2023. Expenses were well managed and increased by 8%. As Jason noted earlier, our cost-to-income ratio increased primarily given the muted NII growth and the decline in associate income, notwithstanding the strong NIR growth and well-managed expenses. Reflecting on the balance sheet, as shown on the right-hand side of the slide, gross banking advances grew by 7% ahead of the 4% growth in average banking advances. This was mainly on the back of deal closures in CRB in the last quarter of the year.
As a result, CRB's actual banking advances increased by 10% when compared to average banking advances growth of only 3%. Term loans, reflecting largely the growth in our investment banking business, grew by 13%. Positively, this growth was driven across various sectors, while pipelines into the future remain robust. Book growth in the property finance sector accelerated in the second half of the year as the rate-cutting cycle started. In OBB, average and actual advances growth was 5% and 4% respectively, mainly impacted by industry-level household credit growth that slowed to just 3%. RBB's growth was primarily driven by gradual home loan and vehicle finance market share gains, offset by our deliberately cautious approach to personal loans given elevated risk. On the upside, we have seen application volumes across all of our retail products increase in the second half of the year, as shown in the booklet slide.
On the opposing side of the balance sheet, deposits increased by 8%, driven by clients placing cash into higher interest-rate longer-term products given our competitive offerings. As a result, current and savings accounts were flat. In contrast, call and term fixed deposits, as well as other deposits, increased by 9%, 8%, and 12% respectively. The large increase in cash management deposits was mainly due to higher government deposits, and NCDs decreased by 11%, driven by strong growth in other deposits and increased systemic liquidity emanating from the gold and foreign exchange contingency reserve account, or GFECRA, that reduced the need for marginal deposits. Turning to the income statement, NII increased by 1% as growth in average interest banking assets of 5% was offset by NIM contraction.
The 16 basis points decline in NIM to 405 basis points was primarily driven by negative endowment mix impact due to net capital and transactional balances growing slower than the average interest-earning banking assets, asset pricing pressure given increased levels of competition for good quality assets, liability pricing pressure, and the introduction of deposit insurance. This decrease was partially offset by positive endowment rate impact due to the run rate impact of higher average interest rates. Our active approach to interest rate risk management remains a focus while we continue to execute complementary strategies across RBB versus CRB portfolios. NIR growth was strong at 10%. Commission and fees increased by 10%, supported by strong growth in CRB that benefited from deal closures, while growth in RBB was more moderate.
Higher maintenance fees, continued strong growth in value-added services, and card volumes were offset by slower transactional activity, particularly in cash, as clients increasingly opt for cashless alternatives. Trading and fair value income increased by combined 11%, supported by 13% NIR growth in markets due to strong performance in debt securities, growth in equities, and fair value gains on inflation-linked products. Insurance income increased by 9%, positively impacted by accrual reserve releases in life insurance, higher shareholder returns, and an improved claims experience in non-life insurance, partially offset by lower traditional bank assurance volumes. Lastly, NIR included the benefit of ZAR 863 million from the Eqstra acquisition in June that was not in the 2023 base. Excluding Eqstra, NIR growth was 7%.
Turning to impairments, the Group's impairment charge decreased by 17%, driven primarily by a 15% decrease in RBB impairments as the environment improved into the second half of the year and as our collection and origination interventions continued to deliver benefits. Impairments in CRB were down 39%, supported by a ZAR 10 billion decline in stage three loans on the back of various successful resolutions, recoveries, and restructures. NAR was impacted by additional provisions for country-specific risks. The Group's central provision of ZAR 150 million was released as risks are now in cluster models. Total overlays decreased to ZAR 0.8 billion from ZAR 1.1 billion in the prior period, now similar to pre-COVID-19 levels, reflecting the relative improvement in the macroeconomic environment. Our credit loss ratio decreased to 87 basis points, now back within our through-the-cycle target range.
The CRB credit loss ratio at 14 basis points was below the bottom end of its through-the-cycle target range, reflecting the cluster's high-quality portfolio. The credit loss ratio in RBB at 158 basis points declined from the 194 basis points reported in the prior period and was back to within its through-the-cycle target range. Credit loss ratios across all RBB products and segments improved from the levels reported in 2023, except for vehicle finance, given strain experienced in our small taxi portfolio and lower asset realization values at auctions, although significantly improving during the second half. This portfolio continues to receive significant management focus. Wealth reported a credit loss ratio of minus two basis points following client-specific overlay releases and credit model enhancements, while NAR reported a credit loss ratio of 126 basis points above its through-the-cycle target range, largely driven by higher impairments in Mozambique and Namibia.
Within gross loans and advances, stage one loans recorded a large increase, while stage two and stage three loans reduced substantially. The Group's total ECL coverage at 3.32% remains strong and reflects prudent provisioning in the current economic environment. The stage one coverage reduced slightly given book growth and loan migrations, while stage two coverage also declined. Stage three coverage increased to 40.5% as stage three loans in CRB declined by almost ZAR 10 billion since December 2023 after the resolution of large single-name exposures, and stage three loans in R BB with high coverage remained flat. Shifting our focus to costs, expenses increased by 8%. The 8% 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 skills.
Incentives increased by 2%, aligned on one end to higher levels of profitability and on the other to lower levels of vesting expectations. Computer processing costs increased by 6%, driven by continued investment in digital, higher RT volumes and forex devaluations, partially offset by low growth in the amortization of intangible assets. Mikeeting, communication, and travel costs increased by a combined 17% as business activity has accelerated. Lastly, expense growth also includes seven months of Eqstra in 2024. Excluding this, expenses growth was only 6%, reflecting tight cost control. Reflecting on capital, our CET1 ratio at 13.3% declined slightly on the prior year, reflecting strong capital generation, the payment of dividends in the calendar year, foreign currency translation movements, and OWA growth of 5%.
At these levels, the Group's set one ratio remains well above the top end of our board-approved target range, positioning us well to support and unlock growth opportunities. In line with our active capital management approach, we will continue to consider complementary bolt-on acquisitions should they arise, pay dividends at the top end of our payout ratio, consider share buybacks at appropriate share price levels, and absorb the Basel III countercyclical buffer that becomes effective from 1 January 2026. Closing with a high-level overview of our cluster financial performances, CRB produced a strong set of results with headline earnings growth of 9% and its ROE increasing to above 20%. Earnings growth was primarily driven by an 11% increase in NIR, which was supported by commission and fees on deal closures and strong growth in markets.
NII, however, declined by 5% as moderate average advances growth was offset by margin compression, while expense growth was well controlled at just 5%. RBB also delivered a strong set of results with headline earnings growth of 15% and a higher ROE of 17.1%. Growth was driven by a 15% decline in impairments and a 9% increase in NIR. NII was up 2% as average loan growth of 5% was partially offset by a slight decline in NIM. Expenses were well managed, increasing by 8% or just 5% when excluding the Eqstra acquisition. Nedbank Wealth delivered headline earnings growth of 4%, which was underpinned by a 12% growth in NIR, and its ROE increased to 27.6%.
HG Growth was, however, negatively impacted by the implementation of the OECD Pillar II Global Tax Rate, the decision to exit the corporate e-gaming sector internationally, and the continued decline in traditional bancassurance volumes, primarily in unsecured lending. Lastly, in our Nedbank Africa regions, headline earnings declined by 14%, impacted in part by the one-off base effects in both Zimbabwe and ETI. The cluster's ROE at 20.5% remained above the Group's cost of equity. SADC Operations HG decreased by 12%, and its ROE declined to 8%. Headline earnings relating to our associate investment ETR were down 16% on the prior period. In closing, I'm pleased with our performance for the full year.
Although we expect earnings growth to be broadly flat in the first half of 2025, given ongoing slow economic activity, the second half is expected to pick up and earnings growth to end the year above mid-single digits. I therefore look forward to ongoing momentum as we continue to make progress towards increasing our ROE. Thank you. I will now hand back to Jason.
Well, thanks very much, Mike and Mfundo. So now you've heard throughout the presentation that we made good strides in executing our strategy, and we'll continue to do so under what we call our Perform Agenda by managing the Group efficiently and improving profitability in the near term. As part of our strategy refresh, we've also identified initiatives that will, over time, help us get to our longer-term ROE target. The key objective of these can be summarized into five broad categories.
Firstly, unlock value from the technology investments that we've made over the past 10 years while we ramp up investments in data and AR capabilities. Secondly, scale our retail business in order to reduce its cost-income ratio and increase its ROE. Third, portfolio diversification into new segments and markets. Fourth, leverage our market-leading sector skills and expertise in CRB. And fifth, a deliberate measured expansion into key SADC and East African countries. At the same time, we're busy finalizing a strategic review of our financial investments in ETR. The initiatives that Mfundo covered as part of his presentation give you a flavor of what we'll focus on, and these will no doubt continue to evolve and expand. They cover technology initiatives that will not only drive revenue growth and productivity gains but also fundamentally change how we engage and serve our clients.
Initiatives to grow the retail franchise and enhance productivity, and examples of expanding into new jurisdictions and new initiatives in market segments such as building out our transactional banking franchises across retail, commercial, and corporate. To support execution of our strategy, compete more effectively in the markets, enhance cross-sell, and unlock new growth opportunities, we've embarked on an organizational restructure of our retail and business banking and Nedbank Wealth clusters, evolving into an organizational design more focused on client-centricity. The new Group structure will see the creation of Personal and Private Banking, an individual or non-juristic focus cluster that will provide a full suite of solutions to individual clients across the youth, entry-level, mass, middle, affluent, and high-net-worth segments. Nedbank Insurance and Nedbank Wealth Management will be incorporated into Personal and Private Banking as we see cross and upsell opportunities.
The reorganization will also see the creation of business and commercial banking, a juristic-focused cluster that will cover the spectrum of SME, commercial, and mid-corp clients all the way up to corporate. Our asset management business will move into CRB and focus on building out its product offerings while improving new business origination on the back of our new client-centric model. Nedbank Wealth will no longer exist as a standalone cluster. The strategic rationale and benefits are compelling. In personal and private bank, where we will have a singular focus on individual clients, we will grow our insurance business and unlock cross and upsell opportunities into the existing Nedbank client base, unlock scale benefits and leverage capability synergies between wealth management and private clients to strengthen our value propositions in the market.
Business and commercial banking has ambitious plans, and the restructure aims to accelerate growth through new compelling value propositions and a singular focus on juristic clients, while it is elevated to a Group Exco level. We also anticipate substantial benefits for all our stakeholders. Employees will be more empowered as we break down structural barriers to collaboration, create increased focus, and align incentives across the organization. For clients, the reorganization represents a leap forward in how they'll experience Nedbank. By unifying our personal and juristic business segments into distinct focus clusters, we'll be more able to offer seamless and integrated banking experiences. Our shareholders can expect improving financial performance from Nedbank over time, underpinned by delivering focused growth strategies, including the unlock of cross-sell opportunities and increased efficiencies, all contributing to us achieving higher ROEs over the medium term and long term.
In Q2 '25, we'll refine and implement effective structures and finalize leadership, and changes will become effective from the 1st of July. Tiko Thomas will lead our personal and private banking business, and we'll announce the leader of the newly created business and commercial bank in due course. Concurrently with the strategic reorganization, we announced today that after 23 years of service to Nedbank, Iolanda Ruggiero, Managing Executive of Nedbank Wealth, will be taking early retirement. She will be working closely with Nedbank senior leadership to manage an orderly transition in advance of her retirement on the 31st of March. We thank Iolanda for her invaluable contribution to Nedbank Group and wish her well on her retirement. Once again, these organizational structures will be effective on the 1st of July. We'll remain focused on our performance in our current construct in half one while this transition's underway.
The board, Group Exco, and I are all excited about this new chapter in Nedbank's journey and the value it'll create, and I look forward to sharing our progress with you going forward. As we move on to our 2025 prospects, let me start with our latest economic outlook, which underpins our financial guidance to the market. As noted earlier, we remain cautiously optimistic around the potential benefits associated with the South African GNU, and our base case assumes better macroeconomic conditions in 2025 and into the medium term. Our economic unit forecasts South African GDP to increase in 2025 to 2027 by between 1.4% and 1.8%. However, in 2025, we expect economic activity and banking conditions to remain challenging at the start and only improve as the year progresses. Inflation is expected to average around 4% in 2025 and remain below 5% thereafter.
However, upside risks remain as US policy changes may lead to renewed rand weakness and higher domestic inflation. The MPC reduced the repo rate by 25 basis points in January, and we currently expect the prime lending rate to ease by another 25 basis points in July, taking the prime rate to 10.75 by the end of 2025, after which it remains stable for the next few years. Credit extension is forecast to initially remain muted before picking up to about 5.6% by the end of the year, supported by the anticipated recovery in the domestic economy and lower interest rates. The risk to the credit outlook, however, remains tilted to the downside, particularly in the short term. Turning to our own guidance for 2025, NII growth is expected to grow by around mid-single digits, driven by stronger advances growth.
Our NIM is expected to contract a little more due to asset mix changes, ongoing competitive pricing for good quality assets, and the endowment impact of lower interest rates by less than previously anticipated. Our credit loss ratio is expected to be around the midpoint of our target range. NIR growth is expected to grow at upper single digits, supported by ongoing deal flow in CRB, higher levels of cross-sell, main bank client gains, and value-added service growth in RBB, and the residual full-year impact of the Eqstra acquisition. Expenses are expected to grow at mid to upper single digits given the impact of Eqstra, while we maintain our focus on good cost management. Capital ratios should remain well above board ranges and our dividend, subject to board approval, at the top end of the payout ratio of around 57%.
We will continue to look for market opportunities to execute further share buybacks at attractive price points and where we see value for shareholders. Lastly, with respect to our key targets, we update our guidance and now expect DHEPS to grow by more than mid-single digits in 2025. Given ongoing slow economic activity at the start of the year, including muted credit demand, which only picks up as the year progresses, we expect earnings growth in the first half of 2025 to be broadly flat before improving in the second half of the year. We aim to increase ROE to above 16%, although our cost-income ratio is expected to increase slightly year on year, including the full-year impact of Eqstra. In the medium term, we'll continue to progress our ROE to above 17% as earnings growth improves.
Our cost-income ratio should decline to around 54% as revenue growth picks up and we retain a focus on productivity improvements. In the long term, we remain focused on increasing our ROE to above 18% and improving our cost-income ratio to below 50%. Thank you, and we'll now proceed to Q&A. Super. So we've obviously prepared for some Q&A now. But of course, over the coming days, we're going to meet so many of both our investors and sell-side analysts, and we're looking forward to seeing you all in person. But we would like to deal with any immediate questions that come up. It's probably going to be best if we go to the Chorus Call first. So if I could ask the operator to lead us through that Q&A, Mike and Mfundo and myself will respond to all of that and then exhaust that.
Then we'll move on to the questions coming through the web. Operator, if you could guide us to any questions on the Chorus Call.
Thank you. For those on the conference call, if you would like to ask a question, you're welcome to press star and then one. On a touch-tone phone or on the keypad on your screen, you will hear a confirmation tone that you have joined the queue. If you, however, wish to withdraw the question, you may press star and then two to remove yourself from the question queue. Once again, if you would like to ask a question, you may press star and then one. The first question we have is from Harry Botha of Bank of America Securities. Please go ahead.
Hi, good afternoon, Jason and team. Thanks very much for the opportunity.
Can you possibly expand on the headwinds that result in lower earnings growth in 1H25, given that the credit loss ratio was still elevated last year? And just maybe any updates on your plans to hedge part of the endowment book that you've mentioned previously? And then finally, in terms of the main bank customer growth of 5% versus total active customers, relatively flat. Could you maybe just unpack some of the differences there, please?
Great. Thanks, Harry. I'm going to ask Mike to take those ones.
Sure.
Thanks. Thanks, Harry. So first of all, in terms of headwinds and the guidance we've given for the first half of 2025, it's largely driven off slowing balance sheet growth we experienced all the way through 2024. If you remember, the guidance I gave around NII at the beginning of last year was we would grow NII above mid-single digits.
At the half year, I changed that to below single digits. And during the pre-close in November 2024, I changed that to basically flat or low single digits. So we've seen that ongoing slowing balance sheet growth through the whole of 2024. If you put on top of that what's taking place from a geopolitical risk perspective as it relates to tariffs, high levels of expected global inflation, and therefore domestic inflation, and a shallower rate-cutting cycle, and therefore a consumer that remains under pressure, you've got that run rating effectively into the first half of 2025. Your second question in terms of hedging, we've done a small amount of hedging as it relates to our CRB portfolio. Just to remind all of us, Jay and I reflected from a complementary interest rate risk management strategy.
We believe it's appropriate to run endowment as a natural hedge against impairment in our RBB portfolios, but not in our CRB portfolio, so as and when we've seen opportunities to hedge NII or NIM certainty in our CRB portfolio, we've done some of that and will continue to do more of that effectively as we see opportunities, and then, Harry, you had a third question, which I didn't scribble down. Yes, thanks very much. It's just regarding the main bank customer growth versus total customers. Yeah, so main bank customer growth, I mean, obviously, we do unpack growth in main bank clients across different areas, and we've seen some growth in main bank clients, but we would have liked to have seen stronger growth in main bank clients.
And Mike, on that one, Harry, there's obviously many components that drive customer acquisition.
If you look at our metrics around customer service, those are all trending in the right direction. If you look at our market share and transactional deposits, we've really, I think, stabilized that this year after many years of decline, so we're feeling good about that, and then the technology, I would just point out that of our digital sales, for instance, almost two-thirds of those, two-thirds of total sales in retail banking today are digital. So the technology journey also has a payback with respect to kind of service and account maintenance. Thanks, Harry. We can take the next question.
Just a reminder that if anyone would like to ask a question, you may press star and then one. We will pause a moment to see if we have any other questions on the conference call. We have a question from James Starke of RMB Morgan Stanley. Please go ahead.
Good afternoon, Jason, Mfundo, Mike. Well done on the strong earnings print. Three questions from me. Just regarding NIM, the full-year NIM at 405 implies the 2H was down to around flat 4%. If you think of that relative to 1H, where it was 413, should we expect a similar quantum of NIM compression into the next six months and perhaps stabilization only in the second half? The second question relates to business banking. If you can please give some color on the actions you've taken regarding your fee envelope and how you feel it's positioned given some of the competitive dynamics that are evolving in that space. And then lastly, Jason, you mentioned the strategic review around ETI. If you have any guidance around the time frame when you expect that process to conclude. Thank you.
Great. Thanks, James.
Looking forward to seeing you also over the next couple of days. Mike, will you unpack the NIM a bit more there for James, and then I'll take the other two.
Yeah, James, so I mean, in a nutshell, I would suggest your math is reasonably accurate, and the answer to your first question is yes. I would expect that similar level of dilution into the first half of 2025, and then to your point, stabilizing into the second half. Jay, do you want to pick up?
Yeah, yeah, two parts about that. Yeah, so James, I think we see, I would say, a huge opportunity going forward in business and commercial banking. Within that, you're right that there's some fee pressure there, I think, as we negotiate with clients.
But we've got so much more to do with respect to product offerings and service that I think we'll hopefully see improving trends in that over the coming years. It's also going to be elevated to a Group Exco level now. So I think that should serve the strategic focus on that very important business for us going forward. And in fact, I think our prospects there over the medium term are pretty good. In other words, even today, if you carve out the business and commercial banking pieces, you'll see we've got a good returning business. We're just looking really to improve our growth there is the opportunity. And then, James, the last one was on the strategic review of ETI. So in the announcement today, we said that we're busy finalizing the strategic review of our investment in ETI.
In August, we said we no longer saw it as strategic. We saw it as a financial investment, which we would manage to extract maximum shareholder value. So it's difficult to time-bound ourselves with respect to outcomes there. But what I would say to you, it's getting a tremendous amount of focus from myself and the leadership team.
Thank you.
We have no other questions on the conference call at this moment.
Thanks, operator. That's great. We do have a number of questions on the web. So let's exhaust the conference call now and move to those. Folks, what I'm going to do is I'm going to read them all out one by one, and then between us, we'll answer every component of them. And I'm going to just read them in the order in which they were asked. So the first one is from Suren Naidoo from Moneyweb.
The CIO mentioned that Nedbank's tech investment and digital adoption drive reduced the Group's headcount mainly due to natural attrition, as well as reduced floor space, leading to cost savings. With the announcement of organizational restructure, will this lead to further cost savings, overhead cuts, including possible job cuts, or does the bank see further staff attrition here too? Please confirm staff numbers, how it's declined over the last year, or any target going forward. Suren, I'll take that one. So you asked a very specific question on staff numbers. I'm pleased to say that, in fact, our colleague numbers, as we refer to staff as colleagues, are actually pretty stable at just around 25,500. So no discernible change in staff numbers at a total level over the last year. We were also able to welcome all of the Eqstra colleagues into our Nedbank colleague base and our home.
We don't really see staff numbers changing materially. In fact, everything we said today around the reorganization of Nedbank into customer-centric clusters has everything to do with building out scale, becoming more client-centric, as opposed to cutting costs. If we find any cost opportunities within that, we'll certainly reinvest those in our front line. That's the mindset with which we're approaching this organizational restructure. We've got Radebe from Mergence. Afternoon, could you please explain the muted NAV per share growth and the higher cost-to-income ratio? What was the amount of share buybacks implemented? So Mike, probably three parts to that: NAV per share, cost income, and buybacks.
Yeah. So Radebe, first part is two bits in the NAV. One, we took another ZAR 1.8 billion worth of foreign currency translation debits, being our share of our 21% share in ETI.
Secondly, we had ZAR 1.5 billion worth of share-based payments, which we effectively executed in the market in line with our policy. That took, call it ZAR 3.3 billion out of obviously earnings growth of 16.4%. Then obviously we paid the divvy of ZAR 9.7 billion. Those were the two additional big moving parts in NAV. In terms of the third part of your question, the quantum of share buybacks was just ZAR 77 million. When we do buybacks, we get specific, effectively border-proof guardrails, and we only execute where we see value. There was very little value pre-going into or share price levels at which those were effectively executed before the closed period.
In terms of the higher cost-to-income ratio, that has largely been driven by my reference to slowing balance sheet growth and therefore NII growth of just 1%, with expenses growing at 8%, with obviously NIR growing at 10%, but NII growing at 1%, together with a decline in associate income that drove the increase in the cost-to-income ratio.
Super. Thanks, Mike. Next questions from Charles Russell from SBG. Thanks for the detailed presentation. A few questions. Let's take them one by one, guys, because if we read them all, so the first one, why reducing market share in personal loans, overdraft, and cards as rate begins to decline? Charles, I'll take that one. So we didn't have a, let's call it, material change in our score cards or our appetite setting for those products.
The reduction in share was more a consequence of the quality of business coming through the front door. So we didn't see the opportunities to originate quality new business to the extent we would have liked to. I would say that on the other side of the coin, we saw better opportunities in the last six months in mortgages and VAF. And I think some of that trend continues into this year. Mike, you could probably take the next one because it deals with NIM. So your guidance sounds like you're expecting slight NIM compression. Does that mean that you expect asset and liability pricing to normalize in 2025?
Yeah, so a little bit like James's question, we're expecting further compression into the first half of 2025. And then, I mean, there's a number of moving parts.
One would be obviously the endowment rate impact starts to have an impact into 2025 as average rates are lower than 2024. We would expect some of that to be offset by a little bit to your first question. We would expect to see some growth in personal lending as well as card, which obviously comes with wider margins. So that would obviously introduce positive price mix in terms of margin. And the overall shape is my response to effectively James's question.
I think we've covered some of that.
Yeah.
And then Charles's last one is, can you give some color on how you expect provision coverage to normalize downwards over the medium term? Mike, we'll probably dovetail that one.
Firstly, I think we had clearly a huge focus in 2024 on not just risk management, but everything related to Stage 3s across the business, whether it was CRB and RBB and managing those back. And I think we've made great progress with respect to those efforts. We're looking to originate well going forward. And therefore, our guidance is pretty clear today that we expect improvement in loan loss rates to the midpoint of our through-the-cycle range. And I think the related stage migrations, I think, will be carefully managed. Then we've got Radebe. Wait a sec. Radebe coming back in. What risk management or due diligence buffers are you putting in place to ensure that targeted East African acquisitions don't cause similar issues or volatility as experienced from ETI investments over the years? Does measured organic growth, XSA, not more prudent than acquisitions?
Radebe, just to be perfectly clear, we didn't say today we were doing acquisitions of banks in East Africa. What we said today is that in areas where Nedbank has strengths, such as in infrastructure finance, project finance, everything related to energy as a sector, renewables within that, trading in fixed income and currencies and risk management for clients, those things that we are good at, we think we can offer similar products and services to clients in East Africa and in Kenya. So we didn't announce today an acquisition or acquisition-led strategy. It is actually more playing to our strengths and being very deliberate. So there's no need then to kind of worry about the question of due diligence buffers and the like. What I would say is the organization's taken tremendous learnings from the ETI investments, what's worked and what hasn't worked.
I think we'll apply those in whatever we do going forward, should there be at some point in the future an acquisition to look at. Next one is, it looks like Ross. Is that right, guys? Ross? Yeah, it is Ross. Thanks for the call. Congrats on the performance. Three for me. If there's time, Ross, we have time. We're here to answer all our questions. First one, with regard to mid-single-digit NIR growth expectations, is it fair to assume this implies close to double-digit loan growth expectation given likely NIM dilution? Mike, do you want to start on that one?
Yeah. So Ross, not as strong as double-digit, but higher average loans and advances growth in 2025 versus 2024, with a stronger half two versus half one. And then some of the dynamics we've been discussing around NIM, obviously we've covered in both Charles's and James's question.
Yeah, absolutely. Thanks, Mike. Within retail lending South Africa, do you expect to see unsecured lending growth accelerate now that your market share is rebased with the consumer outlook arguably improving? Look, I think accelerate, Ross, is a very strong word. Clearly, we have a very deliberate risk appetite in unsecured lending and in personal loans in particular in South Africa. We're hopeful that as the year progresses, particularly into the second half, with better growth in the economy and the like, that some of the quality of the business coming through the door should improve, in which case you could see that line support the loan growth that Mike mentions. But to be frank, right now, what we're seeing is more growth in the secured products like mortgages and VAF even at the moment.
Quinn, I'm going to pass the next one to you, which is the one on payment modernization. What are your priorities and what do you see as Nedbank's competitive advantage?
Yes, indeed. Thank you very much for that. The payments modernization is, of course, being driven off the back of the investments that we've made in the refresh of our tech stack. What it seeks to do is to recognize that all of these will be favorable for digital payment channels. And so we anticipate that over time, there will be a rebalancing of the weighted load in favor of those channels. And so that's number one. Number two, it's a recognition that the payments modernization program is also an industry-wide exercise led by the regulator in partnership with the industry. It does also foresee opening up of the payments landscape beyond just traditional banks to include non-banking actors.
That landscape is changing very, very quickly, and we seek to position the bank to compete in that changed environment. Third point that I would make is that we are looking at the domestic processing of card. We are the major player in domestic processing of card payments, and current contracts with both Visa and Mastercard have come to the end of their life. And so there's a review exercise that is underway that would also take into account all of these and global changes around us.
Thanks. Thanks, Mfundo. The next one's from JP Morgan. It's Barron. The loss of market share in credit cards seems substantial. What's the strategy to turn this around? It's a great question. Barron, we're actually really proud of the progress and performance in our card acquiring business. We built out a really good business there over the last while.
Our shares there are good, in many instances leading, and we serve our clients well. So let's call the card acquiring business as strong and vibrant. I think we're also disappointed that we have gone below double-digit now in our credit card issuing market share. There's lots for us to do to remediate that. I see it actually as an opportunity. We are the only issuer of Amex in South Africa. There's more to do with that partner. There's more to do in some of the back end of our technology, Mfundo. We did core banking and all of that really well. There's more for us to think about with respect to modernizing the digital capabilities in our card business. We're also busy reviewing our awards program in card.
We've identified that our kind of clients really have affinity to only a few of the many rewards we offer, and we need to kind of get better at penetrating our clients with the right reward program. So lots to think about on our card business and the lending business in particular. And we'd like to think that that's a growth opportunity for us going forward in a competitive market. And then the last question is from Jared from All Weather. Is the insurance cross-sell opportunity entirely organic? Well, look, Jared, we would say that the insurance opportunity cross-sell isn't just a cross-sell opportunity. We would actually have a new client acquisition opportunity with some of the insurance capabilities that we've built out. We think that's the one part. I think the organizational redesign that we're busy with should really help our cross-sell into our individual or consumer retail client base.
And that's one of the reasons we've announced that today. And those are the main efforts, I think, for the near term. Over time, we could look at other stuff, but right now, we see those as the biggest opportunities. Folks, last call, but I think we've exhausted the questions on the web as well now. Yeah, I think that's probably a good effort and good time for us to conclude today. But thanks, everybody, for joining us this afternoon. We appreciate your attendance. We appreciate your Q&A, and we're looking forward to a lot of engagement over the next couple of weeks. Cheers. Thank you.