Good afternoon, everyone, and welcome to the Nedbank Group Limited's 2025 Interim Results Presentation. Our presentation today will start with me providing an overview of the group's performance in the first half, a reflection on the operating environment, and an update on some key strategic developments. I'm then going to hand over to Mfundo, our Chief Operating Officer, who will provide an update on the progress we're making on our strategic execution, and Mike, our Chief Financial Officer, will follow with an analysis of the group's financial performance for the period. This includes a pro forma view of the new clusters, post-organizational restructure we announced at year-end. I'll then return to close the presentation with an update on the economic outlook and our latest guidance for 2025, as well as for the medium and long term
The operating environment during the first half of the year was volatile and uncertain, as real GDP increased by only 0.1% in the first quarter of the year. As a result, the banking environment was also challenging, given modest South African credit extension, with slow transactional activity as corporates and consumers remained cautious. The difficult environment has a more adverse impact on Nedbank Group Limited, given our relatively high exposure to South Africa. It remains reassuring, though, that most financial market indicators still reflect cautious optimism. From a strategy execution perspective, the organizational restructure we announced in March has been completed in line with our target date and has now been operationally effective since the 1st of July. Following the strategic review we previously communicated, the group's financial investment in Ecobank Transnational Incorporated has now been reclassified as a non-current asset held for sale.
I'll provide more color on these initiatives shortly. We delivered a financial performance slightly ahead of our first half guidance of being broadly flat, as diluted HEPS increased by 7%, inclusive of IFRS 5 adjustments related to our share of ETI's second quarter 2025 earnings. Our return on equity, which is usually seasonally lower in the first half of the year, improved slightly to 15.2%. Headline earnings growth of 6% was supported by NIR and associate income growth and lower impairments, partially offset by muted NIR growth. Total comprehensive income, a key metric that drives NAV, increased by 26%, reflecting stronger capital generation than earnings growth. Our balance sheet metrics all remained very strong, enabling the declaration of an interim dividend of ZAR 10.28, up 6%.
Reflecting a bit more on the operating environment, we saw the economy stutter, as real South African GDP growth deteriorated quarter on quarter from 0.4% in Q4 2024 to only 0.1% in Q1 2025. Key factors that impacted growth are well known to us all and included slowing global growth, U.S. policy, economic policy and tariff uncertainty, geopolitical conflicts, negative sentiment regarding multiple South African budget delays, and concerns around the stability of the Government of National Unity. The progress that we were hoping to see on infrastructure investments did not materialize in the first half, despite much effort and activity in the background. To enable foster economic growth, we need to see more progress on structural reforms, which remain too slow.
The scorecard that we've shared with the market before, as shown on the left, reflects some positives, particularly a steadier electricity supply, as well as moderate improvements in transport and logistics bottlenecks in the light gray blocks. There is still so much more to do. Challenges such as water supply, crime and corruption, struggling municipalities highlighted in the black box have deteriorated over the past years and will take longer to resolve. While corporates remain cautious, as reflected in low business confidence levels, we take some comfort from the emergence of the green shoots evidenced in credit extension, as shown on the right-hand side, albeit behind our forecast coming into this year. On the consumer front, it's encouraging that the environment has become more conducive, given lower rates and inflation, rise in real disposable income, and as a result, improving consumer finances.
Household credit growth, however, is still lagging at 3%, and job creation prospects remain limited. As I reflect on the drivers of Nedbank Group Limited's first half performance, there have been on balance various positives and negatives. Starting on the left, banking advances growth was modest due to muted demand and slower than expected deal closures. We do remain encouraged by our robust pipelines, though. Deal pricing does remain a contested area, particularly for good deals. On the consumer front, we experienced an ongoing decline in unsecured lending market share and pressures on margins, primarily from lower interest rates. On the positive side, we gained market share in retail and commercial deposits, home loans, and vehicle finance, and showed reasonable client growth. Growth was strong in all our segments across digital metrics, value-added services, and payment volumes, while growth in cash withdrawals slowed in line with our payment strategies.
Lastly, we have benefited nicely from the Eqstra acquisition that was also not fully in the prior year base. From a productivity perspective, we continue to invest to retain key talent and scarce skills. While expenses were well managed, our cost-to-income ratio has been under pressure, mostly on the back of slow revenue growth. On the positive side, we continue to benefit from good risk management efforts that supported better impairment outcomes, leading to our credit loss ratio at 81 basis points, moving back to squarely within our target range. Other highlights included branch sales and digital transaction values that increased 11% and 16% year on year. On the cost side, the group's IT amortization charge was lower than the prior year, as benefits were realized from our technology investments. We will continue to prioritize our technology investments as a key strategic enabler in a fast-evolving digital landscape.
In line with our efficiency programs, we see a continued decline in the number of employees and a reduction in both office and branch floor space. On the far right, key risk and capital management metrics reflect a very strong balance sheet, as our set to earn ratio sits at 13.1%, well above our board target range of 11% - 12%, and liquidity metrics all significantly exceeded the minimum regulatory requirements of 100%. We partially executed against our share buyback program by repurchasing ZAR 500 million of equity in the first half, and this was in addition to buybacks earmarked for our LTR program of around ZAR 800 million. Moving on to the key strategic updates I want to share with you today.
In the first quarter of the year, we initiated a strategic reorganization as a catalyst to enhance our focus on clients, drive faster revenue growth, and unlock efficiency and productivity enhancements. I'm pleased to report that the organizational restructure of our retail and business bank and Nedbank Wealth clusters has been completed on time. This was an important strategic move, embraced by our colleagues and well received by clients and shareholders. We're very excited about the impact of these changes on our future performance. From July 1, Personal and Private Banking, a cluster solely focused on individual clients, will be led by Ciko Thomas. Key changes included the integration of our insurance and wealth management businesses into the new cluster, along with consumer banking and our private banking businesses.
Business and Commercial Banking, a juristic-focused cluster which covers the spectrum of mid-corp commercial and SME clients, will be led by Andiswa Bata, who has an excellent track record and significant experience in this market segment. We've received the required regulatory approvals, and Andiswa will join us on August 18. The group's asset management businesses are now reporting to CIB under Anél Bosman. In the new organizational design, our CIB business will focus on accelerating growth by leveraging its sector-led expertise to unlock cross-sell opportunities and enhance returns. On a pro forma basis, CIB achieved an ROE north of 20% and generates around R8 billion of headline earnings on an annual basis, which now includes the asset management business. In the new BCB cluster, where we focus on juristic clients below large corporates, our objective is to accelerate growth through compelling propositions and sector-focused solutions.
BCB, along with CIB, are both high-return businesses, and they're well positioned for growth. Personal and Private Banking, which focuses on individual clients from youth entry level all the way to high net worth, will benefit from growing insurance and unlocking cross and upsell opportunities to the 7.9 million Nedbank client base. It will seek scale benefits as it grows revenues faster and unlocks further efficiencies and productivity enhancements to lower its cost-to-income ratio. This is important as we seek to improve its ROE from 14% to above 20%. In our Nedbank African Regions business, excluding Ecobank Transnational Incorporated (ETI), where we focus on all client segments across the five SADC countries we operate in, we look to strengthen and scale our franchises and seek complementary M&A acquisitions over time where appropriate.
I'm also pleased to report to shareholders that we have concluded the strategic review of our financial investment in ETI. This review considered progress against our initial investment case, which did not materialize as expected. This was primarily as a result of the deterioration of the Nigerian economy in which ETI operates. The exit of various South African clients from that region limited cross-sell opportunities and synergies between Nedbank and Ecobank that have not been forthcoming. A minority stake also limited our ability to drive strategic progress, so value realization has been disappointing. Since inception, we've earned ZAR 6.8 billion in associate income but only received ZAR 400 million in dividends. Unrealized FCTR and OCI losses of ZAR 6.9 billion on the back of weakening currencies reduced our reserves over time and negatively impacted NAV and NAV per share metrics.
On the regulatory side, banks in Nigeria face ongoing recapitalization requirements, and as a result, a realistic scenario exists whereby Nedbank may need to inject capital into Ecobank Transnational Incorporated to prevent a dilution in our shareholding. In that scenario, the investment would most likely have changed from an associate to a fair value investment, which would have introduced significant mark-to-market volatility to our P&L and our returns profile. Our focus now is on preserving the residual value we hold in Ecobank Transnational Incorporated. This change represents a reset of our strategy on the rest of the continent, with a clear focus on the SADC and East Africa regions in businesses we own and control in areas where we can play to our strengths.
As a result, Nedbank's financial investment in Ecobank Transnational Incorporated from the 30th of June will be classified as a non-current asset held for sale, and we will no longer account for earnings from Ecobank Transnational Incorporated in associate income, but rather in non-core earnings. Mike will unpack the financial implications later in his section. The board has approved a formal plan to dispose of the investment, and we are currently engaging interested parties. We expect to execute a clean sale without material suspensive conditions, barring being subject to normal regulatory approvals. Proceeds will be used for other growth opportunities, such as bolt-on acquisitions to enhance scale in our retail and SADC businesses or expansion into East Africa. With that, let me hand over to Mfundo to talk to our strategic execution progress in more detail. Thank you.
Thank you, Jason, and good afternoon, everyone. In my section today, I will provide an update on the progress we have made on our strategic value unlocks in the first half of the year. Starting with digital leadership as the first key focus area, we continue to benefit from investments in technology and our digital capabilities. As we have noted in prior periods, digital onboarding is seamless for both individual and juristic clients. Most of our services have been automated and digitized, enabling our clients to self-service. In the first half of the year, digital activity and usage continue to increase by double digits, as shown in the first four graphs. A growing number of clients use our digital platforms, in particular our apps, as evident in the 10% increase in many app users.
We also continue to sell more products digitally, and at the end of June, 70% of all retail sales were on digital channels. Our juristic businesses also noted steady progress, as the adoption rate of the Nedbank Business Hub increased to 65%, from 56% in the prior year. While our managed evolution technology program concluded at the end of last year, new technologies have emerged over time that are very attractive to us. We will continue to invest in technology solutions in order to maintain the resilience of our operations, to progress our digital capabilities, particularly our card systems, and to focus on payments modernization. In a market that has not been conducive for growth, we continue to service our clients well with great value propositions. This was demonstrated by being ranked number one in Net Promoter Score among the large South African retail banks.
Our small business services business segment recorded their second highest levels of NPS in nine years, NCIB achieving a client satisfaction score of 80% in line with global benchmarks. An example of how we delivered market-leading client experiences in the first half of the year was bringing South Africa's first fully online iPhone trade-in solution to life via our Alvo platform, as shown in the bottom of the slide. This is now being extended to Android devices. Our new dedicated mid-corporate service model, launched during 2024, has also been well received, with the latest customer satisfaction study concluded by KPI Research showing Nedbank achieving the highest score in NPS when compared to its peer group. A key highlight of the period was the Nedbank brand value that increased by 24% to ZAR 20 billion and now ranks number eight among all South African companies.
In Nedbank Africa regions, we led in brand sentiment scores in Eswatini, Lesotho, Mozambique, and Zimbabwe. As part of strategy execution under Strategic Portfolio Tilt, we increased market share across home loans, vehicle finance, retail deposits, and commercial deposits since December 2023, as highlighted by the green arrows, but still fall short of our desired portfolio mix ambitions. In commercial mortgages, where we have a leading market position, we supported our clients, and our market share remains strong around 36%. Wholesale term loans recorded a small decline, as competition for scarce and good-quality assets remains fierce. Market share losses for both personal loans and credit cards have slowed, and with appropriate risk management, we would expect our performance in these unsecured categories to improve over the next 12 months.
Going forward, we aim to gain further deposit market share with a heightened focus on transactional deposits and to scale our retail lending products, as well as leverage our strengths in CIB, including energy, infrastructure, mining and resources, and commercial mortgages. In our retail consumer business, main bank clients showed reasonable growth, and cross-sale remained steady at an average of two products per client. In the affluent banking segment, our market share was fairly stable at 14%, and we're pleased to have retained our second position in the SME segment with a 24% market share at a time of growing competition. As part of our 2023 results, we shared various new transformational growth initiatives that leverage the group's strong foundations and areas of expertise to help us unlock new revenue and cost optimization.
These growth vectors include, amongst others, leveraging the investments we've made in IT, unlocking faster growth and cross-sell in insurance products into the Nedbank client base, payments modernization, portfolio diversification, including expansion into East Africa by using our expertise and capabilities in CIB, as well as the launch of a dedicated new offering to transform how mid-sized corporates access financial solutions through our Business and Commercial Banking unit. Today, I will not talk to all of them, but focus on the progress we have made on payments and insurance. With regard to payments modernization, we recognize the large potential of digitizing small, faster payments instead of using cash, which has become very expensive to manage.
Our participation in industry modernization initiatives and our own payments efforts enabled us to create a fully interoperable enterprise payment service hub that optimizes the cost to serve, increases innovation frequency, responds to open finance opportunities, and unlocks competitive advantages of embedded payments in real time. Being first to market with Apple Pay, PayShop, and payment APIs highlights our thought leadership and agility. These innovations and our pricing strategy that positions Nedbank among the market leaders on PayShop have resulted in strong growth across payments categories. In the first half of 2025, we recorded more than 250% growth in PayShop volumes and very strong growth in contactless payments, value-added services revenues, e-commerce, and money app payments compared to only 2% growth in ATM cash withdrawal volumes.
With regards to insurance, the opportunity still is to grow and cross-sell traditional bank assurance and new solutions such as myCover Suite into the Nedbank client base. This approach aims to increase client penetration from about 19% to more than 30% as we grow gross and premiums by more than 50% in the medium term, enabled by strategic reorganization of insurance into the Personal and Private Banking business. In H1 of 2025, we made good progress with the integration of the CreditLife cover into digital client journeys, greater rollout of personalized client offers, and enhanced product, channel, and service enablement. Gross and premiums in the myCover funeral, personal lines, and life product lines increased strongly, as shown on the right-hand side, reflecting greater engagement and adoption of Nedbank's digital insurance solutions.
CreditLife penetration in card and overdrafts increased significantly due to API integration, as well as pre-approved and targeted offers, while ongoing initiatives are expected to further enhance insurance penetration in home loans and vehicle finance. 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 June, we had sustainable development finance exposures of around ZAR 189 billion, representing almost 20% of the group's total gross loans and advances, the ambition we had set for the end of 2025. During the period, we saw strong ongoing growth in renewable energy and infrastructure.
On the right-hand side of this slide, we illustrate the work we do under sustainable development finance in more detail and how our leadership in commercial property is entrenched through various sustainability initiatives, such as the conclusion of a ZAR 200 million IFC facility for development of green certified residential and commercial buildings, the launch of the South African Real Estate Investment Trust Sustainability Disclosure Guide, and the development of a building efficiency scale to help clients assess their buildings on sustainability metrics. We also continued our leadership in renewable energy, evident in ZAR 47 billion of loans exposures relating to clean energy, with limits having increased by 19% to ZAR 67 billion, highlighting the robust deal pipelines in place. I now hand over to Mike to take us through a review of the group's financial performance.
Thank you, Mfundo, and good afternoon. Our financial performance for the six months to June was slightly ahead of guidance and in line with our own expectations when excluding the impact of IFRS 5 adjustments. This is reflected in headline earnings growth of 6%, DHEPS growth of 7%, and an ROE that improved slightly to 15.2%. Basic earnings per share, however, decreased by 8% as a result of an impairment loss relating to the accounting of our share of Ecobank Transnational Incorporated's Q2 unrealized FX gains. On the back of slow revenue growth, our cost-to-income ratio increased to 57.4%. Our credit loss ratio decreased by 23 basis points to 81 basis points, pleasingly now around the midpoint of the group's through-the-cycle target range. Gross banking advances growth was modest at 6%, while deposit balances increased by 10%.
Our key balance sheet metrics remained very strong, evident in the capital and liquidity ratios. The key drivers of shareholder value creation were positive, with our ROE, which is seasonally low in the first half of the year, above cost of equity. On the back of our strong capital and liquidity position, we declared an interim dividend of ZAR 10.28 per share that increased by 6% at the top end of our payout ratio. Net asset value per share of just over ZAR 245 increased by 6% year on year, supported by very strong comprehensive income growth of 26%. Unpacking the numbers, headline earnings were up 6%, and as shown in the bright green bars, the key drivers were non-interest revenue and associate income that increased by 6% and 83% respectively, and an 18% reduction in impairments. Net interest income increased by just 2%, in line with our low single-digit pre-close guidance.
Expenses increased by 9%, slightly ahead of guidance. Reflecting on the balance sheet, as shown on the right-hand side of the slide, gross actual and average banking advances grew by 6%. CIB gross banking advances increased by 8%, as term loans, reflecting largely the growth in our investment banking business, grew by 12%. Positively, this growth was driven across various sectors, while pipelines into the future remain robust, although taking longer to convert. Book growth and property finance benefited from the positive momentum carried over from the prior period, although growth slowed late into half one. RBB gross banking advances increased by 5%, primarily driven by gradual home loans and vehicle finance market share gains, reflected in 5% and 9% growth respectively. Dispersals in unsecured lending continued to be subdued as we deliberately followed a more cautious approach in extending credit, given elevated risk.
Growth in commercial banking decreased as clients adopted more prudent borrowing behavior in a difficult environment. On the opposite side of the balance sheet, deposits increased by 10%, driven by transactional cash management balances that grew 36% and call-in term deposits that grew 12% as clients extended tenure, leveraging Nedbank's competitive term offerings. Other deposits rose by 8% due to an increase in step-rate deposits and structured notes, while fixed deposits increased by 5%, driven by competitive pricing strategies in key investment products. In contrast, NCDs and current accounts and savings accounts both increased by just 1%. Turning to the income statement, NII increased by just 2% as growth in average interest-earning banking assets of 9% was offset by contraction in the margin. The 9% growth was driven by 6% growth in average banking advances, as well as higher levels of high-quality liquid assets.
The 26 basis point decline in net interest margin to 387 basis points was primarily driven by a 10 basis point negative endowment mix impact due to net capital and transactional and savings balances growing slower than average interest-earning banking assets, a 10 basis point negative endowment impact from lower interest rates, asset and liability pricing pressures given increased levels of competition for good quality balance sheet, as well as asset mix changes as low margin assets grew faster than high margin assets. Non-interest revenue growth was 6%, in line with the guidance we provided during the group's pre-close update of above mid-single digits. Commission and fees increased by 11%, supported by the acquisition of Eqstra that was not fully in the prior year base, and continued strong growth in maintenance fees and value-added services.
We were particularly pleased with transactional non-interest revenue growth of 9% in our consumer banking business, reflecting good traction and strengthening the franchise. Growth was partially offset by CIB deal flow that was delayed into the second half, as well as reduced cash volumes in RBB. Trading and fair value income decreased by a combined 12%, including a 2% decline in markets and lower levels of fair value relating to our macro fair value hedge accounting solution in the center. Trading income in CIB increased by 5%, driven by strong forex growth offset by weaker equity trading income. Fair value income in CIB declined due to the non-repeat of strong 2024 valuations across CIB.
Insurance income declined by 6% due to lower NIR from personal loans credit life policies as a result of stricter lending practices that led to a reduced personal loans policy base and sizable positive actuarial basis changes in the prior year. This decline was partially offset by an improved non-life claims experience and strong growth in premiums and policies within the myCover Suite, as Mfundo highlighted earlier. Lastly, other non-interest revenue included strong equity investment income growth of 27%. Turning to impairments, the group's impairment charge decreased by 18% and credit loss ratio reduced to 81 basis points from the 104 basis points reported in the prior period, driven primarily by an improving macroeconomic environment, the ongoing benefit of decisive management actions over the past two years with regard to loan origination and collections efforts, and lower levels of stage two and stage three loans.
The CIB credit loss ratio at negative 15 basis points benefited from the resolution of two large clients in default and was below its through-the-cycle target range. Stage three loans in CIB declined by more than ZAR 2 billion year on year. RBB's credit loss ratio decreased to 168 basis points from 183 basis points in the prior year, now below its through-the-cycle upper limit of 175 basis points. Home loans and Nedbank commercial banking reported improvements in their credit loss ratios, while vehicle finance and personal loans credit loss ratios remain elevated. Nedbank Wealth reported a credit loss ratio of just two basis points below its through-the-cycle target range due to credit model enhancements implemented in the second half of last year and higher stage one asset quality in the Nedbank Private Wealth South African portfolio.
NAH reported a credit loss ratio of 154 basis points above its through-the-cycle target range of 85 basis points- 120 basis points, driven largely by expected credit loss model reviews in Mozambique, given political unrest and instability in that country, higher impairments in Namibia on the retail home loans portfolio, as well as adequacy updates in Eswatini. Within gross loans and advances, stage one loans increased by 10%, while stage two and stage three loans reduced substantially. The group's total ECL coverage at 3.2% decreased from 3.51%, mainly as a result of the decrease in stage three loans and remains strong and reflects prudent provisioning. The stage one coverage reduced slightly, while stage two coverage remained flat, and stage three coverage increased to 39.5%, as RBB loans with higher coverage remained broadly flat and stage three loans in CIB declined since June last year.
Shifting our focus to costs, expenses increased by 9%. However, underlying expenses excluding Eqstra increased by just 6%. A 9% increase in salaries, wages, and employee costs reflects the impacts of an average annual salary increase of 6% and the additional investments to retain talent and skills. Incentives increased by 1%, aligned with profitability metrics and vesting probabilities relating to corporate performance targets. Computer processing costs increased by 5%, driven by continued IT investment and higher digital volumes, partially offset by negative growth in the amortization of intangible assets. Communication and travel costs increased by 43%, and fees and insurance costs increased by 12%. Marketing costs were well contained and increased by only 1%, while occupation and accommodation costs decreased due to the ongoing benefits of real estate optimization initiatives.
Turning to our ETI associate investment, associate income increased by 94%, driven by higher than expected earnings from Ecobank Transnational Incorporated of ZAR 705 million and an additional quarterly catch-up of ZAR 281 million of ETI's Q2 earnings that would typically be included in Nedbank's third quarter results, as we have now moved the investment from an associate to a non-current asset held for sale under IFRS 5 as of the 30th of June, having now completed our strategic review. The graph on the right unpacks the movements in the ETI carrying value over time. Of note is the ZAR 6.8 billion of associate income that was accounted for since inception, while our share of foreign currency translation reserves and other comprehensive income losses of ZAR 6.9 billion were also accounted for on balance sheets since inception.
From July 1, ETI will now be accounted for at fair value, with no further earnings accounted for through the associate income line, and this will negatively impact on ROE from the second half. Moving to capital, the movement in our CET1 ratio from December reflects solid capital generation, the payment of the group's final 2024 dividend, a 4% increase in risk-weighted assets from December, and a small impact relating to share buybacks during the period. The increase in risk-weighted assets was driven by 3% growth in credit RWA and 32% in market risk as a result of increased market volatility following the U.S. tariff announcements.
Our CET1 ratio at 13.1% remains well above the top end of the board-approved target range of 11% - 12%, positioning us well for growth, complementary bolt-on acquisitions like Eqstra, sustainable dividend payments at attractive payout ratios, further buybacks, and to absorb the final Basel III reforms. Closing with the financial performance of our clusters, and I will for the last time report on the clusters in this construct, given our organizational restructure covered by Jason Quinn earlier. CIB produced headline earnings growth of 3%, and its ROE increased slightly to ZAR 20.9%. Earnings growth was supported by lower impairments and disciplined capital management. NII decreased by 4%, reflecting average gross banking advances growth of 7% and a decline in the net interest margin on the back of lower interest rates, competitive pricing, and a shift to lower risk sectors.
NIR decreased by 5% due to lower commission and fees income and a 2% decline in markets revenue. This was partially offset by equity investment income that increased by 18%. Expense growth of 3% reflected disciplined cost management. Headline earnings in RBB increased slightly, delivering a lower ROE of ZAR 13.8%. Growth was driven by a 14% increase in NIR, driven mainly by strong growth in commission and fees, supported by the Eqstra acquisition, and a 4% decline in impairments as consumers adjusted to an improved macroeconomic environment and due to the benefit of our ongoing credit risk and collections initiatives. NII, however, remained flat off the back of 5% growth in banking advances and a decrease in margins, mainly due to lower endowment given lower interest rates. Expenses increased by 10%, but only 4% when excluding the Eqstra acquisition.
Headline earnings in Nedbank Wealth were positively impacted by an improved non-life claims experience, strong growth in premiums and policies within the myCover Suite, higher local deposit balances, and good growth in assets under management. Lower impairment balances also contributed to higher earnings. This was, however, offset by sizable positive actuarial basis changes in the prior year and reduced margins in the international business. Lastly, in the Nedbank Africa regions, headline earnings increased by 63%, delivering a strong ROE of 28.6% when including Ecobank Transnational Incorporated. Headline earnings in our SADC operations, however, decreased by 5% and ROE remains low at 6.7%, largely driven by higher impairments in certain countries.
In closing, the following slide shows the contribution of our clusters post the organizational restructure on a pro forma basis. CIB and Business and Commercial Banking deliver 20% plus ROEs, while in Personal and Private Banking and Nedbank Africa regions, excluding Ecobank Transnational Incorporated, ROEs remain low and are below our cost of equity at 12% and 7% respectively. CIB remains the largest contributor to group earnings, deposits, and lending, all about 45%, while Business and Commercial Banking is a strong funder of the group at 20%, while earnings contribution and advances are lower at around 16% and 10% respectively. Personal and Private Banking contributes 26% to earnings, a healthy 30% to deposits, and 42% to banking advances. Our SADC operations are small at around 3% - 4%, representing an opportunity to grow and diversify, also into East Africa over the longer term. Thank you.
I'll now hand back to Jason.
Thanks very much, Mike and Mfundo. In closing, I'll provide our outlook for the period ahead, starting with our latest economic forecasts, which inform our updated financial guidance. We still expect banking conditions to improve moderately in the second half, but the 30% tariffs on South African exports to the U.S., weaker global growth, and sluggish commodity prices will probably continue to undermine business confidence. We now forecast South Africa's GDP to increase by only 1% in 2025, down from our 1.4% forecast in February, improving to 1.6% by 2027. While we factored in the potential negative impact of U.S. tariffs on South African exports, these are difficult to quantify, and there's probably downside risk to our forecasts. Inflation should average around 3.4% in 2025 and then gradually rise while remaining around the middle of the solid target range thereafter.
After a cumulative 125 basis points cut in interest rates, including the 25 basis points in July, we expect the prime rate to remain stable around 10.5% for the next few years. Credit extension is forecast to be around 5.6% by the end of the year, supported by a recovery in the domestic economy and lower interest rates. The risk to the credit growth outlook, however, remains tilted to the downside, particularly over the short term. Although difficult to forecast, the rand is expected to average around ZAR 18 to the dollar for the rest of the year. While the forecasts of economists are more measured, financial markets continue to reflect cautious optimism, and this is evident in lower bond yields, a stabilization in foreign bond sales, stronger equity markets, a stronger rand, and an improved credit default spread back to investment grade levels.
Turning to our guidance for 2025, which has been updated to reflect the negative impacts of the operating environment on revenue growth and the change in our strategy regarding Ecobank Transnational Incorporated. Of course, our guidance in March was predicated on a strong and improving economy in the second half, which now appears rich. NII growth is now expected to grow by low to mid-single digits, driven by slightly stronger advances growth in the second half of the year, while our numbers are expected to continue to contract further due to wholesale assets growing faster than retail assets and lower endowment income. After a good first half performance, our credit loss ratio is expected to improve further, to be slightly better than the midpoint of our through-the-cycle target range of 60 basis points- 100 basis points.
NII growth is expected to grow at mid-single digits, lower than our initial expectation of upper single digits. Expenses are expected to grow above mid-single digits, revised down from mid to upper single digits, as we maintain our focus on managing costs in a difficult environment. As noted earlier, associate income from Ecobank Transnational Incorporated will not recur in half 2025 or beyond. Capital ratios should remain 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 active capital management opportunities through further share buybacks and potential M&A activities. DHEPS, as a result, is expected to grow by low single digits in 2025, revised down from more than mid-single digits, while we aim to achieve an ROE of 15%.
In the medium term, our ambition remains to progress our ROE to 17%, with our cost-to-income ratio declining closer to 54%. We have various initiatives to unlock opportunities in the medium to long term, including benefits from the organizational restructure, various growth vectors around revenue opportunities, M&A activity, as well as further capital optimization. In the long term, we remain focused to increase our ROE to above 18% and improving our cost-to-income ratio to below 50%. In conclusion, to deliver on our targets, we need focused execution and a pivot for the future. Under focused execution, we will continue to deliver on our perform agenda, including managing through the volatile, uncertain, and difficult operating environment, executing robust lending pipelines, leveraging green shoots in key market share categories, robust payments and insurance strategies, while delivering financial and strategic outcomes that create value.
We'll also maintain strong risk management practices and sound capital and coverage levels while remaining good stewards of capital. Pivoting for the future requires us to unlock value from the strategic reorganization and to provide credibility. We'll finalize cluster key performance indicators and targets and communicate them to stakeholders at the end of the year. Under our transform agenda, we will accelerate efforts to execute on our growth initiatives and seek selective M&A opportunities to drive scale and diversification, including SADC and East Africa. Lastly, we aim to put the ETI investment behind us as we finalize and execute on the sale of that investment in the near term and redeploy capital into our transform agenda. Thanks very much, and we'll now proceed to Q&A.
Those who have joined on the telephone lines, I would like to ask a question. Please click in star and then one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star and then two to leave the question queue. Just a reminder, if you'd like to ask a question, you're welcome to press star and then one. Our first question comes from James Stark of RMB Morgan Stanley. Please go ahead. James, your line is now open. You can ask your question. Not getting any response from James' line. Going on to the next question, which comes from Harry Botha of Bank of America Securities. Please go ahead.
Hi, good afternoon, and thanks very much. I just want to get a sense of your target for 17% ROE. Would you still roughly regard this medium term as three years away? Could you possibly speak to what we need to see in 2026 from an earnings growth perspective to put you on track towards the 17% number? Can you possibly give us a bit more color around the elevated credit loss ratios in retail, MFC, and unsecured lending, please?
Great, thanks Harry. Appreciate the questions. We'll do them one by one. Yeah, so your first one about ROE, that would be three years out. Your second one around the path towards that, let's say in 2026. Look, we'll provide more explicit guidance for 2026 at the beginning of next year. You would assume that in order for us to make progress against that, we'd have to have higher earnings growth in 2026 than 2025. The components behind that would probably be a bit better revenue momentum than what we've seen this year, probably more balance sheet growth, more importantly. A solid stabilisation of that loan loss rate, probably in the bottom half of our through-the-cycle guidance range, and then a bit more efficiency coming through the expense line. Let's not forget the capital optimisation that we've been flagging a few times today.
Those would probably be the main features I would suggest against that guidance. Like I said, we'll be more explicit on numerical components of that in March. Your last one around loan losses, like particular categories of loan losses that I'm personally a bit disappointed on. You know, despite being really comfortable with our overall loan loss rates, you know, at 81 now compared to 104, the pockets of opportunity for further improvement are, as you called out. Motor finance would be one of those. Personal loans and cards would be the other two. I think you'll see us make further progress against those lines in the second half. You can take the next question.
The next question comes from Simon Nellis of Citi. Please go ahead.
Hi, Jason, Mike, thanks for the opportunity. Just on the ETI accounting change, were there any impacts on the P&L other than that ZAR 1 billion impairment, or was that something different that seemed to be related to some kind of FX recycling issues? I guess when you do sell it, you're flagging that there'll be an ZAR 8 billion impact on the P&L, if I'm not mistaken. Is that just a recycling of FX losses that doesn't actually impact equity? Just a little bit more on the whole accounting behind what you've done with ETI would be useful. Second question will be just on margin outlook into next year and beyond, you know, given rate cuts we've seen, if you could give us some update there.
Last, I'd be interested in knowing if you think you can defend the 10% deposit growth, which is pretty nice in the first half in the full year. Thank you.
Yeah, thanks, Simon. I'm going to ask Mike to cover the first two because they're quite, let's call them financial or accounting related. You know, as you know, right from when I started a year ago, we spoke a lot about improving primacy at Nedbank, growing deposits. In fact, we've grown them faster than loans in this period, as you suggest. I see no reason why that would change in the second half. Mike, if you want to cover ETI accounting and numbers on the low.
Simon, first, the first item. If you want to understand the income statement effect of moving the investment to an IFRS 5 non-current available for sale investment, effectively we've taken one more quarter, being quarter two 2025, into the 30 June numbers. Remember what we've always done is we've accounted one quarter in arrears for our share of Ecobank Transnational Incorporated earnings over the last 10 years. In a like-for-like comparative, we would have taken quarter four 2024 and quarter one 2025 into this set of numbers, which is just over ZAR 700 million. In addition to that, we've taken another ZAR 281 million, which is the ZAR 281 million worth of our share of post-tax earnings to effectively this set of numbers. We've got nine months' worth of Ecobank Transnational Incorporated earnings in the income statement.
From a balance sheet perspective, just as you've suggested, what actually happens is we effectively book also our share of OCR, foreign currency translation movements, all through effectively the value of the investment and through equity. We need to establish under IFRS 5 an assumed selling price. Based on that selling price, we book a loss on the sale of that particular investment, which is the billion you referred to. From a NAV perspective, you take an additional R1 billion worth of effectively reserves. You take the impairment loss, so net net neutral on NAV, and then the income statement effect is the ZAR 281 million I've just referred to. In terms of the second question, which was a question around NIM. NIM, and again it comes up, actually we've got a couple of questions on NIM. You've seen the unpack of the dilution to ZAR 387 million.
What we expect to happen in the second half would be the run rate impact of further adverse endowment implications due to the run rate of the rate cuts in the first half. That's the 225 basis points will impact us in the second half for a full 25 basis point endowment impact in the second half. Obviously, you've got the additional 25 basis point rate cut as well. That will run rate into the second half. We would effectively expect a further small dilution due to endowment into 2026. With regards to mix, our expectation for the second half is that CIB will continue to grow stronger than RBB from an advances perspective. The issue around low margin assets growing slower than high margin assets will cause further dilution from effectively a mix perspective.
Pricing is dependent on how aggressive the market is with regards to good quality balance sheet. That would effectively apply to 2026 as well.
Okay, that's very clear. If you do sell ETI though, will there be a further impact or have you already kind of reflected everything? I mean, assuming no change in the valuation.
No, no further change, but the second part of that question was around the ZAR 8 billion worth of foreign currency translation losses. All of those recycle through profit attributable to outside shareholders, has no impact on HE because effectively shareholders have taken the adverse implications of those debits over the last 10 years. They do recycle out of effectively OCR through the profit in the year of sale, but no impact on NAV.
Understood. The ZAR 1 billion, the ZAR 1.1 billion charge that you took this year that wasn't in headline earnings, that did go through the...
That has no impact on headline earnings. That all goes through the OCR. Yeah.
Right.
Okay, thank you.
Very clear. Thanks.
Thanks, Simon.
We have no further questions on the lines.
Thank you. We're going to turn to the web now. I'll navigate them. We've got a couple here. I'll read them out and we'll deal with them collectively. To me from 361 has two questions. The first one is, upon completion of the sale of Ecobank Transnational Incorporated, how likely is it that Nedbank Group Limited will be able to repatriate the proceeds to South Africa? To me, we'll confirm that the type of sale we'd be looking to execute would be a clean sale without material suspensive conditions, warranties, or indemnities, or anything like that, with unrestricted access to hard currency, which we would then be able to apply to our capital stack wherever we would like to execute it in the world.
The second one, also from To Me, given that the South African balance sheet was used to fund dividends linked to associate income, do we anticipate a decline in the dividend payouts ex-Africa following the sale from Ecobank Transnational Incorporated? To me, that's very observant. You saw in Mark's slides that although earning substantial associate income from Ecobank Transnational Incorporated over many years, the firm only ever received about ZAR 400 million in dividends. Therefore, your assertion is right that the firm used the bank in South Africa to fund the associate income from Ecobank Transnational Incorporated's share of the group dividend payment. That is what was going on. That has no impact on how I would see our dividend payout ratio or dividend guidance going forward. Right now we made a decision as a board to pay out at the top end of the range.
I think the range is intact. Let me just hear from Mike around anything he wants to add on that one.
No, I think 100% right, Joe. The size of the dividend will depend on effectively the size of the organization's earnings. The cover range remains intact, and if the board chooses to continue to pay out at the top end or the bottom end of the terms cover, that'll determine the size of the dividend.
I think going forward, Mike, our strategy and to me would be that, you know, as we redeploy capital or invest capital, if we're investing it, as we suggest, in businesses we own or control, there wouldn't be an asymmetric relationship between earnings and dividends funding group dividends from any of our businesses going forward. Barron and Carmo from JP Morgan, please unpack the revision of your non-interest revenue and operating expense guidance for 2025. How should we think about these metrics in 2026? Mike, that's financial. Can I ask you to cover that?
The revisions that we put out in the deck is we expect non-interest revenue to effectively grow above mid-single digits, and we expect operating expenses to grow between mid and upper single digits in terms of the 2025 period. In 2026, Jason referred to the fact that we haven't put detailed guidance out as it relates to 2026, but given the previous question as it relates to a path towards 17%, we would need to grow non-interest revenue mid to upper single digits. We would need to see expenses growing probably just above mid-single digits, and to Jason's earlier point, we would need to see stronger growth in balance sheet leading to stronger growth, certainly above mid-single digits from an NII perspective.
Thanks, Mike. Next one's Ross Cricher from Investec. Two parts. Number one, what sort of NIM dilution do you expect sequentially in half two, given endowment mix and pricing challenges? Mike, if you can cover that one. The second part, how much of a priority is M&A with regards to your intention to scale Africa regions? Certainly, Ross, I'll take that one. It's certainly one of the things we're looking at. We also recognize to build scale in our businesses in, for instance, Namibia and Mozambique also rely on the economies there to grow and us to execute strategies to grow our client-serving businesses. East Africa, we're saying it's more greenfields right now. In other words, the opportunity is to play to our strengths, particularly in CIB. A bit of a more incremental approach on that front.
That doesn't mean that we are not constantly right now evaluating entry points and options to acquire. There's nothing material for us to talk to in that regard today. Mike, if you could take the first part around NIM guidance.
Yeah, Ross, very much to the previous question, expect some further dilution due to both endowment mix and pricing. That's certainly what we've got penciled in in terms of our forecast for the reasons that I mentioned earlier.
Thanks, Mike. Thanks, Ross. Charles Russell from SBG, a couple of questions here, four of them. First one is, can you elaborate on NIM guidance? I think, Mike, we've covered that off a few times now. Charles, if you'd like to cover any more detail, we can do that in our one-on-ones, or you can just drop back in with another question. Second one's endowment sensitivity is a lot lower than historically. What do you attribute this to? Once again, I think you've covered a bit of endowment. If you'd like to add anything.
Yeah, I'll just cover. It is down. Previously, somewhere between RZAR 1.3 billion and ZAR 1.5 billion, it's down just over a yard or a billion. That is as a result of something we've shared with the market, we are looking to put an endowment hedge in place as it relates to effectively portfolios that do not float essentially against interest rates and re-impairments. As a result, we have started to build some of that where we've seen opportunity, particularly in our CIB business and to some extent within the balance sheet management portfolio. That's brought that sensitivity down to just over a billion.
Great, thanks, Mike. The third one I think we'll dovetail on. It talks to elaboration on ROE accretion initiatives. I'll take some of that or most of that. You've also got a calculation question that you think that removing ETI from the results would have dropped returns to 13.5%. I think, Mike, you want to clarify that piece before I go into the more strategic ones.
Yeah, in terms of the conversation we had just now off the back of Simon's question, we've included ZAR 300 million odd being their quarter two. It gives you effectively three months of earnings in the set of numbers. We will have no further associate income because of the designation under IFRS 5 in associate income in the second half of the year. If you just do the maths, we're going to lose ZAR 300 million odd in associate income for a full 12-month period. That over. Equity,
Average equity of around ZAR 112 billion will give you a 25 basis points-30 basis point dilution from an ROE perspective in 2025 as it relates to ETI. If you run rates and take a full RZAR 1.1 billion and ZAR 1.2 billion out of the equation, it is going to take 1% away from ROE in perpetuity as a result of the sale of that particular investment. That's what we're running hard to replace, that revenue earning stream with some of what we share in the deck.
Mike, just to close that loop then, if Charles is calculating 13.5%, you're saying we just printed a 15.2%, you could take a percent off that, it gets to kind of above 14.2% or thereabouts, not the 13.5% that Charles is calculating. Of course, there's a deeper question there around deliberation of initiatives to improve ROE. I've got a whole slide on that there, Charles. There's clearly a lot of focus in the company right now about extracting value from our South African businesses. I do think that there are some green shoots in our loan growth. I think we've got some very clear initiatives around digitization that should drive NIR and customer acquisition. The big restructuring that we've just announced, I'm looking to see sales, upsell, cross-sell improve there, particularly in the insurance space, but also as we rebuild some of our wealth propositions.
In CIB, the pipeline's actually pretty strong. Of course, we just didn't see the deal closures that we've been so busy with for the last six months. Some of that rolls into second half and some of that probably rolls into next year. By covering that, I think I've actually just covered your part about the drivers of loan growth into second half and into 2026. Once again, more of the same from mortgages and vehicles and a bit more from corporate. Also, very excited folks about the opportunity of Business and Commercial Banking. That's one of the parts of the economy that is actually growing. As you can see, we've got a nice strong returning business there already. Now that we've carved it out and we're looking to kind of see more growth as Andiswa joins us as we look at sector coverage and some product innovation.
Next one is Jared Houston from All Weather. Is the current dividend policy payout ratio appropriate for the group post the ETI sale? Jared, we covered that a minute ago with Toomey's question, so no change in our dividend payout ratio. Now that you've removed the scenario in which Nedbank may require to inject capital, once again, our capital management strategy will be a very active strategy. In other words, our first priority is to grow our business. We'll see dividend payout ratios at top percentile ranges, subject to board approval always. We're looking for M&A activity and then we also are actively looking to continue our buyback program. It is helpful then to have removed that risk of capital injection into Ecobank Transnational Incorporated at this point. James is the next one, James Stark from RMB Morgan Stanley. Mike, maybe you want to take the one on NIM.
I'll read it again. On the current interest rate outlook, when would you expect the downward trend in NIM to stabilize? Would fourth quarter be too soon to see that stabilization on a month-on-month basis? The second one also deals with the GDP outlook and if we're starting forward looking, so Mike, if you could take that one as well. You've got a bit more detail on page 122, the path to your ROE targets. I think I've covered some of that already, James, with answering two of the previous questions in terms of the various initiatives. I could double click on the Personal and Private Banking one, at 14% growing to 20%. We think 20% is exactly the right target for that business. The reorganization enables our insurance businesses to sell better. I'm actually really pleased already with the origination processes in vehicles and in home loans.
I think there's lots more for us to do, James, with respect to our strategies and efforts around unsecured lending, personal loans. In cards, that's on us. We've got a bit of investment to make to modernize our technology, customer propositions, and rewards profile. You may see a bit of investment against that business, but lots of conviction from our side that we should be able to get that return to 20% over time. Mike, if you could cover off James's first two there.
Yeah, so James, quarter four, I think is too early. It would be, I think you're out by a quarter, stabilization early in 2026. In terms of the macroeconomic factors utilized in our provisioning, if we're starting provisioning, the economic forecasts for the three years are indicated from a GDP, prime, and HPR perspective per the scenarios together with the probability weights on page 122. Jason, you've covered the ROE question.
Thanks. Thanks, James. Thanks, Mike. Next one is Jared Houston from All Weather back again here. Why has the group been so conservative with this buyback program in half one and lots of share buyback weakness? I guess that's more of a comment. I would say that we've only partially executed that program of buyback. We had probably factored in, you know, in terms of our waterfall, higher loan growth in half one than actually what materialized. We remain committed as stewards of capital to look at all options with respect to efficiency of capital. You'll see that as a very strong agenda or very high agenda item from our side into the second half and into the future as well. It also wasn't at a low. The share price wasn't low throughout. Our NAV per share, as you can see, is about ZAR 245.
We will continue to look at and execute capital efficiency programs in this company. We've got Daniel from Ashburton. Can you confirm post ETI exit, there'll be absolutely no other associate income, i.e., is ETI the only associate? Mike from recollection, we have some small ones, but there's certainly nothing of the scale of ETI.
No, Daniel, you can pick it up on Endnote 9 in our analyst booklet. In the set of numbers, there's effectively ZAR 73 million, yeah, in addition to the ZAR 995 million from ETI. So small associates remain.
Yeah. Another one, or it looks like the last one at this point anyway, PJ from Centaur. Does buybacks become more important to maintain and improve ROE post ETI dilution? As I've said a few times now, PJ, clearly capital management and active capital management is part of our thinking to improve our ROE over time. At the same time, you know, growing profitable businesses, earning good risk-adjusted margin, and growing our NIR while running an efficient business with a lower cost-to-income ratio, in combination, all of those things will improve our ROE. I think that was the last question, certainly on the web as it stands. That is an opportunity for us to close. Once again, folks, I really appreciate your engagement with us today.
We are really looking forward to seeing many of you in person over the coming days and into the coming weeks where we can have a more in-depth conversation on any aspects that you'd like us to cover with you. Thanks again. Thanks, Mike. Thanks, Mpundo.
Thank you.
Thanks.