Good afternoon, welcome everyone to the Nedbank Group 2025 annual results presentation. Our presentation today will start with an overview of the group's performance for the year, a reflection on the operating environment, and an update on some key strategic developments. I'm then gonna hand over to Mfundo, our COO, who'll provide an update on the progress we're making on our strategic execution. Mike, our CFO, will follow with an analysis of the group's financial performance for the period. I'll then return to close the presentation with an update on the economic outlook, our guidance for 2026, and our prospects for the medium to long term. 2025 was a transformative year from a strategic perspective at Nedbank. The external environment remained volatile and uncertain as evidenced by continued global geopolitical conflict, with concerning recent developments in the Middle East.
Despite this, we have seen cautious optimism emerge as markets began pricing in a more supportive macroeconomic environment. I'll unpack some of these shortly. Banking conditions were particularly challenging in the first half. I'm encouraged by the early green shoots, evident in both corporate and consumer activity. From a strategy perspective, we've made a number of bold and swift strategic decisions, including the group's strategic reorganization effective the 1st of July, acquiring iKhokha, and concluding the sale of our 21% shareholding in ETI. In January this year, we also announced our intention to acquire a controlling interest in a leading East African bank, NCBA Group.
We concluded a confidential ZAR 600 million settlement with Transnet, avoiding a costly and protracted legal process, which would have been an ongoing management distraction for years to come. Putting this long-standing matter behind us will clear the path towards our substantial support of South Africa's broader logistics infrastructure investment requirements, which are currently estimated at over ZAR 100 billion. The settlement represents a full and final closure of the matter with neither party admitting fault. Pleasingly, we see momentum building as evidenced in underlying growth across almost all our businesses and clusters, mostly in the second half. From a financial performance perspective, while our results for the year were slightly ahead of guidance, a 3% growth in diluted HEPS is not a satisfactory outcome for us.
Similarly, our return on equity of 15.4% was above the cost of equity of 14.6% but declined from the 15.8% in the prior. On the positive side, we maintained a strong balance sheet, declared a final dividend of ZAR 11.04 a share, completed a ZAR 2.4 billion share buyback program at attractive share price levels of around ZAR 229 per share, and we ended the year with a CET1 ratio of 12.9%. Reflecting a bit more on the operating environment, financial markets are buoyed with optimism, and we expect GDP growth to have increased by 1.4% from the 0.5% in 2024.
Unlike this time last year, we believe that this optimism is not unfounded and is supported by evidence of an improving working relationship with the GNU, solid progress on structural reforms, stabilization of energy supply and transport networks, enhanced collaboration on public-private partnership initiatives, and continued fiscal discipline, as reflected in the recent South African budget. South Africa's removal from the FATF gray list and S&P's sovereign upgrade with a positive outlook, which is the first since 2009, also contributed to an improved investor sentiment. The outcomes are evident in the graphs on the left. South Africa's government long bond yields improved to their lowest levels in more than a decade, and CDS spreads narrowed back to investment grade levels, reflecting reduced sovereign risk perceptions. The combination of all of these items translated into tangible foreign market flows and a stronger rand.
Improved operating conditions were also evident in private sector loans and advances growth of 7.8%. On the consumer front, we have seen how higher levels of real disposable income, low and steady inflation at around the newly clarified 3% subtarget range, combined with 150 basis points lower interest rates, started to stimulate household credit demands towards the end of the year. On the corporate side, we have seen how the economic recovery, slightly higher levels of business confidence, higher fixed investment, and a low 2024 base resulted in corporate credit growth improving to above 10%.
Reflecting on infrastructure opportunities, our economic unit's latest capital expenditure project listing, shows a sharp rise in investment plans announced in 2025, particularly in the private sector for the first time in a while, which increased by over 230% when compared to 2024. We are very well positioned to participate in this upside. Turning now to the bold strategic decisions we made and executed on during the year. We successfully restructured our Retail and Business Banking and Nedbank Wealth clusters into a more focused client-centered organizational design. We created Personal and Private Banking, a cluster solely focused on individual clients headed up by Ciko Thomas, and Business and Commercial Banking, a juristic focus cluster which covers the spectrum of mid-corporate, commercial, and SME clients headed up by Andiswa Bata, who joined us in August.
This strategic reorganization was aimed at being a catalyst to enhance our focus on clients, drive foster revenue growth, and unlock efficiency and productivity enhancements. The reorganization was substantial and impacted more than 16,000 colleagues. It was swiftly implemented, it was in place by the 1st of July. This resulted in various strategic initiatives across our cluster. I'll now highlight a few proof points which are all evidenced by improving H2 momentum. In CIB, we increased our appetite to deepen participation in larger high-quality deals, and while drawdowns were slow, client activity was robust and pipelines remain very strong. In BCB, we swiftly filled key leadership positions, including the managing executive of the cluster. We accelerated advances growth in the second half of the year, and we made good progress in launching new value propositions.
In Personal and Private Banking, where our focus is on addressing scale challenges in certain products and segments, we're pleased with solid progress. We saw improving deposit and loan growth at improving quality ahead of the industry. Insurance cross-sell is starting to increase strongly. Transactional revenue growth improved, the cluster continued to unlock efficiencies and productivity gains with further progress expected in 2026 and beyond. In NAR, we recorded strong loan growth and client gains while we look to participate in exciting growth opportunities in Namibia and Mozambique. We also made some bold strategic decisions to strengthen our competitive positioning in fleet management and in the SME payment space, both now part of BCB. In June 2024, we acquired Eqstra, I'm pleased to report that in its first full financial year as part of the group, we've achieved full operational integration.
We've realized efficiencies across funding and technology and achieved some early client gains and upsell successes. In December, we completed the acquisition of 100% of iKhokha. This is a strategically important transaction for us as it strengthens and fast-tracks our payments and merchant acquiring capabilities, particularly in the fast-growing SME and informal merchant segments where our presence has been low. Annually, iKhokha processes more than ZAR 20 billion in digital payments, and to date has distributed more than ZAR 3 billion in working capital into the SME sector through its more than 54,000 point of sale devices. Looking forward, we seek to grow the SME client base and cross-sell lending, banking, and payments, as well as business solutions.
As noted before, the sale of ETI followed a strategic review that included an evaluation of the performance against our initial investment case, which did not materialize as expected with a significant negative impact on our NAV, which Mike will unpack for the last time later in the presentation. Unfortunately, a minority stake limited our ability to drive strategic progress. The quality of the associate accounted earning stream was low and was not backed up by dividend flows from ETI. Increasing risks of continuing to hold on to the investment due to regulatory uncertainty and the probability of increasing capital requirements in certain jurisdictions would have resulted in a scenario where we would have had to inject additional capital to prevent shareholder dilution.
'm thus pleased to report that we finalized the disposal of our 21% shareholding in ETI for a purchase consideration of $100 million or ZAR 1.6 billion. Importantly, we've received the unencumbered cash proceeds and all regulatory approvals. In January, we announced our intention to make an offer to acquire approximately 66% of the issued share capital of NCBA Group, one of East Africa's leading financial services groups. The offer consists of the issuance of new Nedbank ordinary shares, which contributes 80% and 20% in cash, valuing the transaction at approximately ZAR 13.9 billion based on the Nedbank share price of ZAR 250.
In a recent positive development on the 19th of February, we announced that we received exemption from the Capital Markets Authority to make a mandatory offer to acquire 100% of NCBA shares. Upon successful completion, NCBA will become a subsidiary of Nedbank, while the remaining shareholding will continue to trade on the Nairobi Securities Exchange. The transaction remains subject to regulatory approvals and is expected to be concluded by the third quarter of 2026. Many of you will recall that on the back of our strategic refresh last year, we indicated that having disposed of the ETI investment, we would focus on Southern and Eastern Africa. We noted that, in particular, our home base of South Africa still presents significant opportunities to improve growth and returns and that we saw further opportunities in Namibia and Mozambique.
We also highlighted that we intended to enter East Africa either through acquisition or on a greenfields approach, playing primarily to our strength in CIB, particularly in structured finance, fixed income, currency trading, trade finance, and in sectors like energy and resources. I also indicated that quality entry points into the Kenyan banking sector were rare and hard to execute and may take time. We were thus very pleased to be able to execute a unique and compelling opportunity to acquire a leading bank with a great track record and an outstanding board and management team. The deal structure is also compelling as it keeps the majority of NCBA investors exposed to the combined Nedbank and NCBA business. Following the lessons learned from the disappointing ETI experience, we've ensured that all of those learnings have been applied to the NCBA acquisition.
The strategic rationale for the deal is set out on this slide. At a high level, we see East Africa as a region of significant strategic importance to Nedbank, underpinned by strong macroeconomic fundamentals, a robust and predictable regulatory environment, and attractive growth potential. Secondly, NCBA is a top tier one bank, which has an attractive ROE, low cost income ratio, and is well-capitalized with a strong track record of regular and consistent dividend distributions in cash. It's got a strong and well-established brand, extensive regional presence, more than 60 million clients, and expertise in areas such as digital banking. Lastly, the transaction will bring together two highly complementary organizations where Nedbank can benefit from NCBA's modern technology and digital platforms, positioning us to grow and diversify earnings. NCBA will benefit from Nedbank's CIB expertise and our group's strong balance sheet.
NCBA will retain its brand, local leadership team, independent governance, and listing on the Nairobi Securities Exchange. This proposed transaction represents a significant strategic reset for Nedbank's presence on the African continent, with a renewed focus on the SADC and East Africa regions, driven through businesses under Nedbank Group's direct ownership and control, with high correlation between earnings and dividend accretion. Lastly, before I hand over to Mfundo, a quick assessment of the progress we've made on our strategic value drivers. Starting on the left in the wholesale space, banking advances growth was modest. Despite a shift in our appetite, improving client activity, and encouraging pipelines, drawdowns were slow given ongoing delays in deal closures. We are very well positioned to benefit as infrastructure investment gains momentum, and we have thus far seen a strong start to 2026, although it is still early days.
The more positive side, we've recorded good growth in retail advances and gained market share in home loans, vehicle asset finance, overdrafts, and retail deposits. We experienced pressure on margins primarily from lower interest rates, pleasingly the decrease in NIM seems to have slowed in the second half of the year, we continue to build out our hedging program in a commercially appropriate manner. We also saw an increase in client numbers across all segments and strong growth in digital transactions, value-added services, and payment volumes. From a productivity perspective, while expenses were well managed, our cost income ratio was under pressure, mostly on the back of slow revenue growth. I'm pleased to update you that we've identified new productivity initiatives exceeding a billion and a half ZAR, which are expected to be realized over the next few years.
On the far right, key risk and capital management metrics reflect our strong balance sheet with our CET1 ratio at 12.9% above our revised board target range of 11 to 12.5. Liquidity metrics all significantly exceeded the minimum regulatory requirements of 100%. I was pleased that we were able to optimize capital management further through the execution of ZAR 2.4 billion of well-timed buybacks at attractive levels of around ZAR 229 per share. From a risk management perspective, we are pleased to have reported a further improvement in impairment outcomes, leading to our credit loss ratio at 68 basis points, moving to the bottom half of our target range, supporting capacity to increase our lending appetite.
The progress on loan loss rate delivers firmly on our commitment 18 months ago to move back into our target range. With that, let me hand over to Mfundo to reflect on the progress we've made on our strategic value unlocks.
Thank you, Jason, good afternoon, everyone. Starting with digital experience is our first key focus area. In 2025, digital activity and usage grew by double digits, as evident in the increases in app transaction volumes and values and active users. By the end of the year, 73% of all sales in PBB were on digital channels. Our juristic businesses also noted steady progress as the adoption rate of the Nedbank Business Hub increased to 76% in BCB and 50% in CIB, respectively, both driven by higher levels of self-service and the delivery of enhanced digital features. Digital FX transactions increased to 75%, with NedFX expected to further enhance our digital capabilities.
Our current focus is to leverage AI, machine learning, and robotics across the value chain, including credit decisioning, fraud analytics, digital marketing, and cross-sell with our dedicated data and analytics capabilities as key enabler of digital growth and innovation. We also look to unlock productivity benefits linked to the seamless use of people and machines in the delivery of our services. To this end, we look forward to the launch of our new app that will deliver highly personalized and contextual experiences tailored to users' needs. We expect average app logins per client per month currently at 24.5 to increase further. From the perspective of client experience, we reported good outcomes across key metrics, but acknowledge that there is more to be done, particularly in enhancing digital experiences.
In our consumer business, our Net Promoter Score improved to 77 and ranked number two among the large South African retail banks. In the small business services segment, we recorded the second highest level of NPS in 9 years. In mid-corporate, the KPI Research study noted that Nedbank achieved a client satisfaction score of 87, placing this new business division first in the SAP group. In CIB, we achieved a client satisfaction outcome of 80% in line with the global benchmark. In Nedbank Africa Regions, we achieved good outcomes in Mozambique and Zimbabwe. A key highlight of the period was the value of the Nedbank brand that increased by 24% to ZAR 20 billion and now ranks top eight among all South African companies.
As part of strategy execution under strategic portfolio tilt, we are making good progress in building stronger client franchises and enhancing client primacy, which is central to growing revenues. Total group clients were up 7% and reached 8 million for the first time in the group's history. This was supported by 9% growth in both PBB to 7.5 million clients and NAR to over 430,000 clients. Main bank clients in PBB showed reasonable growth and cross-sell penetration improved to 2.02 products per client. Importantly, our Greenbacks loyalty and rewards program increased its client base by 19% to 2.1 million on the back of a more competitive loyalty and reward scheme. For the Amex card users, an additional 100,000 merchants now accept our cards on their devices.
As shown on the far right, our market share in commercial banking segment improved to 24%. From a PA 900 perspective, we made good progress in key product lines. In the retail lending, we increased market share across home loans, vehicle finance, and overdrafts as highlighted by the green arrows, but still fell short of our desired portfolio mix ambition. After historic market share losses in personal loans and credit cards, it was pleasing to see declines halted in the second half of 2025. With appropriate risk management, we expect our performance to continue to improve over time. In our wholesale businesses, we are disappointed with market share losses in term loans as competition for scarce and good quality assets remained fierce. The closure of large transactions, particularly in energy and infrastructure, was delayed into 2026 and client repayments resulted in slower growth.
In commercial mortgages, where we have a leading market position, we supported our clients and the market share remains strong around 35%. Looking forward, CIB is well positioned for growth with strong pipelines that are weighted to low risk, including power, renewables, and infrastructure. While in BCB, advances are growing off a low base driven by our sector-led expertise and new client value propositions. Retail deposits were up slightly while commercial deposits decreased marginally. Going forward, we aim to gain further deposit market share with a heightened focus on transactional deposits. As part of our 2024 results, we outlined a number of transformational growth initiatives designed to leverage our strong foundation and core capabilities to unlock new revenue streams and drive cost optimization. Today, I will not cover all of them, but focus on the progress we have made on payments and insurance.
With regard to payments modernization, as shown on the left-hand side, we recognize the enormous potential of digitizing small, fast payments instead of using cash, which has become very expensive to manage. In 2025, we recorded 183% growth in PayShap revenues and very strong growth across contactless payments, value-added services, e-commerce, and Money app payments when compared to a 6% decline in cash withdrawals. With regard to insurance, as shown on the right-hand side, the opportunity to grow and cross-sell traditional bancassurance and new solutions such as MyCover Suite into the Nedbank client base is accelerating, enabled by the organizational restructure. Insurance offerings are being integrated into client journeys at points of need and provide clients with data-driven personalized offers through enhanced digital experiences.
This approach aims to increase client penetration from 19% in 2025 to more than 30% in the medium term and grow gross end premiums by more than 50%. Early signs are evident in the strong growth in end premiums across the MyCover Funeral, personal lines and life product lines, and the increases in credit product penetration in card and overdrafts with home loans and vehicle finance enhancements planned for 2026. Lastly, our fifth strategic value unlock, I will reflect on a few highlights. We continue to provide loans and finance to clients that are aligned to the UN Sustainable Development Goals.
At the end of 2025, sustainable development finance exposures amounted to ZAR 207 billion, which represented around 21% of the group's gross loans and advances, and as a result achieve our 2025 ambitions of 20% which we set back in 2021. From a transformation perspective, we maintained our level one Broad-Based Black Economic Empowerment status for the eighth year in a row, supported by ongoing improvements in African, colored and Indian employee representation and a 3% increase in African talent representation at both senior and middle management levels. We also provided first time job opportunities to more than 3,800 Youth Employment Service participants, bringing the cumulative opportunities to more than 17,000 since inception.
In a year in which we had large scale changes arising from the organizational restructure, we're pleased to have been announced the number two ranked SA company on the Forbes World's Best Employers list and top 50 globally. I now hand over to Mike to take us through a review of the group's financial performance.
Thank you, Mfundo. Good afternoon. Our financial performance for the 2025 year was muted, although slightly ahead of guidance we provided at our pre-close meeting in December and market consensus of an expected decline. Headline earnings increased by 2%, DHEPS by a slightly faster 3% due to buybacks. Our ROE was softer at 15.4%, although ahead of cost of equity of 14.6%. Excluding the once-off ZAR 600 million Transnet settlement, headline earnings increased by 4%, DHEPS up by 5%. ROE at 15.8% was similar to 2024. Basic earnings per share, however, decreased by 53% as we accounted for the impact of disposing of our ETI shareholding. From a balance sheet perspective, gross banking advances growth was modest at 6%, while deposit balances grew strongly at 11%.
Net asset value per share at around ZAR 250 increased by 4% year-on-year, and other balance sheet metrics remained strong, evident in our capital and liquidity ratios. The total dividend for the year was ZAR 21.32 per share, representing an attractive dividend yield of around 7%. Unpacking the numbers, the 2% increase in headline earnings was underpinned by revenue growth of between 3%-4%, associate income that declined by 8% as ETI did not contribute to the second half of the year. The impairment charge improved by 18% and expenses increased by 7%.
Reflecting on balance sheet growth, advances grew by 6% year-on-year, driven by 6% and 9% growth in home loans and vehicle finance, respectively, on the back of strong front book growth sales as we leverage our existing MFC partnerships and new mortgage originator joint ventures, including with BetterHome Group, ooba and MultiNET. Modest growth in personal loans of 2% was the outcome of deliberate historic actions taken to de-risk the book, together with the impact of a change in the write-off policy implemented during 2024. New sales levels have lifted strongly in 2025. There were no further market share losses in the second half of the year, enabled by specific initiatives focused on originating better quality business. Card and overdrafts increased by 7% off a low base.
Term loans reflecting largely the growth in our wholesale businesses grew by 3%, impacted by delayed deal closures despite improved client activity and robust pipelines. Commercial property finance grew by a modest 2% due to resilient domestic client demand that was offset by a contraction in the African portfolio due to heightened competition, client prepayments and adverse foreign exchange movements. Deposit growth of 11%, as shown on the far right, was underpinned by a 10% increase in franchise call and term deposits, a 23% increase in other deposits as clients extended tenure in response to Nedbank's competitive offerings, and NCDs that increased off a low base. Looking at the income statement in a bit more detail, net interest income increased by 3% as growth in average interest earning banking assets of 9% was offset by margin compression.
The 9% growth was driven by 6% growth in average banking advances and higher levels of high-quality liquid assets. The 24 basis point decline in margin to 381 basis points was primarily driven by a 12 basis point negative endowment mix impact due to capital and transactional deposit balances growing slower than average interest earning banking assets and an 11 basis point negative endowment impact from lower rates. The impact of asset mix changes as well as asset and liability pricing pressures reduced margin further by 8 basis points. Pleasingly, the rate of the decline in margin slowed in the second half of the year when compared to the first half. From an interest rate sensitivity perspective, a 1% change in interest rates impacts NII by approximately one and a half billion rand.
To date, we have implemented approximately 38% of our endowment hedge as progress depends on interest rate levels. This has reduced our sensitivity from around 18 basis points in 2021 to around 13 basis points when expressed on average interest earning banking assets. Non-interest revenue growth was 4% in line with the guidance we provided during the group's pre-close update of below mid-single digits. Commission and fees increased by 6% supported by Eqstra that was in for a full 12 months in 2025. Within PPB, we were pleased with transactional NII growth of 8% as our consumer banking business reflecting good progress in strengthening the franchise and strong growth in value-added services of 36%. Growth in CIB was restrained by delayed deal flow moving to 2026 and a high prior year base.
Trading and fair value income decreased by a combined 6%, including a 1% increase in markets. Trading income increased by 10% driven by strong growth in Forex and debt securities offset by slower equity trading income while fair value income declined. Insurance income increased by 5% due to an improved non-life claims experience and strong growth in premiums and policies within the MyCover Suite, as Mfundu highlighted earlier. This was partially offset by sizable positive actuarial-basis changes in the prior period, and when excluding the base effect, insurance income increased by 11%. Turning to impairments, the group's impairment charge decreased by 18%, and the credit loss ratio improved to 68 basis points, which was better than we had expected. The improvement was primarily the outcome of decisive risk management actions and an improved macroeconomic environment.
At a cluster level, CIB reported a recovery of ZAR 718 million and a credit loss ratio at -17 basis points, primarily the result of successful workouts and de-risking strategies that resulted in provision releases given the decline in stage two and stage three exposures. The BCB credit loss ratio decreased to 21 basis points to well below its through-the-cycle target range of 50-70 basis points. The decline was driven by an outstanding performance in recoveries and collections. PBB's credit loss ratio decreased to 163 basis points from 176 basis points in the prior year within its through-the-cycle target range of 130-190 basis points as a result of ongoing credit risk and collections initiatives and better quality front book origination.
Home loans and vehicle finance reported improvements, while credit card impairments increased off a low prior year base and the personal loan credit loss ratio remains elevated although improving from the first half of the year through better front book origination. Nedbank Africa Regions reported a credit loss ratio of 89 basis points back to within its through-the-cycle target range of 85-120 basis points, driven largely by lower impairments due to improved recoveries and stronger asset growth. Within gross loans and advances, stage one loans increased by 10%, while stage two and stage three loans reduced by 5% and 2% respectively. As a result, the group's total ECL coverage at 2.96% decreased from 3.32%, mainly driven by the decline in stage two and stage three loans.
Shifting our focus to costs, underlying expense growth was 5%. An 8% increase in salaries, wages, and other employee costs reflect the impacts of average annual salary increases of 6% and the additional Eqstra staff costs not fully in the base. Incentives decreased by 2%, aligned with profitability metrics and vesting probabilities re-relating to corporate performance targets. Computer processing costs increased by 5%, driven by ongoing investments in digital data and cloud solutions, as well as higher digital volumes, partially offset by negative growth in the amortization of intangible assets. Fees, insurance, accommodation, and marketing were all well managed, increasing by a combined 3%. The large increase in other operating expenses was due to the inclusion of the Transnet settlement.
Turning now to the disposal of our historic ETI associate investment, the graph unpacks the ETI lifetime outcome from the date of the original investment to the date of sale. We show on this slide the on-sale accounting treatment, where ZAR 8.6 billion is crystallized through the income statement as a non-headline earnings item. The ZAR 8.6 billion is made up of our share of historic foreign currency translation and other comprehensive income losses to the value of ZAR 7.4 billion and an IFRS 5 adjustment of ZAR 1.2 billion on sale. The sale proceeds of ZAR 1.6 billion represent the $100 million sales price, less transaction costs converted at the 17 December rand-U.S. dollar exchange rate.
Moving to capital, the movement in our CET1 ratio this year reflects solid capital generation, the payment of dividends in the calendar year, a 3% increase in RWA, and the combined impacts of share buybacks, which was beneficial to ROE, the acquisition of iKhokha, the sale of ETI, and the final Basel III reforms. The increase in RWA was mainly due to an increase in credit and operational risk, partially offset by a marked improvement in equity risk following the adoption of the final reforms. At 12.9%, our CET1 ratio remains above the top end of our revised target range of 11%-12.5%, positioning for growth, the execution of the NCBA acquisition, and to sustain dividend payments within our target range. I will close with the financial performance of our clusters in their new construct.
CIB produced headline earnings growth of 2% and delivered an ROE of 21.4%. Earnings growth and returns were supported by lower impairments and disciplined capital management. NII decreased by 2%, reflecting actual advances growth of 5% and a decline in margin on the back of lower interest rates, competitive pricing, and a lower risk loan book mix. NIR decreased by 2% due to negative fair value adjustments and lower commission and fees, given a high 2024 base and deals delayed into 2026 despite solid underlying activity. Trading income and equity investment income, on the other hand, were up strongly and underlying operating expenses were well managed. The cluster is well-placed for future growth given its skills, expertise, and strong pipelines.
Headline earnings in our new cluster, Business and Commercial Banking, decreased by 7%, delivering an ROE of 20.8%. NII decreased by 1% given a slight decline in advances and lower margin on the back of rate cuts. NIR increased by 13%, including the full year impact of Eqstra. Underlying NIR growth was driven by higher card acceptance and commercial issuing volumes as well as growth in value-added services. Expenses increased by 12%, by only 8% when adjusting for Eqstra. BCB is now fully resourced and positioned for growth. Headline earnings in our Personal and Private Banking cluster pleasingly increased by 9%, delivering a higher ROE of 15.6%. Growth was driven by a 7% increase in NIR as a result of strong growth in value-added services and insurance income.
NII increased by 1% on the back of 6% growth in advances diluted by a decrease in margin, mainly due to lower endowment and the advances mix impact. Expenses were very well managed and increased by only 4%. The momentum we are starting to see in PBB is pleasing as it seeks to increase its ROE towards 18%. Lastly, in the Nedbank Africa Regions, headline earnings decreased by 1%, delivering an ROE of 20.5%. The earnings decline was mainly due to the sale of ETI that resulted in no associate income reported in the second half. Headline earnings in our static operations increased by 15%, but its ROE remains low at 9%, which remains a focus. Thank you. I'll now hand back to Jason.
Great. Thanks, Mike and Mfundo. Let's start this section by looking at our latest macroeconomic forecasts. We expect banking conditions to improve further in the coming years as South Africa's GDP for 2026-2028 is around 1.5%-1.8%. Inflation should remain around the Reserve Bank's target of 3% due to a stable rand, low global oil prices, lower inflation expectations, and fewer supply side challenges. It's actually too early to call out any changes in this guidance based on recent events in the Middle East. After a cumulative 150 basis points cut in interest rates, including the 25 basis points in November, interest rates are currently forecast to reduce by a further 50 basis points.
To my mind, though, this is becoming increasingly unlikely, with a plausible scenario of rates flat from here for the foreseeable future. Credit extension is forecast to remain relatively robust around 7%-8%, supported by the anticipated recovery in the domestic economy and lower interest rates. Although difficult to forecast due to geopolitics, the rand is expected to average slightly above ZAR 16 to the dollar in the coming years. Turning now to our guidance for 2026, we expect NII growth to increase to around mid-single digits. This is likely to be driven by stronger advances growth across all our clusters. Our NIM is expected to contract slightly given the ongoing impact of lower interest rates. Our credit loss ratio is expected to be around the mid-70 basis points, which is below the midpoint of our through the cycle target range.
Impairments in CIB and BCB normalize off a very low 2025 base, PPB will continue to see an improvement in its credit loss ratio. NIR growth is expected to grow at upper single digits, driven by the execution of various growth initiatives across all our clusters. Associate income from ETI will not recur in 2026 or beyond. Expenses are expected to be below mid-single digits as our focus on cost management continues. On capital, we expect to operate within our revised board-approved target range of 11%-12.5% by the end of this year. Dividends subject to board approval will be declared within our target range of 1.75 to 2.25 times cover.
I'm even more excited today about the group's growth prospects in the medium term than I was a year ago, and this has given our strategic focus and execution that we saw in 2025, which won't necessarily offset the discontinuance of the contribution from ETI in 2026, but will do so from 2027. Tailwinds in 2026 will come from an improving macroeconomic environment, strong underlying business momentum, as we highlighted in our presentation today, the benefits from the organizational restructure, and the one-off Transnet settlement that is now in the base. We do, however, face some headwinds. These include endowment pressure from lower interest rates, wholesale impairments normalizing off a low base, and no further earnings contribution from ETI.
These impacts will be more material in our interim results, given that we had a final ZAR 927 million contribution from ETI in the first half of 2025. Notwithstanding all of this, the focus for 2026 remains on delivering an ROE above 15%, heading towards 2025 levels and improving our cost income ratio. In the medium term, we firstly see benefits from a more constructive macroeconomic environment, including us being well positioned to capitalize on large energy and infrastructure finance opportunities, stronger retail credit growth, and a low but more stable interest rate backdrop with low inflation, particularly from an endowment perspective. Our transform initiatives are starting to scale, and we should see more meaningful contributions from insurance, payments and other vectors, as well as ongoing market share gains in lending and deposits.
I'm particularly encouraged by our various productivity initiatives, which I mentioned earlier, including AI projects, which in combination will improve our cost income ratio. We also expect to unlock synergies from our Eqstra and iKhokha acquisitions, while NCBA is expected to contribute once the transaction's finalized. From a capital perspective, we remain committed to be flexible in the management of capital and being good stewards of capital, as we demonstrated in 2025. These initiatives, along with underlying momentum, underpin our confidence in progressing to our medium-term targets of an ROE of 17% and a cost income ratio of 54%. Thanks very much for listening. We'll now proceed to your questions and answers. Sorry, we just had a bit of a glitch there. Everybody, I'm gonna play point here and coordinate our responses to your various questions.
It probably makes sense for us to firstly take any questions on the telephone. Operator, if you could advise those on the telephone to put their questions to us now.
Of course. For those on the conference, if you would like to ask a question, please press star and then one now. If you would like to remove your question, please press star and then two. To ask a question, please press star and then one now. We'll pause a moment to see if we have any questions.
Thank you. We do have a number of questions on the web, so we can go to those, if there aren't any questions on the telephone. Let's give it a second, just to give anyone a last opportunity.
There are no questions on the conference, sir.
Thank you so much. All right, folks, if we move to the questions coming through the web, I'll read them out in verbatim, and then we'll deal with answering them together, myself, Mike, and Mfundo Nkuhlu.
First question is from Baron Nkomo from JP Morgan. There's a two-part question here. First one is how are recent developments in the Middle East impacting the group's short-term outlook?
Baron, I think it's premature for us to revise anything at this point, to be honest, even our short-term outlook. That's really because it's just totally uncertain as to whether the conflict in the Middle East is short as the previous one was. If they go back to the negotiating table, potentially the Straits of Hormuz are opened up again. We just don't know.
What we know for sure though is that over the sort of more medium term, impact on oil price would be something we would observe carefully. I do think that the world has stockpiled a lot of oil over the last while. This is a risk that was well flagged for some time, in fact. I also understand that the UAE came out and said that they've got much more capacity in oil pipelines that could avoid the Straits of Hormuz in the short term. The truth is, given the uncertainties around this, it's premature for us to change anything at all, and we stand by our outlook based on what we know today.
The second one would be also from Baron. What are your loan growth expectations for each of the key divisions, retail business banking, corporate banking, in the second half of 2026?
Just checking with Mike. Baron, I would say that we've given good guidance for the year. We can update that when we're together in August, depending how the first half goes. We've got pretty strong conviction, as you've heard, around momentum in many of our lending businesses, particularly the annuity ones that are more kind of in flow, like mortgages, autos, I think those are kind of in good shape, and we should see the similar or improving growth. BCB, similarly, I think we've got good conviction there.
CRB, we've said we didn't execute our full pipeline in 2025 and that that pipeline should be executed into 2026, and we've got conviction on that statement as we stand here today. I'd say we'd be pretty linear through 2026 and with some lumpy trades in CRB that'll emerge from a pipeline execution perspective.
Tyron Green, from Granate Asset Management. Are you able to provide more details on the competitive environment in the corporate credit market? The reason for the lower market share in corporate credits and delays in CRB pipeline impacting NIR.
Thanks very much, Tyron. I think we covered some of that in the presentation, but let's just double-click on it. Our CRB business can only operate as quickly as our clients, to be honest. We've put great capabilities in place.
We have great structures in place. We've got appetite, as you've heard, and we've even gone so far as to really express our appetite in a different way in that for our best customers now, we will take full exposure to them. In other words, we're standing by our clients' growth opportunities. We know for sure that the last round of renewables that were awarded weren't executed. We think those do get executed in 2026, and we've got pretty good conviction around it, as you've heard, but not necessarily always in our hands. That's the only reason for the delay as we see it at this point.
Ross Krige from Investec, thanks for the call. A couple questions here, which we'll probably share around a bit. First one is on the additional cost optimization plans, brackets, I think ZAR 1.5 billion was mentioned. What is driving this and on what timeframe?
Let me cover that one quickly, and Mike and Mfundo might come in on it. Ross, you'll recall that the company ran a very effective TOM program. I think that took, you know, ZAR 6 billion-ZAR 7 billion of cost out of the organization. What we talk about now is a project that deals with productivity. In other words, ensuring that we have the most efficient organizational designed to serve clients, minimizing any duplications between our enablement functions and our businesses, and ensuring that our technology enablement delivers.
In the technology enablement part, we're looking at, we've got a lot of use cases, and Mfundo covered some of those, in AI to enhance colleagues' productivity. In other words, a loan officer and the number of loan applications they can deal with at any particular time period should be accelerated through AI, and that's where that quantification comes from. That is a medium-term aspiration, so we'll deliver that over 3 years.
Second question on the delayed deals in CRB, what are the main reasons for the delay, and what is the risk those deals don't happen at all?
Ross, to be fair, I think we've covered that. I just wanna see if Mike or Mfundo want to add anything. Yeah. Covered. I do think we've covered it.
Third question on home loan origination proportion going through own channels reduced to 35%. Could you be more, could you share more details around the strategy and the trade-offs at play? You know, Ross, I think 18 months ago or thereabouts, we were very clear as part of our strategic refresh that we intended to widen our scope of origination and bring in originators. We've done that very successfully, and I think that's seen the largest part of the growth in flow, coming from the mortgage business. That's clearly been strategic, and I think we're executing it well.
Next one's Harry Botha from Bank of America. How should we think about CLR in the medium-term targets? Can wholesale remain lower, supporting CLR below 80? Let me start on that. Mike, you'll probably come in.
Yeah, we've got a range, as you know, Harry, which is 60-100 basis points. We're probably at the lower end now of where I think we may end up, and we've guided very explicitly for FY 2026 to be somewhere in the mid-70s, so from 68 up to 70 mid. That's on the back, of course, of a non-recurrence of the very low or credit, kind of writeback in CIB this year and an increase in BCB, which was also pretty low. Mortgage is also pretty low at the moment, and might go up a little bit. That should give you a bit more color, Harry, on where we are with respect to guidance.
With respect to medium term, like more further out, you know, we'd wanna be more or less in the middle of the range or thereabouts with good loan growth on the top of that. You never want your loan losses to be so low that you're not taking enough risk in the market, and I think that's something to watch.
Maybe Jay just to add to that.
Yeah.
In terms of, you know, we've given guidance this year in terms of a credit loss ratio in the mid-seventies. You know, you can model that 75, 76, somewhere around that sort of, that sort of range. As Jason's indicated, we would see an unwind of the recovery seen in CRB towards the bottom of the target range. You know that that cluster has a range of 15-45. We've indicated that BCB had a very good credit outcome and obviously are focused on growth. I would suggest at 21 basis point, that's gonna move up. Jason referred to home loans at 8 basis points very, very, at very, very attractive levels. I would suggest that's gonna move up.
We've got scope and capacity in unsecured lending, both in personal loans and card, and VAF, we think will continue to come in. You put all those bits and pieces together, that's where we get the guidance for the group at somewhere in the mid-seventies.
Thanks, Mike. Thanks for that color.
Harry, you've got two more parts. Can you expand on your strategies to accelerate growth in BCB over the next couple years?
Absolutely, Harry. You know, firstly, it's been great to see the formation of BCB as a cluster. It's been great to see the leadership team form under Andiswa Bata's leadership. We already saw quick wins in that second half last year and more momentum in our client franchise. A combination of, I would say, a good hustle, in other words, you know, bankers chasing transactions, service and product. We also need to see collaboration, which is already building out nicely between BCB with PPB on some products and CRB on others like FX and trade and commercial property.
Really excited about the opportunity strategically in BCB, and we can unpack that a bit more when we're together later in the week. Right.
Harry's got one more there. What underpins the 18% ROE target in PPB? Is it predicated on high single digit revenue growth?
Harry, of course. It's a revenue-led strategy in PPB. But also we need to make sure that credit loss ratio is well covered and we get efficiency out of that. I'd also just say that the productivity gains that we expect would probably benefit PPB the most. I think that would be a fair comment. Although there'll also be benefits in BCB, given its relatively high cost income ratio.
Okay, Harry. Thank you. All right. Chris Stewart from Ninety One. Please could you unpack the NIR growth guidance? How much do you see as organic versus how much from recent acquisitions such as iKhokha?
That's a great question, Chris. Of course, iKhokha only landed in December, so it's only had one month of revenues in it. You'll see that in our booklet. In fact, it's around about ZAR 60 million from memory, Mike, or thereabouts on the revenue line. I think we'll unpack that a little bit more later. I certainly would see that a large portion of our NIR revenue growth would come from organic. You've seen where that's where those lines are, those key lines that we think we should make progress on, including in CIB especially.
You know, those deal closures come with fairly large upfront fees attached to them, which I think would make a big difference to our NIR trajectory. Chris, I'm also really pleased if you go through the businesses with PPB. Some pretty good momentum there on the fees and commissions lines in the high single digit, which we think we should be able to maintain. Mike, I don't know if we wanna say much more about an individual acquisition's contribution in 26.
No
Other than what we earned in December, I don't think that was. Seasonally, that would be a relatively high month given transactional volumes in December. Maybe not a run rate of ZAR 60 a month, but a little bit less than that, and then you can figure out annualizing that. 'Cause that's the only rand that'll have a major contribution. The other one will be NCBA, which is much later in the year. We'll probably guide more explicitly on that when we get closer to executing that transaction.
Okay. Charles Russell from SBG. First one, do you anticipate further buybacks given your comments about DHEPS growth greater than HE growth in FY 2026? Mike, do you wanna take that one?
You know, I think when you think about DHEPS and when you think about our capital management and our approach towards capital management, we indicated certainly during 2025 that we saw significant value in doing buybacks at levels at which the stock price was trading at a time when we were short of growth and at a time when effectively we had no major acquisitions in the pipeline.
We saw an opportunity to certainly execute buybacks at valuable levels to shareholders. If you reflect on where the stock price is trading today, if you reflect on the fact that we've announced to the market we're looking to close out a 66% acquisition of NCBA, and if you reflect on Jason's comments around front book growth, which certainly in CIB, BCB are gonna be much better than 2025, or expected to be much better than 2025, it's likely that capital is gonna be utilized to support growth, and to continue to service divis inside the range.
I think that's right, Mike. Thanks, Charles. Your NII guidance for FY 2026 seems to imply continued lower than market loan growth. I guess we'll see, Charles, how the other banks guide over the coming weeks. Can you unpack the mechanics of shrinking CET1 ratio into FY 2026? I think we've covered a bit of that, you know. We certainly would see loan growth as a first key driver. We certainly have to fund at least part of the NCBA acquisition. And then after all that, if there's opportunity, we would look at buybacks at, you know, within guardrails of a, of a share price. Those would be the drivers of bringing our CET1 ratio up to the top end of that new target range.
Maybe just to one other is that, D-SIB comes into effect, you know, one January.
Yeah
... 26, and that itself takes about 27 basis points off the CET1 ratio. You've got to Jason's point, you've got NCBA coming in, you've got D-SIB coming in.
Yeah
... you've got an expectation of stronger growth, and hence, our guidance or expectations around CET1.
Once again, Charles, our commitment to shareholders would be to be good stewards of capital, and we would use those levers appropriately. Okay. Now we've got a question from a colleague at Nedbank, Heathcliff. Are there any plans around internal structure to deal with inefficiencies such as market offsetting in different CIB area to markets? I'd suggest, Heathcliff, we'll take that up with you internally. I wouldn't suggest that that's a question I can answer here today.
Simon Nellis from Citibank. Do you intend to execute further buybacks this year?
Simon, I think we've covered that extensively now, so I'm gonna assume that one's answered.
Move on to James. James Starke from RMB Morgan Stanley. Regarding your home loans distribution strategy, with only 35% of origination coming through own channels down from 42%, please can you give some color on a few things, how the economics and asset quality characteristics compare between your own channel and mortgage originator channel? How do you secure a position in the MO channel relative to other banks?"
Well, I'll start off with that one. You know, James, in my experience, a diversified portfolio that originates both from own channels and mortgage originators takes you well through cycles. I think what mortgage originators prize the most is consistency of appetite. In other words, it gets very difficult for them to do their business if banks are in and out of appetite with them. I think consistency of appetite is very important, and they will see that from us.
I think it's also important that as we build out these partnerships, they are kind of long-term partnerships with sharing of economics right down to the bottom line, including sharing of good credits and not so good credits. In other words, that loan loss is important to both parties. I think that would be the main part of the answer. Mike, I don't know if you wanna add anything to it.
You heard me in my slot referred to the partnerships or JVs with the BetterHome Group, ooba, and MultiNET. I mean, obviously, the adverse implications of that is obviously it costs us something to be in those JVs. Certainly when looking at the quality of the front book and the residual economics in the deal, they are favorable joint ventures to the organization.
Yeah. Yeah, I agree, Mike. James, the last point I'd make around, you know, the mortgage originators is simply that, you know, we really have a long-term view of how to work with them and those relationships are being built out carefully. Simon Nellis from Citibank. "What, if any, earnings accretion do you expect from the NCBA transaction? What is the magnitude of any synergies from the transaction you expect? Last, what is the capital impact of the transaction?" Simon, I think, with respect to how the transaction is progressing, firstly, we announced a week ago that we obtained a Capital Markets Authority exemption. You know, and we're busy now with processes of applications to the Central Bank of Kenya, for instance, and the SARB.
We only expect to execute the transaction in the third quarter. As we get closer to that, the economics, I think, will firm up a bit more. At that point, we'll be able to say a lot more around quantifying some of these magnitudes that you're looking for. Certainly strategically, we're very excited about the opportunity of bringing, these two companies together. We certainly think that there are things that Nedbank can add to NCBA, and there's things that NCBA can add to Nedbank. We do see, synergies as part of the game plan. Mike, do you wanna cover the capital impact?
Yeah. Simon, the best estimate at the moment is based on assumption is that the deal will take 40 basis points out of the CET1 ratio. Obviously there are a few moving parts in that, but you could model 30-40 basis points.
Thanks, Mike. James, there was one other point I just wanted to make to you on the mortgage originators, which really deals with turnaround times.
You know, I covered the part around consistency of appetite, but, you know, one thing we had to invest in significantly at Nedbank was our turnaround times of approving applications, and you need to get to the good credit quickly and first, and I think that's another reason why that channel's grown quite nicely for us. With respect to your final question, James, does the FY 2026 guidance include NCBA from Q3? Not at the moment, James. We haven't, we haven't put that in our thinking for what we guided today. We will update you as we get closer to Q3 on that.
I'm just gonna refresh, one last time before we move to close. If anyone has a final question, please put it in now. I think we can move to closing this session. We look forward to seeing most of you in the coming days as we engage in person on today's presentation. Thank you very much.