TO BE AFRICA's MOST ADMIRED BANK

INTEGRATED REPORT for the year ended 31 December 2015 CONTENTS

ABOUT NEDBANK HOW WE CREATE DELIVERING VALUE GROUP VALUE sustainably TO OUR 2 Overview of our group 14 Reflections from our STAKEHOLDERS Chief Executive: 7 Our vision and values 44 Reflections from our Our value-enhancing strategy Chief Financial Officer: 11 Our purpose 18 Drivers guiding our strategy Demonstrating value creation 12 Our value-creating business 19 Determining our material 54 Engaging with our stakeholders model matters 56 Investing in our staff 27 Strategic focus areas 59 Innovating for our clients 63 Delivering consistently 42 Delivering our strategy to our shareholders through our business clusters 66 Engaging with our regulators 69 Delivering value through a commitment to our communities and the environment

Smooth leadership transition Created 714 new permanent jobs Market-leading innovations such as Market EdgeTM Nedgroup Investments ranked best SA and offshore asset management company of 2015 Dividend up 7,7% ahead of HEPS growth at 7,4% Unlocked R8bn of value for BBBEE shareholders 2015 Bank of the year for Africa Strong balance sheet: CET1: 11,3% and SA by Financial Times’s The and LCR 88,5% Banker magazine Paid R8,2bn in direct, indirect and Main banked retail clients up employee-related tax HIGHLIGHTS 8,5% Carbon neutral for six years 36% of outlets in ‘branch of the Level 2 BBBEE rating for seventh OF 2015 future’ format consecutive year Integration of CIB Most transformed bank Headline earnings SAP ERP implemented Committed R35bn to finance R10,8bn up 9,6% renewable-energy projects Bedded down acquisition of Return on equity excluding approximately 20% in ETI and Dow Jones Sustainability Index goodwill: 17,0% 38% in Banco Único inclusion: 10th year in a row R1,8bn Fair Share 2030 lending Net asset value per share Landed new core banking up 9,0% system in Namibia 75% procurement sourced locally ENSURING sustainable VALUE CREATION 72 Reflections from our Chairman: Value through good governance 76 Committed to good governance 84 Established and admired Nedbank Group prides itself leadership teams on supplying stakeholders 88 Reports from our directors, Company Secretary and with up-to-date information auditors on a regular basis. 94 Reports from group board This information can be found committee chairs at nedbankgroup.co.za. 106 Worldclass risk management 124 Reporting back on remuneration 134 The investment case for Nedbank Group

Additional information for our stakeholders

The Nedbank Group Integrated Report is supplemented by the following information, which is available online at nedbankgroup.co.za as part of our comprehensive integrated reporting that caters for the diverse needs of our broad stakeholder base.

Financial reporting Governance reporting ■■ 2015 Results Booklet ■■ 2015 Governance and ■■ 2015 Results Presentation Ethics Review ■■ ■■ 2015 Nedbank Group Consolidated 2015 register of directors’ Annual Financial Statements attendance ■■ ■■ 2015 Nedbank Ltd Director and executive profiles Annual Report ■■ 2015 King III Principles ■■ 2015 Remuneration Report Risk management reporting Appointed new chairman ■■ 2015 Pillar 3 Risk and Capital Sustainability reporting Management Report ■■ 2015 Transformation Report Broadened board skills profile ■■ 2015 Sustainability Review in financial services, Rest of Annual general meeting Africa and auditing ■■ Global Reporting Initiative G4 ■■ Notice of the 49th Attained majority independent annual general meeting boardmembers: 56% ■■ Form of proxy (44% in 2014) ■■ Shareholder register Diversified board: Three female (19%) and nine black (56%) Refined the group’s Enterprisewide Risk Management Framework

Nedbank Group – Integrated Report 2015 1 ABOUT OUR integrated REPORT

Nedbank Group is committed to the principles of integrated reporting as it aligns to our thinking and approach to long-term value creation and the role we play as a bank in society. Integrated reporting allows our group to tell a clear and comprehensive story about our commitment to create value for all our stakeholders and provide details of our successes and challenges in realising value, as well as our strategies and targets going forward.

SCOPE AND BOUNDARY OF REPORTING KEY CONCEPTS Reporting period The Six Capitals The Nedbank Group Integrated Report is produced and published annually. The 2015 Our relevance as a bank today and in the report covers the period 1 January to 31 December 2015. Any material events after this future, and our ability to create long-term date and up to approval by the group’s board of directors on 11 March 2016 have also value is interrelated and fundamentally been included. This report builds on our previous integrated report for the period dependent on the forms of capital available 1 January to 31 December 2014. to us (inputs), how we use them (value- adding activities), our impact on them and The report also contains Nedbank Group’s outlook, targets and objectives for the short the value they deliver (outputs and (2016) and medium to long term (2017 to 2020 and beyond). outcomes), as shown on pages 12 and 13. Operating businesses In this report we link the Six Capitals model The scope of this report includes the group’s business clusters and key support areas identified by the International Integrated in SA, the rest of Africa and internationally. It excludes detailed information on Reporting Council to our stakeholders and investments in which the group holds a minority stake. how we create long-term value. Financial and non-financial reporting Materiality and material matters The boundary of the report extends beyond financial reporting and includes non- We apply the principle of materiality in financial performance, opportunities, risks and outcomes attributable to or associated assessing what information is included with our key stakeholders that have a significant influence on our ability to create value. in our integrated report. This report focuses particularly on those issues, Targeted readers opportunities and challenges that impact The report is our primary report to stakeholders and is intended to address the materially on Nedbank Group and its information requirements of long-term investors (our shareholders). We also present ability to be a sustainable business that information relevant to other key stakeholders, including our staff, clients, regulators consistently delivers value to all its and communities. stakeholders. Our material matters as described on pages 19 to 26 influence our Regulatory reporting requirements group’s strategy and inform the direction The content of this report is aligned with the requirements of the International taken in this report. Integrated Reporting Framework and the King Code of Governance Principles for SA (King III Code), and is in accordance with the ‘core’ level of the Global Reporting Defining value Initiative (GRI) G4. As an SA bank and company listed on JSE Ltd (’the JSE‘), we align Value created is the consequence of how to the JSE Listings Requirements, the South African Companies Act, 71 of 2008 (as we apply and leverage our six capitals in amended), and the Banks Act, 94 of 1990. delivering financial performance (outputs) and outcomes for all stakeholders while making tradeoffs. Our value creation process is described on pages 12 and 13. Through ‘case in point’ illustrations we also provide examples of how value is created.

Read more about:

Our risks and how we manage them 106–123

Client- Growing our centred transactional innovation banking franchise

Ongoing investment required A weak economy resulting in material matters over the next few years in an muted transactional volume environment where the growth. Tough economic economy remains weak and conditions with limited Increased competition for the forward visibility. competition is increasing. same pool of clients, particularly Banking relevance amid consumerism and Failure to innovate in areas that from new entrants to the increased competition. are critical to the client banking industry. Increased demands on experience at a pace that is on governance, regulation par or ahead of competitors, The impact of regulation such and risk management. which will over time limit our as Interchange and the National Growth opportunities ability to gain and retain clients. Credit Act on volumes, fees and in the rest of Africa. pricing, and costs. Transformation of society Continued investment in within planetary boundaries. marketing and distribution Scarce skills required to keep Nedbank top Relevant of mind and accessible in an environment that requires a material greater focus on cost control. matters AND Key risks

Strategic Strategic Risk Operational Business categories Conduct Regulatory

Nedbank Group – Integrated Report 2015 40 HOW WE CREATE VALUE SUSTAINABLY Optimise Strategic Pan-AfricaN and portfolio banking invest tilt network

Delays in project Unemployment and an increase Higher associated risks of investing implementation and not in consumer indebtedness in the rest of Africa, given less extracting the expected benefits increasing the risk of lending to political, social and economic from our optimisation projects. the retail market and pushing the stability, with has a bearing on cost of risk higher than capital, investment and Inflation and exchange rates at anticipated. operational risk. levels higher than planned creating the risk of project cost Stresses in the wholesale market Risk of inconsistent client experiences across a broad African overruns. from lower commodity prices franchise aligned to our brand and industries affected by an promise. Increased cost of regulatory economic downturn leading to compliance. greater levels of impairments Lower oil prices and volatile foreign Longer-than-planned investment than anticipated. exchange rates negatively impacting the prospects of oil- horizon, requiring more time to Consumer indebtedness and new generate a return as trading exporting countries such as regulatory pricing limits leading Nigeria, Angola and Ghana. conditions deteriorate. to a tilt away from certain client Inability to achieve economies segments, with clients unable to Risk of foreign exchange volatility, of scale and reduce costs qualify for bank loans being at particularly in oil dependent accordingly. risk of resorting to loans from economies and in markets where unregulated organisations. exchange rates are pegged. Increased capital and liquidity Know Your Client (KYC) regulation requirements impacting the being more complex in the rest of profitability and viability of Africa, thereby exposing banks to providing certain banking risks of money laundering and products and services. fraud. Our Fair Share 2030 strategy Skills shortages in the rest of being impacted by limited risk Africa, as in SA, adding to the risk appetite for new, untested of our strategy not being delivered business opportunities that may on, targets being missed, IT systems and other risk-related require a comparatively greater operational activities, which could time investment. result in impairments of investments.

Credit Operational Liquidity and Compliance Strategic and Business funding Rest of Africa Investment execution Strategic and Capital Strategic and Credit Market execution Regulatory Transforma- execution Business People People tion, social and Concentration environmental Regulatory Operational

Nedbank Group – Integrated Report 2015 HOW WE CREATE VALUE SUSTAINABLY 41 DELIVERING OUR STRATEGY THROUGH OUR BUSINESS CLUSTERS

business strategic clusters focus AREAS

Nedbank ■■ The Integration of the two wholesale clusters is designed to improve client relationship solutions, increase cross-sell, and facilitate increased market Corporate share of transactional accounts and increase trading flow opportunities. and This should lift earnings growth rates while maintaining a strong ROE. Investment Banking ■■ Value-management processes will continue to be expanded to target and unlock uplift opportunities.

■■ We will focus on strategic growth in the rest of Africa and leveraging off our subsidiaries and alliance partners Ecobank, Bank of China and Canadian Imperial Bank of Commerce. ETI have now moved its Johannesburg office into our premises.

■■ Trading initiatives will increase trading capabilities across all asset classes.

■■ We will take advantage of scale and efficiency opportunities.

Nedbank ■■ We will grow the transactional franchise profitably by targeting primary client growth to attract transactional deposits and increase NIR. We aim to Retail and lift our main banked market share from between 10% and 11% to more than Business 15%, with particular emphasis on share in the middle market. This is key to Banking improving the ROE in RBB and is underpinned by five critical enablers:

Loyalty and rewards – Evolve Greenbacks to client-centred programme across all products.

Digital innovation – Go mobile in everything we do, focus on a single- client portal, and take ideas to market effectively, including new features on the Nedbank App Suite™.

Process – Simplify client onboarding and be more consistent, client- friendly and cost-effective across all products. Distribution – Create an optimised footprint that leverages sales- focused, cost-effective and fit-for-purpose channels of distribution.

Winning CVPs – Provide simple, client-centred products such as Ke Yona, Nedbank 4Me, Dezign, Savvy, Optimum, Professional, as well as Small Business Services and Business Banking offerings.

Nedbank Group – Integrated Report 2015 42 HOW WE CREATE VALUE SUSTAINABLY Our five strategic focus areas are delivered primarily through our four business clusters and supported by our central clusters in areas such as finance, IT, marketing, human resources, risk, compliance and balance sheet management.

STRATEGIC FOCUS AREAS Client-centred Growing our Optimise and Strategic Pan-African innovation transactional invest portfolio tilt banking network banking franchise business strategic clusters focus AREAS Nedbank ■■ Unlock value through collaboration and broadening non-banking financial

Wealth services contribution while maintaining high ROEs.

■■ Wealth Management intends establishing itself as ‘wealth manager of choice by 2020’. This requires ongoing investment in brand, mobile and digital capabilities and attracting the right skills. The business will enhance client-acquisition and servicing processes while ensuring regulatory requirements are met.

■■ Asset Management will focus on maintaining its outstanding long-term performance track record. The business will continue leveraging its unique

Best of Breed™ proposition while driving growth across its expanded offering.

■■ The reorganisation of the Insurance division, concentrating on simple bancassurance products, has been completed and the business will now focus on implementing a single administration platform while insourcing operational elements of its core product set.

Rest of ■■ Build a pan-African banking network by utilising our tiered approach for Africa expansion into the rest of Africa. ■■ In the SADC and East Africa we will increase scale and improve compliance and efficiency in our current subsidiaries through a ‘one bank’ model for the rest of Africa, integrated with SA, to deliver higher growth, efficiency and profitability that is well underway.

■■ Expand the Nedbank franchise in selected markets.

■■ In central and West Africa we will leverage our investment in ETI to supplement our equity-accounted returns. We aim to deepen our partnership to capture opportunities across the continent from both Nedbank and ETI’s client bases and ensure participation in our fair share of deal flow on the continent working with our fellow shareholders Qatar National Bank (QNB), the Public Investment Corporation (PIC) and International Finance Corporation (IFC).

You may be interested in: Strategic focus areas 27–37

Nedbank Group – Integrated Report 2015 HOW WE CREATE VALUE SUSTAINABLY 43 44 DELIVERING VALUE TO OUR STAKEHOLDERS

44 Reflections from our Chief Financial Officer: Demonstrating value creation 54 Engaging with our stakeholders 56 Investing in our staff 59 Innovating for our clients 63 Delivering consistently to our shareholders 66 Engaging with our regulators 69 Delivering value through a commitment to our communities and the environment ‘Delivering value’ describes how value was created during 2015, primarily for our investors through our financial performance, but also for all our stakeholders. We also provide an outlook for 2016 and the medium to long term. Reflections from our Chief Financial Officer

DEMONSTRATING VALUE CREATION

Overview of 2015 Banks are highly correlated to the economic environment in which they operate. The 2015 gross domestic product (GDP) growth of 1,3% for SA was considerably lower than the 2,5% we had forecast in February 2015, with corresponding levels of low credit demand and slower transactional volume growth. The 50 bps increase in interest rates in 2015 has placed further pressure on consumer disposable income and lower commodity prices have increased Raisibe Morathi industry stress. Chief Financial Officer Against this context we continued to create value for our shareholders as demonstrated by: ■■ headline earnings (HE) growth of 9,6% to R10 831m, supported by preprovisioning operating profit (PPOP) increasing 7,3%; ■■ return on average ordinary shareholders’ equity (ROE) excluding goodwill and ROE of 17,0% and 15,7% respectively, underpinned by return on assets (ROA) of 1,25%; ■■ economic profit (EP) increasing 19,6% to R2 525m on cost of equity of 13,0%. Had the cost of equity incorporated the movements in long-bond rates in December 2015 as estimated for 2016 to be closer to 15,0%, EP would have decreased 41,0%; ■■ net asset value per share (NAV) continued to increase, up 9,0% to 15 685 cents per share; and ■■ full-year dividend of 1 107 cents per share, growing 7,7% ahead of headline earnings per share (HEPS) ‘Delivering value to shareholders growth of 7,4%. Diluted headline earnings per share through strong cost discipline and (DHEPS) grew 8,5% to 2 242 cents, ahead of our 2015 guidance of above risk management.’ nominal GDP growth of around 5,9%. Excluding associate income from our shareholding in ETI and the related funding costs, the group’s DHEPS increased 4,8%. Our balance sheet remained strong at a Basel III common-equity tier 1 (CET1) ratio of 11,3%, well within our 2019

Nedbank Group – Integrated Report 2015 44 DELIVERING VALUE TO OUR STAKEHOLDERS NET ASSET VALUE PER SHARE RETURN ON EQUITY FULL-YEAR DIVIDEND (cents) (EXCL GOODWILL) AND PER SHARE COST OF EQUITY (cents) (%) +9% +7,7%

17,2 17,2 17,0 16,4 15,3

EP 15,0

13,5 13,0 13,1 13,0 13,0 605 752 895 1 028 1 107 10 753 11 721 13 143 14 395 15 685

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Return on equity (excluding goodwill) Cost of equity Cost of equity (2016) internal target range of 10,5% to 12,5%. Key highlights in our Return on assets in Nedbank Corporate The liquidity coverage ratio (LCR) and Investment Banking (CIB) reflected increased to 88,5%, above the Basel III results a significantly higher capital allocation as requirement of 60% in 2015 and 70% in Resilient cluster performance we optimised our capital utilisation and responded to regulatory changes. 2016. The group’s combined portfolio of Resilient performance was evidenced LCR-compliant high-quality liquid assets in HE growth across our clusters. The All our clusters contributed to the (HQLA) of R118,0bn and other sources increased ROEs in Nedbank Retail and group’s non-interest revenue (NIR) of liquidity amounted to R160,7bn, Business Banking (RBB), Wealth was growth of 7,1%, higher than 2014’s representing 17,4% of total assets. pleasing. growth of 4,9%, which was impacted by our strategic choices. Revenue growth was boosted by RBB’s main banked clients, with acquisition of continued investment in our distribution channels, marketing and client-centred innovation. Strong performance from CIB’s investment banking and trading divisions, Lower credit loss underpinned by improved cross-sell, Solid revenue contributed further to revenue growth. ratio (CLR) reflective performance in Our strategic investment of of good risk approximately 20% in Ecobank difficult environment. Transnational Incorporated (ETI) has management. progressed well. Our strategic alliances have gained traction, which resulted in three joint financing deals in 2015 and 74 of our wholesale clients banking with Ecobank.

Core components of SAP enterprisewide Strong cost resource discipline. planning (ERP) successfully implemented.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 45 Reflections from our Chief Financial Officer (continued)

Improved efficiency and cost KEY DRIVERS OF OUR on pages 27 to 37, support delivery of our savings PERFORMANCE medium-to-long-term targets. Simplifying our business structure from Our performance is strongly influenced We highlight below the correlation, at a five to four clusters through the by the macroeconomic, competitive and high level, between our key performance integration of Nedbank RBB and CIB as regulatory environments and other indicators (KPIs), medium-to-long-term well as the restructuring of our Insurance material matters identified on pages 19 targets, material matters and strategic businesses, has improved efficiencies to 26. However, our outcomes are also focus areas. Together with our six and delivered cost-savings. The shaped by how we respond through our capitals, these factors contributed integration of the clusters places the strategic actions, our people and our substantively to the group’s results. group in a more resilient position relative ability to deliver. To mitigate the potential Our 2015 KPIs can be viewed in relation to the material matters of a tough risks emanating from the material to the previous year’s performance, our economic environment, increased matters and unlock opportunities, our medium-to-long term targets and our competition and regulatory demands. five strategic focus areas, as described outlook for 2016. A key differentiator for banks will be how technology is leveraged to optimise systems and increase efficiency. Through our Managed Evolution strategy we aim KPIs to reduce complexity by rationalising our Performance against Medium-to- core systems from 250 to 60, of which KPIs Material Matters Strategic Focus Areas 2014 2015 2015 guidance long-term targets Outlook for 2016 eight were decommissioned in 2015 and 84 to date. Advances 5,8% 11,2%  No guidance Mid- to upper-single-digit growth Creating value for our black growth shareholders through the Eyethu scheme Deposit 8,4% 11,1% No guidance No guidance No guidance Nedbank’s 2005 SA broad-based black growth economic empowerment (BBBEE) transaction facilitated broad-based black 66,4% 88,5% No guidance > 100% by Above the 70% ownership equating to 11,5% of the then LCR January 2019 regulatory requirement value of the group’s SA businesses. The Eyethu BBBEE scheme benefited our Net 352 bps 330 bps  No guidance In line with the black business partners, qualifying interest 2015 level of 3,30% non-executive directors, staff across all margin levels from junior to management, and clients and community interest groups 79 bps 77 bps  Between 60 and 100 bps of Within affiliated with the group. With various CLR average banking advances target range components maturing in stages starting from 2010, the last significant 4,9%  NIR-to-expense ratio: Above mid-single-digit growth component of black business partners NIR (exclud- 7,1% matured in January 2015. Overall ing fair-value > 85% (excluding fair-value adjustments the scheme benefited over adjustments) and prior to the first-time growth 500 000 direct and indirect beneficiaries consolidation of Banco único) and created value in excess of R8,2bn. Operating 9,4% 6,4%  NIR-to-expense ratio: Mid- to upper-single-digit growth expenses > 85% (prior to the first-time consolidation growth of Banco único)

Medium-to-Long-Term Targets

ROE 17,2% 17,0%  5% above cost of ordinary Below target (excluding shareholders’ equity goodwill) (to be reviewed during 2016)

DHEPS 13,0% 8,5%  ≥ consumer price index + Below 2015 growth growth GDP growth + 5% and below target

Efficiency 56,5% 56,1%  50,0% to 53,0% Above target ratio

11,6% 11,3%  10,5% to 12,5% Within target range CET1 ratio

Dividend 2,07 2,06  1,75 to 2,25 times Within target range cover times times

Nedbank Group – Integrated Report 2015 46 DELIVERING VALUE TO OUR STAKEHOLDERS material matters Tough economic Banking relevance Increased demands on Growth opportunities Transformation of society Scarce skills conditions with limited amid consumerism and governance, regulation in the rest of Africa within planetary forward visibility increased competition and risk management boundaries

STRATEGIC FOCUS AREAS Client-centred Growing our Optimise and Strategic Pan-African innovation transactional invest portfolio tilt banking network banking franchise

KPIs Performance against Medium-to- KPIs Material Matters Strategic Focus Areas 2014 2015 2015 guidance long-term targets Outlook for 2016

Advances 5,8% 11,2%  No guidance Mid- to upper-single-digit growth growth

Deposit 8,4% 11,1% No guidance No guidance No guidance growth

66,4% 88,5% No guidance > 100% by Above the 70% LCR January 2019 regulatory requirement

Net 352 bps 330 bps  No guidance In line with the interest 2015 level of 3,30% margin

79 bps 77 bps  Between 60 and 100 bps of Within CLR average banking advances target range

4,9%  NIR-to-expense ratio: Above mid-single-digit growth NIR (exclud- 7,1% ing fair-value > 85% (excluding fair-value adjustments adjustments) and prior to the first-time growth consolidation of Banco único)

Operating 9,4% 6,4%  NIR-to-expense ratio: Mid- to upper-single-digit growth expenses > 85% (prior to the first-time consolidation growth of Banco único)

Medium-to-Long-Term Targets

ROE 17,2% 17,0%  5% above cost of ordinary Below target (excluding shareholders’ equity goodwill) (to be reviewed during 2016)

DHEPS 13,0% 8,5%  ≥ consumer price index + Below 2015 growth growth GDP growth + 5% and below target

Efficiency 56,5% 56,1%  50,0% to 53,0% Above target ratio

11,6% 11,3%  10,5% to 12,5% Within target range CET1 ratio

Dividend 2,07 2,06  1,75 to 2,25 times Within target range cover times times

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 47 Reflections from our Chief Financial Officer (continued)

ANALYSIS OF FINANCIAL PERFORMANCE The following analysis of the group’s financial performance should be read in conjunction with the strategic focus areas covered on pages 27 to 37 of this report. A more detailed analysis is available in the group’s 2015 Results Booklet and Annual Financial Statements, on the group’s website at nedbankgroup.co.za. Delivering headline earnings growth through our strategic focus areas 2015 was a year of two halves for the group, with earnings growth stronger in the first half of the year, boosted by first inclusion of ETI, robust trading revenues and a weaker base in H1 2014. Growth slowed in the second half, as NIR was impacted by reduced levels of interchange and higher levels of impairments arose in CIB.

HEADLINE EARNINGS (Rm)

1 436 (1 576) 924 (283) 710 (260) +9,6%

H2 5 508 +4,3%

9 880 10 831

H1 5 323 +15,7% +4,0% +6,3% +7,1% +6,4% +>100,0%

2014 NII Impairments NIR Expenses Associate Direct tax 2015 2015 income1 and other (H1 vs H2) 1 Includes R870 associate income from ETI. Asset margins continued to be impacted by asset mix changes due to a higher proportion of low-margin wholesale Net interest income advances relative to higher-margin retail Making tradeoffs as we build a platform for sustainable growth advances. HQLA, with a negative carry, Net interest income (NII) grew 4,0% to R23 885m supported by growth in average also increased as we build our LCR. interest-earning banking assets of 11,0%. The net interest margin (NIM) narrowed to Liability margin compression resulted 3,30% as endowment income and repricing benefits were offset by asset and liability from the higher cost of wholesale margin compression. funding, improving our liquidity profile, the impact of prime Johannesburg Interbank Agreed Rate (JIBAR) basis risk and competition for Basel III-friendly NET INTEREST MARGIN deposits. (bps) Impairments charge on loans 3 (12) 5 and advances Mitigating effects of economic (5) headwinds (10) Impairments increased 6,3% to R4 789m and the CLR improved slightly to 0,77% 1 (4) as continued improvements in retail impairments were offset by increased impairments in the wholesale clusters. The group’s through-the-cycle range for the CLR changed to between 0,6% and 352 334 330 1,0%, from 0,8% and 1,2% of banking advances from 2016 onwards. The change reflects the reduction in the proportion of the total book represented Dec Endow- Asset Asset HQLA Liability Other Pre-ETI ETI Dec by personal loans from 4,2% in 2010 2014 ment pricing mix pricing and funding 2015 when the previous CLR target range was impact mix set to 2,7% in 2015.

Nedbank Group – Integrated Report 2015 48 DELIVERING VALUE TO OUR STAKEHOLDERS CREDIT LOSS RATIO – REFLECTIVE OF QUALITY PORTFOLIO

Group charge loss ratio (bps) 113 105 106

79 77 Impairments charge (Rm)

5 331 4 789 Non-interest revenue Resilient NIR growth from transactional banking activities NIR increased 7,1% to R21 748m, driven by:

■■ Commission and fee income growth of 7,3% to R15 627m, supported by continued client acquisitions, cross- 2011 2012 2013 2014 2015 sell and annual inflation-related fee increases. Growth was achieved Personal Loans Home Loans MFC CIB Other despite lower card interchange rates Other includes the rest of RBB, Wealth, Rest of Africa and Centre. amounting to R261m, the continued slowdown in personal loans and the run rate effect of pricing reductions Defaulted advances increased 10,8% to R17 559m while the group’s total coverage in the second half of 2014. ratio and specific coverage ratio declined to 65,0% and 38,0% respectively, in line with ■■ Trading income growth of 19,6% to improvements in retail impairments and the change in mix of retail and wholesale R3 167m following improved cross- defaulted advances. Our strong collections focus led to postwriteoff recoveries sell and a strong performance from increasing 20,8% to R1 137m, including recoveries in Retail of R1 015m, indicative of our client-led Markets business. ongoing conservative provisioning levels. ■■ Insurance income reduced 7,9% Stress testing performed confirmed that exposures to stressed industries are diversified owing to the historic slowdown in and well within their respective risk limits. RBB’s impairment overlay increased to retail unsecured lending volumes, R699m (2014: R404m) which takes into consideration, inter alia, an estimate of the partially offset by a good weather- impairment impact that has been incurred in our agricultural book as a result of the related claims experience. drought and in our personal loans book due to job losses in the mining sector but are ■■ Private-equity income, being of a not yet evident. The central provision was further strengthened to R500m to take into less predictable nature, increasing account risks, particularly in commodities and in the Rest of Africa, that have been 16,3% to R886m mostly from equity incurred but are only expected to emerge in 2016. realisations.

MANAGING OUR RISKS AND EXPOSURES – NON-INTEREST BOLSTERING PORTFOLIO PROVISIONING AND OVERLAYS REVENUE GROWTH (%) Industry exposures (%) Overlays and central provision (Rm)

1,50,5 3,2 500

0,71,0

200 350 200 200

93,1 699 536 448 404 404 Mining 3,2% Oil and gas 1,5% Steel 0,7% 16,6 12,4 11,8 4,9 7,1 Construction 0,5% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Agriculture 1,0% Rest of group 93,1% RBB Centre

On-balance-sheet exposures: R762bn.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 49 Reflections from our Chief Financial Officer (continued)

EXPENSES Expenses efficiency ratio of 56,1% and contributed (Rm) to a positive jaws ratio of 0,6%. Disciplined expense management while continuing to invest for growth Associate income Expenses were well managed and grew Generating long-term value from our at 6,4% to R26 110m, notwithstanding +6,4% strategic investments continued investment in our RBB and Rest of Africa Clusters and the ongoing Associate income, largely from our share cost of compliance given increasing of approximately 20% of ETI’s 915 540 regulatory demands. Excluding the Rest attributable income, increased to R871m. of Africa Cluster, expenses grew at 5,6%. Associate income is equity-accounted one quarter in arrear using ETI’s publicly The main drivers were: disclosed results. The related funding ■■ Staff-related costs rising 3,3%, costs of R370m are included in NII. reflecting an increase in salary costs At 31 December 2015 the carrying value of 6,7%, additional staff employed 1 951 in regulatory compliance support of our investment in ETI was R7,8bn. functions, and 2,4% lower variable Given ETI’s exposure of approximately +4,2% +2,2% performance-related incentives. More 40% to Nigeria and oil-based economies, its market value of R6,9bn was 13% 24 534 24 26 110 26 details on our incentive schemes are available on page 118 of the detailed below the carrying value. 2014 Core E- Investing1 2015 2015 Remuneration Report, available growth ciency for A value-in-use test was performed on beneﬁts growth at nedbankgroup.co.za. our investment in ETI, which positively ■■ 1 Investing for growth includes: branch of future: R194m; Computer processing costs growing supports the carrying value as this takes strategic IT costs: R180m; compliance cost: R88m and 14,4% to R3 543m, including Rest of Africa: R77m. into account that ETI is a strategic depreciation costs of R718m, up investment offering long-term value, 9,6%, relating to our Managed despite headwinds in oil-dependent Evolution systems implementation. economies. ■■ Fees and insurance costs increasing 23,9% to R2 801m due to increased Maintained balance sheet costs associated with cash handling, strength to support our growth compliance and higher volumes of strategy card issuing and acquiring. Capital Our strong cost discipline and focus on efficiencies through our ‘optimise and Managing capital efficiently invest’ strategy led to cost efficiencies of The group maintained a well-capitalised R915m. Revenue growth ahead of balance sheet with our CET1 ratio of expense growth, compared with prior 11,3%, well within our Basel III 2019 periods, resulted in an improved internal target range.

Internal Regulatory Basel III1 Dec 2015 Jun 2015 Dec 2014 target range minimum1

CET1 ratio 11,3% 11,4% 11,6% 10,5–12,5% 6,5% Tier 1 ratio 12,0% 12,1% 12,5% 11,5–13,0% 8,0% Total capital ratio 14,1% 14,5% 14,6% 14,0–15,0% 10,0% Ratios calculated include unappropriated profits. 1 The Basel III regulatory requirements (excluding unappropriated profits) are being phased in between 2013 and 2019 and exclude the Pillar 2b addon.

The CET1 ratio was impacted by risk- system, which increased RWA by weighted assets (RWA) growing 13,7% R6,5bn; and to R501,2bn (2014: R440,7bn) as a ■■ growth in loans and advances. result of: Tier 1 and total capital ratios continued to ■■ ratings migration across certain be affected by the Basel III transitional wholesale portfolios in line with requirements. Consequently, the tier 1 the deteriorating economic ratio decreased following the redemption environment; of R1,8bn of old-style hybrid debt, and ■■ an industrywide credit valuation the total capital ratio decreased with the adjustment (CVA) capital charge redemption of NED11, representing R1bn by the South African Reserve Bank of old-style tier 2 subordinated-debt, on (SARB) for over-the-counter ZAR its call date in September 2015. This was derivatives and derivatives with partially offset by the issuance of R2,3bn local counterparties not cleared of new-style Basel III-compliant tier 2 through a centralised clearing subordinated-debt instruments.

Nedbank Group – Integrated Report 2015 50 DELIVERING VALUE TO OUR STAKEHOLDERS Funding and liquidity Current accounts increased 8,6%, in line deposits on the back of increased with the 8,5% growth in main banked interest rate expectations. Call and term Building and diversifying our funding clients. Our savings accounts grew deposits increased 7,2%. Nedbank also profile 20,3%, with good takeup of our tax-free successfully increased foreign currency Our funding profile and liquidity position savings product, GoalSave, and foreign funding by 50,8% to support foreign remains strong and well diversified as currency savings deposits in Nedbank denominated lending and to diversify the reflected by the group’s fourth-quarter Wealth, reflecting higher values as a funding base. average long-term funding ratio result of a weaker rand. Growth in fixed We continued to focus on growing increasing from 25,4% to 28,7%, above deposits of 14,0% and in negotiable Basel III–friendly deposits, emphasising the peer average of 22,1%, while short- certificates of deposit (NCDs) of 16,7% retail and commercial deposits and term funding decreased from around was driven by demand for longer-term reducing reliance on wholesale funding. 56% to 53%. Total funding-related liabilities grew 11,9% to R770,8bn, including R15,5bn of long-term debt capital market funding issued as part of our strategy to lengthen the ADVANCES UP 11,2% – WHOLESALE GROWTH STILL AHEAD funding profile. OF RETAIL GROWTH Advances (Rbn) Advances mix (%) The group’s average LCR for the fourth Growth (%) quarter increased to 88,5% from 66,4%, Home loans 3,9% exceeding the minimum regulatory requirement, which increased from 60% Vehicle finance 6,0% 6,2 5,9 3,9 6,4 6,7 in 2015 to 70% from 1 January 2016. Our 4,3 5,7 6,7 4,4 5,0 portfolio of LCR-compliant HQLA Credit cards increased to a fourth-quarter average of 4,9% R118,0bn (2014: fourth-quarter average Personal loans 48,6 47,5 45,7 43,9 41,1 R91,4bn). In addition to LCR-qualifying (2,7)% HQLA, Nedbank also holds other sources Commercial mortgages of stress liquidity, including corporate 10,6% bonds, listed equities and other Term loans marketable securities that can be 3,9% accessed in times of stress. Nedbank’s Overdrafts and overnight loans combined portfolio of LCR-compliant 14,8% 41,2 40,9 43,7 45,4 47,2 HQLA and other sources of quick Other loans liquidity amounted to R160,7bn at 30,9% December 2015, representing 17,4% of total assets. 2011 2012 2013 2014 2015 Dec 2015 Dec 2014 CIB RBB Trading Other3 Loans and advances advances 1 Leases and instalment debtors. Lending responsibly and sustainably 2 Other loans include properties in possession, remittances, factoring accounts, trade bills and other loans in CIB. through choosing value over volume 3 Other includes Nedbank Wealth, Rest of Africa and Centre. Loans and advances grew 11,2% to R681,6bn and, excluding lower-yielding trading advances, banking advances increased 10,5% following gross new payouts of R184,7bn. DEPOSITS UP 11,1% – QUALITY GROWTH AND IMPROVED Banking advances growth was primarily FUNDING PROFILE Deposits (Rbn) Funding mix (%) driven by CIB advances as a result of Growth (%) drawdowns in credit extended to clients Current accounts 9,2 8,9 10,8 14,2 15,4 in the renewable-energy and commercial 8,6% 18,7 18,1 18,2 18,3 18,7 property sectors, as well as stronger Saving accounts growth in Rest of Africa and Wealth. 20,3% 30,5 30,3 28,2 28,3 26,8 Growth in RBB’s advances of 4,1%, was Call and term deposits 7,2% driven by home loans, vehicle finance and 42,2 42,6 42,7 38,8 39,1 Fixed deposits cards, while Personal Loans decreased at 2011 2012 2013 2014 2015 a slower rate of 4,5% versus 16,4% in the 14,0% comparative period. The mix in advances Cash management Wholesale Commercial reflects increased pressure in the 1,8% Retail Other consumer market, resulting in RBB’s Foreign currency Funding profile (%) proportion of the mix reducing from 50,8% 22,1 48,6% in 2011 to 41,1% in 2015. NCDs 25,4 28,7 14,2 16,7% 18,7 18,7 Deposits 63,7 Other 55,9 52,6 Quality growth and improved funding 8,8% profile Nedbank Peer The group’s strategy of building its Dec 2014 Dec 2015 average deposit franchise through innovative Dec 2015 Dec 2014 products and competitive pricing led to Long term (> 181 days) deposit growth of 11,1% to R725,9bn, Other deposits include other deposits, positive balances on loan Medium term (32–180 days) accounts and deposits placed under repurchase agreements. resulting in a loan-to-deposit ratio Nedbank funding profile Q4 2015 average. Short term (0–31 days) of 93,9%. Peers at December 2015 per BA 900.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 51 Reflections from our Chief Financial Officer (continued)

KEY ACCOUNTING ENGAGING OUR AUDIT work must be completed by the end of 2016 to enable a smooth parallel run CONCEPTS COMMITTEE in 2017. Nedbank Group’s principal accounting We remain accountable to the Audit policies have been prepared in terms of Committee concerning the adequacy of International Financial Reporting Standards processes and controls, the quality of APPRECIATION (IFRS) of the International Accounting financial results and significant I would like to thank our stakeholders for Standards Board and have been applied judgements and accounting issues. their support during 2015 and, most of consistently over the current and prior all, our finance teams across the group financial year. The following accounting for their hard work and ongoing policies have been highlighted as a result of LOOKING AHEAD commitment in producing outstanding significant events occurring during the In the current environment the forecast financial reporting. current period affecting the group’s use risk remains elevated and, as a result, our Raisibe Morathi thereof: guidance for performance in the year ahead is harder to formulate. In this Chief Financial Officer ■■ Basis of consolidation – The group context we currently forecast that growth controls an entity when it is exposed in DHEPS for 2016 will be lower than our to, or has rights to, variable returns performance in 2015 and below our from its involvement with the entity medium-to-long-term target. Given the and has the ability to affect those increased forecast risk, we will update returns through its power over the this guidance at the time of our interim entity. The group considers all facts 2016 results. and circumstances relevant to its involvement with an entity to evaluate Our medium-to-long-term targets, whether control exists. The group included in the table on pages 46 and 47, assesses any changes to the facts and remain unchanged, with the exception of the CLR through-the-cycle target range, circumstances relevant to the entity which changed to between 0,6% and and reassesses the consolidation 1,0% from between 0,8% and 1,2% of requirements on a continuous basis. banking advances. This change reflects ■■ Associates – As in previous financial the reduction in the proportion of the years, one of the group’s associate total book represented by personal loans, investments, ETI, will report results for from 4,2% – when the previous target the year ended 31 December 2015 range was set – to 2,7%. The group’s cost subsequent to the release of the of equity (COE) for 2016 has been group’s audited consolidated financial increased from 13,0% to 15,0% to statements. Therefore, as allowed by capture the higher cost of capital International Accounting Standard imputed by the increase in the SA long- (IAS) 28, the group uses the most bond yield during 2015. During 2016, we recent public information of ETI at 30 will consider the appropriateness of our September 2015 (ie a quarter in current medium-to-long-term target for arrear) to determine its share of ETI’s ROE (excluding goodwill), which is COE earnings. In addition, as required by plus 5%, given the significant revision of IAS 28, the group considers whether our 2016 COE to 15%. adjustments for significant The year ahead will also entail further transactions or events between 30 preparation for IFRS 9. Industry working September 2015 and 31 December groups together with SARB and audit 2015 are required based on publicly firms have been established to ensure available information. The resulting broad consistency of modelling and equity-accounted earnings are disclosure approaches across SA banks. translated from US dollar to rand at The primary challenge of implementing the average exchange rate applicable IFRS 9 will be the inclusion of for the quarter in which the group macroeconomic forecasts, particularly accounts for the earnings. The group’s under current volatile and uncertain share of the net assets of ETI is macroeconomic conditions where translated from US dollar to rand at forecast risk is high. the closing exchange rate. For IFRS 15: Revenue Recognition The five-year track record is an extract of (effective from 1 January 2018) the consolidated financial statements of management will continue to treat this Nedbank Group Ltd and does not contain as an area of emphasis during for the full or complete information. Any upcoming year. investment decision should be based on the consolidated financial statements of To date the group has made good Nedbank Group Ltd. These consolidated progress on the IFRS 9 programme. We financial statements, including a developed a number of pilot models in comprehensive list of the group’s 2015 and anticipate that the balance of accounting policies is available at the models will be completed in 2016. nedbankgroup.co.za. As IFRS 9 goes live in 2018, much of the

Nedbank Group – Integrated Report 2015 52 DELIVERING VALUE TO OUR STAKEHOLDERS FIVE-YEAR TRACK RECORD CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Four-year Rm CAGR % 2015 2014 2013 2012 2011 NII 7,3 23 885 22 961 21 220 19 680 18 034 Impairments charge on loans and advances (2,6) (4 789) (4 506) (5 565) (5 199) (5 331) Income from lending activities 10,7 19 096 18 455 15 655 14 481 12 703 NIR 9,0 21 748 20 312 19 361 17 324 15 412 Total operating expenses 8,4 (26 110) (24 534) (22 419) (20 563) (18 919) Indirect taxation 11,6 (783) (635) (601) (561) (505) Share of profits from associate companies and joint 871 161 27 1 0 arrangements Headline profit before direct taxation 14,3 14 822 13 759 12 023 10 682 8 691 Direct taxation 12,8 (3 550) (3 487) (3 033) (2 861) (2 194) Non-controlling interest 8,9 (441) (392) (320) (338) (313) HE 15,0 10 831 9 880 8 670 7 483 6 184 EP 28,57 2 525 2 112 2 114 1 521 924 Share statistics Earnings per share: ■■ Headline (cents) 13,7 2 284 2 127 1 884 1 640 1 365 ■■ Diluted headline (cents) 13,7 2 242 2 066 1 829 1 590 1 340 Dividends/Distributions: ■■ Declared per share (cents) 16,3 1 107 1 028 895 752 605 ■■ Dividend cover (times) 2,06 2,07 2,11 2,18 2,26 CAGR: compound annual growth rate

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Four-year Rm CAGR % 2015 2014 2013 2012 2011 Cash and securities 16,8 172 002 123 323 108 774 98 467 92 459 Loans and advances 8,1 681 632 613 021 579 372 527 166 499 023 Other assets 6,2 72 092 72 969 61 448 57 325 56 645 Total assets 9,3 925 726 809 313 749 594 682 958 648 127 Total equity attributable to equity holders of the 11,2 74 754 67 024 60 617 53 601 48 946 parent Non-controlling interest 1,7 3 997 3 887 3 719 3 774 3 739 Amounts owed to depositors 8,5 725 851 653 450 602 952 550 878 524 130 Provisions and other liabilities 16,1 76 142 49 314 49 083 44 407 41 870 Long-term debt instruments 11,2 44 982 35 638 33 268 30 298 29 442 Total equity and liabilities 9,3 925 726 809 313 749 594 682 958 648 127 Assets: ■■ Assets under management 23,0 257 295 212 013 190 341 150 495 112 231 ■■ Total assets administered by the group 11,7 1 183 021 1 021 326 939 935 833 453 760 358 NAV per share (cents) 9,9 15 685 14 395 13 143 11 721 10 753 Tangible NAV per share (cents) 11,1 13 794 12 553 11 346 9 989 9 044 Key ratios ROE (%) 15,7 15,8 15,6 14,8 13,6 ROE (excluding goodwill) (%) 17,0 17,2 17,2 16,4 15,3 Return on total assets (%) 1,25 1,27 1,23 1,13 0,99 NII to interest-earning banking assets (%) 3,30 3,52 3,57 3,53 3,48 CLR – banking advances (%) 0,77 0,79 1,06 1,05 1,13 Non-interest revenue to total operating expenses (%) 83,3 82,8 86,4 84,2 81,5 Efficiency ratio (including associate income) 56,1 56,5 55,2 22,6 56,6 Effective taxation rate 24,0 25,3 25,2 26,8 25,2 CAGR: compound annual growth rate

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 53 ENGAGING WITH OUR STAKEHOLDERS

We recognise that our business is but one of the stakeholders in the socioeconomic and environmental system and as such we are dependent on robust relationships with all other stakeholders. We appreciate the role of our stakeholders and are committed to nurturing impactful relationships that deliver mutual benefits. VALUE-ADDED STATEMENT

NET INTEREST IMPAIRMENT LOSSES ON OTHER BANKING VALUE INCOME + LOANS AND ADVANCES + INCOME = ADDED R23 885m (R4 789m) R22 478m R41 574m

VALUE ALLOCATED RETENTIONSRetent iFORons GROWTH for growth Staff expenses (UNIT)(Rm) (Rm) 17,2% 34,4%

Our Stakeholder Engagement 4 980 5 670 6 334 6 818 7 136 10 243 11 425 12 629 13 838 14 296 framework 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 While the Nedbank Group Executive Other expenditure1 Socioeconomic OTHER EXPENDITURE1 SOCIOECONOMIC Committee (Group Exco) has ultimate (Rm) development spend4 (UNIT) DEVELOPMENT SPEND4 responsibility for our group’s stakeholder (Rm) engagement efforts, the process of 23,8% 0,3% engaging with stakeholders is decentralised to form part of the operations of our various clusters and business areas. Cluster-based stakeholder engagement is governed by a comprehensive group stakeholder engagement framework and 7 200 7 574 8 171 8 927 9 879 78 95 101 104 125 policy, which includes our corporate 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 identity and communication guidelines and aligns with the recommendations of 3 DIVIDENDSDivide PAIDnds paTOid to GOVERNMENTGovernme (TAXES)3nt (taxe s) King III. Each business area is required to 2 SHAREHOLDERS2sharehold ers (Rm) report regularly on its stakeholder (Rm) engagements through the Group Exco. 14,0% 10,3% The following pages provide an overview of how we delivered value to our stakeholders in 2015: 2 921 3 586 4 141 5 035 5 836 2 679 3 426 3 617 4 103 4 302 1 Includes expenses relating to computer processing, 2011 2012 2013 2014 communication and travel, occupation and 2015 2011 2012 2013 2014 2015 accommodation, marketing and public relations as well as fees and insurance. You may be interested in: 2 Value is allocated to shareholders in respect of cash dividends (but does not include the underlying value of capitalisation shares awarded). Staff Clients Investors Regulators Communities 3 Includes direct and indirect taxation. 56–58 59–62 63–65 66–68 69–71 4 Financial Services Code qualifying spend.

Nedbank Group – Integrated Report 2015 54 DELIVERING VALUE TO OUR STAKEHOLDERS NON-FINANCIAL key performance indicators

Yoy change 2015 2014 2013 2012 2011

Staff

Total permanent staff 31 312 30 499 29 513 28 748 28 494 Staff attrition (%) 9,9 8,9 8,7 8,2 7,6 Lost-time injury frequency rate (LTIFR) 0,16 0,17 0,14 0,22 0,06 Women as % of total staff complement (%) 62,2 62,7 62,7 63,0 62,1 Black women in leadership (Group Exco) (%) 13,3 6,7 12,5 12,5 11,8 Training investment (Rm) 370 491 396 352 301

Clients

Total clients (millions) 7,4 7,1 6,7 6,1 5,5 Main banked clients (millions) 2,70 2,49 2,33 2,41 2,24 Total digitally enabled clients (millions) 3,11 2,22 1,49 1,17 0,89 Number of staffed outlets 1 143 1 185 1 185 1 199 1 145 Number of ATMs 3 840 3 711 3 499 3 146 2 663

Shareholders

Total shareholder return (TSR) (%) (19,8) 23,2 16,0 34,3 15,3 Share price performance (%) (24,3) 18,6 11,7 29,7 11,2 Full-year dividend per share (cents) 1 107 1 028 895 752 605 Price-to-book ratio (%) 1,20 1,73 1,60 1,59 1,37 Dividend yield (%) 5,9 4,1 4,3 4,0 4,2

Regulators

Industry working groups and forums participated in1 16 12 12 4 4 Adverse findings by industry ombudsmen and adjudicators2 None None None None None Number of regulatory fines and penalties3 0 1 0 0 0

Communities

Environment ■■ Green Star-rated buildings 7 6 3 3 2 ■■ Carbon footprint per fulltime employee 6,97 7,08 7,61 7,89 7,74

(tCO2e) ■■ Offset through carbon emission reduction 220 000 225 000 230 000 240 000 240 000

projects (tCO2e) ■■ Carbon status Neutral Neutral Neutral Neutral Neutral ■■ Finance assessed under the Equator 589 319 965 938 172 Principles (US$m) Social ■■ Total socioeconomic spend (group) (Rm) 136 112 111 116 89 ■■ Total socioeconomic spend 1,42 1,34 1,54 1,94 1,99 (as % of net profit after tax) (%) ■■ Consumer financial education (participants) 260 0004 400 000 54 000 25 000 22 000 Procurement ■■ Total procurement spend (Rbn) 10,7 10,6 9,6 9,4 8,3 ■■ Local procurement spend (Rbn) 8,0 8,5 6,9 6,9 6,4 ■■ Local procurement spend as % of total spend (%) 75 80 74 74 77 1 Excludes Aruna attendance to legal committee. 2 No determinations made against Nedbank, but there were settlements. 3 Excludes other immaterial penalties paid, such as those for late payments for the JSE Ltd (’the JSE’) and tax. 4 The decrease in 2015 is largely due to an increased focus on broader education initiatives through other channels such as community radio broadcasts rather than face-to-face initiatives. Including these media initiatives, we have reached an estimated 3,67m consumers.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 55 ENGAGING WITH OUR STAKEHOLDERS (continued)

INVESTING IN OUR STAFF While client focus is a key component of our 714 strategy, we recognise that the responsibility new permanent staff to deliver exceptional client experiences rests primarily with our staffmembers.

31 312 permanent staff

WHO ARE OUR STAFF? ENGAGING WITH ■■ 62,2% female staffmembers, OUR STAFF 37,8% male staffmembers. We engage with our staff on an ongoing ■■ 76,6% of our staff are black basis at all levels. Feedback and input ■■ 10,4% of our staff are younger than from our staff assists us in understanding Staff attrition 26 years and 14,8% over 55 years. and responding to their needs and level concerns and improving their working ■■ 28,1% of our staff have a tenure of environment experience, ultimately more than 10 years. improving the performance of the bank. ■■ 3,5% of our staff have disabilities. 9,9% Regular communication also takes place to provide staff with strategic direction and keep them informed about group activities. In addition to the regular, direct communication between managers, teams and individuals, specific employee engagements in 2015 included the Related material matters following:

■■ Group Exco communication WHAT DO THEY sessions. ■■ The Barrett Culture Survey and the EXPECT OF US? Nedbank Staff Survey (NSS). ■■ Career development opportunities ■■ Nedbank results presentations. across all levels. ■■ Chief Executive and cluster head ■■ Optimised organisational structure roadshows across SA and the ■■ Effective performance management Southern African Development and recognition. Community (SADC) offices. You may be interested in: ■■ Progress on the transformation of ■■ Regular electronic and printed the Nedbank staff profile, promoting newsletters. Optimise and invest and enabling diversity and 32 and 33 ■■ Cluster and group recognition inclusivity. functions, culminating in an ■■ Effective employee relations. international trip for top achievers. 2015 Remuneration Report ■■ ■ A safe, positive and inspiring work ■ The annual Employment Equity 124–133 environment. Summit.

Nedbank Group – Integrated Report 2015 56 DELIVERING VALUE TO OUR STAKEHOLDERS HOW WE DELIVERED VALUE TO OUR STAFF

Kpis How did we perform? (outcomes) Metric 2015 2014 Outlook for 2016

New jobs and career development New permanent job opportunities were created in New 714 380 We will continue to manage headcount 2015 as Nedbank continued to expand its accessibility, permanent judiciously in an environment of revenue particularly in the rest of Africa, and to comply with employees pressure. regulatory requirements.

Continued establishing a pipeline of young leaders Retention of 43,3% of 69,4% of Nedbank will continue to establish a through the Nedbank Graduate Programme. graduates 44 39 talent pipeline and strive to fill scarce- appointed skills roles within the organisation.

Cocreated the Old Mutual Rotation Programme pilot, Mobility of talent across the Old Mutual The programme is expected to continue an intercompany talent management programme group of companies and broadening of running through 2016. aimed at high-potential middle management talent. skills, and cultural and commercial experience. Nedbank Leadership Academy prepares leaders for Full performance of leaders. Leadership Lekgotla in March 2016 to broader and more complex roles. discuss and decide on leadership footprint for a winning strategy.

Optimised organisational structure Successfully integrated Nedbank Corporate and Nedbank Capital into Nedbank CIB, and the No further major structural changes backoffice operations of Retail and Business Banking into Nedbank RBB. We reorganised our anticipated. insurance businesses resulting in the merger of our previously separate businesses under Nedbank Insurance.

Transformation Ranked in the top five for the Department of Labour’s inaugural Employment Equity Awards and presented with a certificate of recognition. Continued progress in delivering our transformation Female staff 62,2% 62,7% Driving effective and sustainable strategy. While our persons-with-disabilities Black staff organisational transformation remains representation decreased slightly, it remained well 76,9% 75,9% a key pillar of Nedbank Group’s overall above the 1,6% average for SA government entities. Staff with people strategy. disabilities 3,5% 3,8% Our Batho Pele programme was halted in order to shift focus towards piloting our Inclusion Project in Development of transformation-led June 2015. This initiative focuses primarily on raising our levels of inclusion as a means of further initiatives based on learnings from entrenching diversity, innovation and collaboration across our group. the pilot.

Employee relations We terminated the 1999 Recognition Agreement Average 7,5% 8,2% The new recognition agreement will not between Nedbank and the two recognised unions unionised only strengthen our relationship with (SASBO and IBSA) and entered into a new recognition salary trade unions, but also enhance the agreement with SASBO only (IBSA's representation of increase collective bargaining process. members did not meet the minimum threshold). negotiated A significant drop in the number of reported incidents Incidents 14 242 18 437 We will concentrate on understanding of misconduct. reported the new legislation and incorporating it into management practices. We will A relatively low number of CCMA referrals, compared CCMA 139 98 embark on building capacity for line with the total number of misconduct incidents, referrals management to manage the illustrates the effectiveness of our employee relations employment relationship effectively, management processes. fairly and in line with best practice and legislative guidelines.

Employee wellbeing and work environment The slight decrease in employee survey outcomes Entropy 13% 12% We expect an improvement in our staff is likely as a result of structural changes across the survey results after the organisational organisation and the difficult economic environment. NSS change, but this will be tempered by the 75% 76,4% The engagement score remains in the high- Hewitt challenging environment. performance range of employers, which is above 66%. Engagement score 70% 72%

SASBO: South African Society of Banking Officials. IBSA: Insurance and Banking Staff Association. CCMA: Commission for Conciliation, Mediation and Arbitration.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 57 ENGAGING WITH OUR STAKEHOLDERS (continued)

CASE IN POINT

REFLECTING ON 2015 AND LOOKING AHEAD People 2020 2015 was a year of great change in Nedbank and despite the occasional difficulty, saw the successful implementation of organisational structure changes and several other projects that affect our staff. Moving towards the future The project to reprofile all jobs in line with the SAP implementation, reduced job profiles from over 3 000 to 1 038. The new profiles are role-specific, use a common competency of people management approach and ensure that employees doing the same job are linked to the same profile. People 2020 is the name assigned to our HR transformation journey. Ensuring that our job profiles are updated and standardised not only enhances fairness It is a journey that involves the and consistency when recruiting, assessing and developing employees, but also creates integration and enablement of a consistent, common understanding of job requirements, among both employees and business, people, technology and line managers, regardless of the cluster or department that the job appears in. This also process through carefully designed improves options for employee career mobility as the expectations of the job content in and executed strategic and different areas of our bank are similar. innovative people management practices, policies and procedures. The year also saw the creation of a resource planning policy, which sets out how resource planning is to be managed in the group. It covers strategic workforce planning, At the heart of Nedbank's Winning scarce skills, headcount planning, organisation design, job profiling and competency in 2020 strategy is a workforce management and is supported by detailed operating procedures and practices. that is empowered, engaged, motivated, energised and enabled to make a real contribution to our KEY RISKS and opportunities bank's culture, performance and bottomline. Management In 2015 the main risks and opportunities in terms of our ability to deliver value to our recognises that it has the employees and equip and enable them to realise their full potential, were identified as responsibility to make sure that follows: we not only have the right people, Systems that drive the right behaviours in the right positions, across our In November 2015 the SAP Human Capital Management (HCM) technology platform organisation, but also that we adopt technologically advanced was implemented across Nedbank. It replaced a plethora of old, non-integrated HR HR systems to empower Nedbank systems as a single, integrated, state-of-the-art solution that opens the door for us to employees to take greater control implement world best HR systems practices that drive consistent, rationalised, of their own needs, personal standardised and simplified processes across our group. SAP HCM has effectively growth and career advancement. transformed HR in Nedbank through the introduction of a new operating model that delivers improved efficiencies and effectiveness. The acquisition and retention of staff in a skills constrained environment

■■ Career mobility is a challenge at certain employee and manager levels due to low attrition rates. Career development and succession processes were implemented in order for us to achieve our strategic objectives by ensuring that we have the right skills, in the right place, to succeed. It ensures that our people risk is mitigated, that business continuity is enabled, and that we retain our valuable institutional knowledge. ■■ In 2015 we cocreated the Old Mutual Rotation Programme pilot, which is an intercompany talent management programme aimed at broadening the commercial and cultural experience of mid-career high-potential employees who can drive Nedbank and the Old Mutual Group. It is intended to encourage greater mobility of talent across the Old Mutual group of companies. ■■ A centralised recruitment team was also created in order to enhance efficiencies and bolster the effectiveness of our recruitment processes. It is anticipated that this will result in an improved and more consistent candidate experience and increased overall recruitment efficiencies. Potential disruption and employee insecurity caused by organisational restructuring The Capital and Corporate business unit merge began in 2014 and was concluded during 2015. Effective change management ensured a seamless and effective process with minimal impact on the business and our employees. We do not anticipate large Further reading: numbers of retrenchments as internal redeployment remains the first course of action. All restructuring initiatives are undertaken with a focus on transparency, employee 2015 Transformation Report, available as a supplementary report at nedbankgroup.co.za. engagement and ongoing change management.

Nedbank Group – Integrated Report 2015 58 DELIVERING VALUE TO OUR STAKEHOLDERS Our insurance business completed INNOVATING FOR OUR CLIENTS an important reorganisation, which At Nedbank, we are aware that if we is the first step in our understand our clients’ needs and provide client-centred journey value-for-money, secure, convenient services and enabling the and solutions, we will flourish. business for future growth.

WHO ARE OUR CLIENTS? ■■ We are a bank for all individuals in SA, the SADC and East Africa – from children to seniors and from entry- Retail main banked level to high-net-worth individuals. clients up 8,5% ■■ Various legal entities such as trusts, to 2,7m and non-governmental entities and associations, small businesses, large transactional banking corporates and the public sector. gains across all ■■ Main banked clients or those that clusters. engage with us on single product classes such as insurance, asset management, investment or finance solutions. WHAT DO THEY EXPECT OF US? Appointed the ■■ Responsible banking. ■■ Worldclass innovative solutions and primary transactional services. banker for the ■■ Professional client service. eThekwini and ■■ Convenient access to banking, less complexity and improved flexibility Ekurhuleni (channel of choice). metropolitan REPUTATIONAL NET ■■ Value banking that is competitive municipalities. PROMOTOR SCORE and transparent in pricing. (%) ■■ Fair treatment and trusted financial partner. 60 57% ENGAGING OUR CLIENTS Related material matters 50 In the fast-changing and competitive environment that we operate in, truly understanding our clients’ needs and 40 38% expectations, and delivering value to them are central to all that we do. We are committed to delivering great client 30 experiences with simpler, convenient, efficient service, innovative products, and 21% competitively priced products through our 20 client-centred innovation strategies. To continuously understand what is 10% 10 8% important to our clients we engage with them through various mechanisms, including client forums and events, face-to- You may be interested in: 0 face personal interviews for Nedbank Nedbank Bank Bank Bank Bank Brand Tracker and other client surveys. We Worldclass risk management (n=3610) A B C D also utilise the Net Promoter Score (NPS)® 106–123 (n = 1418) (n = 6952)(n = 4894)(n = 2478) to measure our service levels and review client feedback from our bankers and 2013 Key regulatory reporting requirements financial advisors, service resolution teams, 2014 (i) 2015 social media centre and website.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 59 ENGAGING WITH OUR STAKEHOLDERS (continued)

HOW WE DELIVERED VALUE TO OUR CLIENTS

Kpis How did we perform? (outcomes) Metric 2015 2014 Outlook for 2016

Responsible banking Experienced strong advances growth of New loan R185bn R167bn Continue to extend credit 11,2%, with wholesale growing faster than payouts responsibly. retail. Played a leadership role in renewable– Commit- R11bn R3,5bn R35bn committed, with energy financing. ments drawdowns over next few towards years. renewable– energy plants Judicious credit extension resulted in lower- RBB CLR 114 bps 139 bps RBB CLR to remain within than-market growth in mortgage and its target range of 1,30% to personal loans, but protected vulnerable 1,80%. clients against overindebtedness. There was a material rise in Ombudsman Number of 910 635 2016 likely to continue to be for Banking Services (OBS) cases, which OBS cases challenging for the can be ascribed to the industrywide consumer, which may increase in ATM-related fraud. support elevated client Significant process and client-experience enhancements in key compliance programmes: Treating complaints, including Clients Fairly (TCF), Know Your Client (KYC), Anti-money-laundering (AML), and Financial Advisory collections. and Intermediary Services Act (FAIS Act) and Financial Intelligence Centre Act (FICA). Nedbank was the first bank to run a media campaign to inform our clients of the need to FICA themselves as part of SARB requirements. Appropriate social and environmental risk Equator 7 6 Continue to use our social management. Principle and environmental

deals management system to

help us and clients align *Clients/ 512 450 with environmental and deals social best practice and submitted standards. * All credit risk review and new applications in Nedbank CIB, for included the screening of high risk clients and EP relevant deals via the social and environmental management screening system (SEMS) during the 2015 financial year.

Offering worldclass innovative solutions and services During the year we launched numerous innovative solutions. We highlight a few: ■■ Tax-free savings account, GoalSave, and 32Day Notice Account to help clients save and generate Basel III-friendly deposits for Nedbank and attractive savings and investment products for our clients. ■■ Instant Bond Indicator, an easy-to-use home loan application process providing our clients with a real-time credit and affordability indication before completing a full online application ■■ The Nedbank Shop Card, which provides a convenient way to redeem Greenback loyalty points and (over 100 000 clients took up the product). ■■ Easy to do Credit, streamlining and automating credit processes to enable a hassle-free and convenient banking experience. ■■ Business Registration Online, allowing clients to register their new business as well as open a business current account online. ■■ Online transaction capabilities introduced by Nedgroup Investments and ‘Invest With Us’ functionality, which educates and assists clients through their first-time unit trust purchase. A new app from Nedbank Insurance that logs and tracks policyholders’ claims, enabling self-service, as well as extended QuoteMe functionality on mobile devices that includes funeral products. Delivered market-leading performance in 2015 Nedgroup Invest- Top three domes- Maintain performance. our asset management business. Raging Bull ments won both tic asset manage- Awards SA and offshore ment companies asset manage- for the seventh ment company of year in a row. the year in 2015 awards. Reputable industry standings across key investment banking portfolios (eg resources, infrastructure and energy): ■■ Won The Banker magazine 2015 Africa Infrastructure and Project Finance Deal of the Year award. ■■ Best Research Team – Technical Analysis in the JSE Spire Awards 2015. ■■ Ranked second in Bloomberg Underwriter rankings in SA. ■■ Won EMEA Finance Best Rand Bond award. ■■ Best subcustodian bank in SA, as rated by Global Finance 2015.

Nedbank Group – Integrated Report 2015 60 DELIVERING VALUE TO OUR STAKEHOLDERS Kpis How did we perform? (outcomes) Metric 2015 2014 Outlook for 2016

Client service Industry and market leadership in Hellopeter First place Second place Continue to lead against complaints resolution. complaint peers. conversions (relative to other SA banks) Nedbank’s escalated-complaints Number of 8 days 7 days While it is comfortably resolution benchmark is 10 days, while days to within the benchmark, we the industry benchmark is 21 days. resolve will strive to continue to improve this turnaround time. Worldclass contact centre performance – Nedbank Contact Centre (NCC) awarded Best Contact Remain SA’s leading contact Centre in SA across all industries in SA at the Contact Centre Management Group (CCMG) centre. Industry Awards. Maintained our operational NPS NPS Operational: Operational: Continue to improve our improved performance in reputational 75% 75% NPS. NPS on which Nedbank saw the biggest Reputational: Reputational: improvement in its peer group. 21% 15% Improved South African Customer SAcsi 74,3 73,3 Drive continued Satisfaction Index (SAcsi) results for results improvements. Nedbank Retail. Nedbank’s IT systems availability leading Systems 99,94% 99,95% Maintain market leadership. the peer group in 2015. uptime

Convenient access to banking, less complexity and improved flexibility (channel of choice) Optimised our staffed outlets in SA with SA outlets 708 764 Focus on converting outlets coverage ratio of 86% of bankable to ’branch of the future’ RoA outlets 66 61 population within a 30 km radius, and format. increased in our rest of Africa (RoA) SA ATMs 3 695 3 585 Continue to roll out our subsidiaries. RoA ATMS 145 126 ATMs to make banking ’Branch of the future‘: 36% of SA more convenient. Outlets 36% 24% branches reformatted and rolling out to converted RoA subsidiaries (six new ’branch of the future‘ formats in the rest of Africa). Point-of- 78k 69k sale devices

Nedbank App Suite™ users have Digitally 3,1m 2,2m Continue to actively increase increased 43% and digitally enabled enabled the number of digitally active clients by 40%. clients clients.

Integration of CIB. Provided a platform that enhanced our ability to serve clients.

Providing value banking that is competitive and transparent in pricing

Below-inflation-fee increases in RBB Retail and At or below Kept fees flat and Continue to provide comprised reduced digital banking fees business inflationary reduced in competitively priced and inflation-related fees for traditional banking fee increases business banking solutions. Fee increases banking channels and cash handling. increases and small at or below inflation. business services.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 61 ENGAGING WITH OUR STAKEHOLDERS (continued)

CASE IN POINT

Fair Share – Home loan online Innovation in application lending solution named 2015 Technology Project of the Year by The Banker magazine.

Getting money working for a better REFLECTING ON 2015 future: ‘We know not everything that needs to be done can or should be and looking ahead done by a bank – so we identified 8 We continue to make good progress Long-term Goals that we can across all value gains in drivers for our contribute to as a bank.’ Mike Brown, clients, as is evident in the gains in Nedbank Group Chief Executive. primary clients illustrated on page 30. Our Fair Share 2030 strategy is one of Our performance across responsible the ways that we are responding to the banking practices, client service, value- Long-term Goals we set for a adding innovations, client service, successful SA. It is Nedbank’s strategic convenient access and competitive commitment to get money working for pricing continues to differentiate the future we want for all South Nedbank in the minds of many clients. Africans. It provides an annual flow of We will continue to enhance these funding, channelled through products, propositions into the future and improve services and lending into projects that our perception in the market, as have a clear potential to deliver competition will only be increasing. sustainable socioeconomic and KEY RISKS environmental outcomes. For the first ■■ A more pronounced downturn in the year of full-scale implementation of economy, including rising interest KEY OPPORTUNITIES the Fair Share 2030 strategy, rates and lower demand, may ■■ We are integrating our response to investments amounted to R1,8bn. impact clients and businesses more compliance, with the aim of limiting Fair Share 2030 in action in 2015 than anticipated. the impact on clients. This could ■■ Regulatory and compliance differentiate us from our peers. Just some of the projects funded in demands are increasing, resulting in ■■ New innovations continue to 2015 included: a greater compliance burden and deliver value to us and our clients, ■■ Loans of more than R1,3bn higher financing costs over time resulting in a greater revenue uplift. granted for provision of much- relating to Basel III. ■■ CIB integration delivers incremental needed student accommodation ■■ Increases in cyberattacks and value to clients through scale and across SA. sophisticated fraud networks impact efficiency, including fully utilising ■■ Financial solutions for farmers our clients and may result in the combined balance sheet, wanting to implement systems downtime and financial higher-quality service levels renewable- energy solutions that losses. through single-client contact and deliver greater energy security for new innovative solutions. This will their operations. improve cross-sell and revenue ■■ Joint funding of R120m with the generation for us. Development Bank of South ■■ As a leader in IT security, we Africa for the development of continue to attract clients as trust 400 ‘green’ affordable houses and security become more that will deliver sustainable You may be interested in: important for clients. running-cost savings for ■■ Our value-for-money banking households. Delivering our strategy continues to be attractive for our through our business clusters clients, especially through altering 42 and 43 incorrect media perceptions.

Nedbank Group – Integrated Report 2015 62 DELIVERING VALUE TO OUR STAKEHOLDERS DELIVERING CONSISTENTLY TO OUR SHAREHOLDERS Attractive valuation metrics. Consistent delivery to our shareholders, underpinned by transparent reporting.

WHO ARE OUR SHAREHOLDERS AND THE INVESTMENT COMMUNITY? Shareholders are a primary stakeholder Nedbank regarded as they provide the financial capital to highly by investors for start and sustain the business. The financial capital we source from our transparent reporting. equity and debt investors and our retained earnings are key in running our businesses and making strategic investments. The extent to which we can efficiently leverage our financial strength, or are able to raise the necessary capital at the best possible rates, and produce a ENGAGING WITH sustainable ROE creates the value we THE INVESTMENT deliver to our shareholders. COMMUNITY ■■ 22 638 shareholders ■■ Four times a year at the reporting of Investment and retirement our annual and interim results, and funds first- and third-quarter trading updates. Retail investors ■■ More than 290 meetings with ■■ 16 sell-side analysts investment analysts, investors and ■■ Two credit-rating agencies the media during non-closed periods. Moody’s ■■ Five broker-hosted conferences and Standard & Poor’s non-deal roadshows. ■■ Financial media ■■ Nedbank-initiated investor days and WHAT DO THEY governance roadshow. EXPECT OF US? ■■ Nedbank annual general meeting (AGM) to be held annually in May. Connecting with the investment GEOGRAPHIC DISTRIBUTION community is critical to identify their ■■ On an ad hoc basis with financial OF SHAREHOLDERS needs and appropriately manage their media. expectations. We prioritise these through (%) ■■ Biannually with our credit-rating a materiality assessment process, determining the issues that are of agencies. greatest importance to both shareholders ■■ Through relevant information on our 13,93 and Nedbank Group. website at nedbankgroup.co.za. These include creating shareholder value We also regularly engage with Old Mutual through sustainable earnings, NAV and plc to align our financial reporting and dividend growth, underpinned by a communications, ensuring that we have a strong balance sheet, experienced holistic group message and that arms leadership, differentiated strategies that positions the group favourably against length collaboration opportunities are 86,07 peers, sound governance and transparent maximised. reporting. Related material matters You may be interested in:

Domestic The Nedbank investment case Foreign 134 and 135

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 63 ENGAGING WITH OUR STAKEHOLDERS (continued)

Number % holding % holding OUR TOP SHAREHOLDERS of shares 2015 2014 Old Mutual Life Assurance Company (SA) Ltd and associates 267 531 866 54,11 54,57 (includes funds managed on behalf of other beneficial owners) Nedbank Group Treasury shares 17 856 169 3,61 6,74 Coronation Fund Managers (SA) 37 432 178 7,57 6,62 Public Investment Corporation (SA) 30 875 907 6,24 6,56 Lazard Asset management (US and UK) 13 053 114 2,64 2,70 Dimensional Fund Advisors 7 857 545 1,59 1,58 (US, UK and AU) BlackRock Inc (US and UK) 7 690 629 1,56 1,58 Sanlam Investment Management (SA) 4 674 435 0,95 1,53

HOW WE DELIVERED VALUE TO OUR SHAREHOLDERS

Kpis How did we perform? (outcomes) Metric 2015 2014 Outlook for 2016

Shareholder value creation Met our 2015 guidance of organic growth in DHEPS DHEPS 8,5% 13,0% In the current environment forecast risk > nominal GDP (+ 5,8%). growth remains high and guidance harder to formulate. In this context we forecast DHEPS to grow less than 2015 growth and less than consumer price index + GDP growth + 5%. Bank shares saw significant declines in 2015. The TSR -19,8% 23,2% Nedbank does not guide on share Nedbank share underperformed the FINI 15 (a price performance. corporate performance benchmark for LTI schemes). FINI 15 -2,6% 22,7% Continued to reduce our dividend cover to 2,06 times, DPS growth 7,7% 14,9% Within our target range of 1,75 to close to the middle of our range of 1,75 to 2,25 times. 2,25 times. Net asset value (NAV) per share increased 9,0%. NAV per R156,85 R143,95 share Valuation metrics at current levels are attractive, after Price-to- 1,20 1,73 2020 target: Top two among JSE deteriorating in line with the share price. Nedbank book ratio peers. price to book was third highest among peers. Our black business partner (BBP) BBBEE schemes unlocked a cumulative value of approximately Nedbank, Old Mutual and strategic R8,2bn at the time of these schemes vesting. BBP continue to collaborate on the R300m commitment aligned to Fair Share 2030 to sustain the legacy of the group’s BBBEE transaction.

Consistent financial performance Economic R2,5bn R2,1bn EP will be negatively influenced by a profit (EP) higher cost of capital for 2016 at 15,0%, given the increase in long-bond yields. Sustained our ROE (excluding goodwill) above our ROE 17,0% 17,2% Below our target of 5% above cost of 2015 COE of 13,0%. (excluding ordinary shareholder’s equity (under goodwill) review in 2016 given higher COE estimates).

Strong and experienced management Smooth leadership transitions, including appointment of new Nedbank Chairman and two Maintain the diversity and depth of boardmembers and internal appointment of the new Managing Executive of Nedbank Wealth. skills on our board and Group Exco. Continue to have one of the most experienced management teams in the SA banking industry.

Attractive and sustainable growth strategy Delivery across all our strategic focus areas. For detailed assessment of our performance and outlook on each of our strategic focus areas, refer to pages 27 to 37.

Transparent reporting Maintained a leadership position in all our reporting, consistently ranked in the top quartile Continue to provide investors with reporting awards on the JSE. transparent and relevant information to determine fair value.

Nedbank Group – Integrated Report 2015 64 DELIVERING VALUE TO OUR STAKEHOLDERS CASE IN POINT

Adding value through engagement with the investment community

At Nedbank we engage proactively on issues of importance to the investment community. In 2015 we covered the following key topics: Reflecting on 2015 and looking ahead ■■ Potential spiralling IT costs Business and financial performance was resilient in 2015 in a difficult macroeconomic from core systems environment, although SA bank share price performances reflect anticipated higher replacement: Attended an IT cost of capital and the impact of a tougher macroeconomic environment. This is likely Investor day where we explained that our IT to be driven by slower advances and transactional revenue growth as well as higher Managed Evolution strategy impairments. We maintained good relationships with the investment community, ensures that costs are well underpinned by transparent reporting. managed as we progress towards core systems replacement. ■■ Governance matters ahead of KEY RISKS KEY OPPORTUNITIES our AGM: During our annual ■■ A deteriorating macro environment: ■■ Nedbank is positively positioned for a governance roadshow we rising interest rate cycle. Our sensitivity Low GDP growth reflected in provide shareholders with the to a 1% increase in interest rates over a reduced credit demand and opportunity to engage with 12-month period is a R1,2bn positive our chairman and lead slower transactional volume endowment impact in NII. independent director on growth. ■■ Prudent credit granting in recent years governance matters. On Rising interest rate cycle and and strong provisioning positions the page 80 we provide feedback continued commodity price bank well for headwinds. on the key topics of pressures increasing defaults ■■ We continue to gain share of discussion. and impairments. transactional banking clients and as ■■ Uncertainty around rest-of- a result in NIR. A sovereign ratings downgrade Africa developments: ■■ Strong risk management culture Attended the 17th UBS resulting in higher funding provides a solid foundation for the Financial Services conference costs. increase in regulatory demands. titled ‘Beyond SA’, where we ■■ Client losses from aggressive ■■ Unique culture and competitive shared our rest-of-Africa competitor actions. positioning in the market continue strategy in more detail, highlighting our ■■ The increase in regulatory demands to attract top talent. ■ client-centred, capital such as AML, TCF and KYC placing ■ New regulatory requirements offer efficient, risk mitigated and greater pressure on staff and an opportunity to engage with clients and understand their banking and long-term strategy. increasing the cost of compliance investment needs while increasing ■■ Uncertainty around the (systems change, additional staff the security on client information implications of new banking required, client education). and banking activity . regulations: Nedbank hosted ■■ Scarce skills representing challenges ■■ Nedbank shares, attractively priced, a Basel III and IFRS 9 investor for new appointments and potential offer good investment value, day, sharing our insights into loss of key staff to peers. underpinned by a sound investment the technical and practical case. implications of these ■■ Continued pressure in the rest of ■■ Our active participation with regulations, educating Africa from currency volatility and government and labour. investors as we progress depressed commodity prices. towards implementation in ■■ Continued weak SA bank share coming years. performance due to macro Further reading: Presentations on the economy, emerging-market abovementioned topics are all pressures and concerns around a 2015 Consolidated Annual Financial available at nedbankgroup.co.za. credit ratings downgrade below Statements, available as a supplementary report at nedbankgroup.co.za. investment grade.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 65 ENGAGING WITH OUR STAKEHOLDERS (continued)

EngaginG Nedbank reports Nedbank is on track under the advanced WITH OUR with our preparations Basel III approaches REGULATORS for the new regulatory for credit, operational regime of Twin Peaks. and market risk.

WHO ARE OUR ENGAGING WITH OUR REGULATORS? REGULATORS The South African Reserve Bank is Nedbank Insurance In line with international and local trends, responsible for banking regulation and remains well Nedbank observed an increase in regulatory supervision in SA. The purpose is to achieve scrutiny and inspections. Regulatory reviews a sound, efficient banking system in the capitalised and were attended to with significant attention interest of the depositors of banks and the implementation of to detail, professionalism and prompt economy as a whole. This function is reaction to matters raised. performed by issuing banking licences to solvency assessment ■■ With regard to new legislative banking institutions, and monitoring their and management developments, Nedbank has been activities in terms of the Banks Act and involved in engaging with regulators regulations. (SAM) is on track. through various industry associations. Other primary regulators include: ■■ The group maintains a close and ■■ SARS transparent working relationship with the FIC and the Bank Supervision ■■ Financial Services Board (FSB) Department of SARB. It attends ■ WHAT DO THEY EXPECT ■ National Credit Regulator (NCR) quarterly meetings with the Regulator ■■ Various government departments and OF US? and Supervisor to ensure compliance Chapter 9-institutions including the Due to the reliance of local and global with their requirements and to obtain Department of Trade and Industry (dti), economies on financial services, clarification where necessary. Department of Labour and National regulatory bodies have been established ■■ We participated in industry meetings Treasury to ensure the compliance of these on the Regulatory Consistency ■ ■ Financial Intelligence Centre (FIC) institutions with risk-mitigating Assessment Programme undertaken ■■ The JSE standardised practices. Our regulators by the Bank for International We must also comply with various also ensure that we take suitable Settlements in Basel. ■ regulatory bodies outside SA, including: measures to control our direct and ■ We attended a trilateral meeting in ■■ Central banks and local financial indirect impact on our stakeholders and London between SARB, the Financial Services Authority and the PRA. services regulators of countries in on the environment. which we have representation or ■■ We participated in a Regulatory operations It is therefore imperative for us to: Supervisory College held at SARB, where we presented to the majority of ■■ Prudential Regulatory Authority (PRA) ■ ■ maintain good, regular and regulators in the rest of Africa where in London transparent relationships with all we have a presence and we were ■ ■ Financial Conduct Authority (FCA) regulators; and commended by the regulators. ■■ ensure compliance with all legal and ■■ We maintained resilient business regulatory requirements. continuity management processes and successfully conducted a liquidity NEW REGULATIONS simulation test with SARB in IMPACTING BANKS attendance. (Number of) ■■ During 2015 Nedbank provided 980 988 1 000 951 Related material matters comment on various regulatory proposals and discussion papers, 800 750 including: The Reinsurance Regulatory 596 Review and the Insurance Laws 600 Bill, 2015, supporting the objective You may be interested in: of implementing insurance regulation. 400 Worldclass at management The Retail Distribution Review risk (RDR), which seeks to ensure 106–123 200 insurance distribution models align with TCF outcomes. Key regulatory reporting requirements Cybercrimes and Security Bill, 0 (i) 2011 2012 2013 2014 2015 2015.

Nedbank Group – Integrated Report 2015 66 DELIVERING VALUE TO OUR STAKEHOLDERS HOW WE DELIVERED VALUE TO OUR REGULATORS

Kpis How did we perform? (outcomes) Metric 2015 2014 Outlook for 2016

Capital, liquidity and credit metrics Following industry concerns of regulators about Credit loss 0,77% 0,79% Within our revised target range of SA banks’ exposure to unsecured lending, we ratio 0,60% to 1,00%. continued to implement our policy of responsible Defaulted 2,5% 2,5% lending and reduced our market share proactively. advances Implementation of SARB directive 7/2015 increased defaulted advances. Maintained strong capital adequacy levels CET1 ratio 11,3% 11,6% Although Basel III went live in 2013, supported by internal stress-testing results, with No issues were raised on our Internal the transitional capital and liquidity CET1 above SARB regulatory minimum of 6,5%. Capital Adequacy Assessment requirements/ratios are still Process (ICAAP) by SARB. significant for Nedbank out to 2019 and 2022, and these receive management focus. Maintained a strong liquidity profile, with theL CR LCR 88,5% 66,4% Continue to phase in LCR towards ahead of 2015 SARB minimum of 60%. 100% coverage by 2019 through a change in portfolio tilt. Made good progress preparing for net stable SARB has approached the Basel Continue preparations for NSFR funding ratio (NSFR) implementation in 2018. Committee on Banking Supervision implementation. (BCBS) on calibrating SA’s minimum requirement. Nedbank’s IFRS 9 programme is well underway with phase 1 successfully delivered in 2015 We are currently aligning to IFRS 9, and overall is on track. as the standard becomes mandatory from 1 January 2018.

Conduct and consumer protection Embarked on a TCF and Conduct Risk programme An independent assessment of Focus will be on the Twin Peaks system to ensure that industry guidelines and best Nedbank Group’s state of readiness of regulation, which places emphasis practice are embedded within our business and for TCF and conduct risk on a more harmonised system of have already achieved certain milestones. management revealed no material licensing, supervision, enforcement, issues with the implementation client complaints (including ombuds), the appeal mechanism (tribunal), programme. client advice and education as well as To mitigate against conduct risk, we are taking steps to embed conduct considerations in our ensuring that clients are treated fairly. strategies, governance structures and fundamental workings of our business models. This Nedbank will also be embracing a includes the way we sell our products and provide client service to avoid poor outcomes for forward-looking approach to conduct clients and therefore TCF is also enveloped within the concept of conduct risk. In this way we risk and embracing client-centredness. aim to identify and mitigate against risk before clients suffer adverse outcomes. Much attention will be given to the RDR in terms of how financial products are distributed to consumers in SA. NCR – We invested time in managing our client and any potential reputational risk associated with the Satinsky R699 scheme.

Anti-money-laundering and countering the financing of terrorism Sound progress on AML remediation after the industry fines in 2014. We have invested Further investment to complete the significantly in IT, processes, procedures and resourcing in an ongoing effort to remedy Nedbank remedial plan as agreed administrative deficiencies noted by SARB during its anti-money-laundering and sanction with SARB and to ensure regulatory reviews conducted of SA’s big banks. sustainable compliance.

Government and law enforcement

Contributed to government revenues, through Tax paid R8,2bn R8,0bn Continue paying all taxes direct, indirect and staff taxes. as required. Remained compliant with the Labour Relations Act and no issues were raised. Maintain compliance. Close cooperation with the South African Police Fraud cases 6 013 4 890 Service (SAPS) and other law enforcement agencies continued. In 2015 the investigation of cash shortages was added to our responsibilities. It was previously investigated in the business line responsible for managing cash. In 2015 100% of our operations underwent corruption screening without any material Continued robust actions against concerns/issues being raised. corruption.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 67 ENGAGING WITH OUR STAKEHOLDERS (continued)

REFLECTING ON 2015 KEY OPPORTUNITIES and looking ahead ■■ We will continue our integrated approach to governance, In 2015 Nedbank commenced a refresh of compliance, risk management, the Enterprisewide Risk Management capital management, liquidity and Framework (ERMF) incorporating the financial control. CASE IN POINT current internal and external environment, ensuring full alignment with the ■■ The group has embarked on a significant regulatory changes and programme to ensure that industry Dedicated to developments, and in response to guidelines and best practice are compliance evolving and emerging risk trends and the embedded within its business. changing business environment. ■■ We believe that the continued focus on clients through TCF Our resolution and recovery plan (RRP) enhancements will enrich our client A dedicated was maintained and the early-warning value proposition and further create implementation office for indicators of the RRP were tracked in value to our entire stakeholder group. order to determine its invocation. new legislation was set up ■■ There is a continued commitment to during 2015 Nedbank embarked on a Treating the development of legislation The purpose of the programme Customers Fairly and Conduct Risk through regulatory advocacy and office is to ensure efficiencies programme and are well placed to comply interaction with regulators and during the process of with protection of personal information industry stakeholders to ensure a implementation of legislation and (POPI) requirements. sound regulatory framework that to identify synergies between the adds economic and sustainable different pieces of legislation. Sound implementation and ongoing value to our clients, shareholders enhancement of the Advance and stakeholders. The newly established Regulatory Measurement Approach (AMA) for Change Programme Office now ■■ The implementation of the operational risk management were project manages AML and some conditions of the Protection Of maintained and similarly the Internal significant cross-cluster regulatory Personal Information Act (POPIA) Model Approach (IMA) for market risk change programmes. will allow for increased client continued to meet the regulators’ confidence in how financial services In 2015 these included the AML, requirements. and corporate SA use personal CFT and Sanctions, EDP and IFRS Nedbank’s economic capital and ICAAP information and it will also 9 programmes, and the scope of methodology is constantly reviewed and contribute towards international coverage will be extended in 2016 updated, taking cognisance of regulatory investor confidence across the entire R3bn five-year regulatory change programme. developments such as Basel III from ■■ The continued publication of 1 January 2013. Nedbank Insurance’s environmental laws with extensive implementation of SAM is on track, with new requirements dealing with the impact on the group’s existing solvency waste, water, air, dangerous or capital levels expected to be immaterial. substances and land rehabilitation may lead to increased Fair Share We successfully implemented the 2030 lending opportunities. reporting requirements for the Foreign Account Tax Compliance Act (FATCA) (US legislation) during 2015 and continue to comply with the FATCA requirements. KEY RISKS We were one of the banks reviewed as ■■ International and local regulatory part of the Securities Trading Review reform (in particular Basel III and conducted by SARB, and the outcome Twin Peaks) has materially was positive for us. increased capital levels and liquidity costs, and is changing business Nedbank first implemented the Enhanced models internationally. Regulatory Disclosure Task Force (EDTF) risk remains high, but there is now recommendations in 2013, where less uncertainty because Basel III is appropriate, and in 2015 continued to substantially finalised by the Bank enhance and drive improvement in the for International Settlements and quality, clarity, consistency and SARB. comparability of risk disclosures, thereby ■ allowing stakeholders to draw increased ■ Litigation activity in the US and value, understanding and insight from Europe and fines on major banking the reports. The refinement of our Pillar 3 institutions are likely to increase report is an ongoing process to keep up cautious lending practices and with changing regulation and leading encourage shadow banking activity practice. even further. Indications in SA are that regulators will take their lead Further reading: Overall, the group maintained good, from offshore regulators and the risk regular and transparent relationships with of large fines for non-compliance, 2015 Pillar 3 Risk and Capital Management all regulators and complied with all legal particularly in the conduct space, Report, available as a supplementary report at nedbankgroup.co.za. and regulatory requirements. has escalated considerably.

Nedbank Group – Integrated Report 2015 68 DELIVERING VALUE TO OUR STAKEHOLDERS DELIVERING VALUE THROUGH CASE IN POINT A COMMITMENT TO OUR COMMUNITIES and the R100m Legacy Fund environment Nedbank, Old Mutual and our three BBEE partners, WIPHOLD, Brimstone and Izingwe, have agreed to contribute to a legacy fund in order to progress our Nedbank’s business success is inextricably relationship and continue to support initiatives consistent with linked to the sustainability of the society and the Financial Sector Code and environment in which we operate. We appreciate National Development Plan. This fund will leave a lasting and that our future business prospects are greatly beneficial legacy from our original improved if communities flourish and we are thus BBBEE objectives. To achieve this it was agreed that committed to contributing to building a strong three sustainable funds of R100m and thriving African society, while respecting its each over three years would be created with equal contributions environmental limits. We do not underestimate from each of the parties. Nedbank’s contribution to this partnership is the complexity of this task and acknowledge that R100m (R33m per year), split required delivery in this regard is not easily between the legacy workstreams for WIPHOLD, Brimstone and achieved. Izingwe. During the past year the fund has been established and a number of potential beneficiaries are being assessed by each of the WHO ARE THE ENGAGING WITH workstreams. COMMUNITIES WE THE COMMUNITY The first disbursement of R11m has SERVE? In line with our integrated sustainability been made available to the strategy and approach, we strive to WIPHOLD-sponsored Centane ■ ■ Members of SA and African society. create value for the communities we Agricultural Development project ■■ The environment. serve, for our business and for other in the Eastern Cape. This stakeholders through a three-pronged WIPHOLD-led, groundbreaking sustainability approach. This approach initiative, focuses on creating sustainable, self-funding includes our offering (products and What they expect commercial farms from primarily from us services), our partnerships and the way communally owned land. The we do things (our operational impact). project intends to effect large-scale ■■ To get advice and guidance and Creating value through our social change through rural products to that help to achieve offering employment, income generation desired outcomes for themselves, and food security. We strive to create value through their families, their businesses and products and service offerings that are their communities. intended to enable communities to ■■ To partner on common social and achieve their desired outcomes while environmental issues. respecting environmental limits and broader societal needs. ■■ To collaborate in a way that furthers social, environmental and other Our business development strategy, You may be interested in: common agendas for the greater good. Fair Share 2030, aims to direct an annual flow of lending to new products and How we deliver value to our staff and clients services that deliver positive financial, 56–62 socioeconomic and environmental impacts. In 2015 and amount of R1,8bn was invested in projects aligned to Fair Related material matters Share 2030 and the Long-term Goals. Further reading: Projects included embedded energy services, green affordable housing and 2015 Sustainability Review, available as a supplementary report at nedbankgroup.co.za. the provision of student accommodation.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 69 ENGAGING WITH OUR STAKEHOLDERS (continued)

Other examples of products with In addition, given the drought crisis, we Responsible lending and investment – deliberate social and environmental donated R1m to the drought-relief efforts, To ensure our approach to this remains outcomes include Nedbank’s Green and our Hippo Roller project saw Nedbank robust, we are constantly benchmarking and Savings Bond, the Nedbank Affinity donating 200 water rollers in 2015 to rural updating our processes. During 2015 the accounts and the Nedbank Insurance communities to ease the burden they issue of captive breeding of mammalian Green Property Plan. Further details are typically encounter daily in accessing water. species for hunting purposes was contained in the Sustainability Review at addressed. Following our research into the nedbankgroup.co.za. Creating value through the way issue we have taken an in-principle decision we do things to not finance any activity constituting Creating value through A central component of the achievement of captive breeding for hunting or the exotic partnerships our vision to be Africa’s most admired bank pet trade. This decision will form part of We know that our positive impact in is ensuring we consistently deliver on own total policy and book review in 2016 so as to better manage the biodiversity impact of our communities can be more impactful sustainability objectives and commitments lending decisions. through partnerships with others who across our organisation. share our vision and commitment. In 2015 Further community engagement – There were Responding to climate change – In the light of our partnerships with education, health also a number of engagements related to and welfare NGOs saw the distribution of the strong agreement at the 2015 United trust in the finance sector, the divestment more than R136m to various communities. Nations Climit Change Conference of the campaign, student fee activisim and access Of this, R66m was used to support basic Parties (COP21) on the need to reduce to corporate social investment (CSI) and tertiary education support. emissions and the realities of the SA funding. economy’s comparatively high carbon We entered into a new venture with our intensity, it can be assumed that internal and BBBEE partners to create a legacy fund external pressure on SA to reduce emissions so as to continue to support initiatives, Nedbank Group further will increase. Our Fair Share 2030 consistent with the Financial Sector Code 2015 Carbon Footprint strategy places a priority on investment that and National Development Plan. (%) helps address climate change. 0,19 We continued to share knowledge with stakeholders on socioeconomic and We continue our commitment to minimise 6,26 environmental concerns through the free and then offset the carbon footprint of our distribution of the Carbon Footprinting operations and plan to reduce, then 19,57 Guide and the Green Living Guide. eliminate, scope 1 and 2 emissions. In 2015

our carbon footprint was 214 967 tco2e We contributed R3m to the National (2014: 213 133 tco e). 1,18 Education Collaboration Trust to help 2 improve education outcomes in SA. We have consistently met, and often 72,80 significantly exceeded, our reduction Our partnerships with entities such as targets in terms of water, energy, paper, Wildlands and the Branson Foundation waste and carbon emissions. and others resulted in the creation of new jobs and support for new businesses, in addition to the support Scope 1: Emissions we provide through our lending. Scope 2: Electricity Scope 3: O ce paper Our partnership with the WWF-SA Scope 3: Commuting established in 1990 remains a flagship Further reading: Scope 3: Business travel partnership as we use our core business Resources consumption not reflected includes water to help generate support for them, 2015 Sustainability Review, available as a consumption of 319 801kℓ (2014: 294 873 kℓ), supplementary report at nedbankgroup.co.za. 317 tonnes (2014: 324 tonnes) of waste sent to landfill making their efforts sustainable year on and 581 tonnes (2014: 574 tonnes) of waste recycled. year. Our involvement in their Water Balance Programme and their Sustainable Agriculture Programme supports our strategic direction in these SUSTAINABILITY RISK Sustainability opportunity areas by responding meaningfully to some of the countries larger challenges Climate change and the Lending opportunities in power generation and – water and food security. We have Fossil Divestment Campaign embedded energy to lower dependence on fossil fuels invested R9m to date in the Water and decarbonise the SA economy. We will be guided Balance Programme to enable the by our Long-term Goals in this regard as we tilt to clearing of alien vegetation at key water reduce the carbon intensity of our lending. catchment areas. Over the past five years this has released over 900 00kl of water Food security Delivery of solutions to support SA farmers in the back into the ecosystem and created reduction of energy and other required input costs, more than 24 000 employment days. thereby enhancing the farmer’s long-term resilience. Water security Delivery of innovative lending solutions to To date we have also invested R18,3m in government, municipalities and business to enable the Sustainable Agriculture Programme, better water efficiency and stewardship. which promotes innovative solutions to the resource challenges facing Education, training and Investment into education (internal and external) and agriculture. This investment has seen management of scarce training, as well as development programmes aimed the creation of best-practice production skills at closing SA’s skills gaps, thereby contributing to a guidelines for sugar, beef, dairy, fruit more skilled workforce, which will enhance economic and wine. growth prospects and bolster social cohesion.

Nedbank Group – Integrated Report 2015 70 DELIVERING VALUE TO OUR STAKEHOLDERS HOW WE DELIVERED VALUE TO OUR COMMUNITIES

Achievement

TARGET 2015 2014 Outlook

Lending with deliberate positive social and environmental impacts Annual Fair Share 2030 lending R1,8bn R450m (2014 2015 was the first year of full-scale of R6bn. was a proof-of- implementation of Fair Share 2030. To deliver on concept year) this ambitious annual lending target of R6bn we will address our internal processes and resource allocations in 2016 and beyond.

Corporate social investment 1,0% of net profit after tax. R136m R151m Our socioeconomic development contribution is above the compliance requirement of 1% net profit after tax (2015: 1,42%). This reflects our response to the immense need for funding.

Enabling transformation of SA society through directed lending Empowerment financing. R5,9bn R8,5bn The evolving landscape of BBBEE means that the number of empowerment transactions available Targeted investments (comprising R4.0bn R3,2bn to finance continues to decline. We will continue transformational infrastructure, to use our influence as well as financial and affordable housing, black small non-financial resources to work with government, and medium enterprises, business and communities to provide innovative agriculture). funding solutions with a view to bringing about BBBEE transaction financing. R2,7bn R4,5bn real and lasting economic transformation.

Investment in education 50% of our CSI investment. R66m R75m We will continue to focus our investments on basic and tertiary education, as well as bursary programmes, graduates programmes and learnerships to further our positive impact on learners and students.

Reduce our operational carbon and water impact

Carbon emission levels per 6,97 tCO2e/FTE 7,08 tCO2e/FTE While we strive to reduce our impact constantly fulltime employee (FTE): until we are carbon neutral. We offset our annual

7,08 tCO2e/FTE by end 2020. emissions through the purchase of carbon credits from projects with a strong social and environmental agenda. Energy consumption: 10% 5 129 kWh/FTE 5 215 kWh/FTE We remain on track to meet our 2020 target. reduction by end 2020 or 4,694 kWh/FTE. Water consumption: 6% reduction 16,31 kl/FTE 14,78 kl/FTE Water increased as a result of new campus sites by 2016 at our campus site or being introduced. We aim to manage water 15,01 kl per employee. usage over the year to meet the 2016 targets.

Nedbank Group – Integrated Report 2015 DELIVERING VALUE TO OUR STAKEHOLDERS 71 72 ENSURING sustainable VALUE CREATION

72 Reflections from our Chairman: Value through good governance 76 Committed to good governance 84 Established and admired leadership teams 88 Reports from our directors, Company Secretary and auditors 94 Reports from group board committee chairs 106 Worldclass risk management 124 Reporting back on remuneration 134 The investment case for Nedbank Group ‘Ensuring sustainable value creation’ reflects on how the group is governed to protect value, including the key deliberations of our board and board committees, and also how we manage the associated risk, and reward our staff appropriately. This culminates in the investment case for Nedbank Group. Reflections From our Chairman

Value through good governance

I took over as Chairman in May 2015 and have been fortunate to be surrounded and supported by the calibre of people that characterise Nedbank. My early impressions are of a group that is well managed by a skilled, responsible and diverse leadership team guided by a strong and appropriately skilled board. I have found a group that is people- centred, deeply client-driven and socially relevant, so I have thoroughly enjoyed my immersion into this great company. With my background in the audit profession, I am encouraged by the intense focus on Vassi Naidoo risk management and compliance to Non-executive Chairman ensure a safer client experience. We are building on sound foundations and we have seen another year of resilient growth in a tougher-than-expected macro environment. On behalf of the Nedbank board of directors it is, therefore, my privilege to reflect on our journey to be Africa’s most admired bank.

Our purpose – now more important than ever Banks play a crucial role in the financial and economic ecosystem of nations and the world. Their activities also play an important role in building stakeholder trust across society. Forming part of their essential duties to broaden financial inclusion and facilitate access to financial services, banks must ensure that clients can keep their money safe, assist them in making payments, help them save, and make it possible for individuals and institutions to borrow money affordably when they need to invest in assets such as ‘I have found a group that is people- education, housing or renewable energy. In SA there is much work to be done to centred, deeply client-driven and socially overcome the challenges of inequality, relevant, so I have thoroughly enjoyed my poverty, unemployment and education, which are at the heart of our immersion into this great company.’ socioeconomic challenges. While we have made some progress, it is clear from the broad national conversation that we need to accelerate the next wave of economic and social transformation more deliberately and constructively. Banks have a core role to play, working together to take SA forward and to build trust and

Nedbank Group – Integrated Report 2015 72 ENSURING sustainable VALUE CREATION confidence among all stakeholders, environment have significant implications including foreign investors. In this regard ‘My early impressions for companies seeking to expand on the I am encouraged by the renewed level of continent. I am, therefore, heartened by engagement with business, government are of a group that is the strength of the relationships and and labour over the past few weeks. strategic alliances we have with our well managed by a partners across the continent. We share a Core to this is the concept of ‘social licence skilled, responsible and common commitment to building a to operate’, being the level of acceptance socially relevant and strong business or approval granted to an organisation by diverse leadership presence in all the countries in which its stakeholders. When a company has a team guided by a we operate. social licence, there will be little conflict between the organisation and strong and Fintech is currently every banker’s stakeholders, because it is seen to be appropriately skilled buzzword and I am pleased that the holding social and economic benefits for progress that Nedbank has made in all, including the broader community. board.’ technology-driven innovation and our managed-evolution strategy puts us in a As Nedbank, we have been working closely good position for the future. The speed of with government and the industry in the current technology revolution is shaping and contributing to the When confronted, we will always reflect unprecedented in taking computing transformation of the financial services on our values and what we stand for as a capabilities to an unimaginable level. This sector. We are focused on building on the bank and as SA citizens. could create endless possibilities for our good work that has been done in the developing nation and economy. However, previous two decades and ensuring that the While we know not everything that needs to unlock these opportunities there needs broad-based nature of our impact continues. to be done can or should be done by a to be insightful thinking and collective This is receiving even greater focus in 2016 bank, our Long-term Goals will guide the leadership to enable us to change the way as business, government and labour work group’s strategy to ensure that we fulfil our we learn, the way we work and the way we together to improve the country’s growth social purpose. The goals, described in live in future. Nedbank itself needs to prospects and create jobs. more detail on page 10 of this report, ensure it remains relevant for our clients in address socioeconomic and environmental the digital economy. Our commitment to transformation and issues, and their interplay. Achieving them development is very clear in our approach will also enable other desirable outcomes, to providing employment, training including improved food security, greater Board focus areas in opportunities and growth for our staff, and resource efficiency and less divided forms a core part of how we operate as a communities. 2015 responsible business. The role of the boards of directors of To be a sustainable business we also need companies has never been more important Engaging all sectors, including the youth to operate within the confines of in the current environment where the and the marginalised, remains a core environmental limits while meeting social economy is not growing fast enough to imperative with respect to access to needs. While this means that there are create the jobs our country needs, and the banking, education, skills, employment and things we need to do less of, it presents social and political environment is transformation. Only then will we see the opportunity to develop new solutions volatile. I have been encouraged by the the change we all envisioned and a that can benefit the broader environment, transparency and robust discussion of rebalancing of the economy to a more our clients and the bank. While this issues at board level, which creates an equitable sociopolitical landscape. paradigm shift towards sustainability has environment of deep trust and Nedbank is deeply committed to a been at the core of our brand for some collaboration, and sets the tone at the top. prosperous and united SA. time, the establishment, in 2013, of our This, in my opinion, transcends the Long-term Goals for SA and our In this context I am encouraged that our executive management team and accompanying Fair Share 2030 strategy democracy continues to mature as we ultimately to all the people in the group. represent our concerted and committed make space for more voices to be heard in The engagement between the Nedbank our country. The past few months in SA response to doing what needs to be done. have seen an increase in social and Our commitment to a prosperous society political tensions, and the banking industry and a thriving banking sector also extends You may be interested in: has certainly not been spared. Issues beyond the borders of SA. Our vision is around racism, inequality, education, not only to build a thriving bank that is Reflections from our Chief Executive access to financial services and the admired on the African continent, but to 14–17 economy have been at the centre of these be a force for good and social and sometimes volatile discussions. economic cohesion. The volatility of Reflections from our Chief Financial Officer Increasingly, companies are being called to exchange rates and commodity prices and 44–55 account for their position on these issues. the impact of a challenging global macro

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 73 Reflections From our Chairman (continued)

board and the group’s leadership is robust commodity prices, currency and designed to deliver value through volatility and a regulatory landscape strategic guidance, oversight and that is still evolving. We have a good accountability. working relationship with the Board focus areas during the year ‘Banks play a crucial Chairman and new Chief included strategy development, risk Executive (CE) of ETI and continue management and regulatory change; role in the financial to make a meaningful contribution board skills, succession planning and and economic through our seat on the board. management changes; our investments in ■■ BBBEE schemes: During 2015 the the rest of Africa; the successful ecosystem of nations conclusion of a number of SA broad- and the world.’ Nedbank Eyethu Share Scheme, our based black economic empowerment BBBEE transaction, matured. The (BBBEE) schemes; the evolving overall transaction created value in relationship with our parent company excess of R8bn for all of Nedbank Old Mutual plc and collaboration with our Group’s SA BBBEE stakeholders, sister companies Old Mutual Emerging driven by Nedbank’s strong financial Markets and Mutual & Federal: performance over the past 10 years. ■■ Strategy development: Through sufficient professional and industry The more than 500 000 regular strategic engagements knowledge, strengthened during the beneficiaries included black business between the board and executive year by adding skills in respect of partners, employees, non-executive management, progress on delivering financial services, the rest of Africa directors, clients and community the group’s strategy was monitored and auditing, through the interest groups affiliated to Nedbank. and existing strategies challenged appointment of Bruce Hemphill, While the transaction has matured, and refined to adjust to a changing Stanley Subramoney and me. Our the relationships with our partners environment. Long-term targets up board now has a majority of continue. The parties have agreed to to 2020 were set, providing guidance independent non-executive directors make a R100m financial contribution and stretched targets. We are (56%; 2014: 44%) and consists of 16 confident that the path chosen by and to commit resources to regional members comprising nine empowerment and development Nedbank is appropriate, yet independent non-executive directors, aspirational, to ensure we progress objectives that are aligned with the four non-executive directors and National Development Plan. towards our vision of being Africa’s three executive directors. Importantly, most admired bank. Malcolm Wyman, our senior ■■ Old Mutual relationship: Nedbank has ■■ Risk management and regulatory independent director, has also over recent years been a key changes: In 2015 the group assumed the chairmanship of the contributor to the financial completed a comprehensive refresh Directors’ Affairs and the Related- performance of our parent company, of the Enterprisewide Risk Party Transactions Committees. Management Framework to respond Old Mutual plc. Working closer to new and emerging risks and ■■ Progress in the rest of Africa: The together across the group continues ensure best practice and alignment group made significant strides in to be a key focus of the various with the extensive regulatory expanding into the rest of Africa in boards and management teams. developments. Delivery of Nedbank’s 2014 and 2015. This brings new As a board, we are in full support of anti-money-laundering (AML) risks, but also new opportunities. In value that can be unlocked for remedial programme and monitoring September 2015 we held our board shareholders while ensuring that it of risks emerging from a slowdown in meeting in Accra, Ghana, where we makes commercial sense for the economy and commodity price toured the operations of key clients, Nedbank and that minority pressures were top of mind and visited the branches and operations shareholder rights are protected received considerable board attention. of Ecobank and had good – an issue raised consistently during engagements with our Ecobank our governance roadshows. Our ■■ Board and management changes: counterparts. We are fortunate that Related-party Transactions During 2014 and into 2015, Nedbank Group implemented various changes the Nedbank board has increased its Committee has oversight of these to its board and management teams, skills and experience across the collaboration activities and consists all supported by well-thought- African continent to help navigate only of independent non-executive through succession planning and this environment. There is strong directors. The appointment of Bruce recruitment processes. Uncertainty alignment between the board and Hemphill as CE of Old Mutual plc is around the extent and potential the broader leadership collective; we welcomed for his experience and impact of changes was raised by are building a strong and expertise in banking, insurance and some shareholders during our competitive presence on the African asset management. governance roadshow in April 2015. continent – in partnership with On reflection, our succession Ecobank Transnational planning and handovers were Incorporated (ETI) in Central and A sound investment seamless and injected new insight West Africa and under the Nedbank The share performance of Nedbank in and energy into our businesses. brand in the SADC and East Africa. 2015 reflected a decline of 24% in 2015, I believe the Nedbank board has a I took note of some shareholders’ compared with the banking index that strong level of independence and concerns around Nedbank’s lack of declined by 16%. This has been control in ETI where we have a 20% disappointing, but is also reflective of the higher cost of equity (COE) expectations Further reading: investment, however, we believe our and the expected impact of a tougher approach to be capital-efficient and macroeconomic environment on return on 2015 Governance and Ethics Review, risk-mitigated, especially in an capital. I believe Nedbank is in its available as a supplementary report at uncertain environment nedbankgroup.co.za. strongest position ever to weather current characterised by depressed macroeconomic and regulatory challenges.

Nedbank Group – Integrated Report 2015 74 ENSURING sustainable VALUE CREATION The investment case for Nedbank Group and secure banking system. This is not environment to ensure a secure banking remains attractive. The group’s price-to- something we should take for granted and ecosystem for our clients. We will also book ratio of 1,2 times is now close to the we must continue to work tirelessly to continue to focus on growing our low levels achieved during the global maintain this global confidence in our transactional banking franchise in SA and financial crisis and the dividend yield is financial services systems and structures. on the rest of the African continent, and attractive. The underlying fundamentals It was encouraging to hear the President being uncompromising about adding value remain attractive for long-term investors. comment on this in his recent State of the for all our stakeholders. This is discussed in more detail on Nation Address. pages 134 and 135, but I highlight a few: We can only do this successfully with Nedbank is well positioned to weather excellent people and, on behalf of the ■■ Nedbank Group embraces worldclass the current economic storms and help our board, I would like to thank all our governance principles and practices clients, stakeholders, and country to do the employees, our CE, Mike Brown, and the that are underpinned by an same. Making this positive difference is Group Executive Committee (Group Exco) independent and diverse board where, I believe, we need to be focusing and all our partners for their considerable striving to ensure value creation in a much of our attention in the coming years. efforts in the past year. sustainable manner for all stakeholders. We must leverage our position of strength Graham Dempster (executive director) ■■ We have a wholesale-biased business in the SA banking industry to help bring reached the retirement age of 60 during model that differentiates Nedbank about the positive economic and social 2015. Graham has been a Nedbank Group from its peer banks, and change that our country and continent stalwart over many years and made a huge positions us well in a tougher macro needs. To achieve this we need to engage difference to the group, firstly managing environment for consumers. with like-minded stakeholders in both the Nedbank Corporate and later as Chief ■■ private and public sectors, to drive Operating Officer, developing our alliance We will continue to leverage our with Ecobank. We wish him all the best market-leading wholesale and wealth economic transformation and inclusive going forward. businesses, while continuing to invest growth for the benefit of all, and to move in growing our retail franchise and to towards a more balanced economy as we Julian Roberts stepped down as a non- participate sensibly in the long-term embrace the fourth industrial revolution. executive director following his retirement growth opportunities in the rest of On 11 March 2016, Old Mutual announced from Old Mutual plc. We appreciate his Africa. its new strategy which seeks to realise independent thinking and knowledge of ■■ Our key strategic focus areas are long term value for its shareholders and the key strategic drivers of the global appropriate for the expected other stakeholders by separating its four financial services industry, and wish him a environment and should continue businesses – Old Mutual Emerging healthy and fulfilled retirement. to drive sustainable growth. These Markets, Nedbank Group, Old Mutual include client-centred innovation, Paul Hanratty, Chief Operating Officer Wealth and Old Mutual Asset of Old Mutual plc, has also stepped growing the transactional banking Management. This strategy is referred to franchise, strategic portfolio tilt, down as a non-executive director on by Old Mutual as the Old Mutual 12 March 2016. Paul’s unique understanding optimise and invest, and building a Managed Separation. This is expected to pan-African banking network. of both the group’s business and the entail, inter alia, Old Mutual over time industry will be missed and we wish him ■■ The group is operating within a reducing its approximate 54% interest in well in all of his future endeavours. clearly defined and prudent risk Nedbank Group to an appropriate strategic appetite, underpinned by a strong minority position to underpin the Dr Reuel Khoza, Mustaq Enus-Brey and balance sheet. Our common-equity continuing commercial relationship Gloria Serobe reached the end of their tier 1 (CET1) ratio at 11,3% is well between OMEM and Nedbank Group. Old nine-year terms as non-executive above regulatory minima and our Mutual currently envisages reducing its directors, and stepped down from the liquidity position is strong. shareholding in Nedbank Group primarily board in May 2015, in line with the board ■■ Nedbank is widely known for its by way of a distribution of Nedbank Group policy and principles of good governance. unique culture and focus on its people shares to the shareholders of Old Mutual I would like to convey my appreciation to – a key factor that enables better in an orderly manner, at an appropriate these boardmembers. outcomes for clients and ultimately time and does not intend to sell any part of I would like to express sincere gratitude to value for shareholders. its shareholding to a new strategic our previous Chairman, Dr Reuel Khoza, ■■ investor. For Nedbank it’s business as Lastly, I believe we have one of the for handing over an incredibly stable ship usual and Old Mutual’s decision will have best management teams in banking with exciting growth potential. His ethical no impact on the strategy, day to day on the continent, ably led by Mike leadership legacy holds many lessons for management or operations of Nedbank. Brown, and we are encouraged that my role as Chairman and the vision we many of our shareholders share have for Nedbank, the financial services this view. We are working closely together to determine the most effective method and industry and our continent. appropriate timing to effect the Old I will conclude with a recent quotation Looking forward Mutual Managed Separation, in a way that from Nedbank Group’s ex-Chairman, There can be no denying that the SA safeguards the stability and integrity of Dr Reuel Khoza: ‘In Africa we say a person economy is bracing itself for a somewhat both Nedbank Group and the South is a person because of other people, and stormy time ahead and international African financial services sector. Old nowhere is this more apt than in the ratings agencies will be scrutinising Mutual expects that the process will be relationship between leader and followers. developments closely. But we are not materially completed by the end of 2018. Mutual dependence is the ethic of African alone. All indicators point towards slow Nedbank Group shareholders and humanism, or ubuntu. In its strongest and fragile global economic growth, which stakeholders will – on a regular basis – be formulation it asserts that my very being certainly won’t be eased for emerging kept appropriately informed of further derives from yours, and yours from all of markets by the anticipated gradual developments in this regard. ours. This is expressed in the Zulu proverb: tightening interest rate cycle in the USA umuntu ngumuntu ngabantu (I am because and the slower and changing nature of you are; you are because we are). growth in China. Conditions for emerging Appreciation markets, particularly those that are It has been a year of good progress – In fulfilling our vision of being Africa’s commodity exporters and those reliant on strategically, operationally and financially. most admired bank, this is the Nedbank foreign portfolio flows, are likely to remain we want to build and I am looking forward difficult for longer. There is, however, no room for to the journey. complacency and in such rapidly changing SA’s financial industry is still firmly within markets we continue to focus our energies Vassi Naidoo the top global rankings thanks to its robust on navigating the risk and regulatory Chairman

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 75 COMMITTED TO GOOD GOVERNANCE

For Nedbank, corporate governance means more than a set of frameworks, principles, policies and rules. It means abiding by principles and structures that enable us to facilitate and foster good relationships between the board, shareholders, stakeholders and employees. We facilitate collaboration between our clients and their business partners. Good corporate governance is our vehicle to business integrity, successful business relationships and value for our stakeholders.

GOVERNANCE PHILOSOPHY The application of best banking practices Engaging with enables us to act in our clients’ best stakeholders on interest and in our country’s welfare. Our robust institutional frameworks also governance allow us to provide secure and stable There are various mechanisms banking services in countries where we in place which enable us to operate across the African continent. adhere to the high standards We inspire trust and confidence when we of good governance: implement processes that prohibit syndicates from laundering money through our clients’ accounts. Governance within Nedbank Group implies far more than compliance with relevant legislation and best practice principles. Rather, it involves a deep- rooted culture of accountability, The board and board Ongoing transparency, respect, efficiency, ethical committees evaluation thought and action, and a values-driven approach to everything we do. As banking laws become more rigorous and onerous, banks are expected to be able to adapt to regulatory changes in a very short space of time. This means that good governance practices in Nedbank need to be deeply entrenched providing us with the flexibility to proactively respond to this regulatory tsunami. Governance in Nedbank Group incorporates a culture committed to Leadership through sound processes and procedures, which Our approach to ethics and human goes beyond legal compliance and compliance ensures sustainability long after a law rights and its iterations have been implemented. We are constantly reviewing our practices to ensure that we apply what is fair and right for our regulators, stakeholders and clients.

Nedbank Group – Integrated Report 2015 76 ENSURING sustainable VALUE CREATION THE BOARD AND BOARD COMMITTEES The Nedbank Group board provides entrepreneurial leadership and vision to Independent the group to enhance shareholder value creation can take place within a non-executive framework of prudent and effective directors controls, which enables risk to be assessed and managed to ensure long- term sustainable development and growth. The board has ultimate 56% accountability and responsibility for the performance and affairs of the company and is responsible for ensuring the group adheres to high standards of ethical behaviour. The role of committees Board committees are tasked with BOARD ATTENDANCE providing oversight and guidance. Refer to page 4 of our 2015 Governance 2015 2014 and Ethics Review, available as a supplementray report at Number of meetings No % No % nedbankgroup.co.za, for details regarding the board committees. David Adomakoh 8 100 8 100 Board continuity programme Tom Boardman 8 100 10 100 The group’s board continuity Mike Brown 8 100 9 90 programme addresses the skills, experience and other qualities required Brian Dames 8 100 4 80 for the effective functioning of the Nedbank Group board. It also sets out Graham Dempster 2 100 9 90 the processes relevant to the selection Mustaq Enus-Brey 2 100 9 90 and appointment of directors, the induction and ongoing training of Ian Gladman 8 100 10 100 directors, the evaluation of directors’ Paul Hanratty 7 88 4 100 performance, and directors’ succession planning. Bruce Hemphill 1 100 Board focus areas in 2015 Reuel Khoza 2 100 10 100 ■■ Strategic oversight of the Group in Mpho Makwana 7 88 8 80 a deteriorating macroeconomic environment with an escalating Mantsika Matooane 8 100 6 100 regulatory agenda. Nomavuso Mnxasana 8 100 10 100 ■■ Growing the transactional banking franchise and associated Raisibe Morathi 8 100 10 100 transactional deposit base. Vassi Naidoo 6 100 ■■ Expansion into the Rest of Africa, and in particular the strategic Joel Netshitenzhe 8 100 8 80 alliance and 20% investment in ETI. Mfundo Nkuhlu 8 100 ■■ Board and Group Exco succession planning. Julian Roberts 7 100 9 90 ■■ Relationships and collaboration Gloria Serobe 2 100 8 80 with the Old Mutual plc Group. Stanley Subramoney 2 100 ■■ AML Remediation Programme following the fine received in 2014. Malcolm Wyman 8 100 9 90 ■■ Stress testing.

BOARD OF DIRECTORS - SKILLS AND EXPERTISE

Banking (executive experience) HR/strategic planning/stakeholder management 10 6

Accounting, auditing Economics/public policy/macro policy 9 5

Financial services, insurance, asset management Mining and resources/infrastructure 8 2

Large corporate/industrial IT/innovation 8 1

Doing business in Africa/India/Africa expansion 7

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 77 COMMITTED TO GOOD GOVERNANCE (continued)

Board composition NEDBANK OVERALL BOARD EFFECTIVENESS DASHBOARD At 31 December 2015 the Nedbank ASSESSMENT RESULTS FOR 2015 Group board comprised as follows: (%)

Overall 89 BOARD COMPOSITION Board and responsibilities of directors (%) 85

Board relationships 90 19 Board meetings 25 90

Committees of the board 95

Executive directors Independent Non-executive directors Key areas of feedback Non-independent non-executive directors Board committee responsibilities ONGOING EVALUATION Relationships and and their role in interactions between Nedbank Group board and enhancing overall board committee evaluations the board, the Group board effectiveness, The Group Directors’ Affairs Committee is Exco and other key as well as short responsible for this function. In 2015 its stakeholders. board evaluation methodology was evaluations per reviewed to align to Old Mutual plc and committee. best survey techniques, with emphasis placed on areas previously identified for improvement in prior self-evaluations. This resulted in a new board questionnaire that is concise and streamlined, allowing Board role and the for quantification and tracking of key responsibilities of measures, while providing richness to the qualitative feedback. directors in terms Efficient and of composition, adequate meeting The 2015 survey measured the effectiveness of the Nedbank Group monitoring, administration board and its board committees during governance and to enable November and December 2015. compliance, decisionmaking. Responses were based on a five-point Likert agreement scale, reported as a including evaluation percentage agreement. Feedback was of the chair. received on the following four key areas: The board and its committees are operating effectively. The boardmembers are in agreement that there are areas of development, such as:

■■ A greater understanding of new banking regulations in Africa, banking in Africa and associated risk, future of technology in banking and the bank’s role in economic transformation in the country. This will be addressed in 2016 in various board and committee sessions. ■■ Ongoing recruitment of members with banking experience.

Nedbank Group – Integrated Report 2015 78 ENSURING sustainable VALUE CREATION NEDBANK BOARD COMMITTEES EFFECTIVENESS ASSESSMENT RESULTS FOR 2015 (%)

Group Audit Committee (n=4) 89

Group Transformation, Social and Ethics Committee (n=3) 84

Group IT Committee (n=4) 87

Group Risk and Capital Management Committee (n=6) 89

Group Remuneration Committee (n=3) 81

Group Directors' Aairs Committee (n=6) 92

Group Credit Committee (n=6) 96

Themes arising from 2015 evaluations

Shareholder Skills relationships and expertise

Subsidiary board evaluations Nedbank Group conducts the annual board evaluation for each of the five subsidiaries. For 2015 it was concluded that all the boards are performing effectively. Visible corporate The results of the evaluations were governance considered when identifying new talent for the boards during the process of standardising the subsidiaries in terms of composition and size.

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 79 COMMITTED TO GOOD GOVERNANCE (continued)

ENGAGING WITH Topics of discussion SHAREHOLDERS ON GOVERNANCE Key issues raised Our response and action Through our engagement we gain a Leadership Shareholders were Nedbank’s smooth succession deeper understanding of investor needs changes concerned about the loss process and depth of and expectations relating to governance of key members of our leadership, as all appointments and strategic matters, which contributes executive team in 2014 and since the roadshow were to the multiple factors that inform our 2015. Specifically the internal, addressed these strategy and how we manage the bank. movements to Old Mutual concerns. The new executives were raised and whether have engaged with investors on Nedbank Group’s second governance this was a trend and what numerous occasions and roadshow in April 2015 was hosted by the potential impact of this feedback has been positive. Dr Reuel Khoza (our past Chairman), would be on Nedbank’s The handover of the various Malcolm Wyman (Lead Independent business. portfolios have been seamless Director) and Vassi Naidoo (Chairman) and we have continued to see and provided an opportunity to introduce good progress made on our Vassi. Our governance road show strategy, with the added benefit provides a forum for the group’s board to of a fresh pair of eyes making engage with minority shareholders and positive enhancements to both strengthen key relationships. The overall strategy and the execution response from shareholders was that thereof. Appointments were in accordance with our existing Nedbank Group is highly regarded for its succession plans and bench approach to governance. strength. The following key issues were consistently raised at all meetings and accounted for the majority of discussion Old Mutual The appointment of a new The Nedbank board is time: Leadership changes, Old Mutual relationship Old Mutual Chief Executive confident of the processes put relationship, Ecobank influence and the and Officer raised questions in in place to protect minority targets in the Nedbank long-term minority the minds of investors around shareholders, the use of an incentive (LTI) share scheme. the potential implications for independent board committee shareholder Nedbank, particularly if there to resolve issues of conflict protection would be a change in working and the role of the lead relationship, strategy and independent director to structure. Minority ensure independent shareholders are concerned decisionmaking and minority about the potential impact on shareholder protection. them.

Ecobank Questions were asked about The board is satisfied that influence Nedbank’s ability to exercise Nedbank Group’s 20% strategic influence in ownership in ETI is adequate Ecobank and manage risks in given macroeconomic and the absence of a controlling regulatory risks and costs in shareholder interest (> 50% Africa. In addition, Nedbank ownership), along with the continues to build a strong The feedback from our minority potential implications of relationship with our strategic shareholders is extremely valuable to us Qatar National Bank as a partner through our board and we discuss this extensively in our large shareholder in ETI with representation, strategic and board deliberations. We will continue to deep pockets. technical banking alliance and build on our previous engagements with joint working group on deal minority shareholders and look forward to origination in the rest of Africa. good conversations again at our 2016 governance road show. Long-term The relevance of the FINI 15 The matter continues to incentive index as an appropriate receive attention from the scheme measure for our LTI scheme Remuneration Committee has been questioned. The (Group Remco). The existing concern is that the structure will apply for the constituents of the FINI 15, awards made in 2016, in addition to banks, also following a review and represent insurance, decision in this regard by the property and investment Remco. holding companies, which may perform vastly different Should any changes be More information on: than the banks, resulting in contemplated in the future, the LTI not accurately the appropriate engagement Long-term incentive schemes reflecting the bank’s relative process with shareholders will 127 and 128 performance. be followed.

Nedbank Group – Integrated Report 2015 80 ENSURING sustainable VALUE CREATION OUR APPROACH TO Nedbank subsidiary Area of future focus COMPLIANCE Our board-approved Nedbank risk Nedbank Lesotho The principles not applied relate mainly to integrated appetite policy is founded on a zero- reporting disclosures, which they were implemented tolerance approach to compliance risk. yet. This policy mandates compliance with all regulatory requirements and monitors Nedbank Malawi Greater focus needs to be placed on integrated and measures such compliance through reporting disclosure, including the governing of the Group Directors’ Affairs Committee stakeholder relationships. (DAC), a board committee established in Nedbank Namibia The principles relating to integrated reporting terms of the Banks Act, 94 of 1990. disclosure and stakeholder engagement were not Compliance with King III fully applied. We endeavour at all times to apply the MBCA (Zimbabwe) Greater focus needs to be placed on integrated principles of King III in such a way that all reporting disclosure. requirements are met. During the period under review, the board indicated that it Nedbank Swaziland An integrated report is not prepared, and the was satisfied with the way in which the processes around stakeholder relationship with group applied the recommendations of management needs refinement. King III, or put alternative measures in place where necessary. There are 75 governance principles within King III that apply to our business. Instance of non-compliance with King III To assess compliance we use the identified during 2015 Remediation Governance Assessment Instrument (GAI) as developed by the Institute of The Nedbank Group Chairman, Vassi The position of Lead Independent Directors (IOD). This tool has provided Naidoo, is not independent as defined by Director (LID) was created in 2007 us with guidance to implement the governance codes as he serves on the and is currently held by Malcolm the governance principles and board of the group’s parent company, Old Wyman. recommendations as required by King III. Mutual plc.

African subsidiary compliance Non-executive directors are paid a fixed Non-executive directors are King III is applied in all the group retainer fee per year, rather than a fee for accountable for decisions made operations, which include our African attendance at meetings. regardless of attendance at meetings. subsidiaries such as Lesotho, Swaziland, Non-executive directors are also Namibia, Malawi and Zimbabwe. All five required, as a matter of course, to subsidiaries performed a self- represent stakeholders and to make assessment on their corporate the necessary preparations for governance processes using the GAI. meetings and other engagements. The self-assessment was conducted by The Nedbank Group Remco is the Company Secretary in four of the satisfied that the fee structure subsidiaries, and by the Head of applied in respect of non-executive Governance and Compliance in MBCA. directors remains appropriate.

Internal audit Group Internal Audit forms part of the ERMF as a third line of defence. Its purpose is to provide independent and objective assurance to the board that the following were adequate and effective in mitigating the most significant risks that threaten the achievement of the group’s objective:

■■ Governance processes ■■ Management of risk ■■ Systems of internal control

Further reading:

2015 King III Principles, available as a supplementary report at nedbankgroup.co.za.

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 81 COMMITTED TO GOOD GOVERNANCE (continued)

LEADERSHIP THROUGH being a member of the United Nations Global Compact (UNGC) and the ETHICS AND HUMAN principle of sharing information and best RIGHTS practice with other businesses and ‘It is unwise to be too sure of one’s own stakeholders. wisdom. It is healthy to be reminded that Nedbank Group is a member of, or a the strongest might weaken and the signatory to: wisest might err.’ – Mahatma Gandhi ■■ The UNGC As corporate governance scandals ■■ The Ethics Institute of South Africa continued to emerge globally during 2015, ■ the lack of ethical leadership was ■ The Organisation for Economic identified in all instances as a contributing Cooperation and Development factor in business failure. Therefore, we (OECD) decided that we need a new focus on Appointment of ethics officers ethical leadership to continue with our good governance and responsible in all business clusters business drive. By the end of the year, the majority of established ethics officers completed the Governance of ethics first half of the Ethics Officer Internship The board assumes ultimate supported by EthicsSA. responsibility for the company’s ethic’s Ethical awareness is driven in terms of performance, but delegates this function the following dimensions of our to executive management, who utilises corporate culture: the following frameworks to fulfil this mandate:

■■ Ethics and Corporate Accountability Framework ■■ The Ethics Panel Enabling stakeholder ■■ Board Ethics Statement engagement ■■ Code of Ethics ■■ Code of Conduct ■■ Suppliers Code of Conduct Promoting ethics ■■ Independent assurance of high risk/ among: value tenders ■■ Nedbank Group Ethics Progamme in African subsidiaries African subsidiary Our staff implementation Because expansion into the rest of Africa is a key component of our strategy and vision, our Ethics Office has implemented the full Our suppliers Nedbank Group ethics programme within our African subsidiaries. Business ethics officers have been appointed in all subsidiaries and they are in the process of You may be interested in: finalising the Ethics Officer Accreditation Programme through EthicsSA as well as Our clients Reflections from our Chairman the Nedbank Ethics Officer Internship. 72–75 We believe that we cannot be a successful business operating in a failing Delivering value through a environment, and as a corporate citizen commitment to our communities we have a responsibility to uplift business and the environment in SA. This thinking is also in line with 69–71

Measurement of ethics

Ethics Risk Assessment (ERA) The ethics risks identified by the ERA are included in the annual Nedbank Nedbank Ethics Indicator (NEI) Staff Survey to monitor improvement, or lack thereof, in terms of the ethics We use a variety of indicators, surveys and tools to ensure dimensions. that ethical conduct across our group and its subsidiaries remains at the highest possible standard.

Nedbank Group – Integrated Report 2015 82 ENSURING sustainable VALUE CREATION Stakeholder engagement on Promoting ethics among our ethics suppliers Ethical culture is enhanced by the ability of Nedbank employs the Ethics stakeholders to engage with us regarding Responsibility Index (ERI) as a tool to their ethical concerns. We have continually assess ethics and governance implemented a variety of internal and external mechanisms for reporting actual and human rights aspects of our vendors or suspected unethical or unlawful and suppliers. In 2015 the ERI was behaviour and matters related to enhanced with a number of ethics and organisational integrity: human rights questions.

■■ the anonymous tipoff hotline; Achievements in 2015: ■■ the ’Talk to the Ethics Office‘ email ■■ Identification of three high-risk facility; tender processes arising from ■■ the Nedbank Group Risk Reporting assessments done on more than Line; and 45 vendors. ■■ direct reporting to the Ethics Office. ■■ Introductory training provided to 5 200 SME clients. Promoting ethics among our ■■ Significant ethics awareness hours of training to staff creation at our Vendor Indaba Mechanisms used: staff on ethics sessions, particularly around issues and human rights ■■ Awareness training – As part of its regarding giving and receiving of ongoing efforts to raise awareness of gifts, human rights in business, 2014: 4 500 hours the importance of human rights and conflicts of interests and the the need for ethical behaviour the reporting of unethical behaviour. Ethics Office provided awareness training to more than 2 600 Promoting ethics among our staffmembers (translating into clients 5 200 training hours) across our group Offering our business clients, particularly in 2015. There has been a notable those operating SME’s, relevant support increase in queries and reports to the is vital to the sustainability of our supply Ethics Office by staff as a direct result chain and the creation of a robust and Average completion of of this awareness training. sustainable SA economy. policies in 2015 ■■ Acknowledgement of policies – Staff are In 2015 the Ethics Office continued with a required to acknowledge all ethics- series of training and governance products related policies and pledges. These as part of our client value proposition include Code of Conduct, Code of 93,7% within our Retail Relationship Banking Ethics, declaration of secrecy and 2014: 94,5% (RRB) and Business Banking areas. outside interests. Acknowledgements for these policies are all above 90%. Our electronic ethics, governance and compliance (EGC) management COMMITTED TO system is integral to our ethics UPHOLDING HUMAN awareness and education efforts RIGHTS among staffmembers. These declarations and acknowledgements Nedbank embraces and upholds the are monitored by business protection of human rights as enshrined ethics officers. in the SA Constitution and the Bill of Rights. We also adhere to the 10 In alignment with the Global Reporting principles of the UNGC and have shown Initiative (GRI) requirements we have significant progress in implementing the undertaken a series of ethics and human requirements of the John Ruggie Report, rights awareness and protection initiatives. which was commissioned by the UNGC. Within the organisation human rights are tackled at these levels:

■■ governance of human rights in business; ■■ human rights screening; and Further reading: ■■ investing in human rights. In 2015 there were 77 (2014: 102) 2015 Pillar 3 Risk and Capital Management incidents of misconduct relating to Report, available as a supplementary report at human rights. In 2016 we will be nedbankgroup.co.za. externally assuring this number to ensure alignment between the ethics office and 2015 Governance and Ethics Review, human resources (HR) and system- available as a supplementary report at nedbankgroup.co.za. related statistics.

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 83 ESTABLISHED AND ADMIRED LEADERSHIP TEAMS BOARD OF DIRECTORS The Nedbank Group board of directors is comprised of three executive directors and 13 non-executive directors, nine of whom are independent.

Vassi Naidoo 61 Non-executive Chairman Mike Brian Brown 49 Dames 50 Chief Executive 56% Independent Non- South African Independent executive Director BCom, DipAcc, directors South African CA(SA), CD(SA), (9 members) BSc(Hons), MBA AMP (Harvard) Expertise in energy Expertise in banking and resources. and financial Large-corporate and services. industrial experience, doing business in Africa.

South African Tom CA(SA), ACA and PMD (Harvard) Boardman 66 Expertise in auditing and financial services. Independent Non- Experience in doing business in Africa and executive Director India, and large corporate experience. South African BCom, CA(SA) Expertise in banking BOARD DEMOGRAPHICS and auditing. Large-corporate David experience. Ian Adomakoh 50 Gladman 51 3 4 Independent Non- Non-executive executive Director Director Ghanaian British BSc (Econs)(Hons) BA(Hons) History (London School of (Christ’s College, Economics), Diplôme de Cambridge) 3 Langue et de Civilisation Expertise in banking 6 (La Sorbonne, Université and financial de Paris) services. Expertise in investment Experience in banking. 19% strategy White male Experience in doing Executive directors development and ACI male business in Africa, (3 members) corporate finance. ACI female banking and Non-SA economics.

ACI refers to African, Coloured and Indian in a SA context.

Nedbank Group – Integrated Report 2015 84 ENSURING sustainable VALUE CREATION NON-EXECUTIVE DIRECTORS’ TENURE REMAINING (Yrs)

6 Mpho Joel Makwana 45 Netshitenzhe 59 4 Independent Non- Independent Non- executive Director executive Director South African South African 2 BAdmin(Hons) MSc in Financial Expertise in HR Economics (University of 0 1-3 4-6 7-9 marketing, London – SOAS, UK) communications Expertise in economics, Paul and strategic public policy, Hanratty 54 planning, communications and Non-executive Banking, resources strategic planning. Director and large corporate Public sector, strategic Irish and industrial research and large BBusSci(Hons), experience. corporate experience. Fellow of the Institute of Actuaries Expertise in insurance and Nomavuso Stanley accounting. Mnxasana 59 Subramoney 57 Financial services Independent Non- Independent Non- experience. executive Director executive Director South African South African Resigned as a non- executive director on BCompt(Hons), BCompt(Hons), 12 March 2016. CA(SA) CA(SA) Expertise in Expertise in accounting and accounting, auditing auditing. and expansion into Banking experience. Africa. 81% Economic and social development and Non-executive directors large-corporate experience. (13 members)

Mantsika Mfundo Matooane 40 Nkuhlu 49 Independent Non- Chief Operating executive Director Officer South African South African MBA (Henley BA(Hons), Strategic Business School, UK), Management in PhD in Computer Banking (INSEAD), Science (University of AMP (Harvard) Bruce Cambridge, UK) Raisibe Expertise in banking, Malcolm Hemphill 52 Expertise in IT and Morathi 46 accounting, strategic Wyman 69 Non-executive innovation. Chief Financial planning and Senior Independent Director Banking experience. Officer economics. Non-executive South African South African Expansion into Director BA, CPE BCompt(Hons), Africa experience. British Expertise in CA(SA), HDip Tax, CA(SA), AMP insurance and AMP (INSEAD) (Harvard) investment banking. Expertise in banking Expertise in Financial services and accounting. accounting, financial experience. Insurance and services and large-corporate 44% strategic planning. experience. Non-independent Large-corporate and directors expansion into Africa experience. (7 members)

Nedbank Group – Integrated Report 2015 ENSURING sustainable VALUE CREATION 85 ESTABLISHED AND ADMIRED LEADERSHIP TEAMS (continued)

GROUP EXECUTIVE COMMITTEE

The Nedbank Group Executive Committee is comprised of the Chief Executive, Chief Operating Officer, Chief Financial Officer and 12 other members of senior management.

Brian Kennedy 55 Managing Executive: Nedbank Corporate  and Investment 13,3% Banking Black female Mike Brown 49 Chief Executive

Philip Wessels 57* Iolanda Managing Executive: Ruggiero 45 CLIENT- Retail and Business Managing FACING Banking Executive: CLUSTERS Nedbank Wealth

Ciko Thomas 46 ** Sandile Managing Executive: Shabalala 49 Consumer Banking Managing Executive:

Business Banking * Retired, effective 31 March 2016. ** Appointed Managing Executive: Retail and Business Banking, effective 1 April 2016.

Nedbank Group – Integrated Report 2015 86 ENSURING VALUE CREATION Trevor Adams 53 Chief Risk Officer

Mfundo Raisibe Nkuhlu 49 Morathi 46 Chief Operating Chief Financial CENTRAL Officer Officer CLUSTERS

Thabani Jali 57 Average tenure Group Executive: Enterprise  Governance and 53,3% 13,8 Compliance; Group Black years Company Secretary

Fred Mike Davis 44 Swanepoel52 Group Executive: Chief Information Balance Sheet Officer Management

Abe Thebyane 55 Thulani Priya Naidoo 42 Combined Group Executive: Sibeko 44 Group Executive: Group Human Group Executive: Strategy and 165 Resources Group Marketing, Economics Communications years’ service and Corporate Affairs

Black management membership of the Group Exco increased from 46,67% in 2014 to 53,33% in 2015, and female membership increased from 6,67% in 2014 to 20% in 2015.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 87 REPORTS FROM OUR DIRECTORS, COMPANY SECRETARY AND AUDITORS

DIRECTORS’ REPORT for the year ended 31 December 2015

NATURE OF BUSINESS its impacts. The integrated report has been prepared in line with best practice Nedbank Group Ltd (‘Nedbank Group’ or pursuant to the recommendations of the ‘the company’) is a registered bank- King III Code (principle 9.1). controlling company that, through its subsidiaries, provides a wide range of banking and financial services. Nedbank YEAR UNDER REVIEW Group maintains a primary listing under The year under review is fully covered in ‘Banks’ on JSE Ltd (‘the JSE’), with a Reflections from our Chairman on secondary listing on the Namibian Stock pages 72 to 75, Reflections from our Exchange. Chief Executive on pages 14 to 17, the Grow our Transactional Franchise section on pages 30 and 31, and Reflections from ANNUAL FINANCIAL our Chief Financial Officer on pages 44 STATEMENTS to 55. Details of the financial results are set out in our five year track record on page 53, which have been prepared under the SHARE CAPITAL supervision of the Nedbank Group Chief Details of the authorised and issued Financial Officer (CFO), Raisibe Morathi, share capital, together with details of and audited in compliance with the South shares issued during the year, appear African Institute of Chartered in note 29 to the annual financial Accountants (SAICA) Financial statements available at Reporting Guides as issued by the nedbankgroup.co.za. Accounting Practices Committee, and the requirements of the Companies Act, 71 of 2008 (as amended) and the JSE AMERICAN DEPOSITARY Listings Requirements. SHARES At 31 December 2015 Nedbank Group INTEGRATED REPORT had 2 738 658 (31 December 2014: 2 710 700) American depositary shares The board of directors acknowledges its in issue, through the Bank of New York responsibility to ensure the integrity of Mellon as depositary, and trading on the this integrated report. The board has over-the-counter (OTC) markets in the accordingly applied its mind to this US. Each American depositary share is integrated report and in the opinion of equal to one ordinary share. the board the integrated report addresses all material issues, and presents fairly the integrated performance of the organisation and

Nedbank Group – Integrated Report 2015 88 ENSURING VALUE CREATION OWNERSHIP DIRECTORS ■■ Paul Hanratty resigned as a non- executive director on 12 March 2016. The holding company of Nedbank Group Biographical details of the current is Old Mutual Life Assurance Company directors appear on pages 84 and 85. In terms of Nedbank Group’s (SA) Ltd and associates, which holds Details of directors’ and prescribed memorandum of incorporation, one-third of the directors are required to retire at 54,11% of the issued ordinary shares of officers’ remuneration and Nedbank each Nedbank Group annual general the company. The ultimate holding Group shares issued to directors and meeting (AGM) and may offer themselves company is Old Mutual plc, incorporated prescribed officers appear on pages 22 to for election or reelection. The rotating in England and Wales. Further details of 27 of the 2015 Remuneration Report, directors are firstly those directors shareholders appear on pages 145 and available at nedbankgroup.co.za. 146 of the annual financial statements appointed since the last shareholders’ available at nedbankgroup.co.za. During the period under review, and also meeting, and thereafter those longest in subsequent to year-end, the following office since their last election. changes occurred to the Nedbank Group Stanley Subramoney and Bruce Hemphill Ltd Board: DIVIDENDS were appointed by the board of directors The following dividends were declared in ■■ Mfundo Nkuhlu was appointed as subsequent to the AGM held on 11 May respect of the year ended 31 December an executive director and Chief 2015 and in terms of the memorandum of 2015: Operating Officer on 1 January 2015; incorporation their appointments ■ terminate at the close of the AGM to be ■ Interim ordinary dividend of ■■ Vassi Naidoo was appointed as held on 5 May 2016. They are available for 537 cents per share non-executive director on 1 May 2015 election. (2014: 460 cents per share) and Chairman on 11 May 2015; ■■ Final ordinary dividend of ■■ Reuel Khoza, Mustaq Enus-Brey and David Adomakoh, Ian Gladman and 570 cents per share Gloria Serobe retired as non- Malcolm Wyman are also required to seek (2014: 568 cents per share) executive directors on 11 May 2015, reelection at the AGM. The having been on the board for nine aforementioned directors make years in a non-executive capacity; themselves available for reelection and BORROWINGS separate resolutions will be submitted for ■■ Graham Dempster retired as an Nedbank Group’s borrowing powers are approval at the AGM to be held on executive director on 11 May 2015, unlimited pursuant to the company’s 5 May 2016. memorandum of incorporation. The having reached retirement age; details of borrowings appear in note 34 ■■ Stanley Subramoney was appointed In terms of Nedbank Group policy, non- to the annual financial statements as an independent non-executive executive directors and independent available at nedbankgroup.co.za. director on 23 September 2015; non-executive directors of Nedbank Group who have served on the board for a period ■■ Julian Roberts stepped down as a longer than nine years are required to non‑executive director on retire from the board. None of the current 31 October 2015; non-executive directors and independent ■■ Bruce Hemphill was appointed as non-executive directors of Nedbank Group a non-executive director on have served on the board in that capacity 25 November 2015; and for more than nine years.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 89 REPORTS FROM OUR DIRECTORS, COMPANY SECRETARY AND AUDITORS (continued)

Directors (continued) Directors’ interests The directors’ interests in ordinary Details of the members of the board who served during the year and at the reporting shares in Nedbank Group and non- date are given below: redeemable, non-cumulative preference shares in Nedbank Ltd at 31 December 2015 (and any movements therein up to the reporting Date resigned/ Position as date) are set out online in the full Date appointed retired as director supplementary 2015 Remuneration Name director as director (where applicable) Report. The directors had no interest in any third party or company responsible DKT Independent non- 21 February 2014 for managing any of the business Adomakoh executive director activities of the group. Banking (Ghanaian) transactions with directors are entered into in the normal course of business TA Boardman Independent non- 1 November 2002 under terms that are no more executive director (1 March 2010 as favourable than those arranged with non-executive, third parties. 1 January 2014 as independent non- executive) GROUP Audit MWT Brown Chief Executive 17 June 2004 committee and BA Dames Independent non- 30 June 2014 group executive director transformation, GW Dempster Executive director 5 August 2009 11 May 2015 social and ethics committee reports MA Enus-Brey Non-executive director 16 August 2005 11 May 2015 The Group Audit Committee Report ID Gladman Non-executive director 7 June 2012 appears on pages 96 to 98 and the Group Transformation, Social and PB Hanratty Non-executive director 8 August 2014 12 March 2016 Ethics Committee Report appears on (Irish) pages 94 and 95.

JB Hemphill Non-executive director 25 November 2015 Company secretary RJ Khoza Chairman and non- 16 August 2005 11 May 2015 executive director and registered office PM Makwana Independent non- 17 November 2011 As part of the annual board evaluation executive director process, the board of directors has conducted an assessment of the MA Matooane Independent non- 15 May 2014 Company Secretary. The results were executive director discussed by the board of directors on 26 February 2016 and the board is NP Mnxasana Independent non- 1 October 2008 satisfied that Mr Jali is suitably executive director competent, qualified and experienced and has adequately and effectively RK Morathi Chief Financial Officer 1 September 2009 performed the role and duties of a and executive director company secretary. Mr Jali has direct access to, and ongoing communication JK Netshitenzhe Independent non- 5 August 2010 with, the Chairman of the board and executive director the Chairman and the Company Secretary meet regularly through the MC Nkuhlu Chief Operating 1 January 2015 Officer and executive year. Mr Jali is not a director of the director company and the board is satisfied that, as far as is reasonably possible, V Naidoo Chairman and non- 1 May 2015 an arm’s length relationship between executive director the Company Secretary and the board is intact. JVF Roberts Non-executive director 1 December 2009 31 October 2015 Details of Mr Jali’s qualifications and (British) experience are set out online in the Notice of the Annual General Meeting GT Serobe Non-executive director 16 August 2005 11 May 2015 and Summarised Financial Statements. S Subramoney Independent non- 23 September 2015 The addresses of the Company executive director Secretary and the registered office are as follows: MI Wyman Senior independent 1 August 2009 (British) director

Nedbank Group – Integrated Report 2015 90 ENSURING VALUE CREATION Business address Nedbank Group are encapsulated in a Specific issue of ■ contract. ■ Nedbank Group Ltd shares for cash Nedbank 135 Rivonia Campus, Service contracts have been entered into 135 Rivonia Road, for Mike Brown, Mfundo Nkuhlu and As part of the process of terminating Sandown, Sandton, 2196, SA Raisibe Morathi. These service contracts components of Nedbank Group’s SA Registered address are effective until the executive directors BBBEE transaction introduced in 2015, a Nedbank issued 738 207 Nedbank Group ■■ 135 Rivonia Road, Sandown reach the normal retirement age and shares for cash to the Nedbank Eyethu Sandton, 2196, SA stipulate a maximum notice period of six Community Trust at a price of R239,77 Postal address months (12 months for Mr Brown) under most circumstances. per share, amounting to a value of ■■ Nedbank Group Ltd R176 999 892,39. PO Box 1144, Johannesburg Details relating to the service contracts 2000, SA of prescribed officers are incorporated in the full online supplementary 2015 Events after the Remuneration Report. Property and reporting period equipment In line with the subscription agreement, Nedbank will subscribe for shares in There was no material change in the Insurance African Bank Holdings Ltd for R10,2m on nature of the fixed assets of Nedbank The group has placed cover in the 11 March 2016 and for an additional Group or its subsidiaries or in the policy London insurance market for up to R399,8m on 30 March 2016, regarding their use during the year. R3,5bn for losses in excess of R50m. Our group captive insurer provides cover for representing a 4,1% holding in African total losses below the R50m-level Bank Holdings Ltd. This aligns with Political donations engagement point, retaining R100m, in Nedbank’s commitment under the any one year. Selected insurance covers provisions of this agreement. Nedbank Group has an established policy of are placed with the Old Mutual Group. not making donations to any political party. On 11 March 2016, Old Mutual announced its new strategy which seeks to realise long term value for its shareholders and Contracts and Subsidiary companies other stakeholders by separating its four Details of principal subsidiary companies businesses – Old Mutual Emerging matters in which are reflected on pages 133 to 135 of the Markets, Nedbank Group, Old Mutual directors and officers annual financial statements at Wealth and Old Mutual Asset nedbankgroup.co.za. Management – from each other. This of the company have strategy is referred to as the Old Mutual an interest Managed Separation. No contracts in which directors and officers Acquisition of shares The Old Mutual Managed Separation, is of the company had an interest and that As part of the process of terminating expected to result in Old Mutual over time significantly affected the affairs or business components of Nedbank Group’s SA reducing its approximately 54% interest in of the company or any of its subsidiaries BBBEE transaction introduced in 2005, Nedbank Group to an appropriate strategic were entered into during the year. on 2 March 2015 Nedbank Group minority position to underpin the repurchased 8 916 159 shares from the continuing commercial relationship Joel Netshitenzhe is an executive director Brimstone-Mtha Financial Services Trust, between OMEM and Nedbank Group. Old of the Mapungubwe Institute for Strategic the WIPHOLD Financial Services Mutual currently envisages reducing its Reflection (Mistra). In 2014 Mistra Number Two Trust, the Nedbank shareholding in Nedbank Group primarily received a grant of R1m Custodial Retail Trust (formerly the by way of a distribution of Nedbank Group (2013: R2m) from the Nedbank Eyethu Nedbank Eyethu Retail Trust) and the Community Trust (formed in 2005 as shares to the shareholders of Old Mutual in Nedbank Eyethu Community Trust at an an orderly manner and at an appropriate part of Nedbank Group’s BBBEE average price of R0,92 per share. The time in the context of the Old Mutual transaction). The Nedbank Eyethu Specific Repurchase represented 1,79% Managed Separation and does not intend Community Trust provides funding to of shares then in issue and the shares charitable or non–profit organisations were subsequently delisted and to sell any part of its shareholding in that qualify. The grant to Mistra was reinstated as authorised, but unissued Nedbank Group to a new strategic investor. evaluated against the normal criteria for shares. In terms of the JSE Ltd (‘the JSE’) The boards of directors and management funding by the trust. No grant was Listings Requirements and section 48 of teams of Old Mutual and Nedbank Group received by Mistra in 2015. the Companies Act, 71 of 2008 (as are working closely together to determine amended) (‘the Companies Act’), the the most effective method and appropriate Specific Repurchase was approved by timing to effect the Old Mutual Managed shareholders at the general meetings of Directors’ and Separation, in a way that safeguards the Nedbank Group held on 22 July 2005 stability and integrity of both Nedbank prescribed officers’ and 13 May 2008 respectively and Group and the South African financial service contracts ratified on 3 May 2013. Full details are set out in the SENS announcement dated services sector. Old Mutual expects that There are no service contracts with the 23 February 2015. the Old Mutual Managed Separation will directors of the company, other than for be materially completed by the end of the chairman and executive directors as No shares in Nedbank Group were 2018. Nedbank Group shareholders and set out below. The directors who entered acquired by Nedbank Group or by a stakeholders will – on a regular basis – be into these service contracts remain Nedbank Group subsidiary during the kept appropriately informed of further subject to retirement by rotation in terms financial year under review in terms of developments in this regard. of Nedbank Group’s memorandum of the general authority previously granted incorporation. by shareholders. Members will be The directors are not aware of any other requested to renew the general authority material events that have occurred The key responsibilities relating to enabling the company or a subsidiary of between the reporting date and Vassi Naidoo’s position as Chairman of the company to repurchase shares. 11 March 2016.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 91 REPORTS FROM OUR DIRECTORS, COMPANY SECRETARY AND AUDITORS (continued)

RESPONSIBILITY OF OUR DIRECTORS

The directors are responsible for the preparation and fair presentation of the The directors are consolidated and separate financial statements of Nedbank Group Ltd (comprising the responsible for the statements of financial position at 31 December 2015, the statements of comprehensive income, the statements of changes in equity and statements of cashflows for the year preparation and fair then ended), the segmental reporting and the notes to the financial statements presentation of the (including a summary of significant accounting policies and other explanatory notes) in accordance with International Financial Reporting Standards as issued by the summarised annual International Accounting Standards Board, the SAICA Financial Reporting Guides as financial statements issued by the Accounting Practices Committee, the requirements of the Companies Act, 71 of 2008 (as amended), and the JSE Listings Requirements. In addition, the on page 53, which directors are responsible for the preparation of the directors’ report. are derived from the The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material Nedbank Group Ltd misstatement, whether due to fraud or error, and for maintaining adequate accounting consolidated annual records and an effective system of risk management, as well as the preparation of the financial statements for supplementary schedules included in these financial statements. The directors have made an assessment of the group’s and company’s ability to the year ended continue as going concerns and there is no reason to believe that the group and 31 December 2015. company will not be going concerns in the year ahead. The Independent auditors are responsible for reporting on whether the consolidated and separate financial statements are fairly presented in accordance with IFRS.

Approval of consolidated and separate financial statements The consolidated and separate financial statements of Nedbank Group Ltd, as identified in the first paragraph, were approved by the Nedbank Group Ltd Board of Directors on 1 March 2016 and are signed on its behalf by:

V Naidoo MWT Brown Chairman Chief Executive

Sandown 1 March 2016

CERTIFICATION FROM OUR COMPANY SECRETARY

In terms of section 88(2)(e) of the Companies Act, 71 of 2008 (as amended), I certify that, to the best of my knowledge and belief, Nedbank Group Ltd has filed with the Commissioner all such returns and notices as are required by the Companies Act, 71 of 2008 (as amended), and that all such returns and notices are true, correct and up to date.

TSB Jali Company Secretary

Sandown 1 March 2016

Nedbank Group – Integrated Report 2015 92 ENSURING VALUE CREATION review and approval from the group audit committee

The Group Audit Committee (GAC) reviewed and discussed the audited annual financial statements with the Chief Financial Officer, the Chief Executive, the Chief Risk report from Officer, Internal Audit and the external auditors. The GAC assessed, and found to be effective and appropriate, the financial reporting process and controls that led to the our compilation of the annual financial statements as well as the presentation and disclosure in the annual financial statements with regard to the approved accounting independent policies, International Financial Reporting Standards and the requirements for fair presentation of the Companies Act, 71 of 2008 (as amended). auditors The GAC reviewed and discussed the integrated report’s reporting process, governance and financial information included in the integrated report after considering recommendations received from the Group Transformation, Social and Ethics Committee, the Group Remuneration Committee, the Group Risk and Capital Auditors’ report on Management Committee and the Group Directors’ Affairs Committee. consolidated The GAC recommended to the board that the annual financial statements and the financial statements financial information included in the integrated report be approved. The board Deloitte & Touche and KPMG Inc, subsequently approved the annual financial statements and the integrated report, Nedbank Group Ltd’s independent which will be open for discussion at the forthcoming annual general meeting. auditors, have audited the consolidated financial statements and specified sections of the 2015 Remuneration Malcolm Wyman Report of Nedbank Group Ltd from Group Audit Committee Chair which management prepared the summarised consolidated financial 1 March 2016 results. The auditors have not expressed an opinion on the 5-year track record on page 53. The auditors have expressed an unmodified audit opinion on the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act, 71 of 2008 (as amended). The consolidated financial statements and the auditors’ report thereon are available for inspection at the registered office of Nedbank Group Ltd.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 93 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS

REPORT FROM GROUP Composition and attendance TRANSFORMATION, DKT Adomakoh 3/3 SOCIAL AND ETHICS PB Hanratty 2/4 PM Makwana 4/4 COMMITTEE CHAIR NP Mnxasana (Chair) 3/3 GT Serobe1 1/2

1 Resigned from the committee on 11 May 2015.

COMPOSITION AND PURPOSE PERTINENT Matters In support of the material matters of scarce skills and transformation of society ADDRESSED IN 2015 within planetary boundaries, we have been mandated to advise, oversee and During 2015 the committee considered a monitor Nedbank Group’s activities with regard to social and economic 5-to-10-year view of transformation development, ethics, transformation, sustainability, corporate citizenship, within the context of the socioeconomic environmental, health and public safety, stakeholder relationships, labour and landscape overlaid by the group’s employment matters. The committee endeavours to comply with recommended strategic positioning. The following four practices as outlined in King III in executing its mandate. This is facilitated by way possible scenarios were developed based of quarterly meetings followed by a submission of a report to the board of on the level of social cohesion directors after each meeting. (considering social capital, social The composition of the Group Transformation, Social and Ethics Committee inclusion and social mobility) and the (GTSEC) complies with the requirements the Companies Act, 71 of 2008 economic climate [considering gross (as amended). The committee comprises four non-executive directors. Other domestic product (GDP), prime rate and attendees of meetings include subject matter experts on each of the disciplines consumer price index (CPI) inflation)]: or areas falling within the mandate of the committee specified in regulation 43(5) of the Companies Act. High level of social cohesion

MOMENTUM CONNECTION (social inclusion) (regional integration) Nomavuso Mnxasana Negative 20% 10% Positive CHAIR economic economic climate INERTIA SEGREGATION climate (fragmentation) (entitlement) 30% 40%

Low level of social cohesion

■■ INERTIA (characterised by negative economic climate and low level of social cohesion) ■■ SEGREGATION (characterised by positive economic climate and low level of social cohesion) ■■ MOMENTUM (characterised by negative economic climate Related material matters and high level of social cohesion) ■■ CONNECTION (characterised by positive economic climate and high level of social cohesion)

Nedbank Group – Integrated Report 2015 94 ENSURING VALUE CREATION Some key considerations to arrive at the government, business and communities Challenges four scenarios, included: to bring about real and lasting economic ■■ The more stringent BBBEE legislative transformation to create a better life for 1 The more stringent BBBEE legislative environment. all South Africans. environment. ■■ Requirements of the National 2 Requirements of the National The committee also continued Development Plans, for example 90% financial inclusion by 2030. Development Plan, for example monitoring achievement of its 90% financial inclusion by 2030. transformation strategy, focusing on ■■ The triple challenge of poverty, unemployment and inequality. 3 The triple challenge of poverty, regulatory developments pertinent to its functions: ■■ unemployment and inequality. The national skills shortage. 4 The national skills shortage. ■■ Reviewed the transformation ■■ Low GDP growth and high inflation. 5 Low GDP growth and high inflation. strategy and monitored ■■ Low level of social cohesion. achievement against identified On 10 February business leaders targets to deliver on our presented President Jacob Zuma with an transformation commitments and FOCUS FOR 2016 AND eight-point plan that they believe will the committee is satisfied with the BEYOND help prevent SA from a damaging level of transformation achieved sovereign ratings downgrade to junk within the group, its target-setting The committee will: ■ status and long-term decline. The plan methodology and the fact that the ■ monitor developments in the was drawn up by the country’s top CEOs demographic composition of the implementation of Fair Share 2030 Nedbank Group Exco was regarded and Nedbank’s strategic response to under the leadership of Old Mutual its Long-term Goals for a thriving SA; CEO in charge of emerging markets, as best in class, relative to peer banks. ■■ focus on the group’s transformation Ralph Mupita, and Nedbank Group CE agenda, including the impact of and ■ Mike Brown. It includes concrete ■ Monitored regulatory developments building a culture of inclusion; relating to the BBBEE Act and measures such as overdelivery on fiscal ■■ focus on the impact of the realigned consolidation; more effective Financial Sector Codes (FSCs). At FSC, with the emphasis on the management of state-owned enterprises 31 December 2015 the group priority elements of ownership, skills by appointing, for example, private sector achieved a level 2 score (97,34). development and supplier professionals to their boards; accelerated ■■ Reviewed developments in the area of development; public–private partnerships; a review of ethics management within the group ■■ continuously evolve its monitoring legislative implementation to ensure and recommended the introduction of activities where necessary to enable effective fulfilment of its mandate; consistency and certainty; ensuring that a global benchmark standard, which ■ labour legislation contributes to inclusive called for the incorporation of ethics ■ continue to exercise board oversight of the implementation of the Treating growth, especially of the youth; and the into the performance and remuneration processes at all staff Customers Fairly (TCF) programme appointment of a standing anticorruption across all SA subsidiaries of Nedbank committee to combat graft in both the levels and an increased focus on awareness and training. Group; public and private sectors. ■■ monitor how best practice regarding ■■ Monitored progress against the The plan includes a commitment by ethics management is implemented integrated sustainability strategy in the group, resulting from ongoing business to support government in the and the group’s efforts to maintain research on international standards tough actions needed to tackle its fiscal carbon neutrality. and collaboration with relevant challenges and unite behind a cohesive ■■ Monitored progress of the scaleup stakeholders, such as EthicsSA; narrative and plan, thereby enabling us to of Fair Share 2030, the bank’s ■■ monitor the further implementation move from inertia to connection and strategic business response to of the UNGC Guiding Principles mitigating against segregation. We will Nedbank’s Long-term Goals for a regarding human rights in business continue to monitor key flags, including thriving SA. (See page 10 for more and due diligence on products/ the SA GDP growth rate, prime rate, services, and advise on reporting detail in this regard.) according to the GRI principles; and inflation rate, level of social unrest, level ■■ Monitored activities relating to ■■ of skills, unemployment rate and the monitor the development of an ethics socioeconomic development key performance area for outcome of the next election to mention (including external skills performance appraisal and a few, while deepening our engagement development), access to finance, remuneration purposes. with government and labour as we lending to enable healthcare, acknowledge that the current challenges housing and education, enterprise Risks/Opportunities we face require meeting of the minds and development, community ■■ The Ethics Office has advised that greater collaboration by all. upliftment, economic empowerment the development of an ethics key and preferential procurement. performance area and inclusion Although Nedbank has achieved industry thereof for performance appraisals ■■ leadership according to the BBBEE codes, Sustained the transformation legacy and remuneration purposes will be and maintained strategic we are also aware that stricter legislation problematic and, as such, alternative partnerships with our black business solutions will be investigated. will lead to an industry rebasing, with partners beyond our BEE deal, with ■■ lower BBBEE levels projected going With stricter BEE codes, there are reference to monitoring of agreed opportunities to emerge as industry forward. We remain committed to doing legacy projects. The committee leaders at the forefront of our share, not only to address this commissioned the compilation of a transformation, while noting the socioeconomic imbalance directly business school case study detailing risk of not achieving the same level through our own transformation efforts the legacy of the Nedbank BBBEE of status as enjoyed under the old by focusing on the priority elements and transaction, which took into account regime. our culture of inclusion, but also by using the lessons learnt, and the views NP Mnxasana our influence and financial and non- and opinions of all parties involved Group Transformation, Social and Ethics financial resources to work with in the transaction. Committee Chair

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 95 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS (continued)

REPORT FROM GROUP AUDIT COMMITTEE CHAIR

‘The audit committee has an essential Composition role to play in ensuring the integrity and and attendance transparency of corporate reporting and TA Boardman 6/6 provides key links between management, the PM Makwana 6/6 NP Mnxasana 6/6 board and external audit. The committee is MI Wyman (Chair) 6/6 able to focus on the key issues facing the organisation and oversee management’s financial reporting controls and processes’ through the review of significant accounting PERTINENT MATTERS and reporting issues and recent professional ADDRESSED IN 2015 Internal control and regulatory pronouncement.’ The committee is responsible for reviewing the effectiveness of systems for internal control, financial reporting and risk management, and considering the major findings of any internal investigations into control weaknesses, COMPOSITION AND PURPOSE fraud or misconduct, and The GAC assists the board in fulfiling its oversight responsibilities, in particular management’s response thereto. with regard to evaluation of the adequacy and efficiency of accounting policies, internal controls and financial and corporate reporting processes. In addition the The GAC receives regular reports GAC assesses the effectiveness of the internal auditors and the independence and provided as part the ERMF to assist in effectiveness of the external auditors. evaluating the group’s internal controls. The ERMF places emphasis The committee is chaired by Malcolm Wyman and has five members, all of whom on accountability, responsibility, are independent non-executive directors. On independence, reporting, 25 November 2015 Stanley Subramoney joined the communication and transparency, committee as a fifth member and underwent a both internally and in respect of all detailed induction programme, which included Nedbank’s key external stakeholders. briefings on matters relevant to the Significant areas of focus within the responsibilities of the committee and reports include the following: meetings with the Chief Financial Officer. ■ The committee met six times during ■ identifying and managing material the year, including the annual risks within the group and meeting with the Bank Supervision changes to these risk profiles Department of the South African during the year; Reserve Bank (SARB). ■■ creating and maintaining an effective internal control environment throughout the group; Malcolm Wyman ■■ demonstrating the necessary Chair respect for the control environment; and ■■ identifying and correcting weaknesses in systems and internal controls. The GAC receives regular reports from the Group Information Technology Committee regarding the monitoring of the adequacy and effectiveness of the group’s Related material matters information system controls and from the Group Credit Committee (GCC) regarding its oversight of the adequacy and

Nedbank Group – Integrated Report 2015 96 ENSURING VALUE CREATION effectiveness of the credit monitoring appropriateness of the expertise and processes and systems. experience of the CFO in terms of the JSE Listings Requirements. The GAC receives regular reports on issues in the group’s key issues control The GAC considered the following log from the Chief Risk Officer (CRO) and significant issues and key areas of regular reports regarding governance management judgement applied in the and compliance matters (including the preparation of the financial statements in Companies Act and Banks Act) from the the current year: Chief Governance and Compliance ■■ Fair value of financial instruments Officer. – The GAC reviewed and discussed Having considered, analysed, reviewed reports from the CFO regarding the and debated information provided by Investment Committee review of management and Internal Audit and the investment valuations and details external auditors, the GAC considered of critical valuation judgements that the internal controls of the group applied to the valuation of group had been effective in all material aspects treasury and trading instruments. throughout the year under review. ■■ Credit risk provisions – The GAC reviewed and challenged reports Financial reporting process from the GCC regarding the level The GAC received regular reports from and appropriateness of the CFO regarding the financial impairments, provisioning performance of the group, the tracking methodologies and related key and monitoring of key performance judgements in determining the indicators, details of budgets, forecasts, impairment balances, and satisfied long-term plans and capital expenditures, itself as to the level of impairments. financial reporting controls and ■■ Taxation-related matters – The GAC processes, and the adequacy and reviewed reports from the CFO reliability of management information regarding the tax computation and, used during the financial reporting Update on key focus areas where applicable, the judgements in 2015 process. made in determining tax accrual and The new SAP enterprise resource the deferred tax balance. The GAC reviewed and approved the planning (ERP) system went live early accounting policies of the group as ■■ Impairment considerations for in 2015, impacting the entire financial reported in the annual financial goodwill, intangible assets and accounting control environment. The statements, monitoring the consistency associate investments – The GAC GAC monitored the implementation of of application and compliance with reviewed reports from the CFO the project and received regular updates accounting standards. The GAC also regarding the annual goodwill from the CFO on its progress. The project reviewed and approved the related group impairment assessment, the was delivered within the timetable and policies (Finance and Accounting Risk consideration of impairment applied with all material controls operating Policy, Taxation Policy and Regulatory to certain intangible assets, and effectively. Reporting Policy). The GAC further related assumptions and assessed and confirmed the judgements as well as the International Financial Reporting appropriateness of the going-concern consideration of the indicators of Standard (IFRS 9) received much assumption used in the annual financial impairment for associate attention this year as the planning and statements, taking into account investments. pilot phases of the project were launched. The project is being managed management budgets and the capital ■■ Investments in associates – In 2015 jointly between Group Finance and and the liquidity profiles. Nedbank held the ETI investment for Group Risk, and the GAC satisified itself the full financial year and reported The GAC also: that significant progress is being made, its related associate earnings with the next stage of collaboration and ■■ received a summary of the key estimate. The GAC considered development being the focus for 2016. technical accounting matters from management’s accounting the CFO for consideration as well as treatment for the estimate of the Regulatory reporting process a summary of critical accounting earnings from ETI, the assessment The GAC reviewed the adequacy of the judgements and estimates made of impairment indicators and the regulatory reporting processes as during the financial reporting resulting impairment assessment. required by the Banks Act of SA, which process; The external auditors are preparing for includes evaluation of the quality of ■■ received input where there have the changes in requirements to auditors’ reporting, the adequacy of systems and been substantive discussions reporting of key audit matters in their processes, and consideration of any between management and the report and have actively engaged with findings regarding regulatory reports by external auditors; and the GAC. The report aims to provide the external auditors. The GAC also information that allows users of the ■■ discussed all key areas of judgement hosts an annual trilateral meeting with with management and the external financial statements to understand how representatives of the Bank Supervision auditors. the external auditors have considered Department of SARB where, among and evaluated the significant matters other things, key external audit findings, The GAC satisfied itself as to the identified during the course of their audit. internal audit matters and reporting expertise, resources and experience of This will be implemented in the auditors’ responsibilities in terms of the the finance function, as well as the report on the 2016 financial statements. regulations are discussed.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 97 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS (continued)

Internal Audit The GAC is of the view that the group Internal Audit performs an independent continues to receive an efficient, effective assurance function and forms part of the and independent audit service and third line of defence as set out in the recommended to the board the ERMF in the integrated report. The Chief reappointment of the external auditors Internal Auditor (CIA) has a functional for 2016. reporting line to the committee chair and As part of the assessment of the external an operational reporting line to the CE. auditors’ independence, the committee The GAC, with respect to its evaluation reviewed and approved the Non-audit of the adequacy and effectiveness of Services Policy, which governs the types internal controls, receives reports from of service that can be performed by the the CIA, assesses the effectiveness of the auditors, as well as the value and scope group internal audit function and reviews of the non-audit services provided by the and approves the annual Group Internal auditors. Only those non-audit services Audit plan. In particular the GAC: that do not affect their independence and entail skills and experience that ■ ■ ensured that the CIA has a direct make them the most appropriate reporting line to the chair of suppliers were approved during the the GAC; period. ■■ reviewed and recommended the During the 2015 financial year it was Internal Audit Charter for approval by the board of directors; identified that non-audit service assignments would result in significantly ■■ monitored the effectiveness of the higher non-audit fees compared with the internal audit function in terms of previous year. This was duly assessed by its scope, execution of its plan, the GAC taking into account the auditors’ coverage, independence, skills, involvement in the assignment, the staffing, overall performance and auditors’ expertise and that the programme position within the organisation; and is not part of the scope of the statutory or ■■ monitored and challenged, where regulatory audits. The GAC having appropriate, action taken by considered the impact on the auditors’ management with regard to adverse independence approved the assignment. internal audit findings. Annual financial statements External auditors and integrated reporting The GAC is responsible for the process appointment, compensation and The GAC reviewed and discussed the FOCUS FOR 2016 AND oversight of the external auditors for the audited annual financial statements with group, namely Deloitte & Touche and BEYOND the CFO, the CE, the CRO, Internal Audit KPMG Inc. The GAC has a well- Key areas of focus for the committee for and the external auditors. The GAC established policy on auditor 2016 include: assessed, and found to be effective and independence and audit effectiveness. appropriate, the financial reporting ■■ During the period the GAC: Review and consideration of process and controls that led to the management’s plans in respect of ■■ recommended to the board the compilation of the annual financial future changes to IFRS, most selection of the external auditors statements as well as the presentation notably: and the approval of their audit fees and disclosure in the annual financial for the year under review; statements with regard to the approved IFRS 9: Financial Instruments – significant progress was made ■■ approved the external auditors’ accounting policies, IFRS and the annual plan and related scope of requirements of the Companies Act for during 2015, with the focus for work, confirming suitable reliance fair presentation. 2016 on impairments and the development of models. on Group Internal Audit and the The GAC reviewed and discussed the appropriateness of key audit risks integrated report, reporting process and IFRS 15: Revenue Recognition identified; and governance and financial information – the effective date was ■■ monitored the effectiveness of the included in the integrated report after postponed to 1 January 2018; external auditors in terms of their audit considering recommendations from the this continues to be an area of quality, expertise and independence, GTSEC, Group Remco, The Group Risk emphasis for the coming year. and Capital Management Committee as well as the content and execution of ■■ Continued focus on ensuring that (GRCMC) and the Directors’ Affairs the audit plan. the group’s financial systems, Committee. A further annual review of the quality of processes and controls are the audit and the performance of the The GAC recommended to the board operating effectively, are consistent joint external auditors was undertaken that the annual financial statements and with the group’s complexity and are in 2015 through, among others, the financial information included in the responsive to changes in the questionnaires completed by key finance integrated report be approved. The board environment and industry. staff, Group Internal Audit members subsequently approved the annual central to the assessment process and financial statements and the MI Wyman members of the GAC. integrated report. Group Audit Committee Chair

Nedbank Group – Integrated Report 2015 98 ENSURING VALUE CREATION REPORT FROM Group Information Technology COMMITTEE CHAIR

COMPOSITION AND PURPOSE The primary focus of the committee is to review and approve Nedbank’s information Composition technology (IT) strategy and to ensure that there is good governance throughout the and attendance IT ecosystem by ensuring the effectiveness and efficiency of the group’s information TA Boardman 1/1 systems from a strategic alignment and risk perspective, as required by the Bank’s BA Dames 3/4 Act and in support of the requirements of the GAC. PM Makwana 4/4 I am delighted with the progress made in the bank’s Managed Evolution IT strategy M Matooane (Chair) 4/4 in 2015. The committee oversaw renewed commitment and focus on delivery. The JK Netshitenzhe 4/4 year started with significant achievement in delivery of the new SAP finance and procurement system that created a new platform for growth for the bank. The HR modules were rolled out successfully in November 2015. This initiative consolidated 43 systems into one ERP system for the bank. In support of growth in the rest of FOCUS FOR 2016 AND Africa, another key highlight has been the implementation of a new core banking platform in Namibia. After some stabilisation, the rollout for the other southern BEYOND African countries is now planned for 2016. During 2016 the committee will continue to execute its mandate and be focusing on the following topics: PERTINENT MATTERS ADDRESSED IN 2015 ■■ Mobile and digital technology for Cybersecurity was a huge consideration in 2015 and protecting our clients and workforce productivity and enhanced stakeholders remains a key priority. This is evidenced by elevation of cybersecurity client experience by showcasing how in the bank’s risk framework. Addressing threats from phishing, denial of service and and why the digital workplace other cyberthreats received significant investment and plenty of focus. contributes to increased employee productivity as well as enhances the Advanced analytics was a key theme for 2015 and led to new data programs. client experience. There will also be a The successful launch of MarketEdgetm shows Nedbank’s market leadership in focus on best-practice approaches to analytics for the benefit of clients. be leveraged on Nedbank’s journey to creating a great place to work for all Leveraging technology to win in financial services disintermediation led the Nedbankers, given its specific committee to consider the emerging Financial Technology (Fintech) innovations and circumstances. the potential impact on the bank. The Managed Evolution strategy will enable ■■ Nedbank to partner with Fintech innovators locally and internationally, and Investigating Fintechs’ How will Banks Successfully Counter explorations in this regard are in progress. Disintermediation and Business Digitising banking for transactional success was the fourth theme for the year. The Model Disruption. What will be Managed Evolution strategy successfully balances transforming core banking and explored is the manner in which developing digital platforms responsive to client needs. Blockchain technology is likely to Nedbank has received several awards for our mobile transform banking radically, if society banking app suite and other digital platforms. Our is ready for a radical change in what is focus in 2015 was to support the efforts of the offered to clients, how it is offered and who offers it from a financial executive team in transforming the client digital services perspective. experience and processes. ■■ Big data and advanced analytics, In addition to these technology themes, a key which are key to winning with consideration for the committee in 2015 was the enhanced client experiences by response to a regulatory tsunami and ensuring showcasing how banks can our data platforms will meet the highest proactively utilise big data and standards for compliance within tight advanced analytics to enhance the timeframes. An investment plan for client experience. Also important is to regulatory response was approved. look at banks across the world that have applied proactive big data and advanced analytics, and whose best-practice approaches could be M Matooane leveraged, given Nedbank’s specific Group Information Technology Chair circumstances. Leveraging technology to increase access to banking and financial services across Africa by showcasing why banks should penetrate, the African financial services market , and how banks, if any, have Related material matters successfully done so. Attention will also be given to which best-practice approaches could be leveraged in Nedbank’s specific circumstances.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 99 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS (continued)

REPORT FROM Group CREDIT Composition COMMITTEE CHAIR and attendance DKT Adomakoh 2/2 TA Boardman (Chair) 7/7 ‘The quality of the bank’s credit portfolio is sound and the level MWT Brown 7/7 of impairments are adequate and conservatively determined BA Dames 7/7 considering the challenging macroeconomic conditions. All clients GW Dempster1 1/3 are closely monitored through strong credit risk management to MA Enus-Brey1 3/3 cater for the impact of the volatile and deteriorated macroeconomic ID Gladman 7/7 environment on distressed industries.’ PB Hanratty 3/4 COMPOSITION AND PURPOSE RK Morathi 7/7 The GCC assists the board in fulfilling its credit risk oversight responsibilities, in particular MC Nkuhlu 5/7 with regard to evaluation of credit mandates and governance, policies and credit risk GT Serobe1 0/3 appetite. It is responsible for confirming the adequacy of credit provisions and ongoing S Subramoney 2/2 monitoring of the overall credit portfolio. 1 Retired in 2015. The GCC also acts as the designated committee appointed by the board to monitor, challenge and ultimately approve all material aspects of the group’s Advanced Internal Ratings-based credit risk system and processes. SARB requires that the GCC is chaired by a non-executive director. The current membership includes four non-executive FOCUS FOR 2016 AND directors and three executive directors. BEYOND During 2016 the committee will continue to PERTINENT MATTERS ADDRESSED IN 2015 execute its mandate and focus on the ■■ The adequacy of impairments to reflect the challenging macroeconomic environment, following key aspects: especially pressure on commodities and resources and related industry concentration ■■ Risk management of distressed risk. portfolios, key watchlist clients and ■■ IFRS 9 strategic blueprint and positioning for the forthcoming IFRS 9 implementation, industry-specific concentration risk. effective 1 January 2018. ■■ Monitoring of movements in ■■ In line with the group’s ERMF refresh, a comprehensive review of the Group Credit Risk impairments in the volatile Management Framework was completed. macroeconomic environment, to ensure ■■ Refresh of the credit risk governance framework relating to the credit policy, approval and their adequacy. monitoring, to support the new Corporate and Investment Banking and Retail and ■■ Prevalent regulatory change in context of Business Banking structures. the increase in regulation globally and the ■■ Concentration risk deep dives into, among others, the commercial real estate, resources impact thereof on the Nedbank credit risk (including oil, gas and commodities) and agricultural portfolios and continuous profile. monitoring of concentration risk in our portfolios. ■■ Continuous dynamic monitoring and ■■ Implementation of additional regulatory requirements: determining of credit risk appetite and The National Credit Act Amendment affordability assessment criteria. the impact thereof on origination The Department of Trade and Industry’s review of fees and strategies. interest rate limits on unsecured loans and the impact ■■ Preparations for implementation of on the retail lending book. IFRS 9. SARB directive 7/2015 dealing with distressed restructures. Accounts are now classified as in IFRS 9 (Impairments) default for six months after restructure. A key focus for 2016 is the implementation of IFRS 9 on 1 January 2018. The group is aiming to Challenges run in parallel from 1 January 2017 to ensure the The volatile, uncertain, complex and ambiguous accuracy of models and assessment of impact (VUCA) macroeconomic environment on the group’s impairments and strategy. During manifested in increased pressure on our clients, 2016 the strategic portfolio tilt impacts of the in particular in the commodities, agriculture, construction and resources industries. The implementation will be assessed and included in complex environment required additional the business plans going forward. deep dives and stress testing on our While compliance with IFRS 9 is key, the credit portfolios to confirm the group’s approach is to leverage the adequacy of impairment levels implementation to fundamentally enhance across the group portfolio. its credit risk measurement and management framework. Incorporating our Long-term Goals to develop our bank to contribute to a flourishing society requires a mind-set shift in lending practises. Incorporating Fair Share 2030 principles in our strategic portfolio tilt strategy we are able to Related material matters contribute positively to the environment and TA Boardman the communities we operate in, and provide a Group Credit Committee Chair sustainable business model that will allow this organisation to thrive.

Nedbank Group – Integrated Report 2015 100 ENSURING VALUE CREATION REPORT FROM Group risk and capital management COMMITTEE CHAIR

‘In 2015 we, under the new CRO, embarked on a new journey for risk at Nedbank, to elevate risk management to become a ‘competitive differentiator’ and we have made good progress. We started this journey from a solid base and risk culture and with a risk universe across Nedbank that has remained remarkably sound, albeit amid an ever-deteriorating, volatile, uncertain, complex and ambiguous macroeconomic environment.’

COMPOSITION AND ■■ Oversight of the group’s remediation and holistic PURPOSE programme addressing AML, The GRCMC has a monitoring and combating the financing of decisionmaking responsibility and is terrorism (CFT) and Sanctions; and considered the board’s expert monitors ■■ Oversight of the approximately of the risk universe as listed and R3bn Regulatory Change defined in Nedbank Group’s ERMF. Programme. A formalised charter defines the minimum requirements for the committee to give effect to its risk PERTINENT MATTERS oversight responsibilities. ADDRESSED IN 2015 Risks excluded from the committee’s The top 10 risks (as described on scope include accounting and taxation, pages 118 to 123) flowing from Nedbank’s IT, credit, compliance, corporate three-year business plan influenced the governance, people, transformation, pertinent topics addressed by the social and environmental risks, which committee throughout 2015. are covered by other board committees. A key component of the Group Risk Plan was to complete a comprehensive The committee is involved in various refresh of the ERMF in 2015 to respond key risk and capital management to new and emerging risks and ensure activities, which include: best practice and alignment with the ■■ Overseeing the development and extensive regulatory change implementation of a risk strategy developments. Strategic/Business alignment with the AML, CFT and Sanctions programme, and the Group Risk Plan to ensure The ERMF refresh took into account and other regulatory programmes were that the group and banking entities stakeholder needs and experiences; top of mind throughout the year. manage risks in an optimal significant regulatory change and manner; developments (eg Basel III, BCBS 239, A conduct risk project was initiated in RDAR&R/Enterprise Data Programme 2015 and a conduct risk framework is ■■ Approval of the Group’s risk (EDP), pending new Twin Peaks regulatory being formalised to underpin TCF appetite; structure for SA, Bank of International principles and ensure full integration ■■ Approving, reviewing and Settlements (BIS) paper on ‘Corporate into business processes. evaluating the adequacy and Governance Principles for Banks’ etc); as There has been a significant amount of efficiency of the risk policies, well as the evolving/emerging risk trends progress made with our new Regulatory procedures, practices and controls and external dynamics [eg financial crime, Change Programme Office (RCPO), cybercrime, AML, CFT and sanctions, applied in the day-to-day with work continuing on a number of conduct risk and TCF, etc]. The underlying management of business; longer-term programmes such as AML, theme of the refresh is alignment to ■■ CFT and Sanctions, IFRS9 and the EDP. Ensuring the bank establishes and Nedbank’s overarching strategic theme of In response to the BCBS 239 (RDAR&R) maintains an Internal Capital simplification. The revised risk universe is EDP will meet both regulatory Adequacy and Assessment Process illustrated on pages 116 and 117 of the requirements while creating improved (ICAAP); integrated report. business intelligence for enhanced ■■ Monitoring the adequacy of the Since the global financial crisis client centric data analytics. Each of asset and liability management regulation continues to fundamentally these initiatives has a strong strategic processes in the group, market change the shape of banking and element, as well as elements that trading risks, derivatives and financial services. Regulatory risk and should result in simplification of our investments; conduct risk have emerged for the systems and processes. The progress ■■ Maintaining a best-practice ERMF; foreseeable future as a key focus. made was strongly influenced by a Basel III is being phased in over several significant amount of collaboration years up to 2019 and the group is between the RCPO and stakeholders proactively managing and responding to across all client-facing and support regulation as a key strategy. clusters.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 101 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS (continued)

Challenges FOCUS FOR 2016 AND 20%, if these principles are Since the global financial crisis, the BEYOND adopted, which we believe is significant regulatory change agenda likely for the SA D-SiBs. In response to the current volatile and developments remain a core ■■ Capital floors and standardised macroeconomic environment, challenge, but also serve as an approaches, which are being management actions for the top 10 opportunity for Nedbank to elevate considered and will adversely risks have been clearly defined as the strategic risk management to best impact risk-weighted assets cornerstone of Nedbank’s 2016–2018 (RWA) levels. practice. Risk Plan, which has been prepared ■■ Significant expected changes on this basis of transforming risk regarding the quantification of management strategically across RWA, with finalisation expected Nedbank and differentiate it from in December 2016. A conceptual its competitors. framework setting out primary During 2016 the committee will and secondary indicators for continue to execute its mandate by identifying unconsolidated focusing on the following topics: entities where there are significant ‘step-in risk’ for The regulatory landscape will remain banks has been proposed top of mind for the banking industry and is to be finalised in and will continue to influence overall December 2016. bank strategy, balance sheet positioning, and capital and liquidity Capacity and adequacy of resourcing planning decisions. Regulation will have to successfully execute the Group’s a substantial impact on bank strategy strategy and the many large-scale and profitability mainly due to: programmes, including those related to regulatory change, will heighten ■■ Regulatory change programme the focus on execution risk as critical of approximately R3bn. to deliver on Nedbank’s strategy to ■■ Transitional liquidity coverage win in 2020. ratio (LCR) compliance with While there are no specific concerns effect from 1 January 2015 to in Nedbank, we have increased our 1 January 2019, which will dilute focus on financial crime risk banks margins and adversely management due to elevated impact the return on equity (ROE), unless frontbook pricing financial crime given the is adjusted upwards. deterioration of the macroeconomic environment. We will also continue ■■ Required net stable funding ratio our holistic approach to the (NSFR) compliance of 100% management of this risk with the from January 2018, which will formulation of a cybercrime risk reduce the ability of the bank to management programme, an transform short-dated liquidity integrated financial crime risk into long-dated lending and framework and frameworks on cyber- therefore dilute bank margins resilience, information security and and adversely impact ROE, AML, CFT and sanctions. unless frontbook pricing is adjusted upwards. A TCF market conduct programme aligned to the Twin Peaks and market ■■ An increase in the group’s capital levels, including an conduct regulatory developments is operating CET1 norm with a well underway within Nedbank. trajectory towards 12% in line A work stream model for each of the with international peer six TCF outcomes are tasked to comparatives transitional formalise conduct frameworks, regulatory minimum capital principles and management requirements. This includes information to demonstrate a phasing in of the capital TCF outcomes. conservation and countercyclical In line with the ERMF refresh, Group buffers, as well as bank-specific Risk commenced with a refresh of domestic systemically important Nedbank’s Risk Appetite Framework banks (D-SIBs) requirements. (RAF) in 2015, continuing into 2016. ■■ Total loss-absorbing capacity In support of the ERMF refresh, risk (TLAC) requirements, which will frameworks, policies and committees lead to an even higher Basel III will be refined and embedded as a requirement of TLAC of 16% to key deliverable.

Nedbank Group – Integrated Report 2015 102 ENSURING VALUE CREATION Following the investments into ETI and Composition Banco Único in 2014, (currently with a and attendance shareholding of 38,3% and a pathway to control in 2016 with an increase in TA Boardman (Chair) 4/4 1/1 our investment) and with the strong MWT Brown 5/5 1/1 emphasis on Rest of Africa as one of MA Enus-Brey 2/2 0/0 the group’s five key strategic focus ID Gladman 5/5 0/1 areas, there is a need to upgrade risk hoc Ad

NP Mnxasana Prescheduled 5/5 1/1 appetite for Nedbank’s operations JK Netshitenzhe 5/5 1/1 outside SA. MI Wyman 5/5 1/1 Opportunities/Risks

■■ Acknowledging the compliance imperative, it remains crucial to deliver a sustainable and effective compliant regulatory operating model, which is underpinned by a direct link to the strategic benefits of establishing a winning regulatory environment. ■■ Fundamentally, the business of banking is about managing risk. For Nedbank to achieve our 2020 aspirations and targets on a sustainable basis, given the ‘The significant regulatory change regulatory, VUCA and highly competitive environment, along agenda and developments remain a with technological advancement core challenge, but also serve as a and innovation, risk management must become a competitive strategic opportunity to leverage for differentiator for Nedbank. Nedbank.’ TA Boardman Group Risk and Capital Management Committee Chair

TOM BOARDMAN CHAIR

Related material matters

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 103 REPORTS FROM GROUP BOARD COMMITTEE CHAIRS (continued)

REPORT FROM GROUP Remuneration COMMITTEE CHAIR

Executive remuneration and the governance of remuneration in large corporations remained a feature of the corporate governance landscape in 2015. In addition, the issue Composition of income differentials and the steps necessary to address these continued to enjoy and attendance prominence in the local and international discourse. PM Makwana Income differentials are an important topic and Nedbank remains committed to ensuring (Chair) 5/5 2/2 that, where differentials exist, these are fair and defensible, based on objective criteria. NP Mnxasana 4/5 2/2 We will continue to monitor and address this critical issue. JVR Roberts 4/4 hoc Ad 2/2 Prescheduled Nedbank remains compliant with the relevant remuneration-related legislative and MI Wyman 5/5 2/2 regulatory requirements that apply in its operating jurisdictions, and with those set by the International Financial Stability Board. It is clear that these requirements will continue to evolve and we will remain focused on ensuring that our remuneration practices adapt to remain compliant. Similarly, we will continue enhancing the overall governance of our remuneration arrangements so that we remain appropriately aligned to international best practice. A key feature of our Remuneration Policy is pay for performance. In the context of Nedbank’s overall performance in 2015, and specifically the growth in headline earnings (HE) and economic profit (EP), which are detailed elsewhere in this integrated report, we have increased our short-term incentive (STI) pool by approximately 3% and have kept our LTI pool flat. The restricted shares issued under our LTI arrangements in 2013 vest in 2016 and the operation of corporate performance targets (CPTs) has resulted in 69,8% of the total of these awards vesting, with the remainder being forfeited. Based on feedback received from our shareholders, we have reviewed our LTI arrangements and several changes to our scheme rules are proposed for implementation in 2016. These relate to our ability to, where circumstances necessitate this, forfeit or claw back awards made, including those already vested. Details of these arrangements are set out online in our full 2015 Remuneration Report, and are also contained in our Notice of AGM for shareholder consideration and voting. In line with the above, we have also made changes to our Remuneration Policy so that we are able to forfeit or claw back deferred remuneration where this is deemed necessary. This is aligned with emerging international best practice in the management of deferred remuneration. The policy is set out in the detailed 2015 Remuneration Report, and is presented for a non-binding advisory vote at the 2016 AGM. We recommend that these changes, and the changes to the Nedbank 2005 Employee Share Incentive Scheme rules set out in the Notice of AGM, are approved by shareholders. Stakeholders will also notice that we have changed the structure of our 2015 Remuneration Report, following feedback that we have received. Included in this integrated report is a summarised Remuneration Report covering the key aspects of our Remuneration Policy and its implementation. We also include key disclosures in the summary. This is supplemented, for those requiring more detail, by a full online 2015 Remuneration Report, which can be accessed at nedbankgroup.co.za.

MPHO Makwana CHAIR

Nedbank Group – Integrated Report 2015 104 ENSURING VALUE CREATION Focus areas Actions taken in 2015

Launching an This work was dependent on the SAP Human Capital updated approach Management system, which was launched in Nedbank on to performance 1 November 2015. As part of this a new performance management management system was configured and is being launched for the 2016 performance management process.

Reviewing variable The appropriateness of the CPTs applicable to the pay arrangements Nedbank LTI arrangements was reviewed. This resulted in the Group Remco approving the retention of the current suite of performance conditions for awards to be made in FOCUS FOR 2016 AND 2016. We will, however, continue to engage with shareholders regarding the performance conditions, with a BEYOND view to possible amendments for 2017. During 2016 the Group Remco will focus on: We have also reviewed our LTI Scheme rules and have proposed amendments thereto for implementation in 1 the implementation of changes to 2016. These relate to our ability to, where circumstances the LTI arrangements related to necessitate this, forfeit or claw back awards made, malus and clawback; including those already vested. This will improve our 2 a review of our approach to the alignment with international best practice. remuneration of control function employees, notably those in risk, Focusing on fitness Our defined-contribution pension and provident schemes compliance, audit, finance and for purpose of our were migrated from standalone arrangements to the Old actuarial functions; employee benefits Mutual SuperFund arrangements. The SuperFund is an 3 the continuation of our refresh of umbrella retirement fund within which pension and performance management within provident subfunds have been established for Nedbank. Nedbank in support of the bank’s The management committee remains in control of key Winning in 2020 objectives, and functions (notably investment strategy and investment our revised culture initiatives choice oversight); however, greater economies of scale outlined on pages 8 to 9 of this were achieved in respect of administration, improving the integrated report; value for money for members. The move to the SuperFund arrangements, which took place following a full tender 4 the appropriateness and fitness for the purpose of our employee process, is also aligned with the trend in the retirement benefit arrangements, with funding environment of greater consolidation to reduce special focus on our defined- administration costs and optimise the amount of total benefit employee arrangements; contributions going directly to retirement savings. and Our defined-benefit pension arrangement remains a 5 possible revisions to certain CPTs standalone scheme, given certain challenges in an in 2017 following shareholder umbrella fund pertaining to defined-benefit schemes, consultation. within which the sponsoring employer retains ultimate accountability for the provision of pensions to members if The Group Remco continues to fund resources cannot meet the obligation. operate effectively in the execution of its mandate, and I remain grateful to We also reviewed the appropriateness of continuing to the members of the Group Remco for offer the standalone Nedgroup Medical Aid Scheme. Our their contribution as we continue to review showed that the scheme remains viable on its engage on these important matters. current basis and continues to offer members appropriate value for money. PM Makwana Group Remuneration Committee Chair

Related material matters

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 105 WORLDCLASS risk MANAGement

STRIVING TO BE WORLDCLASS AT MANAGING Risk management in Nedbank is RISK ACROSS NEDBANK underpinned by our ERMF. Collectively there are 17 key risks that make up the risk universe in the ERMF. Deeply embedded in the DNA of Nedbank is the understanding that the business of banking is fundamentally about managing risk. The origins of risk within Nedbank evolve from the entities the group is comprised Enterprisewide risk of, and the nature of the business/activities and related processes/ outcomes flowing from these, as depicted below … management framework refresh Origins of risk in 2015 Since 2003 the ERMF has served Nedbank well and has been resilient Lend = Credit risk We lend out money, which through economic cycles. The gives rise to credit risk. organisation has placed a strong reliance on this risk governance framework and the three-lines-of- defence model, which are fundamental Fund = Liquidity We also take in deposits to to Nedbank’s aspiration to be and funding risks fund our lending ... worldclass at managing risk. In response to evolving, emerging risk trends, a changing business environment and the significant regulatory change and developments, Mismatch = Interest rate risk … and that results in asset a refresh of the ERMF commenced in and liability mismatches, and 2015, incorporating the current internal in banking book (IRBB) so interest rate risk. and external environment. Key considerations of the ERMF refresh included:

We trade and invest in ■■ Significant regulatory change and Trade = Market risks financial markets that drive developments (eg AML, IFRS 9, other market risks … BCBS 239 (RDAR&R), Retail Distribution Review, Solvency II/ SAM, Protection of Personal Information (POPI), Basel III, the … and all these business activities pending new Twin Peaks regulatory Operate = Operational and are prone to operational, legal, structure for SA, and the BIS paper reputational and other risks. legal risks on Corporate Governance Principles for Banks). We must remain solvent and so ■■ Evolving/Emerging risk trends and balance sheet positioning and external dynamics (eg financial Solvency = Capital risk capital and liquidity planning are crime, conduct risk and TCF, and critical given the associated capital regulatory risk). risks. ■■ Stakeholder needs and experiences and what is good for Nedbank in Banks are highly regulated with a tsunami of regulatory change the current environment, following the global financial crisis, particularly in support of the drive Regulated = Regulatory and and so the regulatory landscape for for simplification. compliance risks banks will remain top of mind. ■■ A revisit of the key risks Banks are fiercely competitive as comprising Nedbank’s risk businesses are subject to many universe. competitive forces, as well as to Compete = Strategic, business changing technological and The refresh elevates Nedbank’s position macro-environmental landscapes to achieve its long-term strategic and financial risks that continue to influence overall aspiration of being worldclass at bank strategy. managing risk.

Nedbank Group – Integrated Report 2015 106 ENSURING VALUE CREATION Risk strategy and To achieve this risk vision Nedbank will ‘differentiate vision through change’ the change being the client at the Following the refresh of the ERMF, and arising out of the most challenging risk heart of the regulatory change. environment – given the persistent VUCA macroeconomic and geopolitical environments – exacerbated risk both locally and globally, as well as fierce competition from traditional and non- traditional competitors, we have Clients at crystallised Nedbank’s top 10 risks that form the cornerstone of the Group Risk the heart of Plan. These are: what we do ■■ Strategic and execution risks ■■ Regulatory risk (regulatory tsunami) Understand their needs ■■ Balance sheet risks – structure and Treat them fairly growth (in view of Basel III) Act responsibly ■■ Concentration risk – (traditionally Be accessible what hurts banks most) Deliver excellent service ■■ Business risk – (VUCA environment) ■■ Credit risk – (given the VUCA Clients are at the macroeconomic environment) ■■ Operational risks – AML/CFT and heart of regulations sanctions, data and IT risks, information security and cybercrime ■■ Rest of Africa risks become a clearly distinctive competitive ■■ We will strategically leverage our differentiator. approximately R3bn regulatory ■■ Conduct risk change programme to achieve this. ■■ Compliance risk Accordingly, the risk vision adopted is: Nedbank aims to build a regulatory At Nedbank we approach risk ‘To be admired as Africa’s leading bank in environment, which will enable the management across three integrated risk management by both our internal business with a robust regulatory core objectives: and external stakeholders, a core framework, to achieve the following ■■ Managing risk as threat strategic and competitive differentiator objectives: that enables Nedbank to win in a To minimise and protect against ■■ sustainable manner.’ Introduce a business-led regulatory downside risk and against material change programme that creates a unforeseen losses. Differentiating by strategically competitive advantage, as seen ■■ Managing risk as uncertainty leveraging regulatory change and experienced by endusers/ roleplayers, through the introduction To eliminate excessive earnings The 2016–2018/2020 Group Risk Plan of new systems, processes and volatility and minimise material has been prepared on this basis to practices, as well as mindset and negative surprises. transform risk management strategically across Nedbank and differentiate it from behavioural changes. ■■ Managing risk as strategic that of our competitors. We are doing ■■ Embed and integrate regulatory (opportunity) this in a collaborative, teamwork, requirements into role/job-specific To maximise financial performance integrated, value-adding, strategic and processes, systems and practices to through the application of superior partnership-based approach. ensure seamless and simple risk and business intelligence, The most fundamental aspect of the integration. risk-based performance Group Risk Plan is strategically leveraging ■■ Create excitement and buy-in by measurement, managing for value, and differentiating the regulatory linking what Nedbank needs to do, strategic portfolio management environment, and building towards a why it needs to do it and how it and client value management. winning regulatory environment in 2020. needs to do it. Risk is as much strategic and an opportunity as it is a threat, and the Group Risk Plan embodies that, To be admired as Africa’s leading bank in risk designed in conjunction with Nedbank’s business plans and five key strategic management by both our internal and external focus areas. stakeholders, a core strategic and competitive A critical success factor for Nedbank to win in 2020, and on a sustainable basis, differentiator that enables Nedbank to win in a is that our risk management must sustainable manner.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 107 WORLDCLASS risk MANAGement (continued)

■■ Enable the change closest to the ■■ Establishing a RCPO focused on ■■ Maintaining a stable operational risk enduser, with the line manager as ensuring efficient delivery against environment despite an increased change agent, led by senior leaders the various regulatory programmes, inherent operational risk profile. across Nedbank Group. including the AML, TCF, POPI, ■■ Placing a strong emphasis on the IFRS 9, BCBS 239 (RDAR&R), There remains an ongoing imperative to basics of operational risk Twin Peaks and Market Conduct enhance risk management continuously management, with a focus on both programmes. across Nedbank, and the building blocks qualitative and quantitative have been put in place to build that over ■■ Maintaining transparent measures. 2016–2018. During 2016 we will execute relationships and working closely ■■ Heightening the focus on financial the Group Risk Plan, including: with all regulators. crime, with new risk management ■■ Maintaining full compliance with frameworks drafted, in particular for ■■ embedding the benefits of the ERMF Basel III phase-in requirements. key subrisk components thereof Refresh; (ie AML, CFT and sanctions, as well ■■ Ensuring we have a comprehensive ■■ optimising the Combined Assurance as cyber-resilience). recovery plan. model comprising Risk, Compliance, ■■ Crystallising, as indicated above, ■■ Internal Audit and external audit; Ensuring that Nedbank is equipped Nedbank’s top 10 risks, and to remain resilient through a ■■ including these with comprehensive remaining focused on our business- significant stress event. as-usual, day-to-day risk management actions in the Group ■ environments and core risk ■ Revising Nedbank’s risk universe. Risk Plan. foundations, and on any material ■■ Managing Nedbank’s credit emerging risks (being proactive and portfolio soundly by keeping it as forward-looking, not backward- well as the overall credit loss ratio looking); (CLR) in good shape. ■■ strongly focusing on risk as a strategic driver, working in close collaboration with internal stakeholders to add maximum value and build on Nedbank’s risk At the heart of the group’s business and management processes intelligence; and are integrated worldclass risk and balance sheet management ■■ clarifying and addressing resourcing, frameworks roles, responsibilities and structures (and therefore accountability) around the implementation of ■■ ERMF regulatory change and risk Subframeworks (examples) management, looking at: —— Group Credit Risk Management Operations versus risk and Framework compliance —— Group Market Risk Management First, second and third lines of Framework defence in our ERMF —— Group Operational Risk Management Framework (ORMF) The Rest of Africa subsidiaries —— Group Compliance Framework —— Group Financial Crime Risk RISK CULTURE Management Framework (WIP) ■■ Internal Nedbank Group has a strong risk culture. – AML, CFT and Sanctions Capital This is achieved through following best- Framework Adequacy practice enterprisewide risk management, – Cyber-resilience Framework Assessment a strong ‘tone from the top’ from the CE, Process —— Group Liquidity Risk Management top management and the board, and (ICAAP) ongoing risk leadership by the CRO. Framework ■■ Internal Our approach aligns strategy, policies, Liquidity people, processes, technology and Adequacy business intelligence to measure, ■■ Capital Management Framework Assessment evaluate, manage and optimise the Process opportunities, threats and uncertainties Solvency and Capital Management Policy (ILAAP) that we face every day as a major financial institution. In this way the Economic Capital Framework Recovery Plan group is able to maximise sustainable (Basel III- shareholder value within the group’s compliant) clearly defined risk appetite. ■■ Stress and Scenario Testing Framework Nedbank embraces risk management as a core competency that allows the business to optimise risktaking and is objective and transparent. This ensures ■■ Risk Appetite Framework that the business prices for risk appropriately, linking risk to return. In 2015 Nedbank began the journey to ■ elevate risk to become a competitive ■ Risk-adjusted Performance Measurement differentiator and good progress has Framework been made, including the following:

Nedbank Group – Integrated Report 2015 108 ENSURING VALUE CREATION OUR APPROACH TO RISK monitored to ensure adequate levels of well as market value losses due to a capital adequacy and liquidity. deterioration in the counterparty’s AND BALANCE SHEET creditworthiness. The Capital Management Framework is ■ MANAGEMENT designed to meet our key external ■ Implementation of a revised We approach our strategy development, stakeholders’ needs, both those focused interrisk diversification business activities, risk appetite, risk and more on the adequacy of the group’s methodology. balance sheet management in a fully capital in relation to its risk profile (or ■■ Not capitalising for foreign-currency integrated manner. risk versus solvency) and those focused translation risk (FCTR) following the The backbone of the group’s strong risk more on the return or profitability of the inclusion of foreign-currency management culture and risk governance group relative to the risk assumed (or translation reserves as qualifying has been and continues to be the group’s risk versus return). The challenge for regulatory capital and reserves ERMF. The risk management function, as management and the board is to achieve under Basel III since 1 January 2013. embedded across the group, is fully an optimal balance between these two ■■ A revised residual capital allocation described therein. It sets out the group’s important dimensions. based on 11% of minimum economic risk universe and major risk All Nedbank’s quantifiable risks across capital for the client-facing banking classifications, and assigns board and the 17 key risks of the ERMF are also business units. executive responsibility thereto. The CRO captured in our Economic-capital In view of the significance of liquidity risk leads the implementation of the ERMF Framework. in banking, Nedbank also produces an across the group. Economic capital is a sophisticated, ILAAP. The ILAAP involves an ongoing There are risk management frameworks consistent measurement and comparison and rigorous assessment of Nedbank that cover all material risks and of risk across business units, risk types Group’s liquidity self-sufficiency under a governance aspects of the organisation. and individual products or transactions. continuum of stress liquidity scenarios, These encompass structures that are Nedbank assesses the internal taking cognisance of the board-approved linked with risk-based performance requirements for capital using its risk appetite. management, ensuring business units proprietary economic-capital The ILAAP also involves an ongoing focus on key risk areas. Compliance is methodology. review and assessment of all constantly reviewed by our boards and All of these quantifiable risks, as components that collectively make up their committees, and any identified risks measured by economic capital, are then and/or support the Liquidity Risk or breakdowns of internal controls are allocated back in the form of a capital Management Framework. reported on, and then actively managed allocation to businesses where the assets The annual ICAAP and ILAAP were and monitored. or risk positions reside or originate. signed off by the board through the Policies, processes and procedures Nedbank’s economic capital and ICAAP GRCMC in July 2015, and no material relating to governance, effective risk methodologies are constantly reviewed issues raised by SARB during the 2015 management, capital adequacy and and updated, taking cognisance of onsite review. sound internal control have board and regulatory developments such as Basel III Risk-adjusted performance senior management oversight and are and Solvency 2/SAM. governed by the three lines of defence. measurement, management Economic capital not only facilitates a and reward Credit risk is managed across the group like for like measurement and Economic capital and EP are in terms of its Group Credit Risk comparison of risk across businesses but, comprehensively in use across the group, Framework, which incorporates the by incorporating it into performance embedded within businesses on a day- group credit policy, mandate limits and measurement, the performance of each to-day basis, and in performance governance structures, and is reviewed business can be measured and compared measurement and reward schemes. This on a quarterly basis. on an absolute basis using EP and a risk-adjusted performance measurement relative percentage return basis, namely has been applied across the group for The Group Market Risk Management return on risk-adjusted capital (RORAC). many years now and helps ensure that Framework is in place to achieve effective excessive risktaking is mitigated and ICAAP in Nedbank is embedded across independent monitoring and managed appropriately within the group. management of market risk. the organisation and has been for several years. Nedbank Group continues to monitor In recognition of the increasing growth, the evolving governance environment to Some material changes were diversity of activities and volatile ensure appropriate compliance of the implemented for capital allocation macroeconomic environment in which group’s risk-adjusted remuneration purposes and ICAAP during 2015, and our businesses operate, the group practices with the relevant regulatory continued to refine the ORMF to ensure these include: and/or statutory requirements. that it is adaptive to the environment, is ■■ A revised business risk responsive to regulatory requirements, methodology. Nedbank’s recovery plan and is in line with emerging leading practices stress testing ■■ Enhancements to the calculation and supports forward-looking and and allocation of credit economic In the event of a stress scenario Nedbank proactive risk identification and agility capital. has a detailed recovery plan and liquidity in response. ■■ A new economic capital charge for risk contingency plan, both of which were Comprehensive Capital Management credit valuation adjustment (CVA), extensively tested during Nedbank’s and Liquidity Risk Management which was implemented to liquidity simulation in March 2015. Frameworks are maintained, under the holistically cover counterparty credit The recovery plan sets out the leadership of the Group Executive of risk, which consists of default risk circumstances under which the group Balance Sheet Management. These are (ie losses in the event of default), as

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 109 WORLDCLASS risk MANAGement (continued)

may need to activate recovery actions sovereign would lead to a down grade risks (eg AML, conduct risk/TCF and and options available for addressing of Nedbank and all SA banks. reputational risk) are covered. extreme stress scenarios caused by A possible one-notch downgrade to Risk appetite is considered in detail in the either idiosyncratic events or systemwide subinvestment grade may precipitate Nedbank Group Ltd Annual Results Booklet market failures. A possible ratings (or be indicative of) a high-stress event, and the detailed 2015 Pillar 3 Risk and downgrade to junk status is one such and may lead further to (or be indicative Capital Management Report available at event that may mobilise the plan. of) a severe-inflation stress scenario. nedbankgroup.co.za. The plan sets a framework for the bank Therefore, a further SA ratings to act quickly and decisively (eg selling of downgrade can be seen as being businesses and significant assets) during inbetween a high-stress and a severe- CURRENT KEY RISK AND a severe crisis to ensure that the bank is inflation-stress scenario. The level of BALANCE SHEET able to recover. It describes the stress along this continuum is likely to integration with existing contingency be determined by the level of stress in MANAGEMENT planning and the possible recovery the macroeconomic environment. POSITIONS AT YEAR- options, including a detailed assessment ■■ of their likely effectiveness and the Nedbank Group has performed END 2015 defined points at which they would be comprehensive stress testing on Nedbank’s favourable financial results invoked. The plan addresses stresses the possibility of a further SA for the year ended 31 December 2015 is invoked by shortfalls in liquidity and ratings downgrade, with the underpinned by a strong balance sheet capital, as well as significant operational conclusion that the capital levels across all the core dimensions of capital adequacy, liquidity and funding, credit failures that may jeopardise Nedbank’s and capital buffers remain asset quality aided by the strategic ability to continue business operations. appropriate and that Nedbank portfolio tilt strategy and appropriately It also covers the various options Group is strongly capitalised relative to its business activities, conservative provisioning, excellence in considered by senior management to risk and balance sheet management, an strategy, risk appetite, risk profile mitigate stresses encountered by enabling but prudent risk appetite Nedbank. and the external environment in framework, and a seamless which the group operates. Also in place is a broad Stress and implementation of Basel III. Scenario Testing Framework. Risk appetite Further information is available in the The framework recognises and estimates Risk appetite is an articulation and Nedbank Group Ltd Annual Results Booklet the potential volatility of the capital allocation of the risk capacity or in the Risk and Balance Sheet Management quantum of risk Nedbank Group is Review section and will be available in requirements and base case (expected) willing to accept in pursuit of its the 2015 Pillar 3 Risk and Capital three-year business plan projections, strategy, duly set and monitored by the Management Report available at including the key assumptions and Group Exco and ultimately the board, nedbankgroup.co.za. sensitivities contained therein, which and integrated into our strategy, themselves are subject to fluctuation. business, risk and capital plans. Credit risk The tough economic environment Stress and scenario testing is performed Nedbank has had a formal RAF since placed financial pressure on our clients, and reported quarterly, or more regularly 2006, with key metrics, governance and leading to lower levels of credit demand if called upon. Macroeconomic scenarios reporting, and has been cascaded down and transactional banking activity. of different severities are considered, effectively into business units. ranging from mild-stress to severe- ■■ This was particularly prominent in inflation-stress and severe-deflation- Nedbank’s risk appetite is prudent and the retail and small-business stress scenarios. In addition to the appropriately conservative, and has segments of the market. been enabling for our businesses, quarterly stress-testing process, a wide- ■ promoting competitive but appropriate ■ In our wholesale business stresses ranging set of relevant scenarios is growth and returns. in the resources, steel and evaluated and presented during the construction sectors continued to annual ICAAP. There were no material changes made impact growth. to Nedbank’s risk appetite in the The possibility of a further SA credit 2016–2018/2020 Nedbank group Strategic portfolio tilt has delivered ratings downgrade has increased business plan and the Group Risk Plan, excellent results since it was materially since the events of December with the exception of: implemented in 2009, resulting in the 2015, being exacerbated by the local improvement of the quality of the book’s ■■ drought, slowing growth in China, the introduction of a credit profile, which is evident in the comprehensive risk appetite prolonged weak commodity prices, and group and RBB CLR remaining at the statement for rest of Africa (RoA) currency weakness among other adverse bottom-end of their target ranges. factors. exposure including an increase in capital allocated; and ■■ While there was some pressure on Nedbank has defined key trigger events ■■ decrease in the group’s CLR target impairments, particularly in the that may move SA closer to a ratings range from 80–120 bps to 60–100 Nedbank Capital portfolio with CLR downgrade prior to Standard & Poor’s bps, due to strategic portfolio tilt increasing to 0,83% (2014:0,14%), and Fitch announcing their rating reviews and wholesale asset growth driven by lower oil and commodity in June 2016. Moody’s does not perform outstripping retail. prices and resulting in high specific rating reviews on fixed future dates. In line with the ERMF refresh, Group impairments, the total CIB CLR As part of our proactive contingency Risk is undertaking a refresh of remained within their new through- planning, we have considered a response Nedbank’s RAF and will ensure, among the-cycle target range. to such an event to mitigate the potential others, that it remains constantly adverse consequences – our ratings are relevant, that core risk appetite metrics Nedbank has gained market share in the capped at the sovereign ceiling and are aligned with current financial wholesale portfolios through funding therefore any downgrade of the targets, and that new key qualitative initiatives such as renewable-energy

Nedbank Group – Integrated Report 2015 110 ENSURING VALUE CREATION and infrastructure projects and The remainder of the coverage changes commercial-property lending. relate to improved impairments in RBB and the change in mix of retail and ■■ Gross loans and advances grew wholesale defaulted advances. by 11,0% to R693 043m (2014: R624 116m), with banking Unmanaged risk concentrations are and trading advances increasing by potentially a cause of major risk in banks. 10,4% and 26,2% respectively. Concentration risk is therefore ■■ Derisking and selective origination considered separately as part of in the home loan and personal-loan Nedbank’s Risk Appetite Framework. portfolios have been successful, Nedbank Group has adopted a selective improving asset quality and pricing, origination, client-centred growth as well as growth in vehicle finance, emphasis as a core part of its strategic Portfolio particularly of secondhand and portfolio tilt strategy. Nedbank’s coverage lower-value vehicles. approach to managing its mortgages ■■ These actions have placed the group (or property portfolio) is to take a holistic in a strong position for the tougher approach across both residential and macroeconomic environment and commercial mortgages, preferring a 0,70% contributed to the change in the leading market share in commercial (Dec 14: 0,70%) group CLR target range from mortgages given the better risk-based 0,80–1,20% to 0,60–1,00% in 2016. economics and returns. remained stable Impairments increased by 6,3% to ■■ Commercial-mortgage lending has R4 789m (2014: R4 506m) and the increased since 2011 from 18,2% to CLR improved slightly to 0,77% (2014: 19,7% of gross loans and advances, 0,79%). Continued improvements in and consequently Nedbank Group retail impairments were offset by has maintained its leading local increased impairments in the wholesale market share position, currently at Specific clusters. 40,4%. This potentially high concentration is mitigated by good- coverage ■■ Additional overlays were raised in quality assets, high levels of RBB to R699m (2014: R404m) as collateral, a low average loan-to- deteriorating economic conditions value ratio (approximately 50%), prompted further strengthening of 38,0% the underpinning of corporate provisioning levels in the second leases, and a highly experienced (Dec 14: 43,1%) half of 2015. management team considered to be ■■ The central portfolio provision was the leader in property finance in SA. SARB directive 7/2015 further strengthened to R500m to ■■ impact take into account additional risks, While Nedbank Group has the particularly in commodities and in smallest residential-mortgage the Rest of Africa, that have been portfolio among the local peer group incurred but are only expected to at 14,5% of market share, the emerge in 2016. contribution of these advances as a percentage of total gross loans and Portfolio coverage remained stable at advances was still substantial at Defaulted advances 0,70% (2014: 0,70%). 20,6% in December 2015 as a % of A key change in the regulatory (2014: 22,0%). However, this level gross advances environment was the implementation of of contribution to the balance sheet SARB directive 7/2015, which aims to is lower than that of its peers. standardise the treatment of distressed ■■ The focus in Home Loans since restructures across the industry, by 2009 has been on lending through 2,53% adjusting the monitoring period in which an our own channels, including branch, (Dec 14: 2,54%) account is held in default to a minimum of own sales force and more recently six months. The implementation of this Nedbank’s new online home loan remained stable change increased defaulted advances and reduced specific coverage. While defaulted advances increased to R17 559m (2014: R15 846m) as the stress in the resources and mining sectors impacted the wholesale portfolio, Postwriteoff the increase was offset by reductions in recoveries Loan-to-deposit-ratio both the home loan and personal-loans portfolios. The largest impact was the implementation of SARB directive 7/2015, which shifted an additional R1 137m 93,9% R1 881m into defaulted advances. (Dec 14: R941m) (Dec 14: 93,8%) The specific coverage ratio declined to remained stable 38,0% (2014: 43,1%), driven mainly by continued focus on the implementation of SARB directive recoveries 7/2015. Restructures tend to have lower coverage as they are expected to cure.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 111 WORLDCLASS risk MANAGement (continued)

application and, to a far lesser predominantly managed in line with crime and business continuity planning degree compared with the industry, impairment sensitivity for similar (national power crisis). through mortgage originators. This rate change expectations. enables a better quality risk profile, The restrained macroeconomic Current exposures are within environment, as illustrated by slow more appropriate risk-based pricing the board-approved limits and economic growth, combined with and therefore more appropriate risk appetite. pressure on cost reduction, exchange returns, with a client-centred ■■ rate fluctuations, low commodity prices approach. The focus of the trading businesses is to continue to develop the flow and pressure to meet targets, will likely ■■ When including residential model, by leveraging the dealflow increase the exposure to operational risk mortgages, Nedbank’s total from clients. in 2016. mortgage market share is in line with that of its peers at 21,5%. Trading market risk is low in There are significant developments that relation to the total bank may have an impact on the current state Total retail motor vehicle finance operations, with only 0,5% of the risk-based approaches to measure exposure within Nedbank Group has of the total economic capital of operational risk for regulatory purposes. increased slightly since 2011 to 11,1% in the group consumed. 2015 (2011: 11,0%) of gross loans and Nedbank continues to work closely with advances, while current market share is Risk levels are monitored within industry bodies and regulators to ensure approximately 31,0%, which is second of board-approved limits and risk the group remains abreast of reforms. appetite. the big four banks in SA. Sound risk The development of a second-generation management principles are consistently Focus areas in 2015 were the operational risk model with enhanced applied by an experienced management major regulatory proposals, capabilities (eg to estimate economic team, with CLR decreasing year on year. including the fundamental capital and to evaluate our internal review of the trading book and Personal-loan advances have decreased capital adequacy), including a review of and are now at 2,6% of gross loans and CVA governance and system methodology and technology, continues advances, from its peak of 4,3% in 2012. implementation. to receive focus. In 2016 the overall strategic Nedbank Group’s net losses, earnings at Market risks focus of CIB will remain largely risk and operational risk capital to gross In summary, other than interest rate risk unaltered and focused on income ratio metrics remained within in the banking book (IRRBB), Nedbank client-centredness. Trading prescribed limits. All single material-loss does not have a significant risk appetite capabilities within current events of more than R5m are reported to for, or exposure to, market risk: board-approved limit structures the Group Operational Risk Committee will selectively be increased by ■■ Nedbank’s IRRBB is positioned for (GORC) and the GRCMC, where retaining and managing risks an upward interest rate cycle and is emphasis is placed on identifying root rather than hedging back-to- causes and enhancing mitigating actions. back in the market. ■■ Equity risk in the banking book is Events relating to external fraud and low relative to the rest of the execution, delivery and process balance sheet. The key strategic management (EDPM) remained the investments (ETI and Banco Único) primary reasons for internal losses in are accounted for under the equity terms of frequency and severity. The method of accounting. The total EDPM event-type category’s contribution equity portfolio that is fair-valued is to the operational risk loss profile R4 719m (2014: R4 761m). increased to 49% in 2015 (2014: 40%), while external fraud decreased to 35% in ■ ■ FCTR remains relatively low, even 2015 (2014: 49%). after the acquisition of equity stakes in ETI and Banco Único in 2014, as a A detailed account of the management of Trading book result of the inclusion of FCTR in operational risk management is included qualifying capital and reserves since in the 2015 Pillar 3 Risk and Capital 1 January 2013. Accordingly, FCTR Management Report available at low risk does not have a material impact on nedbankgroup.co.za. the group’s total regulatory capital adequacy ratio. Capital adequacy Nedbank Group’s capital ratios are strong Nedbank Group’s Pillar 3 document for the across all classes of capital, are above year ended 31 December 2015 provides regulatory minimum requirements and detailed insights into the management of all are within internal target ranges. components of market risk. Similarly Nedbank Group economic Operational risk capital adequacy is strong and ICAAP has been maintained. IRRBB % ordinary Nedbank maintained a stable operational risk environment despite an increased Nedbank’s ICAAP confirms that we are shareholders’ equity inherent operational risk profile. Strong well capitalised above the current ‘A’ or emphasis was placed on the basics of 99,93% target debt rating (solvency operational risk management, with a standard) in terms of the group’s 1,61% focus on both qualitative and quantitative proprietary economic capital measures. methodology. (Dec 14: 1,52%) The top and emerging operational risk The group maintained a well-capitalised well positioned themes for 2015 were information/ balance sheet. Our CET1 ratio of 11,3% cybersecurity, the intense regulatory (2014: 11,6%) remains around the mid- environment, IT risk, conduct risk, point of our Basel III 2019 internal target outsourcing/third-party risk, financial range.

Nedbank Group – Integrated Report 2015 112 ENSURING VALUE CREATION The CET1 ratio was impacted by risk- The Basel Committee released its final weighted assets (RWA) growing 13,7% to version of the NSFR in October 2014. R501,2bn (2014: R440,7bn), largely as a On 18 November 2015 SARB released a result of an increase in credit RWA due to: proposed directive relating to the NSFR, where it proposed that the available ■ ■ ratings migration across certain stable funding (ASF) factor applicable to wholesale portfolios in line with the wholesale deposits in the 0 to 6 months deteriorating economic bucket be increased from 0% to 35% in environment; order to better reflect the stability of ■■ an industrywide CVA capital charge these deposits within the South African by SARB for OTC ZAR derivatives context. Taking cognisance of the and OTC derivatives with local finalised Basel Committee NSFR counterparties not cleared through standard and the proposed directive a central counterparty, which issued by SARB, all SA Banks are better increased RWA by R6,5bn; and positioned to achieve compliance from ■■ growth in loans and advances. the effective date of 1 January 2018. The key focus going forward, will be on Overall capital adequacy was further achieving compliance within the context impacted by investments in the rest of of balance sheet optimisation. Africa, resulting in a higher capital impairment. Nedbank’s strong funding and liquidity position is illustrated in the Nedbank Group Further information is available in the Ltd Results Booklet and 2015 Pillar 3 Report Nedbank Group Ltd Annual Results Booklet available at nedbankgroup.co.za. under the Risk and Balance Sheet Management Review section and will be available in the 2015 Pillar 3 Risk and Capital Management Report available at nedbankgroup.co.za. Liquidity Leverage Common-equity coverage ratio The leverage ratio is intended by the Basel Committee on Banking Supervision tier 1 (Basel Committee) to serve as a simple, transparent, non-risk-based leverage 88,5% ratio to supplement the Basel III risk- (Dec 14: 66,4%) based capital requirements, to help avoid 11,3% the buildup of excessive leverage and to (Dec 14: 11,6%) capture both on- and off-balance-sheet LCR=> 60% exposure. well capitalised regulatory Nedbank Group’s gearing (including requirement unappropriated profits) under the revised Basel III Leverage Ratio Framework and disclosure requirements (which came into effect on 1 January 2015) is 16,3 times (or 6,1%) at 31 December 2015 Long-term (2014 pro forma: 15,1 times or 6,6%). Total capital The increase in the leverage position is funding ratio largely as a result of the increase in adequacy ratio exposure measure, which was primarily driven by organic on-balance-sheet growth as well as an increase in total 14,1% 28,7% derivative exposure. (Dec 14: 25,4%) (Dec 14: 14,6%) Liquidity and funding risk strong and well Nedbank Group remains well funded in a strong position with a strong liquidity position, diversified underpinned by a significant quantum of long-term funding, an appropriately sized surplus liquid-asset buffer, a strong loan-to-deposit ratio consistently below 100% and a low reliance on interbank Available financial and foreign-currency funding. resources:economic From a Basel III perspective Nedbank has Total tier 1 capital successfully implemented the LCR, exceeding the minimum regulatory requirement of 60%, which came into effect on 1 January 2015 and the 70% 12,0% 120% requirement from 1 January 2016. Having (Dec 14: 12,5%) (Dec 14: 140%; embedded this ratio into BaU processes, Dec 14 pro forma: 123%) Nedbank is well positioned to exceed the within target range minimum requirement throughout the phase-in period, as the LCR requirement strong and above increases by 10% per annum to 100% by target range 1 January 2019.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 113 WORLDCLASS risk MANAGement (continued)

The 17 key risks that comprise Nedbank Group’s ERMF and their materiality are reassessed, reviewed RISK UNIVERSE and challenged regularly by the board, management and our primary regulator, the South African Reserve Bank. Nedbank’s Enterprisewide Risk Management Framework (ermf)

Market risk Accounting, Insurance risk Information Business and Governance Transforma- Risk financial and Credit risk Operational Financial Liquidity and Capital risk (including Concentration Conduct risk Regulatory technology strategic Reputational and compli- tion, social People risk universe risk crime risk funding risk non-banking Trad- Bank- risk risk (execution) risk and environ- taxation risk risks) ing ing risk risk ance risk mental risk book book

1 The board of directors is ultimately responsible for all risks in the group, approval and oversight of the risk measurement and management system, and the setting of risk appetite. 2 The ERMF provides the foundation and underpins the entire risk management structure and system of Nedbank Group (implementation, monitoring, reporting and remediation). a Strong emphasis in the ERMF is placed on individual accountability and not on undue reliance on committees. b Risk management frameworks (for all major risk types), and risk officers, are in place across all businesses and Group Technology.

the ERMF c provides a set of subrisks where relevant, to each main risk category.

Key features of features Key d Shows the statutory board committees (as required by the Banks and Companies Act) and their role as the final oversight and monitoring functions for the group.

first LINE OF DEFENCE Board of directors Group Credit Committee Group Related Party Transformation, Board Group Audit Group Risk and Capital Management Committee Information Directors’ Affairs Committee Transactions Social and committees Committee Large-exposure Technology Committee Ethics Approval Committee Committee Committee

Group Executive Committee Group Operational Committtee Group Executive Operational Financial Brand, Client Information Reputational Transformation Human Committees Risk Crime Group Asset and Liability Committee and Executive Risk Management Committee and Conduct Technology Risk Resources Committee Committee Committee Committee Committee Committee

Finance Nedbank Employee Regulatory Regulatory Forum Cluster credit Transactional Mergers and Equity Forum committees Risk and Risk and Forums Deposits Compliance Acquisitions Compliance Taxation (CCCs) Forum Forum Forum Forum Group Transformation

Group Exco committees Exco Group Forum Forum

NEDBANK RETAIL AND BUSINESS BANKING, NEDBANK CORPORATE AND INVESTMENT BANK, NEDBANK WEALTH AND REST OF Business AFRICA ■■ Clusters’ risk ■ Heads of risk and risk functions, independent of business origination, report directly to business cluster managing executives. governance ■ Cluster and business unit excos, CCCs, Trade Risk Committee (TRC), Investment Committee and enterprise risk committees (ercos) and other specialist committees, with the relevant independent group functions.

TRC CCC Balance Sheet Separate Brand, Client Finance Erco Management Committee BSMC Wealth Erco BSMC and Conduct Erco Enterprisewide Forum Credit approval (BSMC) Cluster ERMF Committee Human Resources Forum meetings Investment (CRAMs) Committee

Central Group Finance Group Strategic Planning Balance Sheet Management Group Technology Group Human Resources Group Marketing, Communications functions and Corporate Affairs

2ND LINE OF DEFENCE Group Risk Group Enterprise Governance and Compliance Chief Risk Officer Chief Governance and Compliance Officer Includes: ■■ Group Money-laundering Reporting Office Independent Group Credit Group Operational Group AML, Group Market Regulatory ■■ group risk Group Credit Risk Group Financial Finance and Enterprise Risk Compliance services and oversight Portfolio Manage- Risk and Data CFT and Group Legal Group Insurance Risk Change ■■ and Monitoring ment Management Crime and Forensics Sanctions Operations Monitoring Programme Office Management Governance and ethics compliance ■■ Banks Act and regulatory compliance ■■ Company secretariat THIRD LINE OF DEFENCE Internal and external audit

Independent Group Internal Audit External audit Independent actuaries assurance

Nedbank Group – Integrated Report 2015 114 ENSURING VALUE CREATION The ERMF specifically allocates the 17 key risks (which individually also include various subrisks) at each of three levels to board committees; executive management committees (at Group Exco level and those within business clusters); and individual functions, roles and responsibilities (at group level and across all business clusters, as relevant).

Market risk Accounting, Insurance risk Information Business and Governance Transforma- Risk financial and Credit risk Operational Financial Liquidity and Capital risk (including Concentration Conduct risk Regulatory technology strategic Reputational and compli- tion, social People risk universe risk crime risk funding risk non-banking risk risk (execution) risk and environ- taxation risk risks) risk risk ance risk mental risk

e Shows the structure of the executive management committees and their roles/responsibilities for the proper, efficient and effective functioning of the group’s business. f Reporting philosophy: provides a reporting structure from business units through to the board. 3 Three-lines-of-defence model: sets out and positions the three-lines-of-defence model across the group and the role and responsibility of each within the overall framework. a primary responsibility and accountability for the risks originating in the businesses are clearly assigned to the respective business cluster leaders and executives. 4 The CRO reports to the CE, who has ultimate individual accountability for risk.

first LINE OF DEFENCE Board of directors Group Credit Committee Group Transformation, Related Party Group Board Group Audit Group Risk and Capital Management Committee Information Directors’ Affairs Committee Transactions Social and committees Committee Technology Ethics Remuneration Large-exposure Committee Committee Approval Committee Committee Committee

Central Group Finance Group Strategic Planning Balance Sheet Management Group Technology Group Human Resources Group Marketing, Communications functions and Corporate Affairs

Independent Group Internal Audit External audit Independent actuaries assurance

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 115 WORLDCLASS risk MANAGement (continued)

Nedbanks Risk Risk type Definition Universe Credit risk The risk of borrowers and counterparties failing to meet their repayment commitments, including risks arising from impaired assets and related impairments, provisions or reserves and risk arising from exposure to related persons.

Concentration In terms of market risk and credit risk, the risk of an risk excessive concentration of exposure to a single client or group of related clients. In terms of liquidity risk, the risk of overreliance on funding or liquidity from a single depositor or small group of depositors.

Market risk In terms of market risk in the trading book, the risk of loss as a result of unfavourable changes in market prices, such as foreign exchange rates, interest rates, equity prices, credit spreads and commodity prices. In terms of market risk in the banking book, the risk of loss in the banking book as a result of unfavourable changes in foreign exchange rates and interest rates.

Operational risk The risk of loss resulting from inadequate or failed internal processes, people or systems or from external events.

Financial crime The risk of any kind of criminal conduct in terms of risk common law or any current statutory law and any other conduct (whether an act or omission which Nedbank deems to be dishonest, regardless of whether the bank is the victim or perpetrator) that relates to money or financial services, goods or products resulting in economic or financial loss.

Top 10 Risks Regulatory risk The risk of Nedbank failing to comply with applicable regulatory requirements or codes. Regulatory risk centres Nedbank’s risk universe around changes in regulations that may have a negative comprises of 17 key risks. effect on the business. Aligned to this, through the risk strategy and planning process, the top 10 risks are agreed as Conduct risk The risk associated with Nedbank’s pattern of behaviour in executing its pricing and promotion strategy as well as in key risk focus areas for the year respect of the public, markets, laws, best practices, client ahead. Management actions for expectations, regulators and ethical standards. the top 10 risks have been formally documented in the Group Risk Plan and are Reputational risk The risk of impairment of Nedbank’s image in the community or of the long-term trust placed in the group by monitored and tracked in the its stakeholders as a result of a variety of negative factors Operational Committee, Group that may result in loss of business and/or legal action. Exco and GRCMC. We provide an insight on pages 118 to 123, into what transpired in 2015 Governance and In terms of governance risk, the risk of systems and controls regarding each of the top 10 compliance risk failing to enable adequate oversight on a sustainable basis. risks, the shaping forces that In terms of compliance risk, the risk of legal or regulatory informed these risks and what sanctions, material financial loss or loss of reputation as a result of Nedbank failing to comply with laws, regulations, the outlook is for 2016. rules, related self-regulatory organisation standards and codes of conduct.

Nedbank Group – Integrated Report 2015 116 ENSURING VALUE CREATION Risk type Definition

Information The risk of inadequate systems or inappropriate IT technology risk investment, development, implementation, support or capacity, with an associated negative impact on the achievement of strategic objectives.

In terms of accounting risk, the risk of inappropriate Accounting, The ERMF is designed around the three- financial and accounting information causing suboptimal decisions to be made. lines-of-defence model, placing strong taxation risk emphasis on accountability In terms of financial risk, the risk of financial targets and and responsibility of business key performance indicators not being met. management, all supported by In terms of taxation risk, the risk that effective tax appropriate internal control, risk planning, co-ordination and strategy, compliance with tax management and governance structures. laws and regulations, proactive identification and management of tax risks are not enforced or a poor relationship with revenue authorities exits, resulting in loss Three-lines-of-defence model and/or missed opportunities.

People risk The risk of inadequacies in human capital management and First line the management of human resource policies and processes The board and management of Nedbank resulting in the inability to attract, manage, motivate, Group are ultimately responsible for the develop and retain competent resources or the failure of implementation and management of risk. employees to adhere to the group’s policies and processes.

Transformation, In terms of transformation risk, the risk of Nedbank failing to Second line social and respond to and address transformation issues adequately, Comprises: environmental proactively and positively. Independent risk oversight and monitoring risk In terms of social risk, the risk of not adequately contributing by the Group Risk and Enterprise to the development of a sustainable and robust social Governance and Compliance Clusters. structure. The CRO, who reports directly to the CE, In terms of environmental risk, the risk of a Nedbank activity provides: or process degrading, devaluing or destabilising the environment in such a way that it damages the environment. ■■ strategic risk management leadership ■■ group independent risk oversight ■■ key support to various risk Business, In terms of business risk, the risk of potential changes in committees general business conditions, such as our competitive market strategic (incl ■■ environment, client behaviour and disruptive technological management of the RCPO execution) risk innovation. ■■ is responsible for championing effective enterprisewide risk In terms of strategic risk, the risk of an adverse impact on management and control capital and earnings due to business policy decisions, changes ■■ independent model validation in the economic environment, deficient or insufficient ■ implementation of decisions, or a failure to adapt to changes. ■ some first line functions, eg forensics and physical security In terms of execution risk, the risk of Nedbank’s business plans not being successful when implemented or full The Group Chief Governance and implementation not being achieved. Compliance Officer, who reports directly to the CE, provides:

■■ continuous strategic compliance risk Insurance risk In terms of underwriting risk, the risk of a client being management leadership, placed in the incorrect risk pool. (including non- ■■ independent compliance risk banking risks) In terms of pricing risk, the risk of the level of risk monitoring (of compliance associated with a pool being mispriced. monitoring in the first line), ■■ In terms of non-independence risk, the risk of a single sets the group governance and compliance framework and event resulting in claims from multiple clients. ■■ works closely with the cluster governance and compliance functions on compliance and governance Capital risk The risk of Nedbank becoming unable to absorb losses, matters. maintain public confidence and support the competitive growth of the business.

Third line Liquidity and The risk of Nedbank failing to meet its payment obligations Group Internal Audit, external auditors and funding risk when they fall due, replace funds when withdrawn or fund independent actuaries provide additional commitments to lend at an acceptable price, at the right assurance on the effectiveness of risk time and place, and in the right currency. management across the organisation.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 117 WORLDCLASS risk MANAGement (continued)

2015

■■ Strategic and strategy execution risks have been highlighted in the ERMF and in the STRATEGIC AND Group Risk Plan among the top 10 risks facing Nedbank, with a heightened focus on STRATEGY execution across the bank to support Nedbank’s roadmap to Winning in 2020. ■■ Nedbank believes that key in today’s climate is the ability to mitigate the adverse EXECUTION RISKS impact on capital and earnings due to business policy decisions, changes in the (strategy is 1 economic environment, deficient or insufficient implementation of decisions, or a underpinned by sound failure to adapt to changes in the environment. strategic and strategy Strategic and execution risks are closely allied in any successful risk management execution risk programme and the one cannot be realised without the other being put into effect. management) ■■ Nedbank is strategically leveraging the ‘regulatory tsunami’. Approximately R3bn has been allocated to regulatory change programmes to ensure worldclass implementation of regulatory requirements.

■■ Compliance and regulatory risk have become increasingly significant given the heightened regulatory environment in which Nedbank operates. Extensive focus and initiatives are documented in strategy, business and risk plans. ■■ Given the extent of the significant regulatory change agenda (‘regulatory tsunami’), REGULATORY a RCPO was established in 2015, under the CRO to ensure that the impact of new or RISK pending regulatory changes are proactively identified and appropriately managed. 2 ■■ The RCPO is responsible for ensuring coordinated, comprehensive and timely identification and impact assessment of regulatory changes, and drives the (regulatory tsunami) integration of and alignment between regulatory change programmes. ■■ Nedbank’s business and risk strategies ensure these programmes are effectively delivered in an efficient, integrated and strategic manner to maximise our success for full regulatory compliance on a sustainable basis.

■■ Basel III regulatory requirements continued to be phased in through to 2019 with: ongoing transitional minimum capital requirements increasing in line with regulation; the phasing-in of the minimum LCR requirements that came into effect in 2015 starting at 60%; and the group continuing to position itself strategically for NSFR compliance by January 2018. ■■ Nedbank continued to shape its capital position in line with these evolving requirements, which included: BALANCE SHEET redemption of certain old-style capital instruments and the issue of further RISKS 3 new-style Basel III-compliant instruments during the period. ■■ An appropriate level of leverage during 2015 continued, with the level of balance (structure and growth) sheet gearing being maintained, well above Basel III and the more conservative SA regulatory minimum requirements. Nedbank also operated well within its own internal targeted levels. ■■ With the phase-in of the LCR requirements this year, Nedbank was well positioned to meet the transitional 2015 minimum LCR requirements through its proactive liquidity risk management and strategies. ■■ The group has updated its recovery plan in 2015, which also included an extension of its integrated solvency, liquidity and disaster recovery planning to its London branch and to Nedbank Private Wealth.

Nedbank Group – Integrated Report 2015 118 ENSURING VALUE CREATION Emerging/shaping forces OUTLOOK FOR 2016

■■ Capacity and adequacy of resourcing will be a key priority for the successful execution of the group’s strategy and the ■■ Fundamental shift in financial services’ many large-scale regulatory programmes. landscape and technology. ■■ Execution trumps strategy (‘grow transactional banking ■■ Fierce competition, mobile and digital franchise’ is most critical). transformation – essential to innovate, Ensure operational and programme management differentiate and simplify. excellence. ■■ A need for sound execution of regulatory Execute on Nedbank RBB’s five key focus areas to programmes. deliver on the transactional banking strategy. ■■ Capacity and resources to execute delivery of ■■ Mobile and digital transformation is essential to innovate, strategic focus areas and regulatory differentiate and simplify. imperatives separate from business as usual. ■■ Enhanced project management discipline must support roadmaps to 2020 targets. ■■ A journey will be undertaken to redefine a culture for Nedbank to win in 2020 and beyond.

■■ The recent significant changes in the ■■ In acknowledging the compliance imperative, it remains crucial regulatory landscape have focused on two to deliver a sustainable and effective compliant operating key themes, namely: model, underpinned by a direct link to the strategic benefits, the stability and sustainability of the with a view to establishing a winning regulatory environment financial services industry; and in 2020. client-focused market-conduct-driven ■■ The impact of regulatory change on people, process, systems regulation. and data remains a key focus for the year ahead to evolve the operating model for implementing regulatory change in an ■■ The extent of regulatory change across the integrated, cost-effective and sustainable manner. industry and its impact on our businesses and clients remain pervasive. ■■ Although the group is well positioned to respond to the regulatory changes, these changes are likely to put pressure on ■■ As these requirements become more levels of return across the financial services industry as a result onerous, they are likely to change the shape of, among others, the increased cost of compliance, increased of bank balance sheets, increase the costs quality and size of capital buffers, increased liquid-asset of regulatory compliance, adversely impact portfolios and decreased levels of liquidity transformation. the price of credit extension and, as a result, will cause banks to revise their strategies. These should in turn lead to lower levels of risk.

■■ Increasing capital and liquidity requirements will continue to impact the group’s balance sheet and put pressure on bank margins and ROEs, for which frontbook pricing will need to ■■ The FSB has finalised its minimum requirements for TLAC. be adjusted. Nedbank expects that these requirements, in a revised ■■ The higher minimum capital requirements and form, are likely to be adopted for SA D-SIBS. likely introduction of TLAC requirements will ■■ Significant changes are expected with the quantification of drive upwards the group’s capital ratios and RWA, with finalisation expected in December 2016. overall loss-absorbing capacity. ■■ A conceptual framework setting out primary and secondary ■■ LCR compliance is being phased in over several indicators for identifying unconsolidated entities where years, with a 60% requirement in 2015 to full significant step-in risk exists for banks has been proposed compliance by 2019. and is to be finalised in December 2016. These requirements will result in larger ■■ Nedbank has embraced the requirements of Basel III and is liquid asset buffers, with higher levels of continuously looking at how best to respond strategically in bank funding being deployed into these order to create a competitive advantage rather than simply portfolios. complying: ■■ The requirements of full NSFR compliance by These requirements have been embedded within our 2018 will result in a continued lengthening of the strategic portfolio tilt focus and continue to shape the group’s contractual and behavioural funding group’s balance sheet and impact frontbook pricing. profile in order to increase the levels of available stable funding to support lending activities.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 119 WORLDCLASS risk MANAGement (continued)

2015

■■ Nedbank Group does not have material single-name credit concentration risk. Of the total group credit economic capital 7,5% is attributable to the top 20 CONCENTRATION largest exposures, excluding banks and government. —— 2,3% is attributable to the top 20 largest bank exposures. RISK 4 ■ (traditionally what ■ Commercial property finance (> 40% market share). hurts banks most) ■■ Nedbank continued to grow wholesale advances much faster than retail, while transactional deposits were slower.

■■ The risk environment and risk management across the group remained in good shape despite the VUCA and very challenging regulatory macroenvironment in 2015, with an even more adverse forecast for 2016. ■■ Despite the challenging environment our CLR’s remain low. BUSINESS ■■ In recognition of these facts, coupled with the ever-present and ever-growing threat RISK 5 posed by financial crime to the financial services industry: focus on financial crime risk management was increased; (VUCA environment) the risk of financial crime was elevated to a key risk in the ERMF; and risk management frameworks have been formulated for —— AML, CFT and sanctions and —— Cyber-resilience.

■■ The tough economic environment placed financial pressure on our clients, leading to lower levels of credit demand and transactional banking activity. This was particularly prominent in the retail and small-business segments of the market. In our wholesale business stresses in the resources, steel and construction CREDIT RISK sectors continued to impact growth. (given VUCA ■■ Strategic portfolio tilt has delivered excellent results since it was implemented in macroeconomic 6 2009, resulting in the improvement of the quality of the book’s credit profile, which is environment) evident in the group and RBB CLR remaining at the bottom-end of their target ranges. While there was some pressure on impairments, particularly in the Nedbank Capital portfolio with CLR increasing to 0,83% (2014:0,14%), driven by lower oil and commodity prices and resulting in high specific impairments, the total CIB CLR remained within their new through-the-cycle target range.

OPERATIONAL ■■ Maintained a stable operational risk environment despite an increased inherent RISKS operational risk profile. ■■ Strong emphasis was placed on the basics of operational risk management, with (AML, CFT and 7 a focus on both qualitative and quantitative measures. sanctions, data and ■ IT risks, information ■ There was an enhanced focus on framework testing and assurance during the year. security and ■■ A fundamental review of Nedbank’s cyber-resilience and financial crime risk cybercrime) frameworks was initiated and remain a key focus.

Nedbank Group – Integrated Report 2015 120 ENSURING VALUE CREATION Emerging/shaping forces OUTLOOK FOR 2016

■■ Concentration risk is now one of the key risks in Nedbank’s refreshed ERMF. ■■ VUCA macroeconomic environment and ■■ Stress testing and deep dives show low concentration and pressure on resource and commodities prices. downside risk to most key sectors. ■■ Continued focus on strategic portfolio tilt, with a preference for strong market share in commercial mortgages, given its comparatively better risk-based economics and returns.

■■ The performance of banks is closely aligned ■■ Despite the difficult macroeconomic environment, intense with the macroeconomic environment in regulation and strong competition, Nedbank is well positioned which they operate. to continue to grow and generate value. ■■ In the second half of 2015 the outlook for key Competitive differentiating in 2016–2018/2020 in group macroeconomic facts in SA deteriorated: business and risk plans: SA macro political events; —— grow transactional banking; and declining for 2016 GDP expectations to —— differentiate by strategically leveraging regulatory 0,2%; change. high risk of recession. ■■ Nedbank’s comprehensive stress testing enables us to be ■■ Further deterioration is possible as is the risk proactive in managing extreme events and difficult environments. of SA being downgraded to non-investment ■■ The growing threat of financial crime necessitates a risk- grade. based, proactive and integrated approach to financial crime risk management to achieve a competitive advantage and to This potentially creates a severe-stress win in 2020. scenario. Underpinning this effort will be the integrated Financial ■ ■ Elevated financial crime is being experienced. Crime Risk Management Framework, together with detailed ■■ Intense competitive pressure is experienced frameworks being developed to support management of from banks, non-banks and shadow banking. various types of financial crime.

■■ Growth in wholesale banking will continue ■■ Continued focus on prudent risk management and excellence to be limited by infrastructure constraints in in collections. SA, poor global demand and low ■■ international oil and commodity prices. Strategic portfolio tilt – proactive risk management and selective origination. ■■ Rising interest rates will increase borrowing ■■ costs and dampen consumer credit Leverage relatively faster growth in Africa in our wholesale demand. portfolios. ■■ ■■ Deep dives and stress testing done in IFRS 9 (Impairments) programme – strategic implications of higher-risk portfolios. change to IFRS 9.

■■ Top and emerging operational risk themes are: Factors likely to increase the operational risk exposure, include: Information/Cybersecurity ■■ Inherent risk of information security, cybercrime and Intense regulatory environment elevated financial crime IT risk restrained macroeconomic growth Conduct risk slow economic growth Outsourcing/Third party risk pressure on cost reduction Financial crime exchange rate fluctuations Business continuity planning (national power crisis) low commodity prices Technological change (eg digital age) pressure to meet targets follows regulatory change in changing ■■ Significant developments may have an impact on current the shape of banking state of risk-based approaches to measure operational risk Big data + risk data = EDP as a critical for regulatory purposes. success factor to Winning in 2020. ■■ Importance of delivering on the EDP/RDAR&R (BCBS 239).

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 121 WORLDCLASS risk MANAGement (continued)

2015

■■ Our strategy remains as follows: Own and manage banking and operations in the Southern African Development Community (SADC) and East Africa. Provide access to a banking network in West and Central Africa through our investment and alliance with Ecobank. ■■ In SADC and East Africa we made good progress with our one-bank-model rollout. REST OF 8 ■■ The foundation was laid for the integration of Banco Único on attaining control in AFRICA RISKS 2016, with a focus on enhancing the control environment. We continue to support ETI in technical areas such as balance sheet management, risk and IT, where teams contribute through information sharing and technical skills support. ■■ Integration of our African business into the RCPO scope. ■■ A new core banking system, Flexcube, was successfully implemented in Namibia in 2015, improving efficiency of operations.

■■ A TCF market conduct programme aligned with the Twin Peaks model and market conduct regulatory developments is well underway within Nedbank. ■■ Conduct risk has been incorporated as a new risk category within the ERMF as part of the ERMF refresh. A conduct risk framework is being formalised to underpin TCF principles, ensuring full integration into business processes. CONDUCT 9 RISK ■■ Accountability for the oversight of TCF was allocated to senior management and committees in the ERMF, having regard to their lens over client-related matters: The Brand and Client Conduct Committee. The Transformation, Social and Ethics Committee.

■■ Nedbank regards proper compliance risk management as an enabler and source of competitive advantage. The Compliance Risk Management Framework and methodology were reviewed during 2015 to ensure continued alignment with industry best practice and efficiency. COMPLIANCE 10 Roles and responsibilities across operations and compliance were clarified. RISK ■■ A good and transparent relationship with regulators is of prime importance and was maintained in 2015. A policy and process were implemented to ensure that the group delivers on all its commitments to regulators and an open and clear dialogue is maintained with all our regulators.

Nedbank Group – Integrated Report 2015 122 ENSURING VALUE CREATION Emerging/shaping forces OUTLOOK FOR 2016

■■ The strategy of increasing our exposure in the rest of Africa will increase the risk profile of the organisation in markets that are more volatile and have less governance ■■ We continue to see growth opportunities despite economic at this stage of their development. headwinds and will continue to grow our existing businesses. ■ ■ Significant new regulations are expected for ■■ A focus remains on improving the control environment and the financial industry, including regulations governance, and strengthening of leadership. relating to AML, CFT and sanctions, ■■ The integration of Banco Único will commence after conduct risk, TCF, IFRS 9, FATCA and risk attaining control in 2016. data aggregation. A diverse operating and regulatory environment was experienced. ■■ Increasing regulatory requirements continue and the monitoring and support thereof are integrated into the Subsidiaries are separate legal entities overall Nedbank Group regulatory programmes. based in different countries, with their ■ own boards, regulators and legislators. ■ Our new core banking system will continue to be rolled out to other subsidiaries in 2016/17.

■■ A workstream will be implemented for each of the six TCF outcomes, namely: culture, product and services, communications, post- ■■ Regulatory changes are expected: sales, conduct risk framework and management Financial Sector Regulatory Bill (FSRB) information and reporting are planned for delivery by – Twin Peaks. December 2016. Key focus areas include: Although TCF is not yet a legislative ■■ setting the right tone at the top to ensure the market requirement, Nedbank is proactively conduct principles are cascaded throughout Nedbank Group; ensuring that the TCF outcomes, ■ as well as the recommendations ■ management of conduct risk throughout the product life contained in two independent reviews cycle; conducted by Deloitte UK, are ■■ product innovation, design, pricing and strategy; implemented. ■■ complaints handling, claims and analysis; and ■■ empowering clients and keeping them well informed and educated on financial products.

■■ Changing/Evolving role of compliance: ■■ Embedding the revised Compliance Framework and regulation changing from rules-based supporting policies will continue in 2016. to principles-based; ■■ Our integrated compliance approach will keep evolving judgement-based compliance to address the demands of the changing regulatory becoming more prominent; and environment. ■ enabling competitive compliance is ■ An increased focus will be placed on enhancing required. accountability for compliance for all roleplayers, supported by appropriate awareness. ■■ Increasing digitisation of the business ■ environment. ■ A focus will remain on resource capabilities: ■■ Conduct risk developments. war for compliance talent; ■■ Extent of fines and penalties imposed by high compliance staff turnover; and regulators globally for non-compliance. new skills/capabilities required.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 123 REPORTING BACK ON REMUNERATION

OUR REMUNERATION HOW WE GOVERN OUR REMUNERATION REPORT We have a Remuneration Policy that provides a framework for the management of total This abridged Remuneration Report remuneration within the group, and which also supports the Nedbank employee value summarises the issues addressed in our proposition (EVP). Set out below is a summary of the main aims of our Remuneration full online 2015 Remuneration Report, Policy, together with our approach to remuneration governance. which is available online at Remuneration Policy principles nedbankgroup.co.za. Provided herein are The following aims of our Remuneration Policy are the guiding principles for our the governing principles in respect of our approach to remuneration: approach to remuneration as well as an overview of the manner in which they were implemented during 2015. Our Remuneration Policy as well as its implementation is independently To enable the attraction, motivation and retention of high-calibre people, with the reviewed on an annual basis to ensure right mix of experience, skills and knowledge to deliver on the strategy. consistent application of the policy, and legislative and regulatory compliance.

To support and reinforce our desired culture and encourage behaviour consistent with our values, thereby stimulating employee engagement.

To create an appropriate balance and alignment between the needs, expectations and risk exposure of our stakeholders, including our staffmembers, clients, shareholders, regulators and communities, to ensure the creation of sustainable long-term value for each of them.

To incentivise employees to deliver sustained high levels of performance and excellent execution of our strategic priorities, while being cognisant of the impact this delivery has on our risk profile and exposure.

To enable appropriate transparency in the development of remuneration programmes and the allocation of individual remuneration to ensure equity and fairness based on valid and appropriate external and internal benchmarks.

To align with the principles of good corporate and remuneration governance, ensuring an appropriate share value for the relevant stakeholders in our business.

Our full 2015 Remuneration Policy is set out on pages 1 to 5 of the full online Remuneration Report, and includes proposed changes to make provision for the implementation of malus and clawback arrangements in our LTI arrangements, as outlined in the Group Remco Chair’s statement.

Nedbank Group – Integrated Report 2015 124 ENSURING VALUE CREATION Governance also provided with market-related remuneration information through the Remuneration Committee group reward and performance function. Our Group Remco is responsible for remuneration governance with its The Group Remco met seven times groupwide responsibilities fully defined during 2015, details of which are set out in its board-approved charter, available on page 104 of this integrated report. The online at nedbankgroup.co.za. Group Chairman, CE, Chief Operating The Group Remco applies the guiding Officer (COO) and Group Executive at principles enunciated in the HR are permanent invitees to the Remuneration Policy as far as it is meetings, and they are not present in feasible, but retains the right to apply discretion to deviate from this policy in discussions regarding their own exceptional circumstances. As has been remuneration. The meetings are also the case for the past several years, there attended by the executive responsible for were no requirements for such deviation the reward and performance function in in 2015. the group as well as any external The Group Remco ensures that it remains advisors deemed necessary by the Group knowledgeable about the changing Remco from time to time. remuneration regulatory environment, both locally and globally. This is All members of the Group Remco act as supported by regular updates from the trustees of the Nedbank Group (2005) Group Reward and Performance team Employee Share Trust. The annual and its external advisors. The 2015 trustee meeting for this scheme was held training dealt with global changes in on 24 November 2015. executive remuneration. There were no material issues identified In addition to the above, the Group in the Group Remco’s self-assessment in Remco has full access to independent executive remuneration consultants, and 2015, which was conducted to evaluate has utilised Vasdex Associates (Pty) Ltd its effectiveness against the objectives of and PwC during 2015. Group Remco is its charter.

Composition of Group Remco The Group Remco consists of four members, including an independent chair. The majority of the members are independent non-executive directors. Name Directorship status Current membership Bruce Hemphill1 Non-executive Director Current member Independent Non- Current member and Mpho Makwana executive Director Chair of Group Remco Independent Non- Nomavuso Mnxasana executive Director Current member Senior Independent Malcolm Wyman Non-executive Director Current member Julian Roberts2 Non-executive Director Past member 1 Bruce Hemphill was appointed to the Group Remco with effect from 25 November 2015. 2 Julian Roberts resigned from the Group Remco with effect from 23 October 2015.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 125 REPORTING BACK ON REMUNERATION (continued)

REMUNERATION ELEMENTS Our total remuneration mix (as shown in the diagram below), together with the manner in which it is governed, is set out in the Remuneration Policy on pages 2 to 6 of the full online 2015 Remuneration Report, which also expands on the group’s approach to such elements during 2015.

PERFORMANCE MANAGEMENT

Short-term focus, day-to-day Short-to-medium-term focus, Long-term focus, orientation performance orientation ownership orientation

Short-term Special- incentives purpose Employee Long-term Guaranteed package (including short-term ownership incentives deferral and arrange- plan forfeiture) ments

Variable remuneration Short-term incentive The aim of STIs is to drive the achievement of sustainable results within an agreed risk appetite framework, and to encourage behaviours that are consistent with our values and are aligned with the best Deferral interests of our stakeholders. Our STI of STIs Compulsory STI Voluntary Bonus schemes are structured to support collaborative work across different deferral Share Scheme clusters. The Group Remco has agreed on a set of principles and all group and cluster incentive schemes are designed according Employees may select to defer a portion of their to those principles, which are set out on R0 to R1m > R1m page 12 of the full online Remuneration posttax STI voluntarily Report. into the Matched-share Scheme, subject to the The total STI pool approved for distribution No deferral Fifty percent of any total deferral (including by the Group Remco in respect of the amount in excess of R1m compulsory deferral) not 2015 financial year was R2 162,5m is deferred over a period exceeding 50% of the (2014: R2 100m). In accordance with its of 30 months, with total posttax STI award. charter, the Group Remco also approved releases from forfeiture 24 individual STI payments (2014: 26) occurring in three equal in excess of 200% of guaranteed tranches at 6, 18 and package (GP), outside of those approved in 30 months from the date respect of the Group Exco, which are all of the award. Deferral is subject to individual approval by the Group on a posttax basis. Remco and the board.

In the above instances where deferral applies, the individual must retain the shares in the scheme for a period of 36 months to be eligible for a match in accordance with our Matched-share Scheme, details of which are fully set out on page 9 of the full online 2015 Remuneration Report. For employees with earnings falling within the highest taxation bracket the total STI has the potential to increase by 30% (before share price movement) in the event that the conditions in the Matched-share Scheme are met at the end of the deferral period. Subject to shareholder approval at our AGM, deferred STIs will, from February 2016, be subject both to a malus (release from forfeiture) decision (already a feature of the scheme) and the possibility of clawback, for a combined period of three years from the date on which the award was made.

Nedbank Group – Integrated Report 2015 126 ENSURING VALUE CREATION Special-purpose short-term variable remuneration We make use of preapproved special-purpose short-term variable remuneration arrangements only in exceptional circumstances, which is typically in the context of hiring senior and key employees. The group does not, as a matter of course, award guaranteed bonuses, and thus none have been awarded during 2015. executive directors (%) Scheme type Scheme description Number of awards

Signon bonus Cash awards made to 20 awards (2014: 12) totalling prospective employees on R19,7m (2014: R6,23m). 20 joining the group are typically Included in this are awards awarded to compensate them made on appointment to key for loss of certain accrued revenue-generating 40 benefits or to make them staffmembers. whole in terms of their existing contractual obligations. Deferred Short-term DSTI awards are cash-based 20 awards (2014: 19) totalling 40 Incentive (DSTI) awards awards, comprising an upfront R15,7m (2014: R16,4m). payment (typically 40% of The awards approved are in the award), with a deferred relation to a number of senior component (the remaining and specialist appointments 60%) payable subject to made in 2015, and the need to ROE minimum time-based and implement specific retention Fini 15 Strategic initiative individual performance initiatives in certain scarce- conditions. skills environments. Executive directors and prescribed officers are not eligible for DSTIs in the normal course. Group exco/cluster exco Scheme governance is set out in the Remuneration Policy. (%)

Long-term incentives 20 LTI awards are awarded with the joint aims of aligning participants’ interests with the interests of stakeholders and of retaining key employees. Key considerations for LTI awards are set out on page 4 in our 2015 Remuneration Policy in the full online 40 Remuneration Report. The criteria and quantum of allocations are benchmarked to the market annually. The allocation of LTIs is discretionary and is based on the key eligibility 20 criteria as set out in the Remuneration Policy on page 4 in the full online Remuneration Report.

All LTI allocations are motivated by the Group Exco and approved by Group Remco members 20 in their capacity as trustees of the Nedbank (2005) Employee Share Scheme Trust. Specific individual approval is also required for all LTI awards greater than 100% of GP. ROE Set out below are our various LTI schemes. The operation of the international LTIP has Fini 15 been aligned with the Nedbank Group (2005) Share Option, Matched-share and Strategic initiative Restricted-share Scheme (Nedbank Group (2005) Share Incentive Scheme), but operates No target on a phantom basis. Overview of long-term incentive arrangements under the Nedbank Group (2005) Share Incentive Scheme The Option Scheme other ltip participants No awards have been made since 2007 and there are no unvested awards in this scheme. (%) Restricted-share Scheme: annual allocations The Group Remco awards restricted shares (including on-appointment allocations, referred to below) with a three-year vesting period to eligible participants, which vest on the basis set out to the right. 25 Further details of the actual CPTs are set out on page 13 of the full online 2015 Remuneration Report. For 2016 the CPTs will remain unchanged from those which applied in 2015. 50 On-appointment allocations On-appointment, restricted-share allocations are offered at the discretion of the Group Remco to new senior managers and also on an exceptional basis to existing employees 25 who have been appointed to more senior positions and have been recommended for an allocation by the Group Exco. Frequency of awards On-appointment allocations may take place biannually (and by exception on the date of ROE appointment, with specific approval), with awards based on the volume-weighted average Fini 15 share price using the three trading days after the announcement of the annual or interim No target financial results (as applicable).

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 127 REPORTING BACK ON REMUNERATION (continued)

Matched-share Scheme This scheme provides a vehicle for the compulsory deferral of STI awards, and for employees to participate in the scheme by voluntary investment, subject to the fulfilment of specified conditions as set out in the table below. Details applicable to deferral and potential matching of deferred awards are set out on pages 7 and 9 of the full online 2015 Remuneration Report.

Conditions for STI payment matching Match

Compulsory > R1m, where deferral In service on vesting 50% deferral takes place in respect of date: three years after 50% of any amount the allocation date exceeding R1m, applied on a posttax basis Average ROE 50% excluding goodwill ≥ COE + 2% over the period

Voluntary Bonus ≤ 50% of total posttax In service on vesting 50% Share Scheme STI (inclusive of any date: three years after compulsory deferral) the allocation date

Average ROE 50% excluding goodwill ≥ COE + 2% over the period

For employees with earnings falling within the highest taxation bracket, the total STI has the potential to increase by 30% (before share price movement) in the event that the conditions in the Matched-share Scheme are met at the end of the deferral period. Changes to scheme rules Amendments to the rules of the Nedbank Group 2005 Share Incentive Scheme (and which will apply to deferred STIs, the Matched-share Scheme arrangements and the Restricted-share Scheme) have been proposed for the purposes of the inclusion of malus and clawback provisions on all awards made from February 2016. The amendments are set out in the Notice of AGM, and are proposed for approval at the AGM to be held during May 2016.

Other long-term incentive scheme in operation

Phantom Cash-settled Restricted-share Plan For our international and Rest of Africa operations, LTIs are made on a phantom basis, of which the schemes mirror the Nedbank Group (2005) Share Incentive Scheme in design and structure. These schemes will also be subject to the malus and clawback provisions proposed for the Nedbank 2005 scheme.

Full details of all these schemes are set out in the full 2015 Remuneration Report, available at nedbankgroup.co.za. Nedbank Eyethu employee schemes No new awards were made during 2015 in any of the Nedbank Eyethu employee schemes. Other employee ownership/empowerment schemes We also have empowerment or ‘indigenisation’ schemes currently approved in several of our Rest of Africa operations. Set out on the following page are the employee ownership/empowerment schemes approved in our international and African operations:

Nedbank Group – Integrated Report 2015 128 ENSURING VALUE CREATION Nedbank operation Ownership/Empowerment scheme Scheme details

Namibia Ofifiya Black Management Scheme The purpose of the scheme is to enable the group to facilitate black economic empowerment in terms of the framework established by the financial sector in Namibia. It facilitates ownership of the group’s shares by senior and middle management employees within Nedbank Namibia and its subsidiaries and aims to attract, retain and incentivise such individuals. Vesting period: Four years Swaziland Sinakekelwe Employee Share Scheme The purpose of the scheme is to provide LTIs to beneficiaries, to encourage wealth creation by way of employee share ownership, to align the interests of Nedbank and the beneficiaries, and to attract, retain and reward a skilled high-performing workforce. Vesting period: Five years Malawi Phantom empowerment scheme, using Nedbank The purpose of the scheme is to build appropriate Group shares as a reference point local employee ownership or similar financial interest, in Nedbank Malawi. It is aimed at facilitating share ownership by local employees by granting phantom shares to participants, which are linked to the Nedbank share price. Vesting period: Three years Zimbabwe Nedbank MBCA Employee Share Ownership Scheme This scheme is currently in the inception phase and further details will be available once this has been completed. Lesotho Phantom empowerment scheme, using Nedbank The purpose of this scheme is to build appropriate Group shares as a reference point local employee ownership or similar financial interest in Nedbank Lesotho. It is aimed at facilitating share ownership by local employees in the subsidiary by the granting of phantom shares to participants, which are linked to the Nedbank share price. Vesting period: Three years

Vesting of share awards in 2016 VESTING OUTCOMES Nedbank Group issued restricted shares (%) in March and August 2013, with vesting thereof linked in equal proportions to 100 a combination of time and the group’s meeting of certain performance conditions. Vesting will take place during 2016 as set out in the chart to the right. The vesting that took place in 2013 to 2015 is included for comparison. Full details of the number and value of 50 awards granted during the year in terms of our share-based plans are included in the Consolidated Annual Financial Statements, available at nedbankgroup.co.za. 100 70,7 100 85,9 100 37,9 100 39,5 0 Award year 2010 2011 2012 2013 Vesting year 2013 2014 2015 2016 Where necessary, in the case of executive directors and the Company Secretary, the necessary Securities Without CPT Exchange News Service (SENS) announcements were With CPT issued at the prescribed times in this regard.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 129 REPORTING BACK ON REMUNERATION (continued)

RISK AND economic capital allocation as set out in also being competitive relative to those the Risk and Balance Sheet Review of our peer group. REMUNERATION available online. Further details of our approach to risk The board has ensured that there is and remuneration are available on cooperation between the Group Remco The board has absolute discretion as to pages 11 to 14 of our full online 2015 and the GRCMC to enable appropriate the quantum and nature of any forfeiture, Remuneration Report. consideration of the overall risk malus, (and from 2016) clawback triggers environment when making remuneration related to the compulsory deferral of STI decisions. This is implemented through awards. In this regard the deferred formal discussion by the Group Remco amount will be forfeited should the EXECUTIVE DIRECTORS Chair with the GRCMC Chair on the risk employee resign or be dismissed for AND PRESCRIBED aspects of remuneration. This reflects cause before the release of the OFFICERS our commitment to achieving a balance outstanding forfeiture obligations, as well between the prudent management of as in cases where, at the sole discretion Prescribed officers remuneration within the context of both of the board, material irregularities, risk The managing executives of the three our risk appetite and risk profile, and the failures or misrepresentation of financial frontline, income-generating clusters are need to attract, retain and motivate key results come to light during the deferral included as prescribed officers in the talent to enable the delivery of our period. The board has absolute discretion disclosures set out below. The board has strategic objectives. Set out briefly below as to the nature of any action to be taken approved these executives to be is the manner in which risk is taken into against the individual or a group of regarded as prescribed officers. account in the remuneration process. individuals who may have transgressed. Executive directors The deferral policy is reviewed annually. Taking account of future and Mike Brown Application of corporate current risks in the Mfundo Nkuhlu remuneration process performance targets and Raisibe Morathi We are involved in retail, wholesale and mitigating the effect of investment banking operations, as well inappropriate performance Prescribed officers as wealth management and other metrics Brian Kennedy financial services, predominantly in SA To avoid the consequences of Philip Wessels and the rest of Africa. We utilise a three- inappropriate performance metrics, 1 year budgeting, forecasting and planning which include extended periods in which Iolanda Ruggiero process, which is integrated with our no LTI vesting takes place, awards made 1 Appointed as a prescribed officer effective 1 May 2015. strategic objective, risk appetite and from 2010 are subject to 50% Disclosures are also made for executive capital planning, enabling us to have a performance conditions and 50% time- directors or prescribed officers whose forward-looking view of the strategic, based vesting. For Group Exco and services terminated in 2015. These are: financial and risk outcomes of cluster exco members this was changed remuneration policies. The mandatory ■■ Graham Dempster (executive in 2015 to 60% of the total award being deferral of STIs for up to 30 months and director until 11 May 2015) and subject to performance conditions and the three-year vesting of LTI share 40% to time-based vesting. All LTI ■■ Dave Macready (prescribed officer allocations (with at least half of the awards made to executive directors from until 30 April 2015). awards subject to CPTs) align with this 2014 are subject to performance forward-looking business cycle. The conditions on 100% of the award. deferral period provides for risk-based outcomes to be monitored over the It is a key principle in our Remuneration three-year period subsequent to the Policy that there should be appropriate deferral and enables malus or, where sharing of value among stakeholders. appropriate, clawback to be applied. Therefore, while employees should not We operate a comprehensive internal be prejudiced as a result of remuneration capital adequacy assessment process design issues, we are cognisant that blueprint that addresses the nature and remuneration programmes should types of risk incorporated into the overall equally not be designed to favour or framework. The framework integrates benefit employees at the expense of other stakeholders. with our STI pool arrangements and Details of share awards to executive individual performance scorecard We have also been unequivocal about directors and prescribed officers are assessments, which in turn inform the our adherence to other aspects of good included from page 22 of our full distribution of STIs from the derived corporate governance in relation to share online 2015 Remuneration Report. business STI pools. The STI pools plans. In this regard, share awards in incorporate ex ante or ‘before the fact’ Details of the service conditions for either the Restricted-share Plan or the executive directors and prescribed risk adjustments, which is incorporated Matched-share Scheme are not, under into the pool allocation process set out officers are set out on pages 14 to 17 any circumstances, backdated. Further, in detail on page 12 of the full online 2015 of the full online 2015 Remuneration no retrospective adjustments are made Remuneration Report. Report. There were no material to performance conditions to mitigate changes to these during 2015. The STI scheme has been designed to the impact of weak performance. Executive directors and prescribed incentivise a combination of profitable Therefore, we are of the view that our officers will be subject to the returns, appropriate risktaking and remuneration practices, and the levels at proposed malus and clawback growth. It is driven from an EP and a HE which these occur, are appropriate in arrangements from 2016. basis versus targets, using risk-based terms of remuneration governance while

Nedbank Group – Integrated Report 2015 130 ENSURING VALUE CREATION TOTAL REMUNERATION OF EXECUTIVE DIRECTORS AND PRESCRIBED OFFICERS (AUDITED) Mike Brown Mfundo Nkuhlu Raisibe Morathi Graham Dempster7,8 Executive directors R000 2015 2014 % 2015 2014 % 2015 2014 % 2015 2014 % Cash portion of package 6 374 6 056 4 258 3 124 3 405 3 177 1 743 3 862 Other benefits 141 130 130 112 100 91 63 141 Defined-contribution Retirement Fund 910 864 613 452 621 550 320 855 Guaranteed remuneration 7 425 7 050 5,3 5 000 3 687 35,6 4 125 3 818 8,0 2 125 4 859 Cash performance incentive 8 250 8 000 4 750 4 625 4 500 4 375 5 750 Cash performance incentive (delivered in shares) 7 250 7 000 3 750 3 625 3 500 3 375 4 750 Total STI1 15 500 15 000 3,3 8 500 8 250 3,0 8 000 7 750 3,2 10 500 Total remuneration2 22 925 22 050 4,0 13 500 11 937 13,1 12 125 11 568 4,8 2 125 15 359 Value of share-based awards (face value at award) 13 500 13 000 8 750 11 7509 7 500 7 000 8 750 Total direct remuneration3 36 425 35 050 3,9 22 250 23 687 (6,1) 19 625 18 568 5,7 2 125 24 109 Other payments4 1 323

Brian Kennedy Philip Wessels7, 10 Dave Macready5,7 Iolanda Ruggiero6,7 Prescribed officers R000 2015 2014 % 2015 2014 % 2015 2014 % 2015 2014 % Cash portion of package 3 620 3 346 4 146 1 775 1 018 2 926 1 934

Other benefits 239 323 113 55 57 164 54 Defined-contribution Retirement Fund 291 276 391 144 191 547 262 Guaranteed remuneration 4 150 3 945 5,2 4 650 1 974 1 266 3 637 2 250 Cash performance incentive 8 625 8 500 4 875 4 500 2 040 4 250 3 500 Cash performance incentive (delivered in shares) 7 625 7 500 3 875 3 500 1 360 3 250 2 500 Total STI1 16 250 16 000 1,6 8 750 8 000 3 400 7 500 6 000 Total remuneration2 20 400 19 945 2,3 13 400 9 974 4 666 11 137 8 250 Value of share-based awards (face value at award) 7 500 9 5009 8 000 10 5009 6 500 6 000 Total direct remuneration3 27 900 29 445 (5,2) 21 400 20 474 4 666 17 637 14 250 Other payments4 1 In terms of the rules of the Matched-share Scheme, this amount may increase by up to 30% (before share price movement), subject to fulfilment of the CPTs, and the amount remaining invested in the scheme for 36 months. 2 Total remuneration is the sum of Guaranteed Remuneration and Total STI. 3 Total Direct Remuneration is the sum of Total Remuneration and the value of share-based awards made in the following financial year. 4 Other payments are typically non-recurring payments and include leave pay, special payments but excludes gains from vesting share awards, which are set out from page 22 of the full online 2015 Remuneration Report. 5 Dave Macready joined Old Mutual SA on 1 May 2015. Payments reflect part-year service. 6 Iolanda Ruggiero became a prescribed officer on 1 May 2015. Guaranteed remuneration payments are pro-rated to reflect this. Variable remuneration (STI and LTI) is reported on a full-year basis. 7 Comparative year-on-year % not given for items that reflect part-year service. 8 Graham Dempster availed himself of two first-class airtickets granted as an approved incentive, and also received leave pay pursuant to his retirement from the bank. These amounts are reflected in Other Payments. 9 Awards include on appointment awards made in respect of appointment to more senior roles. 10 Philip Wessels was appointed as a prescribed officer on 1 August 2014.

NEDBANK GROUP – INTEGRATED REPORT 2015 ENSURING VALUE CREATION 131 REPORTING BACK ON REMUNERATION (continued)

ADDITIONAL NON-EXECUTIVE Neither the Group Chairman nor the boardmembers receive any performance- REGULATION 43/ DIRECTORS related remuneration or any PILLAR 3 DISCLOSURES The terms of engagement of the non- employee benefits. executive directors as well as the Group The disclosures required in respect of Non-executive directors are accountable Chairman are fully set out on page 89 of Regulation 43 of the Banks Act are set for decisions made regardless of the integrated report. out on pages 17 to 19 of the full online attendance at meetings. They are also 2015 Remuneration Report. Remuneration required, as a matter of course, to Specific disclosures relating to senior The fees of the Group Chairman and the represent stakeholders and to make the necessary preparations for meetings and managers and material risktakers, the non-executive directors reflect the other engagements. Group Remco is quantum of the remuneration paid in specific responsibilities relating to their satisfied that the fee structure applied in the year, signon awards, guaranteed membership of the board and, where respect of non-executive directors bonuses, severance payments and the applicable, board committees. The Group remains appropriate. amount of remuneration subject to Chairman receives a single fee for his adjustment are included. role. Non-executive directors are paid Non-executive directors’ a fixed fee for board membership remuneration paid for the years and receive additional fees for their ended 31 December 2015 and participation in the board committees. 31 December 2014 was as follows:

Non-executive directors’ remuneration (audited) Board Committee fees fees 2015 2014 Note (R000) (R000) (R000) (R000) David Adomakoh 1 393 121 514 360 Tom Boardman 2, 2a 1 143 1090 2 233 1 766 Brian Dames 393 270 663 301 Mustaq Enus-Brey 3 137 136 273 910 Ian Gladman 16 393 339 732 682 Paul Hanratty 4, 16 393 207 600 168 Bruce Hemphill 5, 16 40 19 59 Reuel Khoza 6 1 623 1 623 4 350 Mpho Makwana 7 393 747 1 140 1 006 Mantsika Matooane 8 393 230 623 286 Nomavuso Mnxasana 9 393 685 1 078 784 Vassi Naidoo 10, 10a 3 038 5 3 043 Joel Netshitenzhe 11 393 235 628 561 Julian Roberts 12, 16 325 151 476 519 Gloria Serobe 13 137 98 235 746 Stanley Subramoney 14 110 95 205 Malcolm Wyman 15 550 931 1 481 1 276 Total 10 247 5 359 15 606 13 715 1 David Adomakoh was appointed as a member of the Group Related Party Transactions Committee (GRPTC) on 11 May 2015. He resigned as a member of the GTSEC on 1 September 2015. He was appointed as a member of the GCC and the Large-exposure Approval Committee (LEAC) on 1 September 2015. 2 Tom Boardman was appointed as Chair of the GRCMC and resigned as Chair and member of the GITCO on 20 February 2015. He was appointed as a member of the GRPTC on 11 May 2015. 2a Tom Boardman sits on the board of Nedbank Private Wealth (Isle of Man) Ltd. His board fees are therefore inclusive of the Nedbank Private Wealth (Isle of Man) Ltd fees of £38,000. 3 Mustaq Enus-Brey resigned as a member of the Group Finance and Oversight Committee (GFOC) and as Chair (but remained a member) of the GRCMC on 20 February 2015. He resigned as a member of the GCC, LEAC and GRCMC and retired as a non-executive director on 11 May 2015. 4 Paul Hanratty was appointed as a member of the GCC and LEAC on 11 May 2015. 5 Bruce Hemphill was appointed as a non-executive director and a member of the Group Remco and the Group DAC on 25 November 2015. 6 Reuel Khoza resigned as Chair of the DAC and retired as Chairman and non-executive director of Nedbank Group on 11 May 2015. 7 Mpho Makwana was appointed as a member of the GRPTC on 11 May 2015. 8 Mantsika Matooane was appointed as a member of DAC and GFOC and as Chair of the GITCO on 20 February 2015. 9 Nomavuso Mnxasana was appointed as member of the DAC and Chair of the GTSEC on 20 February 2015. 10 Vassi Naidoo was appointed as a non-executive director on 1 May 2015 and as Chairman of Nedbank Group on 11 May 2015. The remuneration disclosed above includes a consultancy fee payment to Mr Naidoo for the period 13 April 2015 to 30 April 2015, as Mr Naidoo had dedicated this time to Nedbank affairs in preparation for his appointment as a boardmember. He was appointed as a member of the DAC on 1 May 2015. 10a IT and security expenditure was approved for Vassi Naidoo as a consequence of his appointment as Chairman of Nedbank Group. These enhancements are all necessary for the completion of his duties as Chairman, and to ensure his security. 11 Joel Netshitenzhe was appointed as member of the GRPTC on 11 May 2015. 12 Julian Roberts resigned as a member of the Group Remco and DAC on 23 October 2015 and as a non-executive director on 31 October 2015. 13 Gloria Serobe resigned as Chair (but remained a member) of the GTSEC on 20 February 2015. She resigned as a member of the GCC, LEAC and GTSEC and as a non-executive director of Nedbank Group on 11 May 2015. 14 Stanley Subramoney was appointed as an independent non-executive director on 23 September 2015. He was appointed as a member of the GTSEC, GCC, LEAC and the GAC on 23 October 2015. 15 Malcolm Wyman was appointed Chair of the DAC and GRPTC on 11 May 2015. 16 Fees for Julian Roberts, Paul Hanratty, Ian Gladman and Bruce Hemphill were paid to Old Mutual (SA) Ltd.

NEDBANK GROUP – INTEGRATED REPORT 2015 132 ENSURING VALUE CREATION The proposed non-executive director fees as set out below were evaluated by a boad committee consisting of Mike Brown and Bruce Hemphill with advice from independent experts. Such evaluation was conducted from a number of perspectives, including peer group comparisons, effective rates per committee and year-on-year increases. Increases to the Chairman’s fee, board fees and several committees have been proposed at between 5,3% and 16,1%. We have also aligned all committee chair premiums to 2,5 times the member fee. The proposed fees for 2016 are also set out in our notice of AGM, for voting by our shareholders. The proposed increases to board fees represent a total increase in the cost of operating the board of 10,6%. 2016 (R) 2015 Proposed (R) %

Boards Chairman of the board 5 000 000 4 750 000 5,3 Lead Independent Director premium 40% of board fee 40% of board fee Nedbank Group Ltd 245 000 220 555 11,1 Nedbank Ltd 205 000 184 525 11,1 Committees Group Audit Committee Chair 650 000 562 500 15,6 Member 260 000 225 000 15,6 Group Finance and Oversight Committee1 Chair – 55 000 Member – 27 500 Group Remuneration Committee Chair 350 000 312 500 12,0 Member 140 000 125 000 12,0 Group Risk and Capital Management Committee Chair 450 000 387 500 16,1 Member 180 000 155 000 16,1 Group Credit Committee Chair 500 000 475 500 5,3 Member 200 000 190 000 5,3 Group Directors’ Affairs Committee3 Chair 196 250 140 000 40,2 Member 78 500 70 000 12,1 Group IT Committee3 Chair 250 000 180 000 38,9 Member 100 000 90 000 11,1 Group Transformation, Social and Ethics Committee3 Chair 250 000 180 000 38,9 Member 100 000 90 000 11,1 Group Related Party Transactions Committee2, 3 Chair 75 000 55 000 36,4 Member 30 000 27 500 9,1 Details of the individual shareholdings of the non-executive directors are included on page 21 of the full online 2015 Remuneration Report. 1 The Group Finance and Oversight Committee was discontinued during 2015. 2 Fees for the Group Related Party Transactions Committee set at same level as previous Group Finance and Oversight Committee, increased by 9,1%, with adjustments to chair premium at 2,5 times. 3 Large increases for the chairs of these committees are as a result of the adjustments of the chair’s premium to 2,5 times the member’s fee, aligning to the chair’s premium paid for other committees.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 133 THE INVESTMENT CASE FOR NEDBANK GROUP

Our objective of building an organisation that optimises returns for all stakeholders and creates a sustainable future is enabled by an integrated approach to the economics of the business, environmental preservation, involvement in society and organisational culture.

Incorporating this approach, despite a volatile and uncertain environment, the group continues to offer qualities that we believe are attractive to investors. These include: Nedbank ■■ Worldclass governance underpinned Corporate and by an independent and diverse board striving to ensure value creation in a Investment sustainable manner for all Banking stakeholders. ■■ A wholesale-biased business model that differentiates Nedbank Group from peer banks and positions us well in a tough macro environment for consumers. We will continue to leverage our market-leading ■■ Attractive returns [return wholesale and wealth businesses, on equity (ROE ) > 20%] while continuing to invest in growing with a sound risk profile. our retail franchise and to participate ■■ Market leader with strong sensibly in the long-term growth expertise and relationships in opportunities in the rest of Africa. commercial property finance ■■ Key strategic growth drivers, and corporate banking. appropriate for the expected ■■ Strong investment banking environment that will continue to growth prospects based on drive sustainable growth: client- specialist skills and centred innovation; growing the leadership in various transactional banking franchise; segments that leverage SA strategic portfolio tilt; optimise and infrastructure (eg R35bn invest; a pan-African banking network. renewables pipeline) and ■■ A strong balance sheet and development opportunities in defensive investment the rest of Africa. characteristics, given the well- ■■ Recently integrated cluster regulated banking sector in SA. to deliver improved client ■■ An experienced and well-respected service, better management team. You may be interested in: business‑coverage model to ■■ A differentiated, values-based culture unlock further revenue and high levels of staff morale. Delivering our strategy through our (including transactional business clusters ■■ banking) growth Valuation metrics at levels similar to 42 and 43 those during the global financial opportunities and fully utilise crisis (price to book) and attractive the scale of the integrated Delivering consistently to our shareholders balance sheet. dividend yield. 63–65

Nedbank Group – Integrated Report 2015 134 ENSURING VALUE CREATION Price to book RATIO Nedbank dividend yield (Times) (%)

2,5 8

2,0 Nedbank 5,86 Retail and 6 Business 1,5 1,20 Banking 4

1,0

2 0,5

■■ A differentiated and decentralised business bank 0 0 that responds quickly to new 05 06 07 08 09 10 11 12 13 14 15 05 06 07 08 09 10 11 12 13 14 15 opportunities and emerging risks. ■■ A client-centred, risk- ■■ A continuously increasing ROE in Retail, (2015: 15,3%) now mitigated, capital-efficient above the group’s COE. strategy. ■■ Significant investment since ■■ Client access to the largest 2009 in retail outlets (+ 30%), pan-African geographical ATMs (+ 99%), new client footprint. value propositions, mobile and ■■ Strategic partnership with digital banking; and market- Ecobank, providing access to leading innovations, which West and Central Africa. Our enabled sustained growth into 20% shareholding mitigates the future. risk through diversification. ■■ Strong market share in the ■■ Significant investment in the used-vehicle finance sector – Southern African positively correlated to tough Development Community economic cycles. region – acquired 38% of ■■ Continued strong main banked Banco Único in Mozambique, client gains (7,6% compound with pathway to control. annual growth rate since Investing in subsidiaries to 2009), driving transactional create scale and grow the revenue growth. Nedbank client base – increased ■■ Prudent credit extension over outlets and ATMs, expanded the past few years, particularly Rest of Africa product offering and in home loans and personal implementing a new core loans, mitigating the downside banking system. Targets risk in a tougher ROEs well above COE in the macroeconomic environment. long term (2015: 10,2%).

■■ High growth potential, high-ROE business (ROE > 40%), contributing significantly to group EP. ■■ Top-tier, high-net-worth bank and wealth provider with strong track Nedbank record, enviable client base and repositioned brand. Wealth ■■ Unique Best-of-BreedTM offering and consistent ranking among top three in independent asset management rankings for seven consecutive years. ■■ Insurance business with significant scope for increasing new-product penetration and further cross-sell into the Nedbank client base of 7,4m.

Nedbank Group – Integrated Report 2015 ENSURING VALUE CREATION 135 Company details

Nedbank Group Limited Instrument Codes Incorporated in the Republic of SA Nedbank Group ordinary shares Registration number 1966/010630/06 Company Secretary: TSB Jali Reg no: 1966/010630/06 Registered address JSE share code NED Nedbank 135 Rivonia Campus, 135 NSX share code NBK Rivonia Road ISIN ZAE000004875 Sponsors in SA: Merrill Lynch SA (Pty) Sandown, Sandton, 2196, SA Ltd PO Box 1144, Johannesburg, 2000, SA Nedbank Corporate and Investment Transfer secretaries in SA Banking Computershare Investor Services (Pty) Ltd Sponsor in Namibia: Old Mutual Investment Services (Namibia) 70 Marshall Street, (Pty) Ltd Johannesburg, 2001, SA PO Box 61051, Marshalltown, 2107, SA Nedbank Limited non-redeemable non-cumulative preference shares Namibia JSE share code NBKP Transfer Secretaries (Pty) Ltd ISIN ZAE000043667 4 Robert Mugabe Avenue Windhoek, Namibia PO Box 2401, Windhoek, Namibia

This announcement is available on the group’s website at nedbankgroup.co.za, together with the following additional information:

■■ Financial results presentation to analysts. ■■ Link to a webcast of the presentation to analysts. For further information please contact Nedbank Group Investor Relations at [email protected].

Nedbank Group – Integrated Report 2015 136 Disclaimer Nedbank Group has acted in good faith and has made every reasonable effort to ensure the accuracy and completeness of the information contained in this document, including all information that may be defined as ‘forward-looking statements’ within the meaning of US securities legislation. Forward-looking statements may be identified by words such as ‘believe’, ‘anticipate’, ‘expect’, ‘plan’, ‘estimate’, ‘intend’, ‘project’, ‘target’, ‘predict’ and ‘hope’. Forward-looking statements are not statements of fact, but statements by the management of Nedbank Group based on its current estimates, projections, expectations, beliefs and assumptions regarding the group’s future performance. No assurance can be given that forward-looking statements will prove to be correct and undue reliance should not be placed on such statements. The risks and uncertainties inherent in the forward-looking statements contained in this document include, but are not limited to: changes to International Financial Reporting Standards and the interpretations, applications and practices subject thereto as they apply to past, present and future periods; domestic and international business and market conditions such as exchange rate and interest rate movements; changes to the domestic and international regulatory and legislative environments; changes to domestic and international operational, social, economic and political risks; and the effects of both current and future litigation. Nedbank Group does not undertake to update any forward-looking statements contained in this document and does not assume responsibility for any loss or damage whatsoever and howsoever arising as a result of the reliance by any party thereon, including, but not limited to, loss of earnings, profits, or consequential loss or damage.