MANAGING a BANK in TESTING TIMES 16Th UBS Annual Financial Services Conference, October 2013 “Ben Promised Me the Debt Ceiling Was the Least of My Problems”

Home , Nedbank

NEDBANK GROUP MANAGING A BANK IN TESTING TIMES 16th UBS Annual Financial Services conference, October 2013 “Ben promised me the debt ceiling was the least of my problems”

2 Agenda: Testing Times

. What is our current macro outlook?

. The state of the environment

. What does ‘Testing Times’ mean for banks?

. The Cs of uncertain & ‘Testing Times’ in banking

3 How testing are the times?

SA GDP (Q-o-q % - SAAR)

10 Low GDP growth & 8 outlook muted: 6 2013: 2,0%

4 2014: 2,9%

-2

-4

-6

-8

-10 80 85 90 95 00 05 10

4 How testing are the times?

Prime interest rate (%)

21 Interest rates at 19 40-year lows:

17 Increase 50bps 15 in Q3 2014

7 80 85 90 95 00 05 10

5 How testing are the times?

Consumer indebtedness (%) Personal debt as a % Interest service costs as % of PDI (ISR) of disposable income Consumers remain 90 18 highly indebted 80 16

70 14 Nedbank adjusted ISR reflects: 60 12 . Mix changes 50 10 . Pricing changes

40 8

30 6 2013-2015: Debt levels remain elevated 20 4 80 85 90 95 00 05 10 Household Debt as % of PDI Debt Service Cost to PDI SARB new calc Nedbank new calc

ISR threshold 6 How testing are the times?

Private sector credit extension (% growth) 40

25 Muted credit growth, 20 particularly retail

15 2013: mid to upper single digit growth 10

-5 80 85 90 95 00 05 10

7 How testing are the times?

Large SA capital project schedule (R billion - constant 2012 prices)

800

Despite R3 trillion potential by 2030, 600 announced projects at multi-year lows post the Soccer World Cup 400

200

0 93 95 97 99 01 03 05 07 09 11 13* Private Sector Public Sector

*The 2013 figure is value of projects announced in the first half of the year – annualised Note: R3 trillion potential announced projects sourced from 2013 Budget Review document 8 Looking at all the macro data, we can create an index reflecting the state of the SA environment

. Modelling of systemic credit risk Macroeconomic factors incorporating macro-economic state utilised in stress testing (Mc): . Multiple macro-economic factors used . Real GDP growth . Incorporates sensitivity of different . Prime interest rate portfolios as they respond differently to the . 10 year interest rate macro-economic state . 0 - 3 year interest rate Mc . Translated into probability of occurring (1- . Property price index in-N year event) . Household debt to disposable income ratio − Global financial crisis impact on SA’s own recession equates to approximately . JSE index* a 1-in-15 year event . CPI index* . Credit growth* . Other factors used in stress testing of other risk types

9 The index, relevant for banks, shows how testing the times are

Macroeconomic state of SA for systemic credit risk (Probability of 1-in-N year event)

25 Mild stress + 20 or 15 1987 Black Monday 1997 SE Asia Global Market crisis Financial crisis The new normal? 10

5 • Volatile • Uncertain ‐ • Complex ‐5 1999 Dot‐com • Ambiguous Bubble Probability of 1-in-N year event year of 1-in-N Probability ‐10 ‐ ‐15 1994 2008 Mexico crisis Financial crisis ‐20 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15

* Also known as Mc model (Macro economic state of the world model) 10 So what are some of the implications for banks?

More Lower capital, liquidity & growth provisions

Increased Changing regulatory client needs & burden behaviours

Need for agility Increased & competition Understanding different outcomes

11 So what are some of the implications for banks?

European & US Global Bank ROEs (%) SA Bank ROEs (%)

Pre‐crisis Recession Recovery New normal 30

19,3% 25 17,9% 20 15,0% 15 9,2% 9,8% 8,3% 10 7,6% 5,0% 5

1,2% 0 05 06 07 08 09 10 11 12 H1 '13 05 06 07 08 09 10 11 12 13 Nedbank excl GW ABSA (BGA) Standard (Banking) FirstRand

“Global banks have to adjust to a period of Nedbank Group medium to long term ROE low ROEs - 12% will be a good but stretching (excl. goodwill) target is CoE + 5% target” (from CoE +10% pre-crisis)

Source: Accenture, Nedbank analysis 12 The Cs of uncertain & testing times in banking

Capital

Clients Cash

Culture

Costs Credit

Collectively all of these create… Credibility

13 Capital

Clients Cash Capital – SA banks well positioned Culture

Costs Credit

Average risk weight vs Basel III CET1 ratio (%, as at 31 Dec 2012)

80% Median: 9.4% Low capital ratios Well Capitalised & & high risk weights high risk weights 70% Standard Bank

RBI FirstRand

RBS UBI Banca 60% NBG HSBC InvestecNedbank ABSA UniCredit Ltd HSH Nordbank BBVA Erste Bank BAWAG Intesa Standard Chartered 50% CaixaBank KBC Group BMPS Banco Popolare Santander Median: 44.5% Lloyds CA Group BNP Paribas Barclays Commerzbank Gpe BPCE 40% NordLB DNB SocGen Helaba BayernLB

Average RW Average LBBW Nordea ING Bank Natixis ABN AMRO LB Berlin Holding Credit Suisse Rabobank SEBAareal 30% Deutsche Postbank DZ Bank UBS Danske Deutsche Bank Swedbank Dexia SNS DekaBank Handelsbanken 20%

Low capital ratios WellWell capitalised capitalised and & & low risk weights low lowrisk risk weights weights 10% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% Basel III CET1 Ratio France Benelux Ger/Au/CH Nordic UK Spain Italy South Africa Greece

Source: Goldman Sachs from company reports Note: Average risk weight = Total risk weighted assets/total assets excluding derivatives & insurance assets 14 Capital

Clients Cash Capital – NAV growth the key focus Culture

Costs Credit

Nedbank NAV per share & growth Dividend cover ratio (Rbn, %) (x) 2,25 – 2,75x 9,3% 9,7% 9,4% 2,30 2,30 2,29 8,0% 12180 11721

6,8% 2,26

2,25 1,75 – 2,25x 13,4% 10753 9831 2,18 2,18 9100 8522 7513

2007 2008 2009 2010 2011 2012 H1 2007 2008 2009 2010 2011 2012 H1 2013 2013

15 Capital

Capital – Nedbank well positioned Clients Cash Culture

under Basel III Costs Credit

Contribution (%) Common equity tier 1 (%) Strong capital position B III target range: 10,5 – 12,5% . CET 1 above mid-point of target range B II target range: 7,5 – 9,0% enabling

. Lower dividend cover (dividend growth > HEPS 11,8%

11,4% growth) 10,5% 9,9% 10,1% 8,2%

7,2% and

. Testing times - the right time 2007 2008 2009 2010 2011 2012 H1 to have excess capital to 2013* exploit strategic investment opportunities eg Rest of Africa * Basel III

16 Capital Capital - Stress & scenario testing Clients Cash Culture

becomes very important Costs Credit

Scenarios* Purpose & outcome of stress testing

Positive (1-in-4) Mild stress (1-in-4)

2013 2014 2015 2013 2014 2015 . Tests capital adequacy under various stress CPI inflation rate 5.4% 5.1%CPI inflation 5.3% rate 5.9% 6.5% 6.2% Real GDP growth 3.5% 4.6%Real GDP 4.2%growth 2.1% 2.6% 2.8% Prime rate 8.2% 8.3%Prime rate 9.8% 9.2% 10.5% 12.4% scenarios 10+year interest rate 7.3% 7.8%10+year interest 8.1% rate 7.5% 8.4% 9.1% 0‐3 year interest rate 5.1% 5.5%0‐3 year interest 6.6% rate 5.8% 7.0% 8.4% JSE% change 14.2% 18.3%JSE% change 12.0% 8.0% 10.4% 7.2% Property price proxy %change 11.0% 12.9%Property price 7.2% proxy %change 1.5% 1.8% 4.5% . Shapes strategy – informs Portfolio Tilt decisions Householde debt to income rati Householde debt to income rati . Informs the management of our business o 73.1% 71.0% 68.5% o 75.8% 76.2% 76.5% Credit growth 10.5% 12.1%Credit growth 13.2% 8.2% 8.1% 8.6% . Informs our risk appetite High stress (1-in-10) Severe inflation stress . Regulatory requirement (Nedbank highly rated) 2013 2014 2015 2013 2014 2015 CPI inflation rate 6.5% 6.8%CPI inflation 5.9% rate 4.9% 4.5% 5.5% Real GDP growth 1.9% 2.1%Real GDP growth 2.2% (0.1%) (3.9%) 0.9% Prime rate 10.0% 13.3%Prime rate 12.8% 7.3% 6.5% 6.5% 10+year interest rate 7.8% 9.2%10+year interest 9.2% rate 7.3% 7.8% 7.9% 0‐3 year interest rate 6.4% 8.9%0‐3 year interest 8.7% rate 5.4% 5.9% 6.1% JSE% change 4.7% 6.1%JSE% change 4.7% (27.8%) (17.8%) 28.0% Macroeconomic state of SA for systemic credit risk Property price proxy %change 0.3% (3.9%)Property price 5.9% proxy %change (15.9%) (24.1%) (2.6%) Householde debt to income rati Householde debt to income rati (Probability of 1-in-N year event)

o 76.3% 77.0% 76.8% o 78.3% 79.2% 80.6% Credit growth 7.5% 6.4%Credit growth 7.5% 0.4% (2.1%) 4.0% +

Base case (Expected) - 2013 2014 2015 CPI inflation rate 5.9% 6.0% 5.9% Real GDP growth 2.0% 2.9% 3.1% Prime rate 8.5% 9.1% 11.0% 10+year interest rate 7.3% 7.9% 8.4% 0‐3 year interest rate 5.4% 6.0% 7.4% JSE% change 9.4% 12.2% 9.4% Property price proxy %change 8.3% 7.8% 4.4% Householde debt to income rati

o 73.2% 71.5% 69.5% Credit growth 9.9% 10.4% 11.5% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Probability of 1-in-N year event Probability of Positive scenario Mild stress High stress 1-in-25 year stress Severe inflationary stress Expected scenario

* Illustrative forecasts 17 Capital Capital - Stress & scenario testing Clients Cash Culture becomes very important Costs Credit

Nedbank Home loan market share & cyclical triggers

18.0 HL market share growth at wrong time 17.5 in cycle

17.0 • Strategic decision to shrink property 16.5 concentration risk

16.0 • Prefer CPF over HL 15.5

Danger- reduce market share 15.0 Neutral- caution, consider tightening/loosening Safe - lend Nedbank 14.5 04 05 06 07 08 09 10 11 12 13

18 Capital

Clients Cash Cash – Nedbank’s liquidity sound Culture Costs Credit

Nedbank LT funding ratio (%) Contribution (%) Surplus liquid assets (Rbn) Sound liquidity Rbn % 35 28,0% 30% . Closed SA funding system 26,0% 30 25,0% 24,0% 25% . Pro-forma LCR compliant 24,4 25,0 25 23,7 21,0% 20% . LT funding ratio top-end of 20 14,9% industry 15% 15 . Surplus liquidity adds to 10% interest rate risk & requires 10 6,0 6,0 6,9 6,3 appropriate hedging 5 5% . Deposits a key focus area 0 0% 2007 2008 2009 2010 2011 2012 H1 . NSFR under Basel review Surplus Liquid Assets 2013 Three-month average long-term funding ratio

19 Capital

Clients Cash

Credit – impairments under IFRS most Culture volatile driver of profits Costs Credit

SA Bank impairments / NII (%) 50% 39,0% 33,5% 27,8% 26,4% 22,1% 25,3% 25% 17,6% 14,0%

0% SA Banks SA Banks’ key income statement drivers (indexed to 2006) 2006 - H1 2013: 500 Total R175bn 400 380 impairment charge 300 201 200 180 170 100

0 2006 2007 2008 2009 2010 2011 2012 H1 2013 NII Impairments NIR Expenses Note: SA Banks include Standard Bank, ABSA (BAG), FirstRand and Nedbank 20 Capital

Clients Cash

Credit – prudent provisioning, ahead of Culture the curve Costs Credit

Nedbank Group total & specific coverage (%) Nedbank Group post write-off recoveries (Rm) 428 58,8% 412 52,9% 45,4% 290 38,6% 249 35,9% 198

39,0% 40,9% 28,0% 31,6% 35,8%

H1 H1 H1 H1 H1 H1 H1 H1 H1 H1 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013

Nedbank Retail portfolio impairments 2,4 Rbn 2,3 Home Loans 1,7 0,7 0,7 Other Retail 1,3 0,6 Personal Loans 0,9 0,9 0,5 1,0 1,0 0,5 0,3 0,3 0,8 0,3 0,4 0,7 0,2 0,3 0,5 0,6 0,8 0,1 0,0 0,1 0,2 0,1 0,1 0,3 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1 Performing book (%) 0,1 0,1 0,4 0,6 0,5 0,8 1,0 1,2 1,3

2005 to 2009 numbers exclude MFC 21 Capital

Clients Cash

Credit – selective retail growth & Culture better pricing Costs Credit Retail asset pay-outs YTD book Client premium relative to Rbn growth1 Prime2 % % 27,1 25,4 24,8 Personal (5,8) 11,2 13,0 14,9 7,5 4,0 Loans 8,0

14,7 14,0 10,6 2,42 2,49 MFC 12,1 2,36

Home 4,7 4,9 5,3 (1,8) Loans 0,48 0,51 0,65 Other 0,5 0,8 0,7 H1 H2 H1 H1 H2 H1 2012 2012 2013 2012 2012 2013

1 Annualised based on net advances 2 Home loans excludes staff and re-advances 22 Capital

Clients Cash

Credit – selective wholesale growth Culture

with good risk metrics Costs Credit Wholesale asset pay-outs YTD book Credit loss ratio Rbn growth1 % %

51,5 0,37 0,38 0,24 45,6 9,9 (1,0) 39,3 8,8 CPF 5,4 0,59 0,31 0,42 Corporate 30,3 22,4 & Capital 26,7 banking 24,9 book 1,02

First Strut 0,41 0,28 BB 9,0 10,1 11,3 9,1 0,43 H1 H2 H1 H1 H2 H1 2012 2012 2013 2012 2012 2013

1 Annualised 23 Capital

Clients Cash Costs – investing though cycles Culture Costs Credit

Operating expenses excl incentives (Rm) GDP (%)

20 000 6.0%

15 000 4.0%

10 000 2.0%

5 000 0.0%

‐ ‐2.0% 2006 2007 2008 2009 2010 2011 2012 Expenses (excl incentive costs) GDP Training spend % of payroll 2,7% 2,0% 4,1% 4,3% 3,6% 4,0% 4,0% Computer amortisation & 656 719 745 796 833 894 888 depreciation (Rm) ATMs 1 286 1 636 1 747 1 853 2 183 2 572 3 048

Outlets 483 518 486 543 639 694 758 24 Capital

Clients Cash

Costs – positive delta between NIR Culture & cost growth Costs Credit

Nedbank NIR & expenses growth (%) NIR & expenses growth 20% (2007 to 2012 CAGR %) CAGR (2009 to H1 2013*) 16% 12,5% 10,6% 12,3% 12% 8,8% 8,3%

8% 9,2% 5,7%

0% 2009 2010 2011 2012 H1 Nedbank Peer average 2013 (excl Nedbank) Jaws: 1,1% 1,1% 2,6% 3,9% 7,4% 1,8% (2,6%)

NIR NIR excl FV Expenses NIR Expenses

* H1 2013 annualised on 2009 FYE 25 Capital

Clients Cash Clients – investing for the long-term Culture Costs Credit

Growth in distribution… … to the branch of the future Video wall Branches & Outlets1 40% (#) increase

758 762 543 190 190 Alternate 75 outlets 468 568 572 Sales pods Branches Intelligent 2009 2012 H1 2013 depositor

72% ATMs increase (#) Internet stations

3048 3182 1853

2009 2012 H1 2013 Kid Zone Video banker 1 Excludes Personal Loans kiosks (2009: 250 & 2012: 313). Growth is from 2009 year end levels 26 Capital

Clients Cash

Clients – innovation that makes Culture a difference Costs Credit

The rate of Nedbank’s commercial innovation has increased strongly since early 2012

Best Consumer Android App 2013 MTN Awards

Nedbank & Ecobank Alliance 2010 Most Innovative Bank of the Year African Banker Awards Innovations

2009 2010 2011 2012 2013 27 Capital

Clients Cash

Clients – more clients, increased Culture cross sell Costs Credit

Client growth Clients with 2+ Products (‘000) (‘000) 12,1% 628 15,8% 585 571 2701,3 15,0% 1 554 7,1% 88 1 386 182 1 197 358 1 041 854 792 95 384 720 202 299 Middle/ 609 Middle/ RRB3 RRB3 39 161 552 105 466 ELB ELB 349 381 102 104 99 Youth 58 119 140 Youth 73 91 2010 20112012 20122 2013 2010 2011 2012 2013 % of total Total 4,380 5,008 5,593 6,164 24,4 23,8 23,9 24,8 25,2 Clients1,2 client base H1 H1

1 2011 includes 270K clients acquired as part of MFC 40,7% including 2 Acquired approximately 49k customers from Ackerman’s base (Jan’12) Bancassurance products 3 The majority of MFC clients fall in the middle market, increasing the base of clients with a single product holding 28 Capital

Clients Cash Culture – a key differentiator Culture Costs Credit

Key take-outs

. “The problems… are to some extent industry issues”

. “Trust takes decades to build… yet can be destroyed quickly”

. “Culture… if left to its own devices shapes itself, with inherent risk… and not be those desired”

. “…there was an overemphasis on short-term financial performance”

. “Some banks and bankers have lost any sense of social responsibility”

29 Capital

Clients Cash Culture – a key differentiator Culture Costs Credit

Nedbank Group’s top 10 current Nedbank Group cultural entropy (%) culture values

Accountability 25% Client satisfaction

Client-driven 19% 17% Brand reputation World‐class = 10% 14% Teamwork 13% 13% 11% 11% Environmental awareness 10% Employee recognition Performance driven Community involvement 2005 2006 2007 2008 2009 2010 2011 2012 H1 People-centred 2013

The right people in the right roles consistently – “Cannot have the rabbit guarding the cabbage patch”

30 Capital

Clients Cash Compensation – focus on the long-term Culture Costs Credit

Fixed remuneration increases skewed to non-management (2-3% higher ASR)

Growth in short-term incentives (%) Long-term incentive (Rm) 40% 500

400 20% 300 0% 200

-20% 100

-40% 0 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 2011 2012

. No direct line of sight . 50% performance based (3 years) . Driven by HE & EP growth − External: Relative to FINI 15 . Includes non-financial modifiers eg client − Internal: ROE excl GW target satisfaction, culture metrics, transformation − Sliding scale 0 - 120% . Deferrals (6, 18 & 30 months) linked to share . 50% time based: only vests after 3-years price & includes forfeiture test

STI & LTI discretionary | Remco: 3 independent directors & 1 non-exec

31 Capital

Clients Cash Credibility – no surprises Culture Costs Credit

Reality > 1 Expectation

. Collectively created by all the Cs . Continuity of management . Clear & credible strategy . Consistent quality disclosure/ transparency . Clear market guidance

32 A last thought… Common sense

33 Conclusion

. “Testing times” - the new normal . Nedbank continues to be well positioned - prudent with good growth prospects

. Prudence: − Capital: strongly capitalised, able to exploit opportunities − Cash: sound liquidity − Credit: selective growth while prudently provided − Costs: well managed while investing for the future & generating good NIR growth

. Growth prospects: − Clients: more clients choosing to bank with Nedbank, as we improved access, are more innovative & competitive, & expanding into Rest of Africa

. Our Culture is a key differentiator, Compensation drives sustainable behaviour & maintaining Credibility is a key focus

34 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 United States 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 IFRS 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 in 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 n limited to, loss of earnings, profits, or consequential loss or damage.