Nedbank Corporate and Investment Banking (CIB) managed to grow its property finance book R13.5bn year-on-year becoming the main driver of Nedbank Group’s earnings growth over the past financial year, delivering some 53% of the group’s total earnings over the 12 months of 2016.
Of the more than R6bn in headline earnings of the CIB business achieved, the Property Finance division contributed around R1.54bn, continuing the strong growth trend it has entrenched over the past three years.
Robin Lockhart-Ross, Managing Executive of CIB: Property Finance, says while the results achieved by Property Finance in 2016 are strong in their own right, there is far more to their performance than just another solid set of top-line figures. In this regard, he points to the R13.5bn year-on-year book growth achieved by the business without any sacrifice of credit quality – as evidenced by the low ratio of defaulted loans to total book of under 1% at 2016 year-end and the favourable credit loss ratio of only 4 basis points for the 2016 financial year.
“Property Finance’s performance for 2016 is especially pleasing given the already high base off which our results were achieved,’ Lockhart-Ross points out,’ so while our actual growth of 11% may not have been the highest amongst our peers for the period, the fact that we grew our advances book above the market average of 9.8% while also maintaining our market-leading share of the SA commercial property finance market, is testament to the strength of our business model, the talent and commitment of our people and the depth of our longstanding client relationships,” Lockhart-Ross says.
He points to these strong client relationships as the cornerstone on which CIB Property Finance intends maintaining its competitiveness in the challenging years to come. “In an environment of slowing deal flow and fierce competition, trust-based relationships are vital for developers, investors and financiers alike,” he explains. He says the fact that CIB Property Finance enjoys outstanding relationships with its clients, which it banks across their portfolios, rather than merely lending on a project-by-project basis, means “we are very well positioned to continue garnering a good proportion of the deals that come available in the market.”
That said, Lockhart-Ross remains realistic about the SA commercial property market and CIB Property Finance’s book growth prospects in 2017. “While we have a solid approved deal pipeline of around R60bn already in place for the coming year, we recognise that our advances growth and earnings performance are very much linked to the still challenging economic environment, coupled with the inevitable margin pressures that will be felt due to the increased capital and liquidity costs of the Basel III implementation,” he says. “However, we are confident that our projected advances growth figure of around 8% for the coming year is realistic and achievable, and our hope is that recent history will again repeat itself and that we will outperform this target.”
Asked about the prospects for particular property sectors in 2017, Lockhart-Ross expresses relative optimism across the board, but recommends caution regarding growth prospects within the office and retail segments where, he says, there are looming if not already existing oversupply. “While there will still be good opportunities in these sectors for discerning developers and investors, a greater likelihood exists that we will see the relatively good run in upmarket residential properties, affordable housing and student accommodation continuing for the foreseeable future.”