Nedbank has released results for the year ended December 2021. Naturally, this was a much happier year for Nedbank than the year before.

The commodity cycle pulled our economy through a tough time, which has knock-on benefits for the big banks. There’s no escaping it – their fortunes are largely dependent on South Africa’s overall prospects. Nedbank has a particularly important property division, so that exposure would’ve felt a lot more comfortable in 2021 than in 2020.

Interestingly, demand for corporate credit picked up in the second half of the year. Companies peaked their heads out and started borrowing again, after individual borrowers kept the banks busy for the first half of the year.

Headline earnings in 2021 jumped 115% to R11.7 billion thanks to the extremely weak base year. The critical point is that headline earnings is 7% lower than 2019 levels, so we aren’t out of the woods yet. From a balance sheet perspective, the bank is stronger than pre-Covid levels on important metrics like common equity tier 1.

The improvement was driven by lower impairments, better margins and tight cost management. The investment in ETI in Africa also performed better in this period. The credit loss ratio of 83bps is within the through-the-cycle target of 60 – 100bps. Performance has also been supported by significant expense savings through improvements in technology.

Other important measures include growth in operating profit of 9%, a positive JAWS performance of 0.8% (the difference between income growth and expenses growth), an 11% increase in net asset value per share and an improvement in return on equity to 12.5%.

With an expectation of just 1.7% GDP growth in 2022, the easy part of the recovery is behind us. The bank will focus on increasing return on equity to over 15% and decreasing the cost-to-income ratio to below 54%.

For now, shareholders can hang their hats on 2021 HEPS of 2,410 cents and a full year dividend of 1,191 cents, of which 758 cents has been declared as the final dividend.

The net asset value is 20,493 cents, so the bank is now trading at a 5% premium to its book value. This is the reward given by the market when a bank generates attractive return on equity.